With stock markets skyrocketing, the ETF industry is booming, breaching new records in terms of inflows. This is especially true, as investors have poured
more than $500 billion into ETFs so far this year, very close to an annual record of $504 inflows seen last year. This suggests the wider adoption of the ETFs at breakneck pace. The strong growth came given that millions of people are now vaccinated and COVID-induced lockdowns have been eased in many parts of the world. Additionally, a healing job market, an expanded stimulus and strong earnings growth bolstered confidence in the equity markets. In fact, U.S. equities were the main drivers this year, accumulating $228.5 billion followed by inflows of $146.7 billion for international equity ETFs and $93.9 billion for U.S. fixed income ETFs. The solid trend is likely to continue given the growing optimism in the U.S. economy though the surge in Delta variant cases of COVID-19 could take a toll on the stocks. Further, tax efficiency has accelerated the boom, shifting hundreds of billions of dollars from mutual funds to ETFs. This is because mutual fund managers need to sell securities to raise cash for redemptions in case an investor exits the fund, which would trigger a taxable event for all investors. On the other hand, ETFs follow an “in-kind” creation and redemption process where ETF issuers exchange shares for baskets of underlying securities, which do not trigger a taxable event (read: Dimensional's Mutual Fund to ETF Conversion, Midyear Outlook & More). December’s study by researchers at Villanova and Lehigh universities found out that over the past five years, ETFs have averaged a tax burden 0.92% lower than the active mutual funds. Moreover, particularly for high net-worth investors, tax considerations have outweighed both performance and fees as the primary driver of inflows to ETFs from the active mutual funds, the findings showed. Given this, we highlight five ETFs that are the top creators so far this year and can continue to be investors’ darlings for the rest of the year should the current market trends prevail: Vanguard S&P 500 ETF ( VOO Quick Quote VOO - Free Report) VOO has topped asset flow creation so far this year, gathering $31.4 billion in capital. It tracks the S&P 500 Index and holds 507 stocks in its basket with information technology, healthcare, consumer discretionary, financials and communication services being the top five, with a double-digit allocation each. The ETF charges investors 3 bps in annual fees and trades in an average daily volume of 3.5 million shares. It has AUM of $243.9 billion and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: A Spread of Top S&P 500 ETFs to Tap Solid Q2 Earnings Growth). Vanguard Total Stock Market ETF ( VTI Quick Quote VTI - Free Report) This fund has accumulated $22.7 billion in capital, taking its total AUM to $260.4 billion. It provides exposure to the broad stock market by tracking the CRSP US Total Market Index. The ETF holds a large basket of well-diversified 3908 stocks with key holdings in technology, consumer discretionary, industrials, healthcare and financials. It charges 3 bps in fees per year from investors and trades in an average daily volume 3.4 million shares. VTI has a Zacks ETF Rank #2 with a Medium risk outlook. iShares Core S&P 500 ETF ( IVV Quick Quote IVV - Free Report) With AUM of $296.6 billion, this fund, which also tracks the S&P 500 Index, saw inflows of $14.2 billion. It holds 505 stocks in its basket with information technology, healthcare, consumer discretionary, communications and financials being the top five, with a double-digit allocation each. The ETF charges investors 3 bps in annual fees and trades in an average daily volume of 4 million shares. It has a Zacks ETF Rank #2 with a Medium risk outlook. Vanguard Total Bond Market ETF ( BND Quick Quote BND - Free Report) This ETF has accumulated $13.4 billion in its asset base so far this year. It targets the broad U.S. investment grade bond market by tracking the Bloomberg Barclays U.S. Aggregate Float Adjusted Index. The product holds 10138 securities in its basket with an average maturity and effective duration of 8.6 years and 6.8 years, respectively. BND is the second-largest bond ETF with AUM of $80.4 billion and an average daily volume of 5.3 million shares. It charges 3 bps in annual fees (read: A Quick Guide to the 25 Cheapest ETFs). Vanguard Value ETF ( VTV Quick Quote VTV - Free Report) This fund has accumulated $10.6 billion in capital so far this year. It targets the value segment of the broad U.S. stock market and follows the CRSP US Large Cap Value Index. The fund holds 350 stocks in its basket with key holdings in financials, healthcare, industrials, and consumer staples. The ETF has AUM of $82.5 billion and charges 4 bps in annual fees. It trades in volume of 2.5 million shares per day on average and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.