These ETF Issuer/Index Provider Tie-Ups Saw Big Demand

January 17, 2017

Other Index Partnerships

In contrast, BlackRock’s relationship with MSCI is focused more on market-cap-weighted international equities and smart-beta products. These ETFs gathered $25 billion in assets, with $1.5 billion in December. Examples of popular products included the iShares Core MSCI EAFE ETF (IEFA) and the iShares Edge MSCI Minimum Volatility USA ETF (USMV).

Meanwhile, Vanguard’s strongest equity index provider relationship in December was with FTSE Russell. ETFs tied to these indices received $2 billion, higher than the $1.3 billion for S&P Dow Jones indices-based ETFs. Overall, aided by strong demand for the Vanguard FTSE Developed Markets ETF (VEA) and the Vanguard FTSE Emerging Markets (VWO), FTSE Russell-linked ETFs contributed $23 billion of new money to Vanguard’s coffers in 2016.

Within fixed income, Barclays indices—acquired by Bloomberg—remains the dominant provider. However, Vanguard gathered $25 billion in fixed-income assets, moderately ahead of iShares’ $24 billion in 2016. The Vanguard Short-Term Corporate Bond Fund (VCSH) and the iShares Core US Aggregate Bond (AGG) are examples of such popular fixed-income ETFs.

Other ETF Issuers Use Same Index Providers

The same companies that license indices to support the above iShares, Vanguard and SSGA ETFs also provided the backbone to popular products for more moderately sized asset managers.

The smart-beta offerings Guggenheim S&P 500 Equal Weight ETF (RSP) and the PowerShares S&P 500 High Dividend/Low Volatility (SPHD) seek to replicate a distinct S&P Dow Jones index, while the Schwab International Equity ETF (SCHF) tracks a FTSE Russell index.

Country Exposure of Popular ETFs Can Be Different

Source: CFRA Research

In ranking more than 950 equity ETFs, CFRA does not focus on how well an ETF tracks its index. The 140 basis point difference in the one-year record between IEFA and VEA has more to do with the distinct exposures they provide.

For example, IEFA has a higher weighting to Japan (25% of assets), while VEA alone has exposure to Canada (9%). We offer valuation and risk assessments on each of an ETF’s holdings, combined with analysis of its costs and technical trends.

At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA

                                                                                                                               

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