Credit traders have been swapping out of the $14 billion iShares iBoxx High Yield Corporate Bond ETF (HYG) for the smaller iShares Broad USD High Yield Corporate Bond ETF (USHY), Bloomberg data show. USHY is on track to outpace HYG in flows for the second straight year.
The more expensive ETFs such as SPY or QQQ offer virtually unrivaled liquidity with high daily volumes for hedge funds and the like. But cost-conscious financial advisers and retail traders are looking to save a couple of basis points per year, according to industry experts.
The sheer volume of SPY turnover and its massive size have spawned an ecosystem around the ETF, with institutions and professional traders using the product to shift exposures often on an intraday basis. Thats a different use case than for SPLG, which is more appealing for buy-and-hold allocators, rather than fast-money traders transacting frequently.
SPY is the most liquid security on the planet, said Bloomberg Intelligences James Seyffart.
You add in the options and futures and everything, he said, and nothing else comes close.
In addition to QQQ and QQQM, Invesco launched the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) in 2014, a follow-up to the 2006 vintage Invesco DB Commodity Index Tracking Fund (DBC). PDBC, which charges 59 basis points, has accumulated over $8 billion in assets, surpassing the $3.6 billion DBC, which has an expense ratio of 88 basis points.
Rather than simply lowering fees, it makes sense for issuers to launch two different-priced tiers of the same strategy to appeal to the broadest swath of investors possible, said Invescos Jason Bloom.
It might look on the surface like youre just launching a clone of an older fund with a lower expense ratio because people are complaining about the management fee. Thats usually not the whole story, said Bloom, head of fixed income and alternatives ETF strategies. Its going to take many years to build assets under management up to levels that might be comparable to the older fund. So the older fund may have a much deeper liquidity profile and its going to stay relevant.
Theres also the simple fact that the higher fees generate more money for the Wall Street fund giants. SPY brings in about $368 million annually for State Street Global Advisors, compared to SPLGs roughly $4.6 million haul. That math also applies to the largest commodity ETF, the $56 billion SPDR Gold Shares fund (GLD), which carries a relatively lofty fee of 40 basis points and pulls more than $220 million per year.
These funds SPY, GLD, QQQ are some of the biggest funds out there, being big sources of revenue for these firms, ETF Think Tanks Murphy said.
[More: Worst-ever outflows for SPY ETF as QQQ bleeds most since dot-com]
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