It doesn’t look like 2019’s pace of ETF launches will have kept up with last year’s. Through the end of October, roughly 200 new U.S.-listed ETFs had come to market, short of the nearly 230 funds that launched during the same period in 2018. That gap could narrow by year end, but probably not completely.
But the number of new ETFs hitting the market remains robust, and innovation in the ETF space certainly hasn’t gone away. This year, we’ve seen a number of new ETF brands and issuers make their debuts—Avantis, Overlay, Syntax and Timothy Plan, among others.
Funds have broken new ground, from the first space ETF, the Procure Space ETF (UFO), to the first vegan ETF, the U.S. Vegan Climate ETF (VEGN).
Let’s not forget about the host of cannabis funds that have launched this year, the many long/short “relative value” ETFs from Direxion, or Goldman’s suite of thematic Motif funds.
There’s something for everyone in the ETF class of 2019.
Of course, just being a novel and interesting product is not enough to attract assets. Many ETFs simply don’t resonate with investors. Most new funds struggle to gain any traction, while only a select few catch fire. Cracking the $100 million mark for a new ETF is an accomplishment, and enough to put a fund in the top tier of launches.
Indeed, the top 10 launches this year have inflows from $117 million all the way up to $1.6 billion. These are the funds we’ll be taking a look at here.
Riding The ESG Wave
VEGN may have gotten a lot of headlines, but investors were more enamored with two other ESG funds. The iShares ESG MSCI USA Leaders ETF (SUSL) and the Xtrackers MSCI U.S.A. ESG Leaders Equity ETF (USSG) gathered assets of $1.6 billion and $1.5 billion, respectively, in their short time so far on the market.
Both funds were developed in collaboration with Ilmarinen, Finland’s largest pension insurance company, which plowed more than $800 million in each fund right off the bat. But assets in the ETFs continued to grow in the following months, reflecting the strong interest for well-designed ESG funds with marketlike exposure.
Both SUSL and USSG track essentially the same index, aiming for coverage of about half of their large and midcap U.S. equity universe.
While no other new fund has come close to the success of SUSL and USSG, the Franklin Liberty U.S. Core Bond ETF (FLCB) is no slouch, picking up a stellar $892 million in assets.
FLCB is an actively managed bond fund that aims for similar risk/reward characteristics as the Bloomberg Barclays U.S. Aggregate Bond Index. No doubt, the fund mangers are aiming to outperform the index, but they intend to hold returns within 50 to 100 basis points of the Agg.
FLCB charges 0.15% in annual expense ratio, compared with 0.05% for the $65.7 billion iShares Core U.S. Aggregate Bond ETF (AGG).
FLCB is one of two bond ETFs on the top 10 launches list and one of four income-focused funds. The Aware Ultra-Short Duration Enhanced Income ETF (AWTM), with $282 million of inflows, has a 0.23% expense ratio and launched in January.
It’s an actively managed product that holds ultra-short-term, investment-grade bonds from government and corporate issuers.
Meanwhile, the Virtus Real Asset Income Fund (VRAI), which now has $246 million in assets under management (AUM), delivers income by holding stocks of companies in “real asset categories,” such as real estate investment trusts, natural resource firms and infrastructure companies.
A look at the fund’s holdings reveals a mix of energy companies, steel manufacturers, REITs, telecom giants, utilities and more. The ETF currently has a fairly sizable 30-day SEC yield of 5.5%.
From the same issuer, the Virtus Private Credit Strategy ETF (VPC) also has a hefty yield: 8.5%. VPC attracted $212 million in assets so far this year by providing exposure to the private credit markets.
The fund’s portfolio includes business development companies and closed-end funds with “significant exposure to private credit instruments such as collateralized loan obligations, mezzanine loans and bank loans,” according to the issuer.
Rounding out the list of top launches are a handful of unique equity funds. Two of them are thematic in nature. The Global X Cloud Computing ETF (CLOU), with assets of $458 million, and the Defiance Next Gen Connectivity ETF (FIVG), with assets of $117 million, have both been hits.
Few industries right now are hotter than cloud computing. Whether it’s software as a service, platform as a service or anything as a service, if it’s tied to the cloud, it’s been hot.
Software stocks, which make up the bulk of the cloud-computing industry, have been on a tear over the past few years, and up until now, there’s only been a handful of funds that specifically target them. CLOU provides more concentrated exposure to the space by doing away with or minimizing its positions in the more diversified technology giants—such as IBM or Oracle—that can be found in other software ETFs.
FIVG also hits on a hot technology theme; namely, the development of 5G communications. It has $117 million in assets and holds shares of companies like Skyworks, Marvell Technology, Analog Devices, Xilinx and AT&T.
Value Rotation Helps 1 Fund
Though growth stocks have outperformed value stocks for much of this cycle, there was a period this fall when that trend reversed briefly and abruptly. That may help explain the success of the $151 million Avantis U.S. Equity ETF (AVUS), which is an actively managed fund that aims to hold highly profitable, value-type stocks.
Finally, the Innovator S&P 500 Power Buffer ETF - April (PAPR), a $130 million fund, is one of the monthly cap-and-buffer strategies put out by Innovator. In particular, PAPR tracks “the return S&P 500 Price Return Index, up to a predetermined cap, while buffering investors against the first 15% of losses over the outcome period.” It’s part of the hugely successful Innovator family of defined outcome ETFs, which has more than $1.5 billion in AUM across its lineup.