After Drought, A Deluge Of ETF Launches

June 25, 2020

Today may mark a turning point for the ETF space after the onset of the coronavirus pandemic. ETF launches have been fairly thin on the ground since March, though not catastrophically so. Today, however, is the largest launch day of the year since iShares rolled out its iBonds Treasury family of nine ETFs at the end of February.

Eight new funds from four different issuers made their debut this morning, including four from Pacer and two from the new brand Agility Shares, which is affiliated with advisory firm Toews Corp.

Pacer BioThreat ETF

Pacer’s rollout includes one thematic ETF and three risk management strategies similar to their TrendPilot lineup.

Despite its timeliness, the Pacer BioThreat Strategy ETF (VIRS) is actually an ETF that Pacer had been looking at launching years before the pandemic hit, only to return to the idea more recently. The fund tracks the LifeSci BioThreat Strategy Index.

VIRS comes with an expense ratio of 0.70% and lists on Cboe Global Markets, the parent company of ETF.com.

Unlike the recently launched and COVID-inspired ETFMG Treatments, Testing and Advancements ETF (GERM), VIRS does not focus solely on firms involved in the development and marketing of vaccines and treatments for infectious diseases. Instead it takes a broad perspective on the concept of biological threats to human health and the companies that provide products and services that help people detect, respond to, adapt to, recover from and survive biological threats whether they are manmade or natural, according to the prospectus.

“It’s much more comprehensive. The obvious themes for a pandemic are going to be your pharma and biotech solutions, whether its protocol or therapeutic or vaccines,” Sean O’Hara, president of Pacer ETFs, said of VIRS.

“My premise is that we got caught flat-footed by a lot of this. I don’t think we’re going to go back to that—I think we’re going to be a lot more proactive,” he added, noting that the fund was designed to take into account struggles that had to be addressed during the pandemic, like shortages with regard to testing, detection and personal protective equipment.

At the end of May, the index had 45 components, including large allocations to health care and industrial stocks.

Partnership With Lunt Capital

The other three ETFs launched by Pacer today all track indexes provided by Lunt Capital Management. They each have an expense ratio of 0.60% and list on the NYSE Arca exchange. The trio includes the following:

Each relies on Lunt Capital Management’s proprietary relative strength methodology to allocate between different indexes. In the case of ALTL, the fund shifts its allocation between the S&P 500 Low Volatility Index and the S&P 500 High Beta Index based on a monthly relative strength evaluation, the prospectus says.

Meanwhile, PAMC and PALC are tied to the S&P 500 and S&P Midcap 400 indexes, respectively, in that they allocate to subindexes of these two parent indexes that highlight the securities in each that have the most and least exposure to the momentum, quality, value and low volatility factors. On a monthly basis, the two subindexes demonstrating the highest degree of relative strength are selected to allocate to, unless they both represent exposure to the same factor, in which case, the index with the third-highest degree of relative strength is selected.   

Direxion Captures A New Trend
Like Pacer’s VIRS, the Direxion Work From Home ETF (WFH) seeks to capitalize on the changes that have occurred since the start of the most recent pandemic. The ETF comes with an expense ratio of 0.45% and lists on the NYSE Arca.

“The ETF is designed to offer exposure to firms that are really at the intersection of this worldwide transformation to the greater acceptance and requirement of remote work,” said David Mazza, Direxion’s head of product.

WFH’s underlying index includes 40 companies selected from four categories of products and services that enable working from home: remote communications, cybersecurity, online project and document management, and cloud computing technologies.

Mazza notes that in 2017, about 5% of Americans worked from home, but the pandemic has accelerated that trend.  

“I believe firmly that absent a miracle vaccine, we will find ourselves in a new normal, and that new normal will have elements of employees working in offices and also spending some time at home,” he said.

Companies are evaluated using the index provider’s proprietary natural language processing algorithm, ARTIS, such that the top 10 companies for each of the four categories are selected for inclusion in the index, the prospectus says.

An ETF Newcomer
Toews Corp. is behind the new ETF brand, Agility Shares, and its two initial ETFs are based on strategies the firm has offered in other wrappers, such as mutual funds or separately managed accounts; the firm is known for offering product solutions for advisors. The Agility Shares Managed Risk ETF (MRSK) and the Agility Shares Dynamic Tactical Income ETF (THY) both implement risk management strategies and are actively managed.

MRSK comes with an expense ratio of 0.96%, while THY charges 1.16%. Both list on Cboe Global Markets.

MRSK can invest in equity and fixed income securities, derivatives and other ETFs. It pairs an equity strategy with a fixed income strategy. The former seeks exposure to the S&P 500 Index by investing in futures and ETFs tied to the index with an options overlay intended to reduce volatility and provide income. Meanwhile, the fixed-income strategy targets primarily Treasury investment-grade debt of any maturity or duration as well as futures on Treasury debt. Up to 85% of the portfolio can be allocated to fixed income, its prospectus says.

“Think of it as a dynamically managed approach to trying to avoid losses and participate in market gains,” said Philip Toews, CEO of Toews Corp., adding that he believes this is the first unconstrained tactical ETF to become available to investors.  

Meanwhile, THY uses technical analysis to provide income and invests primarily in other ETFs and derivatives tied to high-yield debt. The fund can hedge positions using ETFs and futures, and also seeks to mitigate risk when market conditions turn unfavorable for high-yield debt. In such situations, the fund can invest all of its assets in Treasury securities or cashlike investments, according to the prospectus.

“What our algorithm is designed to do is interpret the early stage of declines in high yield, and we’ll exit into cash equivalents,” Toews said, noting that the fund will exit the market two to four times a year on average.

“What this strategy is designed to do is to allow advisors take exposure to high-yield bonds when otherwise they might not have, because we’re there to attempt to exit and not participate if markets fall,” he added, pointing out that high-yield debt has equity proxy risk, which some advisors may be wary of.

iShares Adds To iBonds Family
BlackRock’s iBonds family has also added a new member. The iShares iBonds Dec 2030 Term Corporate ETF (IBDV) invests in corporate debt maturing in 2030 by mid-December of that year.  

The fund carries an expense ratio of 0.10% and lists on the NYSE Arca.

The iBonds family features nearly 35 ETFs that hold fixed income securities maturing in a particular year. Currently, in addition to investment-grade corporate debt, the series covers Treasuries, municipal bonds and high-yield corporate debt.

Contact Heather Bell at [email protected]

 

 

 

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