There have been 230-plus new ETFs that have come to market this year, some bringing innovation, some bringing me-too revivals, and some coming and going before anyone even took notice.
Among these launches, three new ETFs stand out for the broader stories they tell. With the help of my friend at Bloomberg Intelligence, Senior ETF Analyst Eric Balchunas, we take a closer look at how these new funds helped shape ETF investing this year.
New Gold ETFs Bring Fee War To Gold
State Street Global Advisors—the issuer behind the oldest and biggest gold ETF in the market, the SPDR Gold Trust (GLD)—launched in June another version of its behemoth success: the SPDR Gold MiniShares Trust (GLDM).
The launch showed State Street’s expanding commitment to battle it out with the likes of iShares and Vanguard for cheap core placement—GLDMs cost only a fraction of what GLD charges, and came to market with the lowest price tag in the gold segment, at 0.18% in expense ratio.
The aggressive fee move was quickly followed when, a month later, Perth Mint, through third-party provider Exchange Traded Concepts, launched the Perth Mint Physical Gold ETF (AAAU).
Like GLDM, AAAU is a physically backed gold ETF, and it too costs 0.18%. These newcomers came to disrupt the gold ETF segment by offering access to physical gold for the cheapest price around.
GLDM vaults bars in London, and AAAU vaults in Australia. Both of these new gold funds hold about 1/100th of an ounce of gold per share—or about the same amount as the competing iShares Gold Trust (IAU), and about 1/10th as much gold per share as GLD. As noted, they have identical expense ratios.
And then things got even more interesting. These cheapest-in-class ETFs undercut the price tag for the GraniteShares Gold Trust (BAR) by just a smidge—BAR, which launched in 2017, came to market with a fee of 0.20%.
That leadership, however, didn’t last long. As GLDM and AAAU gathered assets—they have already amassed $306 million and $65 million in total assets, respectively—GraniteShares slashed BAR’s expense ratio to take on its new competitors. Since October, BAR costs 0.1749%—exactly 51/100th of a basis point cheaper than GLDM and AAAU.
“Not only is the fee war breaking out in gold, it’s taken it to another level—splitting a basis point,” Balchunas said. “That’s not going to have a huge effect on anyone’s life, but symbolically, it shows just how intense the fee war is getting.”
Ultrashort-Term Bond ETFs All The Rage
Without a doubt, 2018 has been the year of the short- and ultrashort-term bond ETF.
As interest rates rose, the yield curve flattened, and investors searched for safety in quality assets without too much rate risk, ultrashort-duration bond ETFs emerged as the play du jour.
Assets flowed in—funds like the SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL) have gathered more than $5 billion this year; the JPMorgan Ultra-Short Income ETF (JPST) has taken in more than $3.2 billion year-to-date, among others. And issuers followed that investor demand with the launch of eight ETFs in this segment, six of which are actively managed.
The most successful of these launches was Prudential’s PGIM Ultra Short Bond ETF (PULS), which gathered $111 million in total assets since April.
PULS is actively managed and is the cheapest among competing active funds, at 0.15% in expense ratio, or $15 per $10,000 invested. That’s significant for a newcomer looking to compete in a universe of 16 ultrashort and 68 short-term bond funds. It’s a quickly crowding space.
Other newcomers this year include:
- ClearShares Ultra-Short Maturity ETF (OPER)
- First Trust Ultra Short Duration Municipal ETF (FUMB)
- Xtrackers Short Duration High Yield Bond ETF (SHYL)
- Hartford Short Duration ETF (HSRT)
- JPMorgan Ultra-Short Municipal ETF (JMST)
- First Trust Short Duration Managed Municipal ETF (FSMB)
- Invesco BulletShares 2021 USD Emerging Markets Debt ETF (BSAE)
“There's a craze right now for these ETFs,” Balchunas said. “If you have an ultrashort-duration ETF now, it’s like shooting fish in a barrel—it’s that easy to get money. I don’t know how long it’ll last, but there's a feeding frenzy going on in this category.”
How long this frenzy lasts is anyone’s guess. Remember all the hype over currency-hedged ETFs a few years back, when funds like the WisdomTree Japan Hedged Equity Fund (DXJ) became billion-dollar ETFs almost overnight, and many others followed looking for a piece of the action? Well, the thing about frenzies is that they can fizzle out just as quickly as they become a thing. Only time will tell.
Underrated But Crucial Volatility ETN Launch
There’s an often-forgotten little fact about exchange-traded notes: ETNs are notes that mature. The trader-loved, biggest volatility strategy in the ETF market today, the iPath S&P 500 VIX Short-Term Futures ETN (VXX), is set to mature in January. You’d be hard-pressed to remember the last time an ETN this big and this important matured.
VXX offers exposure to short-term VIX futures contracts. Backed by Barclays Bank, VXX has $880 million in assets and trades more than $1.7 billion, on average, every day. It’s a massive ETN and massively liquid.
In preparation for that event, Barclays launched a replacement for VXX this year, the iPath Series B S&P 500 VIX Short Term Futures ETN (VXXB), which is practically identical to its maturing predecessor. Launched in January, VXXB has been welcomed with very little fanfare, if any. The strategy has only $137 million in assets, and is trading $1 million a day, on average. VXXB could be the most underrated launch of 2018, according to Balchunas.
“Will VXXB be good enough for traders?” he said. “Will it develop liquidity, or will it take five years? Or will the VXX category take another blow?”
“I can't remember the last time we saw an ETN like VXX mature,” he added. “Assets are easier to transfer than liquidity—transferring liquidity is like picking up water and moving it. It’s going to be difficult.”
VXXB is one of a pair of VIX-linked ETNs that have come to market to replace maturing strategies, the other being the iPath Series B S&P 500 VIX Mid-Term Futures ETN (VXZB). VXZB will replace the expiring iPath S&P 500 VIX Mid-Term Futures ETN (VXZ), which has $37 million in assets.
Come 2019, giant VXX is going to expire, which makes VXXB possibly one of the most interesting launches this year.
Contact Cinthia Murphy at [email protected]