Exchange-traded funds (ETFs), which are tracked by the S&P 500 index, occupy an increasingly important position in the global stock market. Statistics show that last year, these ETFs attracted a record net inflow of US$137 billion, surpassing the peak of US$119 billion in 2021. Furthermore, these ETFs also account for 27% of global stock ETF inflows, the highest proportion in at least a decade. Only 9% in 2022, 13% in 2021, and 1% in 2020.
This phenomenon reflects the increasing globalization and dominance of the US stock market, particularly the “Big Seven Tech Giants” in the S&P 500 Index driving the market.
Bill Coleman (Bill Coleman), head of capital markets at Pioneer US ETF, said: “People have seen more news about the seven tech giants in the news. People want a share of the pie, and all of these stocks are in the S&P constituents.”
At the same time, global demand for exposure to the S&P 500 index also shows that Wall Street's overall dominant position is increasing.
According to research by Elroy Dimson of Cambridge University and Paul Marsh and Mike Staunton of the London Business School, US stocks have reached an “astonishing” 60.5% of global stock market capitalization. This ratio is higher than 28.6% in 1989, the highest level since 1973.
Dimson, Marsh, and Staunton wrote in the “2024 Global Investment Returns Yearbook” (Global Investment Returns Yearbook 2024): “This reflects the excellent performance of the US economy, numerous IPOs, and strong returns from US stocks. No other market can match this long-term achievement.”
Within the US, Coleman attributed the huge demand for S&P 500 ETFs last year to the index's strong performance.
Driven by the strong performance of large stocks, the S&P 500 index rose 24.2% last year, surpassing the 14.4% return of the mid-cap S&P 400 index and the 15.1% return of the small-cap Russell 2000 index.
The S&P 500 index performed well this year, continuously hitting new highs, while the performance of small-cap stocks compared to large companies was the worst in more than 20 years. Investors prefer to invest their capital in the best-performing S&P 500 index, and many investment models have increased their allocation to the S&P 500 as expectations of a continued bull market and possible interest rate cuts.
Although the Nasdaq 100 index provides greater exposure to the so-called “Big Seven Tech Giants”, which account for 40% of the NASDAQ 100 and only 29.1% of the S&P 500, investors still invested less in NASDAQ 100 ETFs last year than in the S&P 500 ETF.
In response, Coleman explained that although investors have concentrated interest in specific stocks, they also value the diversification provided by the S&P 500. In the S&P 500, in addition to these large technology stocks, 493 other companies account for more than 70% of the total weight of the index. This diversification is one reason S&P 500 ETFs are popular.
It is worth mentioning that last year,$SPDR S&P 500 ETF (SPY.US)$It attracted 31 billion dollars in capital over two days in December, including the highest single-day inflow of 20.8 billion US dollars in history. These abnormal capital inflows are closely related to the expiration of futures contracts, and many investors who originally invested in futures chose the highly liquid SPDR S&P 500 ETF instead.
Although the SPDR S&P 500 ETF has had outflows of $8.7 billion this year, for other S&P 500 ETFs (such as$Vanguard S&P 500 ETF (VOO.US)$und$SPDR Portfolio S&P 500 ETF (SPLG.US)$) remains in strong demand, making S&P 500 ETFs account for up to 20% of global stock ETF purchases in the first two months of 2024.
Overall, although ETF traffic is showing a concentrated trend, continued strong demand from investors for ETFs tracked by the S&P 500 index is seen as a positive sign of the market. The S&P 500 index and ETFs tracked by the S&P 500 index are an entry point for many investors, and their popularity and market influence continue to grow.
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