The universe of exchange-traded funds continues to expand and evolve, making it more complicated to invest with ETFs and creating more demand for tools that help investors navigate the sector, according to Aniket Ullal, head of ETF data and analytics at the independent research firm CFRA.
There are now more than 3,100 ETFs with a total of nearly $7 trillion in assets, and evaluating the universe is an enormous challenge for even well-resourced and sophisticated investors, Ullal said. The number of ETFs is growing, and more ETFs are actively managed, which means that investors must evaluate their choices more closely and frequently, he added.
In response, existing service providers, such as Nasdaq, are expanding and improving their suites of ETFs tools. And last year, a group of media brands and data and index providers merged to create the ETF-focused VettaFi.
On Tuesday, CFRA launched a new tool of its own called FUNDynamix, which allows users to access timely data and analysis for all U.S. ETFs. CFRA has offered data and analytics to institutions since 2019, when it acquired First Bridge, an ETF data and analytics company founded by Ullal. But Ullal said that this new web-based tool will make ETF research much easier.
The ability to compare funds at a glance and dive deeper into their characteristics is valuable to portfolio managers and others at asset managers. Similar ETFs — even ones in the same category and from the same provider — can perform much differently.
Two of Vanguard’s large cap growth ETFs, for example, are a good case in point: The Vanguard Growth ETF (ticker: VUG) is up 18.43 percent year-to-date, while the Vanguard S&P 500 Growth ETF (ticker: VOOG) is up 11.13 percent over the same period. Why? The answer lies in the benchmarks and underlying holdings.
In December, when S&P adjusted the weights of its S&P 500 Growth Index, VOOG suddenly had lower exposure to technology and a much higher exposure to other sectors, such as energy, which dragged down its performance, Ullal noted.
“S&P’s growth methodology emphasizes price momentum,” he explained. “Technology had very poor price momentum in 2022, [while] energy had extremely good price momentum. So they ended up with a much lower weight to technology and a much higher weight to energy than they’d had in the past,” he said. (Before he started First Bridge, Ullal worked for S&P Dow Jones Indices, where he was the head of U.S. equity index products, including the S&P 500 and S&P/Case-Shiller indices, two of the world’s most widely followed financial indices.)
According to Ullal, this is the kind of information that portfolio managers want at their fingertips, which is why CFRA created FUNDynamix.
“From the investor’s perspective, this is a pretty significant development, right? Is growth doing well or is value doing well? It’s kind of a very fundamental question investors ask in any market environment. The fact that you’re going to have such different answers, depending on which index you use, is a pretty significant thing for both institutional and retail investors,” Ullal said.
ETF developers at asset managers might be interested in learning the underlying holdings of funds with the same strategy, as well as their growth trajectory. As an example, Ullal pointed to the growth of two quality-factor ETFs, the Pacer US Cash Cows ETF (ticker: COWS) and BlackRock’s iShares MSCI USA Quality Factor ETF (ticker: QUAL). While COWS grew rapidly but steadily over recent years, QUAL spiked, likely due to changes that BlackRock made to model portfolios.
“Both [are] fast-growing ETFs in a space that has attracted significant interest, but [they followed] very different trends in how their assets grew,” Ullal explained. “QUAL literally had a two-day spike where the ETF took in over $4 billion in new flows practically overnight.”
FUNDynamix currently only includes data and profiles for U.S. ETFs. However, CFRA has the underlying data for all ETFs globally and expects to add them in phases over the coming months.
