Equity ETFs are the oldest and largest sector of the ETF universe, and now account for over $600 billion in assets—or three out of every four dollars invested in ETFs.
Dozens of flavors of stock ETFs exist, offering exposure to everything from the S&P 500 to Chinese small-caps. But generally speaking, some of the most popular categories of stock ETFs include:
- Broad-based U.S. exposure
- U.S. size and style exposures
- International developed market stocks
- Emerging market stocks
- Single-country total stock market exposure
- Sectors (e.g., energy, technology, utilities), both domestic and international
- Stocks sorted by market cap
- Growth/value stocks
- Leveraged/inverse exposure
Despite the variety of options, however, most assets remain concentrated in broad-based stock funds, including those that use the S&P 500 Index to capture exposure to U.S. large-caps. The first ETF ever launched, the SPDR S&P 500 ETF (NYSEArca: SPY), also remains the largest in existence, with $77.8 billion in assets to date, while the iShares S&P 500 ETF (NYSEArca: IVV) comes in sixth, at $22.8 billion. Other popular broad-based funds track the Nasdaq 100, the MSCI U.S. Broad Market, and Russell 1000 indexes.
International stocks have also attracted significant asset flows recently, especially as the dollar's value has deteriorated and successful companies have increasingly taken their businesses overseas. A good example: the iShares MSCI EAFE Index ETF (NYSEArca: EFA), which tracks the popular international developed large-cap benchmark of the same name, and has more than $45 billion in assets under management.
Recently, funds dedicated to emerging markets have also begun to lure investors. Two ETFs tracking the MSCI Emerging Markets Index, the iShares MSCI Emerging Markets ETF (NYSEArca: EEM) and the Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO), have attracted more than $58 billion in assets between them. Even smaller emerging markets, like Peru or Colombia, as well as some frontier markets, have served as the basis for recent product launches.
Because equity funds remain the most mature (or at least well-traveled) asset class in the ETF industry, it may seem like there's little room for new ideas left in the space. Indeed, many providers increasingly have found themselves stretching into narrower and narrower niches to offer untapped market exposure, and several funds have already closed that were too narrow in scope to attract enough assets to survive.
That said, broad-based "traditional" stock ETFs are still being launched, particularly by the new institutional heavyweights now entering the space, like Charles Schwab and Old Mutual. These new funds often come parceled with discounts (or even exemptions) on brokerage fees for certain customers. It remains to be seen whether the low prices and name recognition can help these new products attract assets long term.
As the industry continues to mature, the most interesting new stock ETFs may not come from increased granularity (or a lack thereof), but from cleverer, better-constructed indexes.
For example, instead of using the commonly accepted market-cap weightings, some new ETFs track benchmarks that choose companies based on their fundamentals, such as revenue, income and dividend histories. Other ETFs use shorting or leverage strategies to provide outsized returns. There are even ETFs embracing a more active, quantitative stock selection strategy, akin to that of hedge funds.
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