Daily ETF Watch: Three Funds Launching

The ETF launch juggernaut continues to roll, even with markets roiled.

Olly
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Managing Editor
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Reviewed by: Olly Ludwig
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Edited by: Olly Ludwig

Three separate ETFs are launching today—two from iShares, the world’s biggest exchange-traded fund company, and a third from Vident Financial, the “principles-based” ETF company that has previously served up two “smart beta” equities funds.

The three new funds canvass three separate asset classes: equity and commodities, in the case of the two iShares funds; and a U.S. fixed-income strategy from Vident.

According to separate communiques from the BATS and Nasdaq exchanges, the primary respective listing venues for iShares’ two new funds, the new securities are:

Vident, in a press release, meanwhile said it is bringing to market the:

The three rollouts bring to 164 the number of new ETFs and ETNs that have been brought to market this year. At the same time last year, a total of 121 funds had been launched, and the total number of launches in 2013 was 162, according to data compiled by ETF.com.

More than 1,650 ETFs now populate the U.S. ETF universe, with total assets under management at $1.804 trillion, according to data compiled by ETF.com Analytics.

iShares’ Emerging Markets Fund Launch

EMHZ is a next-generation take on emerging markets that’s designed to steer clear of BRIC countries—Brazil, Russia, India and China—that have been bread-and-butter emerging markets for ETF investors for more than a decade.

It follows by 11 years the pioneering iShares MSCI Emerging Markets ETF (EEM | B-98), which has grown into a highly liquid $36 billion fund that is used by traders, institutions and buy-and-hold investors alike.

EMHZ will hold the bottom 25 percent of EEM’s market capitalization by country. In other words, emerging markets like Mexico, Malaysia, Indonesia and Thailand dominate the fund’s weighting, as opposed to the BRICS, Taiwan and South Korea. The BRICs make up about a third of EEM, and South Korea and Taiwan make up just over a quarter.

EMHZ will have an annual expense ratio of 50 basis points, or $50 for each $10,000 invested, while the EGShares Beyond BRICs ETF (BBRC | D-36), the first fund of its kind, has an expense ratio of 58 basis points.

 

iShares Commodities Fund Launch

iShares’ COMT is also a next-generation fund, but is focused on the commodities space. It’s a broad commodities fund that, importantly, qualifies for the same tax treatment as a plain-vanilla equity or fixed-income fund.

COMT is registered under the Investment Company Act of 1940, which means shareholders in the fund won’t have to file so-called K-1 forms typically required for futures-based investments. Instead, holders of COMT shares will file 1099 forms required for equities.

Importantly, the new fund will still hold futures, but will do so indirectly through a wholly owned subsidiary based in the Cayman Islands. By owning futures contracts in this manner, the fund qualifies for tax treatment using 1099 forms.

The new fund will join a few other funds now on the market using this indirect method of owning futures contracts, notably the $184 million First Trust Global Tactical Commodity Strategy Fund (FTGC | C-66).

COMT will have an annual expense ratio of 48 basis points, compared with 95 basis points for First Trust’s FTGC.

First Vident Bond ETF

The Vident Core U.S. Bond Strategy ETF (VBND) is, as its name suggests, a core holding that will include a variety of fixed-income securities, including U.S. Treasurys, agencies, mortgage-backed securities, investment-grade and high-yield corporate credits and Treasury inflation-protected securities (TIPS).

As with its two other funds, it is the Atlanta-based firm’s first bond fund, and it will select securities with a view to high ethical standards. The fund comes with an annual expense ratio of 45 basis points.

The index systematically over- or underweights each sector based on macroeconomics—fiscal policy and demographic factors, for example—and valuation, such as an expected-tail-loss metric.

Within the investment-grade and high-yield corporate sectors, the index seeks to improve corporate bond exposures by screening for companies with relatively stronger leadership, governance and creditworthiness factors.

Within each sector, individual bonds are weighted based on a combination of yield, interest-rate risk and creditworthiness rather than amount of debt/bonds outstanding—which is a common approach of traditional bond indexes.

Also, the index limits exposure to each of the high-yield corporate bonds and TIPS sectors to 20 percent of the index, and the index will generally have an effective duration of three to seven years and have an average credit quality of investment grade.

 

Olly Ludwig is the former managing editor of etf.com. Previously, he was a financial advisor at Morgan Stanley Smith Barney and an editor at Bloomberg News. Before that, Ludwig was a journalist at the Reuters News Agency in New York.