With 2012 behind us, it's time to take a look at the new trends that resonated in the ETF market last year.
The best way to do that is to look at which newly launched ETFs garnered the most assets in 2012.
The methodology is inherently biased, as it disadvantages funds that launched later in the year, simply because they hadn't had enough time to gather assets.
Still, it notes a number of interesting trends. Moreover, even with the late start, a few late bloomers made the list, including two iShares ETFs—the iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) and the iShares Core MSCI EAFE ETF (NYSEArca: IEFA). And they were close to the top, too.
So here they are, in reverse order, based on total assets under management on Dec. 31, 2012.
No. 12: Market Vectors Morningstar Wide Moat Research ETF (NYSEArca: MOAT)
IndexUniverse Segment: Equity: U.S. - Alpha-Seeking
Launch Date: April 24, 2012
Year-End 2012 AUM: $115.4 Million
The Market Vectors Morningstar Wide Moat Research fund (NYSEArca: MOAT) selects companies using Morningstar's "Wide Moat" methodology, which aims to identify firms with real competitive advantages versus their peers.
It's similar in many ways to the Elements Morningstar Wide Moat Focus ETN (NYSEArca: WMW), which launched a number of years ago and, with just $19 million in assets, has clearly struggled to pull in assets. But investors seem to like the fact that MOAT has a considerably lower price tag than WMW—49 basis points vs. WMW's 75. Also, it doesn't carry the credit risk of an ETN.
With ETN issues swept aside, Morningstar's name, savvy marketing and strong performance combined here to create a winner, with almost $120 million in assets.
No. 11: First Trust North American Energy Infrastructure Fund (NYSEArca: EMLP)
IndexUniverse Segment: Equity: U.S. MLPs
Launch Date: June 20, 2012
Year-End 2012 AUM: $123.7 Million
Who says investors don't like active strategies? This fast-growing ETF offers an active slant on the popular MLP space, aiming to identify funds with strong yields and solid capital appreciation potential.
The fund is managed by Energy Income Partners LLC, which has about $1.6 billion in assets under management. The ETF does, however, have a hefty annual expense ratio—0.95 percent. That's much more than competing MLP ETPs.
That price tag may be worth it, however, given EMLP's total return of 5.15 percent since its inception June 20, versus the largest competing ETF, the Alerian MLP ETF AMLP (NYSEArca: AMLP), which returned 4.27 percent over the same time period.
No. 10: UBS AG FI Enhanced Big Cap Growth ETN (NYSEArca: FBG)
IndexUniverse Segment: U.S. - Large Cap Growth
Launch Date: June 6, 2012
Year-End 2012 AUM: $139.8 Million
This UBS fund showed somewhat shocking growth for an isolated, leveraged ETF. The ETN operates on a somewhat unorthodox rebalancing strategy, aiming to produce double the returns of the large-cap Russell 1000 Index, but resetting whenever the index it tracks hits a certain level.
FBG is not part of the UBS E-Tracs family, but there appears to be internal demand for FBG from UBS clients. UBS charges a fee for FBG that varies with Libor. Still, for all the idiosyncrasies of FBG, it pulled in $139 million in just six months since its inception, which is surely noteworthy.
No. 9: iShares Treasury Bond Fund (NYSEArca: GOVT)
IndexUniverse Segment: Fixed Income: U.S. Government Treasury
Launch Date: Feb. 14, 2012
Year-End 2012 AUM: $146.2 Million
The iShares Treasury Bond ETF (NYSEArca: GOVT) rapidly became the sweetheart of its segment following its launch on Feb. 14, 2012.
This product seems to have effectively filled a gap in the iShares lineup, offering core exposure to a market-cap-weighted index of U.S. Treasury bonds with maturities of one year or more.
Given the growing interest in targeted slices of the fixed-income space, a broad-based Treasury ETF was natural, and appears to have been welcome.
No. 8: iShares Emerging Markets High Yield Bond Fund (BATS: EMHY)
IndexUniverse Segment: Fixed Income: Emerging Markets - Broad Market High Yield
Launch Date: April 3, 2012
Year-End 2012 AUM: $198.3 Million
Combine two popular themes—emerging markets debt and high-yield bonds—and what do you get? A popular new ETF.
The iShares Emerging Markets High Yield Bond Fund (BATS: EMHY) won fans among investors looking for credits with higher-than-average yields coming from markets that are growing aggressively.
As the only fund in its segment, EMHY seems to have launched at the perfect time to fill a niche, as the nearly $200 million in assets clearly shows.
No. 7: Market Vectors International High Yield Bond ETF (NYSEArca: IHY)
IndexUniverse Segment: Fixed Income: Global Ex-U.S. - Corporate High Yield
Launch Date: April 2, 2012
Year-End 2012 AUM: $209.9 Million
The Market Vectors International High Yield Bond ETF (NYSEArca: IHY) saw success in 2012 for many of the same reasons as EMHY.
However, unlike EMHY, IHY includes developed international, in addition to emerging market, bonds.
Also similar to EMHY, it's the only fund of its kind, and its April 2012 launch fortuitously struck a chord among investors.
