All You Need to Know About ETF Assets Under Management (AUM)

All You Need to Know About ETF Assets Under Management (AUM)

ETF AUM is a crucial metric that every investor must understand when evaluating an exchange-traded fund's performance and profitability. With the rise of ETFs as an increasingly popular investment vehicle, it's essential to understand the concept of ETF Assets Under Management (AUM) and what it can tell us about a fund. In this blog post, we'll explain everything you need to know about ETF AUM.

What is AUM when it comes to ETFs?

AUM for ETFs represents the total market value of all assets in a particular ETF, including cash and investments in stocks, bonds, derivatives, commodities, and other financial instruments. It's important to remember that AUM reflects only the current market value of the fund's holdings, not its future potential returns or performance.

The higher an ETF's AUM, the greater its liquidity and ability to trade. This is because larger funds generally have more trading volume, which leads to tighter spreads and lower costs for investors. ETFs with higher AUM also typically have more resources available for research and the development of new products.

In simple terms, AUM is a measure of how much money an ETF has under management. By tracking AUM over time, investors can gain insight into the performance of a given fund and make informed decisions about whether to invest in it or not. Generally, more successful funds have higher AUM, and less successful funds have lower AUM. However, it is essential to consider other factors, such as the fund's performance and management fees, before making an investment decision.

Why Is AUM Important?

ETF AUM can be a valuable tool for investors to determine whether or not they should invest in a particular ETF. Because larger funds tend to have more liquidity and lower costs, investors may prefer to invest in ETFs that have higher AUM. Additionally, funds with higher AUM may be more likely to stay in business for a longer period of time, making them more reliable investments.

AUM can also be helpful when comparing different ETFs. By looking at an ETF's AUM alongside its performance and fees, investors can get a better idea of which funds may be more successful in the long run.

How Do ETFs Generate AUM?

ETFs, or Exchange Traded Funds, generate Assets Under Management (AUM) primarily through investor contributions. Here's a more detailed breakdown of the process:

  1. Creation: An ETF begins with a sponsor or issuer, often a large financial institution, who designs the fund to track a specific index or strategy. The issuer works with an authorized participant, usually, a large broker-dealer, to create the initial block of shares, known as a creation unit. The authorized participant either buys the individual securities in the index the ETF is designed to track or contributes cash, and then gives those assets to the ETF in exchange for ETF shares.
  2. Listing: The ETF then lists these shares on a public exchange, like the NYSE or NASDAQ, where investors can buy or sell them just like individual stocks. As demand for the ETF shares increases, the price may go above the net asset value (NAV) of the underlying assets, prompting the creation of more shares. Conversely, if demand decreases and the price drops below the NAV, shares can be redeemed and the underlying assets sold.
  3. Investor Contributions: Investors purchase ETF shares on the open market through brokerage or retirement accounts. This investment increases the AUM of the ETF.
  4. Reinvestment: Any dividends or interest earned by the ETF's assets are typically reinvested back into the fund, further increasing its AUM. In some cases, these earnings may be distributed to shareholders, who may choose to reinvest them in additional ETF shares.
  5. Capital Appreciation: If the market value of the securities within the ETF's portfolio increases, this also increases the ETF's AUM. Conversely, if the market value of the securities decreases, this reduces the AUM.

Remember, AUM refers to the total market value of the assets that an investment company or financial institution manages on behalf of investors. For an ETF, AUM can fluctuate based on both investor contributions/redemptions and the performance of the underlying assets.

How is ETF AUM calculated?

Assets Under Management (AUM) for an Exchange-Traded Fund (ETF) is calculated in a relatively straightforward manner. It is the total market value of all the assets that the ETF holds. The calculation is typically done by the fund's administrator at the end of each trading day.

Here's a step-by-step process:

  1. Calculation of Market Value of Assets: This involves multiplying the quantity of each asset held by the ETF by the closing price of each asset. For example, if an ETF holds 100 shares of a company's stock, and that stock's closing price is $50, the market value of that stock holding would be $5,000. This is done for every asset held by the ETF.
  2. Totaling Asset Values: The fund administrator then adds up the market value of all assets held by the ETF. This includes stocks, bonds, commodities, cash, and any other assets.
  3. Deduction of Liabilities: If the ETF has any liabilities, such as outstanding loans or other financial obligations, these are deducted from the total asset value. This is not common for most ETFs.
  4. The result is the ETF's AUM: The total market value of the assets minus any liabilities gives the AUM.

