WILLIAMSTOWN, MASS. (TheStreet) -- Improvement in the broader economy has attracted assets back into ETFs like the SPDR S&P 500 (SPY) - Get SPDR S&P 500 ETF Trust Report. According to data recently released by the National Stock Exchange (NSX) , broad-based traditional ETFs attracted large amounts of investor assets in July while nontraditional leveraged products hemorrhaged funds.
iShares Russell 2000
were among the top asset gatherers in July, accumulating $3,015 million; $981 million; and $932 million respectively. These broad, market capitalization-based funds boast stakes in the largest companies in their respective underlying portfolios. SPY tracks the S&P 500, IWM tracks the Russell 2000 and
Top components in each of the funds will likely be recognizable to investors. The top five holdings in SPY are
Johnson & Johnson
(IBM). PowerShares' QQQQ also highlights large-cap funds like
While SPY focuses on 500 value-weighted large-cap stocks and QQQQ focuses on 100 large non-financial stocks, IWM targets smaller capitalization. IWM has more than 2,000 components that consist of the smallest-cap components in the Russell 3000 index. The top five holdings in IWM are currently:
Year-to-date, all three of these funds have seen a net outflow in assets. While the numbers have rebounded strongly in July, year-to-date all three funds are in the red. Expect to see these numbers strengthen as confidence in the economy grows, the ETF industry expands and the
increases in intensity.
SPY, IWM and QQQQ are all core ETF positions that are appropriate for a broad range of long-term portfolio goals. All three funds include a wide range of companies that are indexed passively and operate in the most traditional sense. SPY was one of the first ETFs to hit the market in the '90s and offers a low-cost alternative to traditional mutual fund strategies.
While nontraditional leveraged and commodity ETFs have garnered a lot of investor attention over the last year, it is funds like SPY, IWM, and QQQQ that investors should return to again and again. The biggest gripe with leveraged funds has been that
-- SPY, IWM and QQQQ certainly are.
It is encouraging to see assets flowing back into ETF standbys like QQQQ, SPY and IWM. While new nontraditional ETFs may appeal outwardly to opportunistic buyers, they are often
Consider the case of SPY vs.
Direxion's Daily Small Cap Bull 3X Shares
and IWM. Both are "long" the Russell 2000 and TNA is slated to return 3 times as much as IWM on a daily basis. While TNA has fees of 0.95%, IWM charges just 0.20%. Year-to-date, TNA is up 14.23% while IWM is up 16.77%. Triple long? Long-term investors would have certainly performed better in low-cost IWM.
Investors looking to rebuild their portfolios with ETFs or use ETFs as low-cost alternatives to mutual funds should start with funds like SPY, IWM and QQQQ. SPY and QQQQ have some overlap, but QQQQ tends to be more tech-heavy. Using one of these funds in conjunction with a smaller position in IWM would help to diversify a core portfolio.
The cost of leveraged ETFs, both literally and figuratively, is far too high for all but sophisticated investors. The inflow of funds into SPY, QQQQ, and IWM shows a more measured approach to investing that mirrors the growth of the industry at large. SPY, QQQQ and IWM are the spoke funds for the ETF industry -- building blocks that will last over time.
-- written by Don Dion in Williamstown, Mass.
At the time of publication, Dion was long QQQQ.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.