With such heavy demand for U.S-listed ETFs this year, it was only a matter of time before last year’s annual inflows record of $287.75 billion would be shattered. That happened last week, as investors added $4.2 billion of new assets, bringing the year-to-date total to $289.4 billion, according to FactSet data.
And with more than four months to go in the year, trying to forecast a final number is difficult, since historically the fourth quarter sees the strongest inflows of the year.
Last week’s flows continued to hold patterns we have seen so far all year, as investors continue loading up on broad equity ETFs. ETFs like the Schwab U.S. Broad Market ETF (SCHB), which had inflows of $701 million, made up most of the top inflows list.
Total assets in U.S.-listed ETFs now stand at $3.06 trillion.
2 Similar ETFs, With Different Results
One of the important things to consider when it comes to selecting an ETF is knowing what companies it holds compared to a competing fund. The two biggest homebuilder ETFs, the iShares U.S. Home Construction ETF (ITB) and the SPDR S&P Homebuilders ETF (XHB), bring this point into sharp focus.
While both are outperforming the broader market as measured by the SPDR S&P 500 (SPY) this year, ITB is up roughly twice as much as XHB—24% versus 12% year-to-date.
There are less than 20 publicly traded homebuilder companies on the market, and the segment is heavily concentrated in terms of market capitalization by names like DR Horton and Lennar. To diversify portfolios, both funds “branch out” into other industries related to homebuilding.
And that’s the crux of the performance divergence, because this year it’s the homebuilder names that are having a stellar run, while related industries have had mixed results. XHB has not enjoyed the benefits of the homebuilder rally ITB has seen.
“The issue both of these funds have to address is that the homebuilding industry is small and top-heavy,” FactSet ETF analyst Scott Burley said. “XHB goes a step further and equally weights its portfolio to reduce concentration. That means its exposure to homebuilders is greatly diluted: only 29%, versus ITB’s 61% on average year-to-date.”
ITB, which market-cap-weights 44 holdings led by names DR Horton, Lennar, NVR and PulteGroup, has some $1.5 billion in total assets. XHB, with 35 equally weighted holdings, has roughly $1 billion in assets.
The difference in portfolio holdings and weighting schemes is the source of a perennial gap in performance, but that doesn’t mean ITB always has the upper hand. Sometimes the allocation and weighting differences benefit ITB, other times they benefit XHB—in 2013, for example, XHB led by 8 percentage points.
In the past five years, however, buying into the U.S. housing recovery story through either of these popular ETFs hasn’t been a bad idea. The funds have significantly outperformed SPY.
Drew Voros can be reached at email@example.com
More On ETF.com:
Why Bitcoin ETFs Are Closer To Reality
Stock ETFs Bleed As Trump Tax Cuts Fade
How To Use Single Country ETFs
The ‘Customer Is Always Right’ ETF
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.