Daily ETF Watch: Fidelity Launch, 5 Others

February 05, 2015


Fidelity Investments today rolled out a real estate sector fund that joins its new family of sector-focused index funds. The Fidelity rollout is one of four launches today and two on Monday. The concentration of launch action is the latest sign that ETFs are a hotbed in the financial services industry. 


Apart from the launch of the Fidelity MSCI Real Estate Index ETF (FREL) today, State Street Global Advisors today brought to market a riff on the S&P 500 that isolates  buybacks, and ProShares rolled out two funds focused on dividend-growers in the U.S. midcap and small-cap equity space.


Additionally, on Monday, RevenueShares launched a strategy targeting growth stocks around the world, and UBS rolled out a double-exposure ETN targeting small-cap dividend-paying companies.


The six launches so far this week are emblematic of how vital the 22-year-old ETF industry is. A total of 19 funds have come to market so far this year, after 202 new strategies were launched in 2014, according to data compiled by ETF.com. Most of this week’s launches are in the “smart beta” category, a pattern that prevailed last year, suggesting enhanced indexing in ETFs is still building momentum.


All these launches are a lot for investors to chew on in a 48-hour period, and, at the risk of paying short shrift to some of them, the Fidelity real estate fund looks to be the one with some of the more interesting talking points. So, we’ll start with Fidelity and move on to the others in today’s column.


Fidelity Fund Talking Points

The new Fidelity fund, FREL, comes with the same 12-basis-point ($12 for each $10,000 invested) annual expense ratio as Fidelity’s other 10 sector funds and, crucially, breaks out real estate as a separate industry sector.


Previously, in the GICS industry sector rubric, REITs have been tucked into the financials sector. Whether this finer breakdown constitutes a material alternative to say, real estate exposure via a fund like the Vanguard REIT ETF (VNQ | A-84) is a subject worthy of serious consideration.


Additionally, the Fidelity sector funds, including FREL, use MSCI’s investable market indexes. These so-called IMI indexes include smaller-cap names than do the sector ETFs from SSgA or Vanguard, giving investors in the Fidelity suite access to the size effect isolated in the research of Eugene Fama and Kenneth French.


ProShares Launches

ProShares, meanwhile, has doubled the size of its dividend-growers family of ETFs with the launches of the ProShares S&P MidCap 400 Dividend  Aristocrats ETF (REGL) and the ProShares Russell 2000 Dividend Growers ETF (SMDV). 


Both new funds come with an annual expense ratio of 40 basis points.


The Dividend Aristocrats franchise at ProShares is based on the concept that investors need core holdings of income-generating stocks, and the fact that the various funds are drilling down into well-known indexes long regarded as core holdings reflects this.


The two existing funds in the lineup are the $609 million ProShares S&P 500 Dividend Aristocrats ETF (NOBL | B-61) and the ProShares MSCI EAFE Dividend Growers ETF (EFAD). NOBL has a 35 bp annual expense ratio, while EFAD costs 50 bps a year.


SPDRs Buyback Fund 

One of the launches today was the SPDR S&P 500 Buyback ETF (SPYB). The fund, which mines the world’s best-known equity index for constituents that are engaging in buybacks, comes with an annual expense ratio of 35 bps.


The buyback universe has garnered attention in recent years, as investors look for returns in an era of sluggish growth. Companies that buy back stock, in theory, end up lifting their stock prices, as the buybacks take shares outstanding out of circulation, allocating bottom-line income to fewer shares.


The downside is that by buying back shares instead of spending capital on business development plans, companies may be sacrificing longer-term growth prospect for nearer-term share-price appreciation.


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