ETFs Continue To Slice Market Thinner

April 20, 2016

A common refrain we hear as more and more ETFs come to market is, “How many ETFs do we really need?”

With more than 1,800 exchange-traded products listed in the U.S., compared to more than 8,000 mutual funds, there would seem to be enough, but that also depends on how thin you prefer your markets to be sliced.

The roots of index investing, and even the 22-year old SPDR S&P 500 (SPY | A-98), reside in the idea of capturing broad pieces of the stock, bond and even commodity markets. But as the ETF industry has evolved, all the low-hanging broad market exposure has been captured in an ETF wrapper.

Narrowing Focuses

In today’s 21st-century ETF market, we have been seeing a move away from broad-type and into niche exposures as ETF issuers slice and dice financial markets in new ways.

We are approaching market slices thinner than the ginger that is served with wasabi and your sushi. Consider some of the novel and highly focused ETF launches we have seen in recent months:

  • The Sprott Buzz Social Media Insights ETF (BUZ) launched this week on Tuesday. The fund tracks an index that selects and ranks companies based on positive sentiment about them, and on volume of chatter about them in social media.
  • The Global X S&P 500 Catholic Values ETF (CATH) also launched this week. The fund essentially tracks a screened version of the S&P 500 that includes companies that are acceptable under social responsibility standards set forth by the United States Conference of Catholic Bishops.

Drone ETF Takes Flight

  • The PureFunds Drone Economy Strategy (IFLY) came out last month, and tracks an equity index of global companies related to the drone industry. IFLY debuted in tandem with the PureFunds Video Game Tech (GAMR), which—as advertised in its name—follows an equity index of global firms that support, create or use video games.
  • The SPDR SSGA Gender Diversity (SHE) also made its debut in March, offering investor exposure to a market-cap-weighted index of U.S. large-cap companies with a relatively high proportion of women in executive and director positions.
  • The Market Vectors Generic Drugs (GNRX) came to market earlier this year, paring the pharmaceutical industry down to U.S. and international companies that have a primary business focus on the generic drug industry.
  • The SPDR S&P 500 Fossil Fuel Free (SPYX) launched last November, offering investors a way to exclude companies with known fossil fuel reserves.
  • The Etho Climate Leadership U.S. ETF (ETHO) is another newbie, coming to market last November, which tracks an index that selects U.S. equities of companies that exhibit the least carbon impact within their respective industries.

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