Prices of many top ETFs are getting high enough they’re overdue to split their shares. More than 45 ETFs, including widely held ones like SPDR S&P 500 ETF Trust (SPY), Vanguard Information Technology ETF (VGT) and iShares Semiconductor ETF (SOXX), are trading for more than 200 a share. And of those, eight trade for 400 or more. Many companies think about stock splits when share prices get that high.
Splits don’t make any difference to the total value of an ETF you own. But they do make the per-share price more palpable to individual investors, including those with smaller account sizes. And lower priced ETFs allow investors to stay more fully invested.
“Getting below 50 a share could open the door for investors and advisors to purchase more rather than owning odd lot share counts,” said Todd Rosenbluth, head of research at ETF Trends, who thinks more ETF splits are coming. “At current price points, it is harder to invest $5,000 in an ETF in a cost-efficient way.”
Why Stock Splits Matter
To be sure, stock splits don’t affect the economics of an ETF. But they’re still potentially significant for investors.
If you own 100 shares of Vanguard S&P 500 ETF (VOO), trading for roughly 414 each, your stake is worth $41,400. If the ETF splits 2-for-1, you’ll suddenly have 200 shares. But the per share price of the ETF is also halved to roughly 207, so your net position is still worth the same.
Additionally, many of the best online brokers allow you to buy partial shares of many ETFs. And yet, most investors prefer to trade in at least whole shares, says Morningstar’s ETF analyst Ben Johnson. “While transactions in fractional ETF shares are possible, they’re not prevalent,” he said.
Additionally, high ETF share prices cause inefficiencies in portfolios. Money in your account that’s less than the per-share price of the ETF you’d like to buy is left in cash. “I think we will see more share splits by ETFs as advisors increasingly are using them to build portfolios and individual investors gain more comfort in replacing mutual funds with ETFs,” Rosenbluth said.
Last year, ProShares announced it was splitting eight of its ETFs, mostly leveraged ones like ProShares Ultra QQQ (QLD). Vanguard, too, last year announced splits for three Vanguard ETFs that track Russell indexes.
“Splits have become increasingly common among ETFs in recent years,” Johnson said. “Most are done with an eye toward making the funds fit within model portfolios designed for small accounts.”
Which ETFs Will Split?
ETFs least likely to see stock splits are the giant funds favored by large institutions that are “less sensitive to share price,” plus those with lower-priced versions, Rosenbluth said.
That includes iShares Semiconductor ETF (SOXX) and iShares US Healthcare ETF (IYH). SPY, too, isn’t a likely candidate for a split as individual investors can simply buy SPDR Portfolio S&P 500 (SPLG), instead, which trades for roughly 50 a share, rather than SPY’s 446, Rosenbluth says.
But Rosenbluth says he thinks many of the popular Vanguard suite of funds and iShares Core suite “are poised for potential splits.” Roughly a third of ETFs trading north of 200 a share are Vanguard’s.
A ripe candidate for a split is the Vanguard S&P 500. The fast-growing ETF holds roughly $290 billion in assets, more than half what’s in SPY. Much of that’s held by individuals, too, who might not be happy about leaving more than $400 in uninvested cash in their accounts.
“Lower ETF share prices can enhance the functionality and utility of ETFs within ETF model portfolios, particularly when rebalancing client portfolios,” said Vanguard spokesman Michael Nolan. “When considering ETF share splits, Vanguard evaluates a number of factors, including an ETF’s market price, bid-ask spread, and trading volume.” A spokesman for iShares for BlackRock had no comment.
But Johnson says more splits are coming. “I’ve seen more than enough examples and had plenty conversations to call it,” he said.
Highest Priced ETFs Ripe For Stock Splits Name Ticker Per-share price Net assets ($ billions) Expense ratio UBS AG FI Enhanced Large Cap Growth ETN (FBGX) 694.25 $0.2 0.85% SPDR S&P Midcap 400 (MDY) 494.31 20.3 0.22 iShares Semiconductor (SOXX) 475.91 9.1 0.43 iShares Core S&P 500 (IVV) 453.07 332.0 0.03 SPDR S&P 500 (SPY) 449.59 409.0 0.09 Vanguard S&P 500 (VOO) 414.67 289.0 0.03 Vanguard Information Technology (VGT) 411.85 49.4 0.10 MicroSectors US Big Oil 3X Lvrgd (NRGU) 409.40 1.5 0.95 iShares Expanded Tech Sector (IGM) 386.86 4.4 0.43 Invesco QQQ Trust (QQQ) 356.96 189.3 0.20 Sources: IBD, Morningstar Direct Follow Matt Krantz on Twitter @mattkrantz
YOU MAY ALSO LIKE: