Market Radar 05. June 2023

Are stock market traders now switching from the SPY ETF to the RSP ETF?

The ETF for the S&P 500 (SPY) hit a new 52-week high at the close of the day on Friday. This means that the previously valid annual high of mid-August 2022 was overcome for the first time.

Although this outbreak was accompanied by higher trading volumes, it was not exorbitantly high. The trading turnover for the SPY ETF was about $40 billion last Friday. Although this is in the upper range of the trading turnover observed in this ETF since the beginning of April, it is only in the middle range of the trading turnover observed in this ETF for the last two years.

For a few weeks now, an ETF has been increasingly coming into the reporting, which also contains only stocks from the S&P 500, but tracks them equally weighted (RSP).

In the month of January this year, the RSP ETF was able to rise higher than the SPY ETF: the RSP ETF rose by 7.4% in January, while the SPY ETF rose by only 6.3%. Since the beginning of February, however, the RSP ETF has not been able to keep pace with the SPY ETF:

The SPY ETF has gained 5.7% since the beginning of February this year. The RSP ETF, on the other hand, has lost 4.8% since the beginning of February. We saw the SPY ETF outperform by more than 10%, mainly driven by a small number of big tech stocks that leveraged the SPY ETF to its 52-week high due to their large market capitalization.

If we now look at the trading turnover in the RSP ETF from last Friday, we see something that should make stock market participants suspicious: The trading turnover for this RSP ETF was about 1.5 billion US dollars last Friday. So significantly less than in the SPY ETF, which is also normal. What is striking, however, is that last Friday we saw the highest trading turnover in the RSP ETF that has been measured in this ETF for a long time. In addition, we usually only saw high trading turnover in the RSP ETF on days when the majority of shares on Wall Street were sold. On Friday, however, the majority of shares from the S&P 500 were bought.

It can be concluded from this observation that some investors have now switched from the SPY ETF to the RSP ETF – presumably because they now see more upside potential in the equally weighted version than in the top dog product, which weights stocks from the S&P 500 the higher the higher the market capitalization.

The exchange traders may still seem small in number. More influential than the actual redeployment, however, could be the effect that this redeployment could now trigger in reporting.