[This article appears in our December 2017 issue of ETF Report.]
More than 20 ETFs that launched during the first 10 months of 2017 have achieved assets under management of more than $100 million. What’s most notable about the largest launches of the year is the level of ownership by their own issuers or firms affiliated with their issuers.
The biggest winner this year so far has been the iShares Core MSCI International Developed Markets ETF (IDEV), which rolled out in March and currently has $713.4 million. The fund offers plain-vanilla exposure to non-U.S. developed markets for a low expense ratio of just 0.07%, only 1 basis point more than the cost of the $12.5 billion Schwab International Equity ETF (SCHF). It’s also cheaper than the $39.8 billion iShares Core MSCI EAFE ETF (EFA), which covers developed countries, except for the U.S. and Canada—charging 0.33%.
Typical of any major iShares launch, this fund has fairly diverse institutional ownership. However, that’s not the case for the rest of the top 10 launches of 2017. And while IDEV represents pure-beta exposure, that’s not so for the vast majority of the other funds comprising the top 10 launches.
The ETF industry as grown out of the plain-vanilla, cap-weighted era of broad asset class exposures and has entered a much more niche phase characterized by more complex strategies and more targeted sections of the markets.
The PowerShares Treasury Collateral Portfolio (CLTL) is a distant second to IDEV, with $454 million in assets under management gathered since its launch in January. However, based on the last available data, virtually all of that is held by the parent company of its issuer, Invesco Ltd. The fund covers ultra-short-term Treasury debt at an expense ratio of 0.08%. It’s designed for use by institutional and large investors that need a liquid vehicle for liquidity and
The Principal Active Global Dividend Income ETF (GDVD), which invests in global dividend-paying stocks, made its debut in May and currently has $453.5 million in assets. The bulk of that accumulated to the fund shortly after its launch, and as with CLTL, the issuer holds most of the fund’s assets. Principal has said that it often launches funds it knows it will use in its own asset allocation strategies, so that’s not exactly a surprise. GDVD comes with an expense ratio of 0.58%.
The DeltaShares S&P 500 Managed Risk ETF (DMRL) is in the No. 4 spot, despite having just launched in August. The ETF was part of a four-fund rollout by Transamerica when it entered the ETF market. The fund has $405.1 million in AUM.
Per WhaleWisdom.com, the bulk of that is held by Milliman Financial Risk Management, DMRL’s subadvisor. DMRL allocates among equity, fixed income and cash, depending on volatility and correlations, with the intention of limiting volatility and downside risk. It costs 0.35%.
The DeltaShares S&P International Managed Risk ETF (DMRI) is in the No. 6 spot, with $240.8 million, and like DMRL, is primarily owned by Milliman. DMRI charges an expense ratio of 0.50%.
The IQ Chaikin U.S. Small Cap ETF (CSML), a multifactor smart-beta small-cap fund, is in the No. 5 spot among this year’s launches, with $269.9 million in assets under management. New York Life, the parent company of issuer IndexIQ, owns the largest portion of the fund, which made its debut in May. CSML comes with an expense ratio of 0.35%.
Another Principal fund is ranked at No. 7. The Principal U.S. Mega-Cap Multi-Factor Index ETF (USMC) launched in mid-October, and already has $212.5 million in AUM. It comes with a very low expense ratio for a smart-beta fund, just 0.12%.
Meanwhile, the Main Sector Rotation ETF (SECT) rolled out in September and quickly accumulated $207.2 million, with much of that likely coming from existing Main Management clients. It’s a rather pricey fund, at 0.88%, but that’s not surprising given that it’s actively managed and invests primarily in other ETFs.
The fund coming in ninth for assets in new launches is the Goldman Sachs Access Investment Grade Corporate Bond ETF (GIGB), with $175.6 million. GIGB, which launched in June, is a broad index-based investment-grade corporate debt fund with a smart-beta twist that screens potential components based on their fundamentals. Although JPMorgan Chase owns a significant portion of the fund, it has fairly diverse institutional ownership compared with most of the funds in this article. It comes with an expense ratio of just 0.14%.
Finally, at the bottom of the top 10, is the FormulaFolios Tactical Income ETF (FFTI), which launched in June and currently has $135.3 million, most of it owned by the issuing firm. FFTI is an ETF of ETFs that targets global fixed-income securities in five buckets. It’s actively managed, but uses a proprietary model that considers yield spreads and price momentum when selecting which asset classes to invest in. It’s the most expensive of the lot, with an expense ratio of 1.00%.
Of the year’s top 10 launches, nearly half were equity funds, with three targeting fixed income, and another two representing multiple asset classes. More than half were focused on the U.S., while two were global and another two focused on developed markets. Only three were actively managed, but two of those (SECT and FFTI) invest primarily in other ETFs that track indexes.