This was a big year for ESG investing, and two environmental, social and governance ETFs in particular received a warm welcome. The iShares ESG MSCI EM Leaders ETF (LDEM) claimed the No. 4 spot, with $661 million after launching in February. Meanwhile, the iShares ESG Advanced Total USD Bond Market ETF (EUSB) fell into the No. 18 spot, with $136 million after launching in June.
LDEM counts Finnish pension insurer Ilmarinen as its largest shareholder. Ilmarinen was behind two of the biggest launches of 2019, both of which are ESG funds.
EUSB is notable because it’s one of the few fixed income ESG funds available to investors.
Surprisingly, despite a decade of hype before they started launching, only one nontransparent actively managed ETF made it into the ranks of the top launches in 2020. The American Century Focused Dynamic Growth ETF (FDG) was No. 15 on our list, with $190 million at the end of October.
The fund invests primarily in midcap and large cap U.S. growth companies. It discloses its holdings 15 days after the end of each quarter—rather than daily or monthly—and are therefore referred to as semitransparent ETFs. Although roughly a dozen active funds that don’t disclose their holdings daily have rolled out, FDG is the only one that cracked the top 20 ranks.
The year also saw a bevy of new ETFs launch after the effects of the coronavirus became clear. The Global X Telemedicine & Digital Health ETF (EDOC) is perhaps the most successful of these. It launched in late July and currently has $387 million, claiming the No. 8 slot in the top 20.
EDOC is a pretty straightforward fund that clearly was intended to capitalize on the paradigm shifts caused by the pandemic. However, its close neighbor on the list, the iShares U.S. Tech Breakthrough Multisector ETF (TECB), rolled out in January, well before COVID-19 really took off at the global level. That said, TECB captures many of the trends that pandemic-inspired ETFs are focused on. It has $318 million in assets and fell into the tenth spot on the list.
The Direxion Work From Home ETF (WFH) and the Roundhill Sports Betting & iGaming ETF (BETZ) are in the Nos. 18 and 20 spots, respectively, with $137 million and $129 million in assets. The former launched in late June, while BETZ debuted earlier in the month.
WFH is an obvious pandemic beneficiary, while BETZ is probably less so. However, it’s a unique fund that no doubt got a boost from millions of consumers finding themselves sequestered in their homes with an internet connection—and probably some beer.
Risk Management ETFs Dominate
Market risk has been at the forefront of investors’ minds, and in 2020 we saw a host of new-to-ETFs tools hit the market, including seven funds that made it into the top 20.
First Trust saw two of its defined outcome ETFs gather significant assets during the year. These risk management tools allow investors to see their downside exposure mitigated, usually to the tune of 5% or more, while their upside participation is also limited or reduced.
The FT Cboe Vest U.S. Equity Deep Buffer ETF - February (DFEB) protects against losses ranging from 5-30%, meaning that investors can lose up to 5% in a decline, but then are protected from further losses up to a 30% decline in the S&P 500 Price Index. DFEB ended October with $506 million in assets and claimed the No. 5 spot.
Its counterpart, the FT Cboe Vest U.S. Equity Buffer ETF - February (FFEB), claimed the No. 12 spot, with $245 million in assets. It protects the investor against the first 10% of losses.
Newcomer Cabana saw three of its ETFs make it into the top 20. The funds in this family, which all launched in September, invest in multiple asset classes—including equities, fixed income, real estate, currencies and commodities—with the intention of limiting downside risk and allowing the investor to stay invested in the market. Its strategy relies on repeating business cycles, with funds looking to limit losses to targeted percentages ranging from 5% to 16%, though the methodology is very different from those of defined outcome ETFs.
BYOA Becoming House Rule
Much of what we’ve seen above are prime examples of the “Bring Your Own Assets” (BYOA) trend that’s been prevalent in the ETF space during the past few years. The strategies were previously available as separately managed accounts.
With Cabana, the new products were seeded with a total of $1 billion—not bad for a small advisory firm that just passed $1 billion in assets under management before getting into ETFs for the first time.
The three funds included in the top 20, and their assets, are as follows: Cabana Target Drawdown 10 ETF (TDSC), $502 million; Cabana Target Drawdown 7 ETF (TDSB), $329 million; and Cabana Target Drawdown 13 ETF (TDSD), $158 million. The funds claimed the Nos. 6, 9 and 17 spots, respectively, among the top funds.
Another risk management ETF in that top 20 is the 6 Meridian Hedged Equity-Index Option Strategy ETF (SIXH), which rolled out in May, and claimed the No. 14 spot.
While the entire 6 Meridian family of ETFs has a focus on high quality or low volatility stocks, SIXH is the only one that implements an options-based hedging strategy designed to perform well in down markets. Wealth manager 6 Meridian, similar to Cabana, packaged products it had run in other wrappers into an ETF structure; almost all of its four ETFs have substantial assets.
Finally, the defined outcome Innovator Russell 2000 Power Buffer ETF - January (KJAN), the remaining risk management ETF in the top 20, claims the No. 16 spot, with $166 million in assets. It’s not surprising that this particular fund should have so much in assets: Small cap stocks have been a popular asset class for investors seeking diversification, but they’ve severely underperformed the broader U.S. market year to date. Innovator rolled out its first buffer funds in 2018 and has since amassed $4.5 billion in assets in this category.