What Makes A Good ETF Launch?

March 16, 2011

FactorShares is pleased its recently launched 2X Oil Bull/S&P500 Bear ETF (NYSEArca: FOL) has traded 1 million shares. But does it matter?

You might remember FOL and its related suite of products from their long-awaited launch a few weeks ago. A relative newcomer to the ETF space, FactorShares designed the suite to track spreads, allowing investors to simultaneously hold long and short positions in one security. The idea is to double up on your exposure to the underlying indexes for each product.

Here’s how I described them last year when they were filed:

“Each ETF is a levered bet on a spread between two indexes, one of them always the S&P 500. The Equity Premium ETF will go long the S&P 500 and short 30-year Treasurys (through futures). The fund might do well if the equity market stays flat or rises, while bond prices collapse in a rate-raising environment. The “Anti-” version, meanwhile, makes the opposite bet, and the Anti-USD version extracts changes in the U.S. dollar from the S&P 500.

“More interesting perhaps are the oil and gold ETFs, which go long the commodity and short the S&P. The idea is to capture patterns of returns that investors can find elusive.”

The core premise holds, as do the caveats I pointed out then—that the commodities funds are tracking futures, with all the contango issues involved there. And, as with most leveraged funds, they rebalance daily, requiring constant vigilance to keep in check. Constant vigilance seems counter to the idea of buying a packaged spread—convenience.

It took a long time for these ETFs to get to market—over a year. Now that they’re alive and kicking, I’ve wondered if they captured any interest with investors seeking new strategies. So I looked. And despite FactorShares’ optimism in their press release this week announcing the launch of FOL, the outlook is pretty grim.

Each of the products—FOL, FSG, FSU, FSA and FSE—launched with around $5 million in assets under management. Since that time, only FOL has accumulated additional assets, brought in from one day of trading on March 4 that added almost $3 million to its holdings. That’s chump change in the world of ETFs, and it doesn’t matter how many trades it took to get you there.

 

FactorShares Flows Since Inception

 

So should FactorShares be trumpeting the “million-share milestone” here? Here’s the volume chart for all five funds since inception:

 

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