The first five months of 2016 are really an example of extremes when it comes to ETF launches, with two funds in particular attracting assets of more than $200 million. No other funds that have launched this year have even begun to approach those levels.
However, neither of those funds has what one could consider a traditional back story.
The SPDR SSGA Gender Diversity Index ETF (SHE) launched in early March, and has grown its assets under management to nearly $270 million. Keep in mind, though, that pension fund CalSTRS seeded the fund with $250 million at its launch, so the amount of assets is perhaps less impressive than the conviction one of the country’s largest pension funds expressed by investing in SHE right out of the gate.
The ETF is a large-cap U.S. fund that gives heavier weights to companies that include women in executive positions. SHE has outperformed the SPDR S&P 500 ETF (SPY | A-97) since its launch.
Dynamic Currency Hedging
The second-largest fund to launch in 2016 is the WisdomTree Dynamic Currency Hedged International Equity Fund (DDWM), which uses an adjustable currency hedge and represents the most successful fund in the wave of next-generation currency-hedged ETFs that have recently launched. DDWM’s index relies on difference in interest rates, momentum and long-term valuations to determine to what extent it should hedge its portfolio, anywhere from 0% to 100%. The currency hedging is reset monthly.
The fund has roughly $242 million in assets under management, but the vast majority of that flowed into the fund in one day in late April, a few months after its January launch. The fund has performed differently from its unhedged and fully hedged counterparts, DWM and HDWM, aligning most closely with DWM and outperforming it in key spots. Given that DDWM costs 0.35% in expense ratio versus the 0.48% charged by DWM, it looks like at least one investor considered it to be a pretty good deal.
ETNs Have Their Season
Exchange-traded notes are not known for gathering significant assets. The largest has just $3.7 billion, but in the early months of 2016, ETNs were a good chunk of the most popular launches. In fact, four of the top 10 launches so far this year are ETNs.
That said, the UBS AG FI Enhanced Global High Yield ETN (FIHD), the third-largest ETF launched this year, is a far cry from the assets of SHE or DDWM, coming in at almost $64 million at the end of May. FIHD looks to provide two times the returns of the MSCI World High Dividend Yield Index on a quarterly basis.
Despite being publicly traded, FIHD is part of the suite of ETNs that were created for Fisher Investments by various issuers. Fisher Investments is likely the source of almost all of FIHD’s assets.
Another ETN created for Fisher Investments is in the top 10, with some $46 million in assets under management. The UBS AG Enhanced Europe 50 ETN (FIEE) launched in February and provides twice the return of its underlying index, the Stoxx Europe 50 Index, on a quarterly basis.
Two leveraged master limited partnership ETNs also rank in the top 10 funds in terms of assets. The Etracs 2xMonthly Leveraged S&P MLP Index ETN Series B (MLPZ) and the Etracs 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN Series B (MLPQ) have roughly $50 million in assets under management apiece.
The funds have both performed well as MLPs have rebounded from their lows along with oil prices, which they reached around the time the ETNs launched.
Funds Of Funds
Two ETFs of ETFs can lay claim to spots in the top 10 in terms of assets, both relying on Dorsey Wright’s “relative strength” model, which focuses on momentum. The First Trust Dorsey Wright Dynamic Focus 5 ETF (FVC) has $65 million in assets, while the PowerShares DWA Tactical Multi-Asset Income Portfolio (DWIN) has roughly $46 million in assets. Both funds launched within a week or so of each other.
FVC is a sector rotation strategy based on momentum that is very similar to the $3.3 billion First Trust Dorsey Wright Focus 5 ETF (FV | C-48), which invests in other First Trust ETFs; however, FVC includes a cash component that can represent up to 95% of the portfolio.
DWIN similarly selects five ETFs from some two dozen other income-focused PowerShares ETFs, as well as a handful of ETFs from other issuers. Component ETFs can invest in Treasurys, bonds, dividend-paying equities, preferred stock, REITs and MLPs. The methodology essentially selects the five-highest-yielding ETFs from its selection universe after screening out the bottom half of the universe with the lowest relative strength rankings.
Two Attention-Getting Launches
Finally, there are two funds that really captured the imagination of investors when they launched, mainly because of the names behind them. The SPDR DoubleLine Short Duration Total Return Tactical ETF (STOT) has $50 million in assets, while the Vanguard International High Dividend Yield ETF (VYMI) currently has nearly $44 million.
STOT drew attention because it was launched a little less than a year after the groundbreaking $2.4 billion SPDR DoubleLine Total Return Tactical ETF (TOTL | C); both actively managed funds include DoubleLine founder and bond guru Jeffrey Gundlach among its managers. STOT was launched alongside the SPDR DoubleLine Emerging Markets Fixed Income ETF (EMTL), which currently has slightly less than $38 million in assets.
Neither STOT nor EMTL has accumulated assets at anywhere near the rate of TOTL.
Vanguard rolled out its first international dividend ETFs in February of this year, with VYMI joined by the Vanguard International Dividend Appreciation ETF (VIGI), which currently has $41 million in assets. The funds were the first new ETF offerings from the fund company for the better part of a year, and filled one of the few holes in Vanguard’s lineup of core-oriented funds.
The odds of VYMI and VIGI accumulating quite a bit more in assets are pretty high—perhaps higher than any of the other funds in the top 10. Vanguard ETFs tend to do a bit of a slow burn, but currently the firm has only one other ETF with less than $100 million in assets. And 47 of its 70 ETFs—about 67%—have more than $1 billion in AUM. What other ETF issuer can claim that kind of success rate?
Although none of the launches so far in 2016 have broken any records in terms of asset accumulation, the top rollouts come with some interesting implications. Among those are possibilities that socially responsible funds and funds with adjustable currency hedges could be more important themes going forward.
Meanwhile, the other rollouts suggest that ETNs, MLPs and smart-beta strategies are all at the top of investors’ minds.
Contact Heather Bell at [email protected].