Keep in mind that AUM fluctuates as the prices of the ETF's underlying assets change, and as investors buy and sell shares in the ETF. The ETF's net asset value (NAV) per share, which investors often scrutinize, is simply the AUM divided by the total number of outstanding shares. NAV is calculated at the end of each trading day.

Automated ETF AUM Calculation

Instead of spending time manually calculating the AUM or copying and pasting data from multiple sources, you can obtain this information automatically on your spreadsheet.

Obtain a list of ETFs you are interested in analyzing using the Yahoo Finance ticker system and use the Wisesheets =WISEFUNDS function to retrieve important information such as AUM, expense ratio, NAV, etc for all your ETFs simultaneously.

For example, to get the AUM of the SPY ETF, all you need to do is enter =WISEFUNDS("SPY", "AUM").

AUM ETFs excel

With this setup, you can quickly create an ETF tracker list, as shown in the image below:

Adding spreadsheet formulas or conditional formatting

This automatically updated list lets you analyze the AUM of each ETF in your portfolio and compare it with similar funds, giving you a better understanding of which ones could be most successful for you. The best part is that you can press the 'Refresh Data' button at any time to receive the latest AUM, along with hundreds of other metrics and data, such as real-time price, historical price, and dividend data.

Different Types of ETFs and Their Respective AUMs

There are numerous types of ETFs available in the market, each tracking a different sort of underlying asset or employing a unique investment strategy. Here are some common types and their typical Assets Under Management (AUM):

  1. Equity ETFs: These are the most common type of ETFs, which track specific indices like the S&P 500 or sector-based indices like technology or healthcare. The largest equity ETF as of my last update in 2021 was the SPDR S&P 500 ETF Trust (SPY), with AUM over $300 billion.
  2. Bond ETFs: These track various types of bond indices, including government bonds, corporate bonds, or municipal bonds. One of the largest Bond ETFs was the iShares Core U.S. Aggregate Bond ETF (AGG) with AUM over $80 billion.
  3. Sector ETFs: These track specific industry sectors such as technology, finance, or healthcare. For instance, the Technology Select Sector SPDR Fund (XLK) had AUM of over $35 billion.
  4. Commodity ETFs: These track the price of a specific commodity or a group of commodities. For instance, the SPDR Gold Trust (GLD) is one of the largest commodity ETFs with AUM over $60 billion.
  5. International ETFs: These track non-U.S. indices or sectors. The iShares MSCI EAFE ETF (EFA), for example, had AUM over $50 billion.
  6. Currency ETFs: These ETFs track foreign currencies relative to the U.S. dollar. Currency ETFs tend to be smaller in terms of AUM compared to other categories.
  7. Inverse ETFs and Leveraged ETFs: Inverse ETFs seek to return the opposite performance of the benchmark index, while leveraged ETFs seek to return some multiple of the performance. These types of ETFs are more specialized and typically have smaller AUMs.
  8. Thematic and ESG ETFs: These are ETFs that focus on specific themes like artificial intelligence, clean energy, or environmental, social, and governance (ESG) principles. These have been gaining popularity and their AUM has been growing rapidly.

Each of these types of ETFs has its own distinct AUM profile, providing investors with unique opportunities for portfolio diversification.

Conclusion

In conclusion, Assets Under Management (AUM) is a critical metric to consider when evaluating Exchange-Traded Funds (ETFs). It represents the total market value of all the assets the ETF holds, and can provide investors with vital information about its size and liquidity. AUM can fluctuate based on both investor contributions/redemptions and performance of underlying assets.

Automated solutions like Wisesheets make it easier to track the AUM of various ETFs and facilitate more informed investment decisions. Understanding the different types of ETFs and their AUMs can help investors allocate their investments more effectively.

Happy investing!

Guillermo Valles
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Hello! I'm a finance enthusiast who fell in love with the world of finance at 15, devouring Warren Buffet's books and streaming Berkshire Hathaway meetings like a true fan.

I started my career in the industry at one of Canada's largest REITs, where I honed my skills analyzing and facilitating over a billion dollars in commercial real estate deals.

My passion led me to the stock market, but I quickly found myself spending more time gathering data than analyzing companies.

That's when my team and I created Wisesheets, a tool designed to automate the stock data gathering process, with the ultimate goal of helping anyone quickly find good investment opportunities.

Today, I juggle improving Wisesheets and tending to my stock portfolio, which I like to think of as a garden of assets and dividends. My journey from a finance-loving teenager to a tech entrepreneur has been a thrilling ride, full of surprises and lessons.

I'm excited for what's next and look forward to sharing my passion for finance and investing with others!

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