No. 6: iShares MSCI Global Select Metals & Mining Producers Fund (NYSEArca: PICK)
IndexUniverse Segment: Equity: Global Metals & Mining
Launch Date: Jan. 31, 2012
Year-End 2012 AUM: $253.7 Million
Metals and miners is a popular category in the ETF space, but the predominant growth has been in gold miners, led by the $9.4 billion Market Vectors Gold Miners ETF (NYSEArca: GDX) from Van Eck.
iShares clearly thinks there's appetite for firms outside of gold and silver that nonetheless pull things from the earth, and it looks like the world's biggest ETF firm might be right.
iShares' MSCI Global Select Metals & Mining Producers ETF (NYSEArca: PICK) holds a global portfolio of mining firms, excluding gold and silver miners, and has pulled in more than $253 million in assets since its January 2012 launch.
Consider it an alternative play on the global resource boom.
No. 5: iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG)
IndexUniverse Segment: Equity: Emerging Markets - Total Market
Launch Date: Oct. 18, 2012
Year-End 2012 AUM: $261.0 Million
iShares rolled out its "Core" brand in October 2012, launching four new funds and revamping six existing ETFs. The strategy was iShares' way of jumping into the "ETF fee war," with ever-decreasing price tags on funds across the industry.
The iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG) was one of these Core funds, offering cheaper exposure to emerging markets than its peer, the iShares MSCI Emerging Markets Fund (NYSEArca: EEM). IEMG has an expense ratio of 18 basis points—or $18 for every $10,000 invested— compared to EEM's whopping 67 bps.
Plus, unlike EEM, IEMG includes small-cap stocks.
The only real surprise with IEMG is that it didn't attract more assets. It's more than likely that, over time, that's exactly what's going to happen.
No. 4: iShares Core MSCI EAFE ETF (NYSEArca: IEFA)
IndexUniverse Segment: Equity: Developed Markets Ex-U.S. - Total Market
Launch Date: Oct. 18, 2012
Year-End 2012 AUM: $279.4 Million
Like IEMG, the iShares Core MSCI EAFE ETF (NYSEArca: IEFA) was part of iShares' "Core" rollout.
Since its inception just two months before the end of the year, IEFA has brought in more than $279 million in assets.
It's cheaper exposure than the iShares MSCI EAFE Index Fund (NYSEArca: EFA), whose 34-basis-point price tag can't compete with IEFA's 14-basis-point price.
No. 3: iShares Aaa-A Rated Corporate Bond ETF (NYSEArca: QLTA)
IndexUniverse Segment: Fixed Income: U.S. - Corporate Investment Grade
Launch Date: Feb. 14, 2012
Year-End 2012 AUM: $316.5 Million
With the U.S. Treasury debt downgraded in the summer of 2011 and short-term notes yielding next to zero, some are turning to top-rated corporate debt as an alternative "safe credit" that nonetheless offers a bit more income than Treasurys.
Given its top-quality credit profile, QLTA pays out less than a broad-based, investment-grade corporate bond ETF like the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD), but it yields more than government bond ETFs of a similar ilk.
Traditional "investment grade" credits go down to" "BBB-"—this fund focuses instead on the "best of the best." Consider it "gold-plated fixed income."
No. 2: SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK)
IndexUniverse Segment: Fixed Income: U.S. - Corporate High Yield Short-Term
Launch Date: March 14, 2012
Year-End 2012 AUM: $621.6 Million
Short-term high-yield debt is resonating for investors looking for income.
The SPDR Barclays Short Term High Yield Bond ETF (NYSEArca: SJNK) and the Pimco 0-5 Year High Yield Corporate Bond Index ETF (NYSEArca: HYS) have pulled in significant assets by offering investors high payouts with a lower perceived risk.
The thinking here is twofold: First, shortening your duration protects you from rising interest rates; second, while high-yield debt is always risky, there's a feeling that short-term high-yield bonds are less risky, as investors expect short-term default rates to remain low.
Combine those considerations with SJNK's 7.7 percent current yield to maturity and, well, you've got a successful fund with more than $620 million in assets.
No. 1: Pimco Total Return ETF (NYSEArca: BOND)
IndexUniverse Segment: Fixed Income: Global - Broad Market
Launch Date: February 29, 2012
Year-End 2012 AUM: $3.87 Billion
Pimco's Total Return ETF BOND is the second-fastest-growing new ETF of all time after the bullion ETF, SPDR Gold Shares (NYSEArca: GLD). That's what you get when you combine the world's most famous bond manager—Bill Gross—a strong bond market and amazing performance.
BOND crushed not just the Vanguard Total Bond Market ETF (NYSEArca: BND) and other broad-based bond ETFs, but even Pimco's own Total Return Bond Fund (PTTRX).
It collected its first $1 billion in less than three months—quick, though not as lightning quick as GLD, which did it in three days back in November 2004—and is now well on its way to becoming a $4 billion ETF.
At the time this article was written, the author held no positions in the securities mentioned. Contact Hannah Tool at firstname.lastname@example.org.
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