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ETFs Don’t Impact All Stocks Equally: Goldman Sachs

A new research report from Goldman Sachs finds that trading in exchange-traded funds does impact individual stocks, but not equally.

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The stocks most affected are in the Russell 2000, potentially because of their lower levels of liquidity and cheap prices. While in the S&P 500, the most impacted areas are in select Real Estate Investment Trusts (REITs) and mid-sized energy names, according to Goldman analysts.

The report, published Friday, examines the impact of ETFs (excluding leveraged and inverse funds) on sector-based stock correlations and identifies the stocks most impacted by ETF activity.

Higher correlations mean that individual stocks could move more with the dynamic of the ETF than on their own fundamentals.

Among the S&P 500 firms, FMC Technologies has the highest average daily value traded from ETFs (23 percent), Goldman found. It is followed by Simon Properties (21 percent) and Public Storage (21 percent) .

Excluding Financials and Energy, select Utilities and Consumer Discretionary stocks showed the greatest impact, says the report.

Most impacted ex-Financials, Energy and Materials

Ticker
Company Name
Estimated ETF Share of ADVT
Most Impactful ETF
Correlation of Stock and ETF
AN AutoNation Inc. 9% XRT 74%
AMT American Tower 9% IYR 58%
SVU Supervalu Inc. 9% XRT 67%
D Dominion Resources 8% XLU 87%
PGN Progress Energy 8% XLU 85%
Source: Goldman Sachs

Tech stocks dominate the list of the least correlated stocks to ETFs.

Tech stocks dominate the list of least impacted

Ticker
Company Name
Estimated ETF Share of ADVT
Most Impactful ETF
Correlation of Stock and ETF
FSLR First Solar 0.1% XLK 53%
NVLS Novellus Systems 0.2% XLK 60%
CRM Salesforce.com 0.2% XLK 71%
SNDK Sandisk Corp. 0.3% XLK 79%
FFIV F5 Networks 0.3% XLK 65%
Source: Goldman Sachs

Small-cap stocks in Russell 2000 have a disproportionately higher correlation to ETFs. This is primarily due to lower average volume for its stocks, which is about 30 times smaller than the average volume for the S&P500 stocks.

Among the fifty most affected stocks in the Russell 2000, all have more than 20 percent of stock average daily value traded driven by ETF trading. Here are top five:

ETFs have less than a tenth of the assets under management, compared to mutual funds, but they are commanding greater attention and use from institutional investors, says the report.

In the last five years, the number of U.S.-registered ETFs has grown from nearly 200 to over 1,100, with a similarly steep rise in assets under management from $200 billion to over $1 trillion.

Goldman analysts expect the impact of ETFs on investment decisions and portfolio construction to continue.

Questions? Comments? Email us at marketinsider@cnbc.com and follow me on twitter @kfrayter

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

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