The pace of international equity ETF launches has more than doubled from last year.
Growth is continuing to accelerate in the ETF industry. Year-to-date through the end of July saw 118 fund launches versus 86 during the same time period last year. However, what’s notable about the increase in launches is the fact that it is driven almost entirely by international equity ETF.
In the first seven months of 2014, 55 ETFs targeting that space made their debut versus a mere 25 international equity funds in the first seven months of last year. Among this year’s launches, there are some very clear themes in international equities.
At least 18 of those international equity ETFs could be considered smart-beta or factor-based funds, ranging from the Market Vectors International Quality ETF (QXUS) to the iShares MSCI Europe Minimum Volatility ETF (EUMV) to the JPMorgan Diversified Return Global Equity ETF (JPGE).
Currency Hedging In Vogue
Another 11 ETFs are hedged funds that seek to neutralize the effects of fluctuations of various foreign currencies against the dollar. They include funds like the db X-trackers MSCI All World ex US Hedged Equity Fund (DBAW), the iShares Currency Hedged MSCI Japan ETF (HEWJ) and the WisdomTree Japan Hedged Financials Fund (DXJF).
The currency-hedging0craze phenomenon took off in 2013 when investors began to notice the outperformance of the WisdomTree Japan Hedged Equity Fund (DXJ | B-62); the once-obscure fund now has roughly $10 billion in assets.
China A Popular Theme
Another notable area in foreign equities is China; although only four ETFs were launched tracking its markets, that’s a lot of funds targeting the same country to launch in less than a year. It’s safe to say the rollout of the db X-trackers Harvest CSI 300 China A-Shares ETF (ASHR | D-51), which launched in November of last year, was the impetus for the rollouts of these newer funds.
ASHR has received significant attention for being the first ETF to provide direct access to the elusive China A-share market, which it does via a qualified foreign institutional investor quota and a partnership with China-domiciled Harvest Group.
The funds to launch this year include the KraneShares Bosera MSCI China A Share ETF (KBA), the db X-trackers Harvest CSI China A-Shares Small-Cap Fund (ASHS), the db X-trackers Harvest MSCI All China Equity Fund (CN) and the Market Vectors ChinaAMC SME-ChiNext ETF (CNXT).
Given that the rate of international equity ETF launches has more than doubled year-to-date compared with the same time period last year, it’s hard not to wonder if we’ll continue to see dramatic expansion in the space during the rest of 2014.