Cheap ETFs attract more subscribers

When choosing between two exchange-traded funds that follow similar themes or markets, long-term investors are increasingly turning to the cheaper options.

For example, the much observed and still very popular SPDR S&P 500 ETF Trust (SPY) remains an essential investment option for gaining broad exposure to US stock markets. However, SPY has suffered some $25 billion in outflows since the start of the year, according to Bloomberg.

During this time, the SPDR S&P 500 ETF Portfolio (SPLG) attracted just over $3.0 billion in net inflows, with just 32 days of redemptions.

While both ETFs track the S&P 500 Index, SPLG comes with an expense ratio of 0.03% and SPY has an expense ratio of 0.0945%.

Changing ETF fund flows are also seen with other similar ETF products that track the same benchmarks. For example, the Invesco QQQ Trust (QQQ), a popular game to track the tech-heavy Nasdaq-100, has seen nearly 70 days of outflows year-to-date. During this time, the Invesco NASDAQ 100 ETF (QQQM) only saw 20 days of redemptions. Nonetheless, both QQQ and QQQM have seen positive net inflows so far in 2022.

QQQ has an expense ratio of 0.20%, compared to QQQM’s expense ratio of 0.15%.

“For a retail or purely buy-and-hold investor looking for a longer-term position, cheaper ‘mini’ ETFs that offer identical access make a lot of sense because they don’t have to spend more for that massive liquidity. Cinthia Murphy of ETF Think Tank told Bloomberg.

When it comes to long-term investments, the fund’s expense or expense ratio plays a more important role for buy-and-hold investors, particularly due to compounding effects over time. With lower expenses, investors can save more over the long term, which translates to better long-term performance between two identical fund strategies.

However, some investors still choose to stick with the higher and more expensive SPYs and QQQs due to their high liquidity, which is much more convenient for large or institutional-sized traders who trade online. fast blocks to enter and exit the market in an efficient manner, often on an intraday basis.

“SPY is the most liquid security on the planet,” said James Seyffart of Bloomberg Intelligence. “You add the options and futures and everything,” Seyffart added, “and nothing else comes close.”

“At first glance, it may look like you’re just launching a clone of an older fund with a lower expense ratio because people are complaining about management fees. That’s usually not the whole story,” Jason Bloom, head of bond and alternative ETF strategies at Invesco, told Bloomberg. “It will take many years to build assets under management to levels that could be comparable to those of the old fund. So the old fund can have a much deeper liquidity profile and it will still be relevant.

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