[This article appears in our December 2020 issue of ETF Report.]
On par with the rest of the world, this year has been a strange and wild ride for ETFs in many corners of the industry. Launches have been going strong, and closures have been hitting record levels before the 12 months are even over.
There were 235 launches in the first 10 months of 2020, and the largest of them are nothing to sneeze at. They are also perhaps the least surprising things about the events of 2020.
The top 20 launches of the first 10 months of 2020 basically reflect the most-talked-about trends of the year, but perhaps not in the way most might expect. Plain vanilla ETFs have long been the largest asset gatherers, and were well-represented in the ranks; however, ESG—perhaps the most talked about investment trend in 2020, with at least 20 associated launches—only had two representatives among the top launches.
But risk management tools are really the big winners. Defined outcome ETFs had their first truly big year, and similar strategies have proliferated. Investors have been nervous during the pandemic and in the lead-up to the election, increasing the appeal of such products. They’re the largest category in the top 20 launches, outnumbering even the plain vanilla funds.
Plain Vanilla Leaders
Simple, plain vanilla passive investing took the crown for highest assets under management for new launches in 2020. The JPMorgan BetaBuilders U.S. Mid Cap Equity ETF (BBMC) claimed the top spot and had more than 1 billion as of the end of October, after launching in mid-April. The equity fund is the latest of the passive market-cap-weighted ETFs that J.P. Morgan began rolling out in 2018.
The popular BetaBuilders family currently includes nine ETFs covering core asset classes with rock-bottom pricing. BBMC, for example, comes with an expense ratio of 0.07%. The broad U.S. ETF in the same family charges just 2 basis points.
Interestingly, the bulk of BBMC’s assets came in quite recently: More than $1 billion in flows flooded the fund in the last half of October.
The iShares 0-3 Month Treasury Bond ETF (SGOV) trailed fairly closely behind. The fund launched in late May and has $915 million in assets. Because iShares is the largest ETF issuer in the world, it’s not shocking that it has one of the year’s top launches.
Maybe what’s more surprising is that, with so many other ETF options for what is essentially a money market fund, SGOV took in nearly $1 billion in about five months. The bulk of that comes from Boston Private Wealth, an advisory firm that, at last count, had $737 million invested in the fund. SGOV tracks an index of U.S. Treasury securities with three months or less of remaining maturity.
Fixed income ETFs have been dominating ETF inflows in 2020, pulling in $160 billion through the end of October versus $91 million for U.S. equity ETFs, and SGOV is likely surfing that wave. Its bargain basement expense ratio of 0.03% probably doesn’t hurt either.
One of the only other fixed income ETFs besides SGOV to make the top 20 was the Franklin Liberty U.S. Treasury Bond ETF (FLGV), which claimed the No. 7 spot, with $424 million. The actively managed fund invests in U.S. Treasurys that have one to 30 years of remaining maturity. It uses derivatives to enhance its returns.
Fees Factor In
The top two new ETFs of 2020 seem to reflect the fact that the lowest-cost and simplest ETFs claim the highest assets every year. This trend continues with the Xtrackers MSCI Kokusai Equity ETF (KOKU), which launched in April and had $731 million in assets under management at the end of October. It’s in the No. 3 spot.
KOKU is interesting, because it has one institutional shareholder that represents most of the fund’s assets: Nissay Asset Management, a subsidiary of Nippon Life Group. The ETF is basically an EAFE fund for Japanese investors, tracking developed markets with the exception of Japan.
The fund has one competitor, the iShares MSCI Kokusai ETF (TOK), which has been around since 2007 and has about $152 million in AUM. The reason for that disparity is likely the fact that TOK costs 0.25% versus KOKU’s 0.09% expense ratio.
Further down the list of top new launches are two plain vanilla funds launched by Goldman Sachs. The Goldman Sachs MarketBeta International Equity ETF (GSID) and the Goldman Sachs MarketBeta U.S. Equity ETF (GSUS) claimed the No. 11 and 13 spots, with $263 million and $243 million in assets, respectively.
The two funds were part of a three-fund rollout in May and track simple cap-weighted indexes: one covering developed markets and the other the U.S. They are the first plain vanilla funds to be added to the Goldman lineup, one similar in simple vanilla construction to the JP Morgan BetaBuilders brand.
Clearly the titans of Wall Street are all in regarding their ETF push.
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