The Vanguard S&P 500 ETF leads record inflows

The Vanguard S&P 500 ETF [VOO] has seen its price soar throughout 2021, closing at an all-time high of $388.50 on 4 June.

Although it has pulled back slightly in the sessions since, the fund, which tracks the performance of the S&P 500 index, has gained 14.33% in the year to date and has recorded gains of 32.19% over the past 12 months (through 9 June). The top holdings in the ETF include mega-caps like Apple [AAPL] (see CEO Tim Cook, pictured), Microsoft [MSFT] and Amazon [AMZN] (as of 9 June).

At the start of the year, the Vanguard S&P 500 ETF climbed just short of 5% to 17 February, closing at $360.79, before crashing 4% to $346.34 on 4 March. However, a sustained rally since this trough saw the fund hit $388.03 on 7 May and, despite a sharp slump to $372.73 over the next three days, a recovery has seen the fund climb to its latest peak since.

  

The ETF’s strong performance in 2021 so far mirrors a solid recovery for the S&P 500 and leads the way in what is set to be a record year for ETF cash inflows.

 

Crowd’s funding

Inflows into ETFs in the US in the first five months of this year have eclipsed those seen in 2020. By the end of May 2020, ETFs had seen inflows of $121.1bn, according to ETF.com. This year’s equivalent figure stands 226% higher at $394.8bn. That increase comes despite last year being a record-breaking year itself, with a final total of $507.4bn coming well clear of the previous record of $476.1bn set in 2017.

In less than six months, inflows in US-listed ETFs have already reached 78% of 2020’s total this year. Barring a significant and unexpected reversal of the trend, 2021 is already well on track to top last year, with the total figure potentially set to tip over the $1trn mark, Seeking Alpha suggests.

May itself saw inflows of $66.5bn, with four funds, in particular, standing out for attracting over $2bn during the month, according to ETF.com. These were the Vanguard Value ETF [VTV], which saw net cash flows of $2.11bn, the iShares Core MSCI EAFE ETF [IEFA] with flows of $2.63bn, the Vanguard Total Stock Market ETF [VTI], which attracted $2.65bn and, topping the list with $3.78bn inflows, the Vanguard S&P 500 ETF [VOO].

  

Both the Vanguard S&P 500 ETF and the Vanguard Total Stock Market ETF also top the list of funds for inflows in the year to 1 June, with $24.15bn and $16.66bn, respectively.

The best performing funds from May are indexed funds, which should benefit from the ongoing shift away from growth stocks in favour of dividend-paying value stocks. The iShares Russell 1000 Growth ETF [IWF] saw net outflows of $2.69bn during May, bringing its net flows negative for the year to date.

The Vanguard S&P 500 ETF’s success is tied to the strong performance of the US economy, as the country has recovered from the pandemic. The S&P 500 has risen 12.6% year to date and closed 8 June at 4,227.26, just shy of its all-time high.

In different ways, the other four funds all reflect similar trends. The Vanguard Total Stock Market ETF tracks the stock market as a whole, while the Vanguard Value ETF tracks large-cap value stocks. The iShares Core MSCI EAFE ETF tracks the performance of companies in Europe, Australia, Asia and the Far East. Inflows, overall, were relatively evenly split between US equity ETFs, international equity ETFs and US fixed-income ETFs.

 

Recovery paying dividends

The key question is whether the recovery will continue through the rest of the year, and if so at what pace? Early indicators suggest that it will.

Bureau of Labor Statistics show that US unemployment fell 0.3% in May to 5.8%, its lowest rate since before the pandemic, despite remaining some way above pre-pandemic levels. This suggests that the US economy is continuing to recover, but still has ample room for expansion.

Dividend stocks have benefitted from improving market conditions after being forced to cut payouts last year. Howard Silverblatt, an analyst at S&P Dow Jones, told the Financial Times that he expects S&P 500 dividends to keep improving, anticipating an aggregate 5% increase throughout the year.

The Vanguard Value ETF has outperformed even the Vanguard S&P 500 ETF in the year to date (through 8 June), with gains of 18.9% in its price despite lower cash inflows. The Vanguard Total Stock Market ETF price has increased 13.4% in the same period, while the iShares Core MSCI EAFE ETF has risen 12.6%.