As the year draws to a close, ETF issuers are piling new funds into the market such that the record of 303 launches reported by ETF Database for 2011 is a thing of the past.
In the final week of the year, a baker’s dozen of launches from eight issuers has pushed the total for the year up to 314. And a late 2020 launch means that funds will have a full year of performance in 2021, getting them closer to that three-year track record that’s so important to many investors. Keep in mind, also, that we still have another day left for 2020 in which even more ETFs can launch.
Today, Cabot ETF Partners, in partnership with Cabot Wealth Network (CWN), rolled out its first ETF. The Cabot Growth ETF (CBTG) is an actively managed fund that seeks to target stocks across the size spectrum that are likely to experience outsized secular growth relative to the broad market.
CBTG comes with an expense ratio of 0.75% and lists on Cboe Global Markets, the parent company of ETF.com.
The fund’s strategy relies heavily on CWN’s research to select U.S. securities, including American depositary receipts, that operate in market segments that are likely to see significant growth and expansion. It looks for companies that are on the cutting edge of their respective spaces’ trends and with strong compound annual growth rates (CAGR), according to the prospectus.
The document further notes that the fund’s managers can shift more of its assets into cash or cashlike investments based on CWN’s proprietary market timing indicators if they signal an impending bear market. Those indicators are based on market indexes and the performance of individual stocks and seek to identify broad trends.
“It’s more of a contrarian approach to equity growth. We’re going to try to stay away from the bigtime, really large-cap names that are really super correlated to the market or largely drive the market’s returns. Our focus is on finding the opportunities within the U.S. equity universe that might be overlooked or that we think shows really promising growth at a reasonable price. And we’re leveraging the Cabot research platform as well,” said Joe Hegener, CBTG’s portfolio manager.
Merlyn.AI launched another ETF today that is tied to an index that includes elements of momentum and artificial intelligence. The Merlyn.AI SectorSurfer Momentum ETF (DUDE) mainly invests in other ETFs and tracks the MAI SectorSurfer Momentum Index, which switches between two strategies depending on whether it anticipates a bear or bull market.
DUDE comes with an expense ratio of 1.32% and lists on Cboe Global Markets.
When a bull market is expected, the index maintains a portfolio with a 70/30 split between domestic and international ETFs, investing in six ETFs that include four covering economic sectors and two covering geographic areas. In case of a bear market prediction, the index switches into at least four ETFs that will mainly be drawn from the fixed income or gold space, though that allocation can include equity ETFs. When the bear market expectation is based on rising volatility, however, the fund will maintain a portfolio of ETFs tied to medium- and long-term Treasury ETFs, the prospectus says.
“Momentum is a measure of something in the past that will continue to some degree in the future,” said CEO Scott Juds.
“One of the key differences that we have over others is what is referred to as ‘signal processing’ and removing the noise from the data. We apply the signal processing to the market data to clarify the momentum data,” he added, noting that DUDE’s AI-enhanced methodology further incorporates a genetic algorithm that allows it to evolve over time to incorporate different kinds of data.
Merlyn.AI offers two other ETFs-of-ETFs that incorporate momentum elements and AI algorithms into their approaches. The Merlyn.AI Bull-Rider Bear-Fighter ETF (WIZ) launched in 2019 and has more than $110 million in assets under management, while the Merlyn.AI Tactical Growth and Income ETF (SNUG) launched in February and has $25 million in assets.
New Age Alpha
Both funds come with an expense ratio of 0.60% and list on Cboe Global Markets.
AVDR and AVDG track indexes that are based on the fact that markets are not truly efficient in real life. The benchmarks designed to avoid what the firm terms “losers” through New Age’s proprietary H-Factor algorithm, which looks to determine how much human bias is distorting a stock’s price beyond what the company’s earnings can justify, according to the prospectus for both ETFs.
“Stock prices mean something. They basically imply a certain growth rate that the company has to deliver to support that stock price. The higher the stock price goes, the more the company has to deliver,” said Julian Koski, co-founder and CIO of New Age Alpha.
“We’ve developed a methodology to measure when the stock price has gone beyond the company’s ability to develop that growth rate, and we avoid them. We remove them from the portfolio,” he further explained.
The H-Factor used by New Age relies on probabilities, and looks to measure the likelihood that a company will not be able to achieve the growth needed to justify its stock price. It incorporates a wide range of data, including growth rates, revenue, cash flow, multiples, comparable and earnings-based models. The higher the H-Factor score, the more overpriced the stock is, and vice versa, the document says.
