If you were worried ETF issuers would run out of ideas for new funds anytime soon, set those concerns aside. A little over halfway through 2019, ETFs are still launching at a consistent pace, more or less in line with what we saw in 2018.
By our count, 113 funds launched in the first half of this year, slightly less than the 128 that launched during the same period last year.
Taking a quick glance at the launches list, you’ll see many of this year’s new funds come from small issuers hoping to make a splash with their niche products. If they can take just a tiny slice of the $4 trillion U.S. ETF market from the big issuers, they’ll be happy.
Of course, the big issuers are also there, protecting their turf by launching niche products of their own, oftentimes with lower costs. The fierce competition in the ETF market has resulted in some unique offerings for investors this year.
Here are several of the launches that caught my eye, in no particular order:
|RWCD||Direxion MSCI Cyclicals Over Defensives ETF||$18.3M||0.45%||1/16/19|
|ARKF||ARK Fintech Innovation ETF||$74M||0.75%||2/4/19|
|CLOU||Global X Cloud Computing ETF||$490M||0.68%||4/12/19|
|BKCH||AdvisorShares Sabretooth ETF||$2.8M||0.85%||2/6/19|
|UFO||Procure Space ETF||$10M||0.75%||4/11/19|
|HOMZ||Hoya Capital Housing ETF||$5.4M||0.45%||3/20/19|
Direxion MSCI Cyclicals Over Defensives ETF (RWCD)
The Direxion MSCI Cyclicals Over Defensives ETF (RWCD) was one of the earliest launches of this year, so it already has a decent amount of trading history under its belt. In about six months on the market, the fund has risen 19.3%—a great return, but not the reason I find it interesting.
RCWD is actually just one of 10 “relative value” funds launched by Direxion this year. In addition to “cyclicals over defensives,” these funds target themes such as “small cap over large cap,” “U.S. over international,” “growth over value” and “emerging markets over developed markets.”
All 10 of these funds are long/short ETFs, with 150% long exposure to one theme and 50% short exposure to another theme. In RWCD’s case, it provides long exposure to cyclical stocks and simultaneous short exposure to defensive stocks.
These funds can be a useful way for active investors and traders to express relative value trades, in the same way many hedge funds do.
ARK Fintech Innovation ETF (ARKF)
ARK Invest is one of the most successful active managers in the exchange-traded fund space. The firm, which focuses on stocks of disruptive, innovative companies, is behind ETFs like the ARK Innovation ETF (ARKK), the ARK Genomic Revolution ETF (ARKG) and the ARK Web x.0 ETF (ARKW).
ARK’s success in attracting assets—now totaling $3 billion—stems in large part from the stellar performance of its funds, which have trounced the returns of the broader market over the past few years.
It will be interesting to see whether that outperformance can now extend to ARK’s latest offering, the ARK Fintech Innovation ETF (ARKF).
ARKF is certainly not the first fintech ETF on the market. The $645 million ETFMG Prime Mobile Payments ETF (IPAY) and the $438 million Global X FinTech ETF (FINX) have been around for a few years and have performed well—both doubling since inception.
That said, ARK has a strong reputation and an impressive track record when it comes to picking stocks in niche, next-generation-type industries.
Global X Cloud Computing ETF (CLOU)/AdvisorShares Sabretooth ETF (BKCH)
One of the few industries hotter than fintech is cloud computing. Whether it’s software as a service (SaaS), platform as a service (PaaS) 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, and up until now, there’s only been a handful of funds that specifically target them.
The $2.8 billion iShares Expanded Tech-Software Sector ETF (IGV) and the $518 million Invesco Dynamic Software ETF (PSJ) offer comprehensive exposure to the space, but have big weightings in legacy software companies that aren’t as exposed to the cloud revolution.
The $2.3 billion First Trust Cloud Computing ETF (SKYY) is more targeted, but still has a bigger weighting in a staid, lumbering tech company like IBM than a fast-moving cloud juggernaut like salesforce.com.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
CLOU requires its holdings generate at least 50% of their revenue from cloud-related activities, while BKCH actively manages its holdings. In both cases, the result is a portfolio with larger weightings in fast-growing SaaS companies compared with competing ETFs.
Investors have noticed that difference. They’ve plowed a whopping $490 million into CLOU in three months. BKCH hasn’t been as fortunate; it only has $3 million in AUM. As an actively managed fund, it may have to prove it can outperform before investors are comfortable owning it.
Procure Space ETF (UFO)
After touching on next-gen themes like fintech and cloud computing, what could possibly top that? Try the Procure Space ETF (UFO), which, as its name suggests, invests in space-related companies.
Unlike other funds that claim to invest in a particular theme but end up owning sprawling conglomerates with only miniscule exposure to the theme in question, UFO does its best to stay true to its name.
UFO’s portfolio is full of companies that operate satellites, lasers and unmanned aerial vehicles. One can imagine that when space tourism company Virgin Galactic begins trading later this year, it too will be included in UFO’s portfolio.
I readily admit space investing may not be a great long-term investment (who knows?), but UFO is interesting and novel enough that it had to be on this list.
Hoya Capital Housing ETF (HOMZ)
I’ve hit on a few ETFs focusing on trendy themes in this blog, but those aren’t the only funds that have caught my eye. One ETF tied to plain old real estate is also worth noting. The Hoya Capital Housing ETF (HOMZ) puts a simple twist on real estate investing by holding homebuilder stocks and real estate investment trusts (REITs).
Those two segments are usually considered distinct. Homebuilders like Pulte, which build and sell houses, are different than REITs, like Mid-America Apartment Communities, which invest in real estate and collect rents.
Then there are home improvement companies like Home Depot and Lowe’s, which are usually found in homebuilder ETFs, but can also be found in HOMZ. And there are real estate technology firms, like Zillow and Redfin, that aren’t usually found in other real estate ETFs, but are found in HOMZ.
In other words, HOMZ is the all-encompassing housing ETF that doesn’t adhere to traditional sector lines. Whether it will catch on with investors remains to be seen—total assets under management are currently only $5 million—but it’s sure worth watching.