A close look at the most popular new ETFs reveals a vibrant and varied fund industry.
Here at ETF.com, we monitor ETF flows religiously on a daily basis. Our daily flows report is based on total dollars; we often see the same tickers on the list.
Those usually include tickers like the SPDR S&P 500 ETF (SPY | A-98), the iShares MSCI Emerging Markets ETF (EEM | B-99) and the SPDR Gold Shares (GLD | A-100) because they’re some of the largest ETFs in the world. So, naturally, big money is constantly moving in and out of these funds.
But I also like to look at flows as a percentage of assets under management (AUM) to gauge which themes new money is flowing into and how macro sentiment may be changing in certain markets.
After all, a $100 million inflow into a $200 million fund (50 percent of AUM) carries a bigger impact on the fund than a $100 million inflow into a $43 billion fund like EEM (0.23 percent of AUM).
As most of us are aware, AUM is calculated by multiplying the fund’s net asset value (NAV) per share by total shares outstanding. So, there are two components to a fund’s asset growth: appreciation in the underlying securities; and the creation of new shares from inflows.
Oftentimes the two go hand in hand. As a fund performs well, it generates more attention, so investors tend to throw more money into the fund, and vice versa.
For the purpose of this blog, I looked at ETF assets on Jan. 1, 2014, and total year-to-date flows into the fund, as of July 31, 2014. These growth figures are based solely on inflows, so it doesn’t take into account any NAV appreciation. I also excluded funds that launched in 2014, as well as any funds classified by ETF.com as “inverse” or “leveraged.”
Jan, 1, 2014 AUM: $22.4 million
2014 Inflows: $222 million
2014 Fund Growth: 993 percent
Launched in August 2012, BBRC was the first-to-market “beyond BRICs”-themed ETF. Not only does BBRC strip out the BRICs, but it also strips out South Korea and Taiwan, and saves 25 percent of its weighting for frontier markets.
For 58 basis points, BBRC holds 75 securities from smaller emerging markets like Mexico, South Africa and Malaysia, and 15 securities from larger frontier markets like Qatar and Nigeria, effectively making it a “smaller emerging market/larger frontier market” blended ETF. It now trades more than $1.3 million a day, but spreads still average 31 basis points, so limit orders are recommended.
It seems the “beyond BRICs” theme is catching on. BBRC’s competitor, the Global X Next Emerging & Frontier ETF (EMFM | C-36), was the sixth-fastest-growing ETF, with 2014 fund growth of 973 percent. It also suggests more investors are accepting blurring the line between the emerging and frontier markets.
I expect this theme to gain momentum in the coming years.
Jan, 1, 2014 AUM: $1.56 million
2014 Inflows: $29.1 million
2014 Fund Growth: 1,860 percent
Peripheral eurozone equities have been hot in 2014, at least until a few weeks ago. For 61 basis points, the cap-weighted PGAL offers concentrated exposure to 20 of the largest Portugese companies. While it’s had impressive growth in 2014, PGAL is still a $38 million fund and trades with 38-basis-point spreads, so careful trading is warranted.
Interestingly, in the three weeks following Espirito Santo Financials Group’s trading suspension of its shares on July 10, PGAL actually had inflows of $6 million. If you look at flows from July 10 to Aug. 15, PGAL had total inflows of $22 million.
Jan. 1, 2014 AUM: $1.35 million
2014 Inflows: $29.7 million
2014 Fund Growth: 2,197 percent
TRSK is an interesting fund that targets long U.S. equity exposure, with a complex long/short VIX overlay strategy aimed at reducing downside risk. Despite its use of leverage in its VIX futures overlay, we classify TRSK as a U.S. large-cap ETF.
Eighty-five percent of the fund is equally weighted between three popular S&P 500 ETFs. The remaining 15 percent is allocated to a 2X long VIX futures and a -1X short VIX futures position, targeting a 35 percent net long VIX futures exposure. The short VIX position is meant to offset decay costs, which can be steep over time, from any contango in the long VIX futures position.
TRSK, which charges 71 basis points, had a slow start when it launched in June 2013. At the beginning of the year, it only had $1.4 million in AUM, but it’s made a big comeback thus far in 2014. While liquidity has also picked up, it’s still thin, trading $16,000 on most days at 25 basis point spreads, so careful trading is still warranted here.
Jan. 1, 2014 AUM: $7.86 million
2014 inflows: $195 million
2014 Fund Growth: 2,505 percent
DBEU holds over 400 large- and midcap European stocks while neutralizing underlying currency exposure relative to the U.S. dollar. It’s “all Europe” approach means non-eurozone countries like the U.K., Switzerland and Sweden make up a combined 50 percent of its weighting. DBEU’s liquidity has picked up significantly, and it now trades close to $1 million on most days at 18 basis point spreads.
DBEU’s larger competitor, the WisdomTree Europe Hedged Equity ETF (HEDJ | B-49), which targets only eurozone securities, has also had a great year with flows. If Japan currency-hedged ETFs were all the rage in 2013, 2014 is shaping up to be the banner year for currency-hedged Europe ETFs, at least thus far.
Jan. 1, 2014 AUM: $3.07 million
2014 Inflows: $197.8 million
2014 Fund Growth: 6,450 percent
FTGC tops our list by a long shot, with a staggering 6,550 percent fund growth in 2014. The relatively new fund is the first actively managed broad commodity ETF. The fund manager selects contracts based on lower volatility and correlations relative to other commodities. FTGC has gained significant traction in 2014, now trading close to $1.7 million on most days at 17 basis point spreads.
Also worth note: FTGC is the first futures-based commodity ETF structured as a 1940 Act open-ended fund. It holds futures contracts through a subsidiary in the Cayman Islands, and caps this Cayman subsidiary to 25 percent of its weighting so it adheres to regulated investment company rules. This means FTGC doesn’t distribute K-1s, likely appealing to many retail investors.
At the time this article was written, the author held a long position in BBRC. Contact Dennis Hudachek at [email protected], or follow him on Twitter @Dennis_Hudachek.