AVDR draws its holdings from the S&P 500 Index, selecting the 50 stocks with the lowest H-Factor scores that also meet size, liquidity, trading and sector requirements. Meanwhile, AVDG selects its components from the 600 stocks in the Refinitiv U.S. Total Return Index. Refinitiv is an ESG research company that evaluates companies based on 450 ESG metrics. AVDG’s index selects the 50 securities with the highest ESG scores and the lowest H-Factor scores.
Pacer has teamed up with Swan Global Investments on a several ETFs, the most recent of which is the actively managed Pacer Swan SOS Fund of Funds ETF (PSFF). The new fund is an ETF-of-ETFs that will invest in Pacer’s lineup of ETFs. These include its recently launched lineup of structured outcome ETFs, which are also subadvised by Swan Global, and the issuer’s $1.9 billion Pacer Trendpilot U.S. Large Cap ETF (PTLC), which relies on 200-day moving averages to switch between a U.S. large-cap index, three-month U.S. T-bills or a 50/50 mix of the two.
Essentially, PSFF will be able to allocate to trend-following strategies and structured outcome ETFs offered by Pacer as needed, with the intention of achieving capital appreciation while protecting against downside losses.
“Having a fund-of-funds that can own the buffers and trend-following ETFs from time to time allows us to have a fully active strategy that can take advantage of the way these things really work and produce alpha,” said Sean O’Hara, president of Pacer ETFs. He notes that PSFF can, for example, roll from a structured outcome ETF that may be nearing its upside cap into a fund like PTLC that has no upside cap, but can switch to a more conservative fixed income exposure when there are signs of market turmoil.
Pacer launched three other ETFs in partnership with Swan Global earlier this month, all of which use options to protect against significant downside losses.
- Pacer Swan SOS Conservative (December) ETF (PSCX)
- Pacer Swan SOS Moderate (December) ETF (PSMD)
- Pacer Swan SOS Flex (December) ETF (PSFD)
The Pacer structured outcome ETFs work like any other defined outcome ETF, investing in FLEX options to achieve their goals. In the case of PSCX, that means protecting against losses between 5% and 30% while allowing upside performance up to a cap of 9.92% before fees. PSMD protects against a downside loss of up to 15%, while allowing upside performance up to a cap of 12.25% before expenses. PSFD on the other hand, protects against the first 20% of losses but reduces the participation in any loss beyond 20% up to a 40% loss in the target index. It has a cap before expenses of 18.52%.
Newcomer Upholdings just unveiled the UPHOLDINGS Compound Kings ETF (KNGS), which is an actively managed high-conviction portfolio of stocks expected to compound at a higher rate than the S&P 500 Index, its prospectus says.
KNGS comes with an expense ratio of 0.60% and lists on Cboe Global Markets.
Its methodology targets companies that reinvest their cash flow at “above average rates of return,” according to the fund document.
Other funds launched earlier this week on the NYSE Arca. Simplify alone debuted four ETFs that combine high-conviction thematic bets with an option overlay that can represent up to 20% of the fund’s assets. The ETFs and their expense ratios are as follows:
- Simplify Volt RoboCar Disruption and Tech ETF (VCAR), 1.09%.
- Simplify Volt Cloud and Cybersecurity Disruption ETF (VCLO), 1.09%
- Simplify Volt Fintech Disruption ETF (VFIN), 1.03%
- Simplify Volt Pop Culture Disruption ETF (VPOP), 1.03%
Generally, the funds will take positions of as much as 25% in one or two stocks while holding other various option contracts on indexes, ETFs and individual securities, including call options to enhance upward trends and put options to protect against downward trends.
VCAR’s primary single-stock holding is Tesla, while VCLO primarily invests in Crowdstrike and Snowflake. Similarly, VFIN’s largest stock positons are in Adyen and Square, and VPOP’s are in SnapChat and Spotify.
“It’s an interesting alternative to single stocks, because you’re not 100% in one name. It’s an interesting alternative to watered down thematics, because you might really believe in autonomous driving but you actually don’t want Ford or all these other companies in there that don’t really move the needle,” said co-founder and CEO Paul Kim. He notes the appeal for investors who are just starting to realize the versatility of options strategy at a time when fixed income is not filling its traditional role.
AdvisorShares teamed up with ThinkBetter to launch two actively managed ETFs-of-ETFs. The funds and their expense ratios are as follows:
- AdvisorShares Q Portfolio Blended Allocation ETF (QPT), 1.17%
- AdvisorShares Q Dynamic Growth ETF (QPX), 1.46%
Finally, Toroso rolled out the Gotham Enhanced 500 ETF (GSPY), an actively managed fund that attempts to pick the best stocks in the S&P 500 Index in order to outperform the benchmark. It comes with an expense ratio of 0.50%.
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