8 Popular ETPs That Have Launched in Recent Months
A look at new exchange-traded products--most of which are narrowly constructed--that have attracted the most assets in the past six months.
Thus far in 2015, some 69 exchange-traded products have launched, putting the ETP industry on pace for another strong year for product launches.
The pace of launches has varied in recent years. In 2013, the industry rolled out 158 ETPs, which was the smallest number of ETP launches in any year since 2009 and suggested the exchange-traded funds and exchange-traded notes industry had begun to mature and launches would slow. Launches came back with a vengeance in 2014, however, as the industry churned out some 205 ETPs last year. Through the first four months of 2015, the ETP industry is cranking out new investments at a similar clip.
It's unclear whether this continued flurry of product launches is a good thing for investors. Certainly, the new investments can offer access to corners of the market that previously had been difficult to tap. At the same time, many other new ETPs arrive on the scene as copycat funds with steeper expense ratios.
Often, ETP launches reflect a source of investment ideas. Providers attempt to address market trends, such as strong U.S. equity market valuations, still-murky visibility over the timing of U.S. interest-rate hikes, and plenty of questions about the macroeconomic picture overseas. To be sure, ETP launches can wind up as a trailing indicator, since it takes a minimum of several months between product registration and rollout, and by then, market conditions and investor sentiment may have changed.
A few of the new launches have attracted meaningful assets, providing a sense of where firms have correctly anticipated investor interest. Among the ETPs that have launched in the past six months and have drawn at least $100 million in assets are a diverse number of very narrowly constructed ETPs. There aren't many bargains in this bin--the fees for many of these ETPs reflect their narrowly crafted nature. In fact, only two of the eight ETPs on this list carry price tags that we would characterize as being competitive.
'Exponential' Technologies--and Fighting the Hackers
Far and away the largest two ETFs launched in the past half-year have been technology funds devoted to very narrow slices of the sector. The largest fund, the passively managed iShares Exponential Technologies ETF (XT), tracks a Morningstar index of companies that create or use so-called exponential technologies, such as big data and analytics, nanotechnology, networks and computer systems, robotics, and 3-D printing. (Disclosure: Morningstar licenses the index to iShares and earns asset-based fees.) The ETF holds about 200 companies in the technology, biotechnology, chemical, consumer industries, and telecommunications sectors.
XT was created after a specific request from a client. In this case, iShares developed the ETF based on an idea from investment advisor Ric Edelman, and he has steered significant client assets into the fund.
Its 0.47% fee is in line with a sub-sector-level iShares ETF.
XT isn't the only recently launched technology-themed ETF to rake in considerable assets in a short time. PureFunds late last year debuted a passively managed ETF tracking an ISE-managed index of firms in the cybersecurity industry. Despite a whimsical ticker symbol, PureFunds ISE Cyber Security ETF (HACK) focuses on a serious technology subsector that is constantly in the news, as evidenced by recent hacking incidents at Sony, J.P. Morgan, and Target. HACK tracks a modified capitalization-weighted benchmark that has large holdings, including CyberArk (CYBR), FireEye (FEYE), Infoblox (BLOX), and Qualys (QLYS). Investors should note that HACK's 0.75% price tag is high even by subsector ETF standards.
Gundlach's Foray Into the ETF Arena
Assets also have flowed to another star fixed-income manager entering the active ETF arena. A partnership established last year between State Street Global Advisors and bond manager Jeffrey Gundlach and his firm DoubleLine Capital recently resulted in the launch of State Street's first actively managed bond ETF, SPDR DoubleLine Total Return Tactical ETF (TOTL), which uses Gundlach as its subadvisor. Clearly vying for the same investors as Bill Gross' former ETF, the actively managed PIMCO Total Return Active ETF (BOND), TOTL serves up a core fixed-income strategy and seeks to outperform the Barclays U.S. Aggregate Bond Index. At 0.55%, the ETF offers a less expensive way to benefit from Gundlach's acumen than the 0.73% price tag for the retail share class of his DoubleLine Total Return (DLTNX). However, the ETF's fee is slightly more than the 0.48% that DoubleLine total Return charges institutional investors. (Gundlach's mutual fund receives a designation of Not Ratable from Morningstar because of the absence of detail on portfolio construction and attribution, risk controls, and the team backing Gundlach.)
Another China A-Shares ETF
Elsewhere, another ETF that holds China A-Shares securities, which are companies based in and traded in China but only available to qualified foreign institutional investors, has come to market. The passively managed CSOP FTSE China A50 ETF (AFTY) offers investors access to the 50 largest stocks trading in Shanghai and Shenzhen. Managed by Hong Kong-based CSOP Asset Management, the ETF came out of the gate with a hefty $237 million in assets, ostensibly from CSOP's existing clients directed into a new bespoke ETF. AFTY's very high 0.99% fee is not priced competitively when compared with two existing ETFs that also invest directly in China A-Shares: Deutsche X-trackers Harvest CSI 300 China A-Shares (ASHR), which costs 0.80%, and KraneShares Bosera MSCI China A ETF (KBA), which charges 0.85%.
A Look at the Rest
The remaining ETFs all target very narrow corners of the market. The dollar's rally toward a 12-year high has driven investors toward currency-hedged ETFs in order to protect their returns. The newest currency-hedged ETF to draw meaningful assets is WisdomTree Europe Hedged SmallCap Equity ETF (EUSC), which offers hedged exposure to a basket of small-cap European companies. While currency-hedged foreign-equity ETFs appeal to investors who want to shelter returns from currency movements, currency-hedged ETFs have notable pitfalls, including unexpected capital gains, added costs, and poor timing. EUSC charges 0.58%.
Another popular launch has been a strategic-beta ETF offering investors equal-weight exposure to U.S. large-cap stocks. PowerShares Russell 1000 Equal Weight (EQAL) is a carbon copy of an ETF that already trades, Guggenheim Russell 1000 Equal Weight ETF (EWRI). Both funds track the same index, which first equally weights nine U.S. equity sectors and then equally weights each security within those sectors. The index's construction is aimed at removing the sector biases ordinarily found in an equal-weight structure, which normally tilts heavier to financials and technology companies and less to consumer, energy, and materials names. EQAL's 0.20% price tag is less than half that of EWRI.
Among the remaining ETFs on the list, one is a passively managed and socially responsible bespoke fund that tracks a very broad index of global large- and mid-cap firms with lower carbon footprints than their peers. IShares MSCI ACWI Low Carbon Target ETF (CRBN) was seeded by its sponsor and also by the United Nations Joint Staff Pension Fund. It charges 0.20%.
Finally, Credit Suisse S&P MLP ETN (MLPO) is yet another ETP devoted to U.S. energy-oriented master limited partnerships. MLPO tracks the same index as another ETN, iPath S&P MLP ETN (IMLP). However, IMLP charges 0.80%, while MLPO costs a much higher 0.95%. Given that both ETNs provide perfect exposure to the same index, investors are better served sticking with the larger and more liquid IMLP.
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Robert Goldsborough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.