ETF OF THE YEAR
WINNER: Vanguard Total International Bond Index (BNDX)
The ETF of the Year this time around is a fund that’s supposed to be boring—we’re talking deadly boring. After all, bonds are supposed to provide the ballast to a portfolio when markets are recklessly rampaging upward and soften the blow when they tank. They’re generally considered a stabilizing force.
With the SPDR S&P 500 ETF Trust (SPY) charging past records all year—ultimately rising more than 30%—it’s no wonder ETF investors started getting a little nervous and flooded into fixed income funds, to the tune of more than $150 billion in inflows. At the same time, BNDX consistently did its job, trucking along behind SPY and moving steadily upward to offer a nearly 8% annual return.
The fund also saw record inflows during the year, roughly doubling its assets under management as it gained more than $11 billion, propelling it into the ranks of the top 10 ETFs for inflows for the year.
BNDX is an investment-grade, non-USD-denominated bond index, hedged against currency fluctuations for U.S. investors. Its main competitor is the very similar iShares Core International Aggregate Bond ETF (IAGG), which is just 1 basis point more expensive, but has a little more than half the number of BNDX’s holdings. IAGG has $2.2 billion in assets.
The performance of the two funds is closely matched, which is unsurprising given that they track very similar indexes. They’re essentially the only funds covering this exact space.
Ultimately, BNDX offers low-cost and highly liquid exposure to a core asset class, and in 2019, it performed exactly the way it was intended. For these reasons, it’s a worthy recipient of the ETF of the Year award.
MOST INNOVATIVE NEW ETF
WINNER: Direxion MSCI USA Cyclicals Over Defensives ETF (RWCD)
Innovation is really the name of the game with ETFs, and in 2019, Direxion pushed the boundaries a little more, when it rolled out a family of ETFs that take long/short positions in what are typically seen as opposing macro trends. The Direxion MSCI USA Cyclicals Over Defensives ETF (RWCD) offers long exposure to cyclical stocks and short exposure to defensive stocks, a strategy that has served it well.
While there have been other long/short products available, no issuers have used this approach with such specificity, and none for such a low expense ratio. RWCD is representative of a lineup of 10 ETFs that play different macro pairs against each other such as foreign versus domestic, emerging markets versus developed markets and large versus small. The funds allow shareholders to express their opinions on macro trends with a chance for greater returns than would be possible with a long-only exposure.
The funds give investors easy access to a strategy that would require careful monitoring to execute on one’s own, and at a reasonable price—most of the funds in the family cost 55 basis points or less.