Daily ETF Watch: 3 Funds Launch

December 11, 2014

A total of four ETFs came to market on Wednesday, including an innovative emerging market fund from WisdomTree that peels state-owned enterprises out of the portfolio.

The other three include a new Deutsche Bank currency-hedged strategy focused on the eurozone; a global asset allocation fund from Meb Faber’s Cambria Asset Management, and an active “best ideas” fund from ETF upstart Validea organized around stock picks from the likes of Warren Buffett.

Wednesday’s four launches lift to 193 the total number of ETF rollouts so far in 2014, compared with 162 launches in all of 2013, according to data compiled by ETF.com. Total U.S.-listed ETF assets now stand at $1.962 trillion in a total of 1,672 strategies, including 243 ETNs.

The robust pace of launches this year suggests the ETF industry continues to gather momentum—and assets—almost 22 years after the first ETF was brought to market. Indeed, investors are increasingly seeing the light regarding ETFs; namely, that they are cheap, transparent and, with each new launch, opening up more and more pockets of the investment universe.

XSOE Excludes State-Owned Enterprises
The WisdomTree Emerging Markets Ex-State-Owned Enterprises Fund (XSOE) is a first-of-its-kind fund that targets emerging market companies that have government ownership amounting to less than 20 percent of their respective market capitalizations.

Companies eligible for inclusion in the index must have total market capitalizations of at least $1 billion and meet certain liquidity screens.

They also must be incorporated or domiciled in one of 18 emerging markets, according to the prospectus: Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Russia, South Africa, Taiwan, Thailand or Turkey. The index methodology requires that components be listed in one of those countries or in the U.S., although the prospectus notes that China-domiciled components may be listed in Hong Kong.

Although XSOE is the first emerging market ETF to specifically exclude companies with significant government ownership, the fact that it has nearly 400 components puts it on comparable footing with broader-based emerging market ETFs such as the iShares MSCI Emerging Markets ETF (EEM | B-96) and the Vanguard FTSE Emerging Markets ETF (VWO | C-84), which have 800 and 900 components apiece.

With a 58-basis-point expense ratio—amounting to $58 for each $10,000 invested—XSOE is more expensive than VWO, which has an expense ratio of 0.15 percent. However, it is much cheaper than EEM’s 67 basis points. The Schwab Emerging Markets Equity ETF (SCHE | B-82) remains the cheapest fund in the broad emerging market space, with an expense ratio of 14 basis points.

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Validea Launches ‘Legends’ Fund

West Hartford, Connecticut-based Validea Capital Management burst onto the ETF scene with the rollout of a fund designed to mimic the strategies of Wall Street’s best investors.

The Validea Market Legends ETF (VALX) is actively managed but relies on a complex quantitatively and fundamentally based strategy to replicate the strategies of 10 of the most successful and studied Wall Street investors, according to its prospectus.

Validea has developed investment models based on the published information available about the strategies of “Wall Street legends” like Warren Buffett and Benjamin Graham. VALX represents the top 10 choices from each of the 10 best-performing models developed by Validea.

The strategy resembles that of an index-based fund, the Global X Guru ETF (GURU | B-54), which represents the investment positions of some of the largest hedge funds, as reflected by their public filings. GURU, which launched in June 2012, has nearly $420 million in assets under management.

GURU charges 75 basis points in expense ratio, while VALX comes with an expense ratio of 79 basis points.

DB Adds To Currency-Hedged Lineup
Deutsche Bank added the Deutsche X-trackers MSCI EMU Hedged Equity ETF (DBEZ) to its extensive lineup of currency-hedged equity ETFs, bringing the total number of funds in the series to an even dozen.

DBEZ’s index, according to its prospectus, covers nearly 700 stocks from 10 developed European countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Portugal and Spain. The fund comes with an expense ratio of 0.45 percent.

iShares, one of DB’s biggest competitors in the currency-hedged space alongside WisdomTree, launched a fund tracking the same index in July. The iShares Currency Hedged MSCI EMU ETF (HEZU) comes with an expense ratio of 51 basis points and so far has accumulated about $35 million in assets under management.

Last year, Deutsche Bank launched a currency-hedged ETF covering the entire developed Europe market. The Deutsche X-trackers MSCI Europe Hedged Equity ETF (DBEU | B-64) also comes with an expense ratio of 45 basis points, but it includes Denmark, Norway, Sweden, Switzerland and the United Kingdom in the countries it selects its stocks from, in addition to the 10 countries covered by DBEZ. DBEU has more than $690 million in assets under management.

 

Meb Faber Making Waves

In yesterday’s Daily ETF Watch column, we wrote at length about the Cambria Global Asset Allocation ETF (GAA), a fund-of-funds security that will have an expense ratio of 29 basis points, but no advisory fee.

That expense ratio is the sum of so-called acquired fund fees that reflect the collective cost of the 29 different ETFs that make up the security. What Meb Faber is not charging is the advisory fee for putting all those separate ETFs into one smoothly running exchange-traded wrapper.

Cambria’s waiving of its management fee is likely to get the attention of a variety of players in the ETF traffic. That includes robo advisors such as Wealthfront or Betterment that offer algorithmic riffs on buy-hold-and-rebalance index investing as well as ETF strategists that offer expertise in managing core-satellite-type ETF allocations. Both charge fees, ranging from 25 basis points a year to around 75 basis points.

GAA is an index fund that offers in one wrapper a global portfolio of stocks, bonds, commodities and real estate that is designed to, alone, represent an entire core asset allocation. GAA is a buy-and-hold version of more tactical approaches to global asset allocation, such as Cambria’s most recent fund, the actively managed Cambria Global Momentum ETF (GMOM).

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