ETF Watch: Four Issuers Launch Funds Today

The ETF industry is welcoming four new ETFs into existence today, with launches from First Trust, IndexIQ, Global X and Tortoise.

First Trust Debuts Bond ETF
First Trust has rolled out an actively managed fixed-income ETF that will be subadvised by TCW Investment Management. The First Trust TCW Opportunistic Fixed Income ETF (FIXD) can invest in a wide range of debt securities of any credit quality from across the globe, with its subadvisor targeting markets that it sees as undervalued.

Although there are no requirements regarding the fund’s average maturity, the subadvisor generally seeks to maintain an average portfolio duration that is within one year of that of the Bloomberg Barclays U.S. Aggregate Index, the prospectus said.  

FIXD comes with an expense ratio of 0.55% and is listed on the Nasdaq stock exchange.

Ryan Issakainen, First Trust's senior vice president and ETF strategist, notes that the fund will be managed by an all-star team that has been nominated for Morningstar’s Manager of the Year award nine times and that has been working together some 25 years. First Trust was very impressed by how TCW has defined and developed its process over the years, Issakainen said.

“I think their approach is one that is very focused on managing risk,” he added, describing the firm’s approach as value-driven and team-driven. The fund will use a bottom-up security selection process and engage in sector rotation strategies.

IndexIQ Targets Fixed Income With Smart-Beta Strategy
IndexIQ has also launched a fixed-income ETF, but unlike FIXD, it tracks an index. The IQ S&P High Yield Low Volatility Bond ETF (HYLV) tracks a benchmark derived from the S&P U.S. High Yield Corporate Bond Index.

HYLV’s methodology ranks the components of the parent index based on marginal contribution to risk, an indicator of credit risk, and selects the bottom half, weighting the holdings by market value. The index typically has 400-500 components.

The fund is subadvised by MacKay Shields, a well-known fixed-income manager. IndexIQ Chief Investment Officer Salvatore Bruno noted that, despite being an index fund, HYLV would benefit from MacKay Shields’ knowledge regarding fixed income when it came to minimizing tracking error and implementing trades, among other areas.

“We’re giving investors and advisors tools that will help them add income generation potential to their portfolios in what is still a historically low rate environment, while addressing the concerns about volatility that often accompany high-yield exposures,” said Jae Yoon, New York Life Investment Management’s senior managing director and chief investment officer.

IndexIQ has noted that the launch of HYLV is a continuation of the fixed-income theme that was started when the firm rolled out the momentum-driven IQ Enhanced Core Bond U.S. ETF (AGGE) and the IQ Enhanced Core Plus Bond U.S. ETF (AGGP).

“They’re in keeping with our objective of trying to make the core portions of the portfolio more efficient and smarter,” said IndexIQ's Bruno.

HYLV carries an expense ratio of 0.40% and is listed on the NYSE Arca.

Global X Launches Owner-Operated Companies Fund
Global X debuted an ETF tracking companies that are still run by their founders. The Global X Founder-Run Companies ETF (BOSS) is tied to an equal-weighted index from Solactive AG that covers companies that have their founder or a co-founder serving as CEO. The index can include up to 100 components.

BOSS charges an expense ratio of 0.65% and is listed on the Bats exchange. Bats Global Markets is the parent company of ETF.com.

According to Global X Vice President Jay Jacobs, the fund is designed for long-term shareholders. “If you look at the management of these companies, their incentives are also aligned with those of long-term shareholders,” Jacobs said.

Company founders tend to have 10 times more of an ownership stake in the company than what Jacobs calls a “professional” CEO, as well as being paid roughly one-third less.

“Their incentive is to grow the company for long-term success,” he added. “The person managing the company in a founder-led company is much more incentivized to act like a long-term shareholder.”

Tortoise Unveils Water ETF
Tortoise has rolled out a fund that targets U.S.- and Canada-listed companies involved in water-related business lines. The Tortoise Water Fund (TBLU) breaks companies out into “direct” and “indirect” categories, with the former bucket representing companies that derive at least 50% of their revenues from water-related operations and the latter bucket representing companies that derive less than half their revenues from water-related activities.

At rebalancings, the “direct” bucket receives a weighting of 70%, versus 30% for the “indirect” bucket. In December 2016, the index included 35 component companies.

TBLU is listed on the Bats exchange and comes with an expense ratio of 0.40%.

Tortoise Investments is a $21 billion firm that is focused on essential assets and income.

“We view water to be one of the most essential assets there is,” said Jeremy Goff, Tortoise's director of business development.

He cited water-related issues such as the droughts in California and the Flint, Michigan, water crisis as examples of ongoing problems.

“There’s a huge need for infrastructure; there’s a huge need for safe delivery of water; there’s a huge need for investment in all of these areas. We wanted to bring a product to the market that allowed investors to participate in that, and do so in a way that we view to be more effective,” Goff said.

Matthew Weglarz, the fund’s portfolio manager, noted the TBLU’s tiered approach to the investment space, and said it was designed to provide “the purest access to the water space at the lowest cost.”

Indeed, the new ETF is significantly cheaper than its direct competitors, the PowerShares Water Resources Portfolio (PHO) and the First Trust Water ETF (FIW), which cost 0.61% and 0.57%, respectively. 

Contact Heather Bell at [email protected].