Early Wrap-Up of Key ETF Trends From 2023

It’s exciting times in the ETF industry. For example, we might be headed for a photo finish in the ETF leader board. As of December 15, two ETFs stood above the rest. The Vanguard S&P 500 ETF (VOO) hoovered in $39.5 billion of new money in 2023, per VettaFi’s LOGICLY data.

Right behind VOO was the iShares Core S&P 500 ETF (IVV). The fund gathered $35.4 billion. Both ETFs have a miniscule fee of 0.03% and are supporting many advisors allocating for 2024. Meanwhile, the SPDR S&P 500 ETF (SPY) pulled in $13 billion. Its institutional appeal could help it quickly narrow the gap by yearend.

I’d hate to have a friendly wager on which ETF will win the race since I think it could come down to the final day of trading. However, I’m feeling more confident in the steak dinner bets I have with ETF industry colleagues. More on that in bit.

Smart Beta ETFs Offered an Alternative to Many

While broad market-cap-weighted ETFs were most popular, there were some smart beta ETFs gaining traction in 2023. For example, the iShares MSCI Quality ETF (QUAL) already added $11 billion of new money this year. This ETF owns companies with strong financial profiles like Eli Lilly and Visa.

In 2023, the Invesco S&P 500 Equal Weight ETF (RSP) gathered $10 billion. This ETF owns the same stocks as IVV, SPY, and VOO. However, RSP is much more diversified at the stock level. Apple and Microsoft shares represent less than 1% of assets after rebalances. RSP’s recent 12% total return significantly lags VOO’s 25% gain, but many advisors have looked for a less concentrated approach for the year ahead.

Meanwhile, the Invesco Russell 1000 Dynamic Multifactor ETF (OMFL) added $2.6 billion. It rotates exposure to factors — value, momentum, quality, low volatility and size — based on economic and market conditions. OMFL was recently up 19% for the year.

These are index-based ETFs, but we covered growing demand and supply of active equity ETFs in recent pieces.