Another Me-Too ETF

September 06, 2011

When I look at all the various ETFs that are in the works, I find myself wondering if sometimes we’re seeing too much of a good thing.

Case in point—Olly Ludwig’s story, Goldman Plans Low-Beta US Equities ETF. It sounds like an interesting product—essentially, it will take 70 percent of the U.S. stocks with the lowest betas and weight them based on their “intrinsic value.”

Sounds cool, right? Except that Russell rolled out a similar low-beta ETF back in May. It’s true that the Russell 1000 Low Beta ETF (NYSEArca: LBTA) limits its stock universe to the large-cap stocks in the Russell 1000. But, in theory, it’s the small-cap securities that generally have higher betas, and thus will be removed by Goldman’s screen.

There are now 258 ETFs on the market focusing on some aspect of U.S. size & style—197 if you don’t count the leveraged and inverse funds.

Of these 197, 25 are U.S. total market funds; 88 are large-caps; 36 are midcaps; 41 are small-caps; three are small- and midcaps; and four are micro-caps.

Some of the newer funds are genuine additions to the market. Sometimes, though, it seems like issuers are creating ETFs just to create ETFs. As an example, 28 different ETFs share their underlying index with at least one competing ETF.

The S&P indexes are especially popular—three ETFs track the S&P 500, three track the S&P MidCap 400 and there are pairs of ETFs that track the S&P 500 Growth, S&P MidCap 400 Value, S&P Small-Cap 600, S&P Small-Cap 600 Growth and S&P Small-Cap 600 Value.

Not much differentiates those ETFs from each other—basically just their brand names, expense ratios and whether the brokerage firm you use will let you trade commission free.

I’m not saying all of the U.S. ETFs out there are the same. They aren’t. If 28 funds share indexes, 169 don’t. The chart below shows the performance of five different large-cap indexes over the past five years, and is just an example of the differences between different products.

Large Cap Iindexes - 5 Year Performance Comparison


Unfortunately, it seems like few of the new U.S. equity funds are new and interesting—or very different from the U.S. equity funds already out there. But we’ll see—I love surprises.


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