ETFs Don’t Impact All Stocks Equally: Goldman Sachs
By: A new research report from Goldman Sachs finds that trading in exchange-traded funds does impact individual stocks, but not equally.
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% |
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% |
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.
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