Vanilla Still Favorite ETF Flavor In US

October 30, 2013

My colleague Dennis Hudachek, in his blog, “ETF Filings with Blockbuster Potential,” reminded us of the difficulties ETF issuers face in launching new funds.

The data back up Dennis’ contention that the billion-dollar blockbuster launch is a thing of the past. Only two of the launches of the past 12 months have cracked the $1 billion level, and both were bespoken ETN creations.

Cinthia Murphy’s post on the 10 most popular ETF so far this year made clear that nine out of the 10 top asset gatherers year-to-date are what we call plain-vanilla funds—funds based on simple indexes that select and weight securities by market cap. The top asset gatherer, Wisdom Tree’s Japan Hedged Equity fund (DXJ | A-45), stands out as much for its complexity as for its parabolic growth.

Here at Index Universe, we report on events and issues of the day, not on the status quo. The drumbeat of stories on new launches, whether currency-hedged, factor-based or niche-oriented, gives the impression that the U.S. ETF world is embracing complexity. While this may be true in terms of the number of funds and the types of new launches, fund assets tell another story.

The table below ranks the 30-largest funds that together accounted for 50 percent of U.S. ETF assets under management as of Oct. 23. In compiling this table, I took the liberty of categorizing funds by level of complexity: “Vanilla,” “Cookies & Cream” and “Wavy Gravy.”*

“Vanilla” funds are the simplest—selected and weighted by market capitalization; “Cookies & Cream” funds have a sprinkling of complexity in their selection logic; and “Wavy Gravy” funds are the most complex, with selection or weighting schemes that skew their portfolios away from the broad market.




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