The Most Popular ETFs of 2019

As passive investing continues to gain popularity, there has been a large dispersion witnessed in the market share of specific ETFs.

The largest ETFs have ballooned in size. As an example, the SPDR S&P 500 ETF Trust (SPY) currently has $310 billion of assets under management. That’s roughly equal to Bank of America’s (BAC) market capitalization.

At the other end of the spectrum, there is a swath of ETFs with very little in assets under management.

Size dispersion helps us understand where investors are placing their money. What assets under management does not tell us is what investors are interested in or what the forward-looking trends will be.

Fortunately, there exists an alternative for measuring the popularity of various ETFs. Lara Crigger from ETF.com recently published an article titled “Most Searched ETFs of 2019” which summarized the ETFs on ETF.com that generated the most search traffic last year.

ETF.com is a large enough website that it can serve as a proxy for the broader passive investor community. In this article, we’ll use the search traffic data from ETF.com to present the 10 most popular ETFs of 2019.

The popularity of the Vanguard Real Estate ETF in 2019 is not surprising. While this trend seemingly flew under the radar, the real estate sector was actually one of the best-performing sectors of the S&P 500 last year. More broadly, REITs were actually the second-best performing asset class behind large cap stocks.

Novel Investor Asset Class Returns TableSource: NovelInvestor.com

Why is this? Two factors punished the sector in late 2018. As investors may recall, the fourth quarter of 2018 was one of the worst periods in many years. Real estate securities in particular were pumelled due to a combination of slowing economic expansion and rising interest rates (real estate stocks are typically highly leveraged and very sensitive to changing interest rates).

Neither of those trends continued into 2019, causing the index to bounce and its interest from the investor community to surge as well.

The iShares Core S&P 500 Index is one of three S&P 500-benchmarked funds to make this top 10 list. If you look at the market’s behavior over the last decade, it is easy to see why.

Through the end of calendar year 2019, the 10-year annualized return of the S&P 500 was 11.2%, which is within the 83rd percentile of 10-year returns since the index’s inception. For context, the S&P 500’s 10-year annualized return has ranged from 16% in 1998 to as low as -5.9% in 1938 (in the years following the Great Depression).

What this means is that the surge of interest (and investment into) S&P 500-benchmarked index funds is a form of performance chasing. Investors want exposure to the asset class that has had the best recent returns. When the S&P 500’s remarkable run inevitably mean reverts and returns turn lower, interest in this fund (and its two counterparts discussed later in this article) is sure to drop.

The Invesco S&P 500 High Dividend Low Volatility ETF is popular among retirees and other conservative, income-oriented investors. Its high search traffic last year was not surprising: investors were starved for yield in 2019, which is a trend that continues today.

For instance, the current dividend yield of the S&P 500 is about 1.8%. Its mean dividend yield since inception has been 4.3%, which is also equal to its median value. Either way, the ‘normal’ historical level for the S&P 500’s dividend yield has been more than double the index’s current dividend yield.

Why is its yield so low today? It is a combination of two factors.

First, the S&P 500’s valuation is much higher than historical norms, which has pushed its dividend yield down as well. The S&P 500’s current price-to-earnings ratio is 24, up significantly from its historical mean of 15.8.

Second, companies are increasingly favoring methods other than dividends for returning cash to shareholders. Share buybacks are rising in popularity among corporate capital allocators. This makes sense - they are more tax efficient. Still, this has the effect of pushing yields down and making high-yielding investments like SPHD increasingly hard to find.

The technology sector was the best-performing sector in the stock market in 2019. This matches the same number-one standing that the index earned in 2017.

Novel Investor Sector Returns TableSource: novelinvestor.com

It is not surprising that one of the most popular ETFs of 2019 turned out to be a passive technology ETF. XLK is actually the largest ETF when measured by assets under management with AUM of about $26.6 billion.

From the issuer’s website, the index’s benchmark is the Technology Select Sector Index:

“The Technology Select Sector Index seeks to provide an effective representation of the technology sector of the S&P 500 Index. The Index includes companies from the following industries: technology hardware, storage, and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components.”

If the robust performance of the technology sector continues, then it is likely that this ETF’s popularity will remain strong as well.

The Vanguard Total Stock Market ETF is a passive investor’s dream. According to Vanguard, it “seeks to track the performance of the CRSP US Total Market Index.” In other words, VTI provides vanilla exposure to the vast majority of publicly-traded stocks in the United States.

Given that this index is so broad, it may be surprising that it was so popular last year. We believe that there is no broad theme reflected here other than the continued rise in the popularity of passive investing. Index investing continues to gain steam - bringing broad-market ETFs like VTI plenty of assets under management (and Internet searches) along the way.

As we spoke about previously, high yields are increasingly difficult to find in today’s financial markets. The surge of assets into Vanguard’s High Dividend Yield ETF is evidence of this - the fund has approximately $30 billion in assets under management.

Looking ahead, we believe that the popularity of VYM (and SPHD, discussed previously) is likely to continue so long as equity valuations remain high and fixed income yields remain low (or, in some cases, negative).

The Vanguard S&P 500 ETF is the second of three S&P 500-benchmarked ETFs included in this list. It is also the smallest:

  • VOO: $131 billion in AUM
  • IVV: $201 billion in AUM
  • SPY: $310 billion in AUM

Source: ETFdb.com

Interestingly, VOO ranked higher than IVV in these rankings despite significantly higher AUM.

  • VOO: 0.03% expense ratio
  • IVV: 0.04% expense ratio
  • SPY: 0.09% expense ratio

Source: ETFdb.com

The largest of these three index funds also has the highest fee. This may be predictive of flows into these ETFs moving forward.

SPY is the largest ETF in the world when measured by assets under management. Along with VOO and IVV it is the third S&P 500-benchmarked ETF in this list.

We have already talked ad nauseum about the rise of S&P 500 index funds. Our main takeaway is that the popularity of this fund category is highly likely to decline once the S&P 500’s recent performance slows (which we view as highly likely).

MJ is the most popular marijuana ETF. It was also the first marijuana-focused ETF to launch in the United States. It’s early launch and memorable ticker have granted it significant mindshare among self-directed investors.

Like many other historical asset class bubbles, marijuana stocks enjoyed a spectacular rise and a dramatic fall. It is difficult to say at this point whether the industry is attractive for long-term investors, but if you’re looking for exposure to the space, MJ is an obvious choice.

While its name leaves much to be desired, the Invesco QQQ ETF is a passive investment fund designed to track the NASDAQ-100 Index.

Why was this generic index fund the most popular ETF on ETF.com last year? Again, it comes from the outperformance of technology stocks in 2019.

While the NASDAQ is technically just a ‘normal’ stock exchange and it is open to listing from any company, the stock exchange is certainly overweight technology stocks and biotechnology stocks.

The popularity of QQQ last year can be interpreted as investors seeking to track and participate in the continued strength of technology businesses in the United States. This fund’s popularity will likely decrease in the event that the technology sector slows its performance.

Final Thoughts

Examining the most highly-searched ETFs of 2019 is an interesting exercise.

With that said, it is also very short-term in nature. The popularity of specific ETFs will naturally wax and wane over time.

Other areas are bound to stay constant in investing. Low ETF management fees, periodic rebalancing, and a hands-off investment approach are cornerstones of our approach at Passiv. Try our community edition for free today and turn your brokerage account into your own personalized robo-advisor service now.

First published on January 8, 2020.