Todd Rosenbluth is director of ETF and mutual fund research at CFRA.
With the ETF industry pulling in $400 billion of new money year-to-date through Nov. 20, it’s already been a record year. While many investors are gravitating to the well-aged ETFs, much like they do with wine or spirits, there are some interesting, and newer, products that are appealing, much like a Beaujolais nouveau or a bourbon.
Aided by our holdings-based and cost-factor-oriented fund rankings, we highlight some of ETFs from this year’s vintage that might make sense in your portfolio.
Unlike many other independent research providers that require a long track record to assess a fund’s index tracking or relative performance record, CFRA has rankings on 80 ETFs that started trading this year, and 259 with less than a three-year history (approximately 20% of CFRA's coverage).
We leverage our firm’s qualitative stock research to provide a forward-looking view of the holdings, and combine this analysis with relevant cost metrics, such as expense ratio and bid/ask spread. (CFRA will be speaking at the Inside ETF Conference in Florida in late January on a panel: “The Best New ETF of 2017: We Present, You Decide.”)
The Davis Select Worldwide ETF (DWLD), which launched in January 2017, has $121 million in assets. Unlike most other ETFs that are index-based, DWLD is an actively managed product, run by the same experienced duo that have delivered above-average risk-adjusted returns with CFRA five-star Davis Global Fund (DGFYX). However, there are some differences between DWLD and DGFYX, notably 20 fewer holdings in the ETF, a 0.07% lower net expense ratio (0.65%) and no minimum initial investment.
The IQ Chaikin U.S. Small Cap ETF (CSML) launched in May 2017 and has $309 million in assets. While there are many multifactor ETFs combining fundamental and technical screens, the quantitative model behind CSML has 20 inputs. These are broken into value, growth, technical and sentiment components.
However, there are other appealing, yet recently launched, ETFs that offer a twist on a firm’s successful product lineup, but that have thus far failed to gain investor interest.
For example, the iShares MSCI Emerging Markets ex China ETF (EMXC) launched in July and has $10 million in assets. Meanwhile, the iShares MSCI Emerging Markets (EEM) and the iShares Core MSCI Emerging Markets (IEMG) have a combined $80 billion in assets. China represents the largest country exposure for both ETFs (30% for EEM and 29% for IEMG), and due to slow addition of China-A shares to MSCI emerging market indices over the next few years, the country weightings are likely to move higher.
Another largely ignored ETF that could gain appeal is the Goldman Sachs ActiveBeta U.S. Small Cap Equity ETF (GSSC). The ETF launched in June 2017 and has just $8 million in assets. Meanwhile, the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) has $2.6 billion in assets, despite coming to market in September 2015.
GSSC follows a similar equal-weighted factor approach as GSLC—focused on value, momentum, quality and low volatility—but implemented using small companies. GSSC has a 0.20% expense ratio, modest for any ETF, and especially a small-cap smart-beta offering.
At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA.