Investors Turn to Stock Picking at the Expense of S&P 500 Funds

(Bloomberg) -- The intense market volatility spurred a surge in popularity for ETFs that target single U.S. stock industries.

After taking in a record $18.6 billion last month, those exchange-traded funds kept luring cash in early May, data compiled by Bloomberg showed. In only two trading days, they added another $786 million. Meanwhile, the three biggest S&P 500 ETFs all had outflows in April -- only the second month that’s happened since they started trading, according to a Bloomberg Intelligence report.

“In times like these, active managers will stress the importance of security selection versus a broad-based approach,” said Lance McGray, head of ETFs at Advisors Asset Management. “You’re seeing a lot of investors trying to pick winners and avoid losers in this environment.”

The most closely-watched earnings season in history, now winding to a close, has thrown the difference between companies thriving from economic shutdowns and those decimated by it into sharper focus. While almost every sector ETF saw inflows in April, health-care and technology funds led the intake.

At the same time, the three biggest broad-based S&P 500 funds -- SPDR S&P 500 ETF Trust, or SPY; iShares Core S&P 500 ETF, or IVV; Vanguard S&P 500 ETF, or VOO -- collectively lost $8.4 billion.

“It seems like more sector dispersion is fueling a lot of single sector bets,” said Athanasios Psarofagis, ETF analyst for Bloomberg Intelligance. “It just seems like investors want more targeted exposure.”

©2020 Bloomberg L.P.