Smart-beta ETFs have now gathered nearly $40 billion in fresh net assets year-to-date. That’s roughly $1 out of every $2 going into U.S.-listed exchange-traded products this year, and the biggest pull has been currency-hedged equity plays.
As a segment, smart-beta ETFs—funds that tilt their exposure toward a factor or fundamentals in an effort to outperform the market—today represent about a quarter of the $2-trillion-plus invested in U.S.-listed ETFs. The biggest smart beta fund today, the iShares Russell 1000 Growth ETF (IWF | A-91), boasts nearly $30 billion in assets.
Here we look at the five biggest asset-gatherers so far this year:
HEDJ has attracted $13.5 billion in net new assets in the first five months of 2015. It’s not only the most popular smart-beta ETF of 2015, it’s also the most popular ETF this year.
HEDJ tracks an index of eurozone dividend-paying companies that derive most of their revenue from exports outside the eurozone, and it hedges against the euro.
Concerns about the negative impact a strong—and strengthening—dollar has on returns for U.S. investors who own international equity funds is part of the fund’s huge appeal. Combine that with ongoing QE in the eurozone, fueling expectations that growth will pick up in the region, and it’s easy to see why HEDJ has become the hottest investment vehicle in recent months.
Performance has also helped attract investor dollars. Relative to an unhedged portfolio of eurozone equities such as the iShares MSCI EMU ETF (EZU | A-73), HEDJ has now delivered 10 percentage points in extra returns year-to-date. The fund is up 17.2 percent, while EZU is up only 7.2 percent.
After a phenomenal growth year in 2014, DXJ remains wildly popular with investors looking to capitalize on Japanese Prime Minister Shinzo Abe’s reform agenda centered on spurring growth. DXJ has attracted a net of $3.06 billion in fresh net assets year-to-date.
The fund tracks a dividend-weighted index of Japanese stocks that hedges out exposure to the yen. Today the fund has $17.6 billion in total assets and an average daily volume of some $300 million.
So far this year, DXJ has tacked on gains of more than 22 percent, outpacing nonhedged exposure to Japanese equites such as the iShares MSCI Japan ETF (EWJ | B-99) by 6 percentage points. EWJ is up 16.7 percent in the same period.
FV has gathered a net of $1.88 billion in new assets so far in 2015. The ETF, which is just over a year old now, is essentially a momentum-focused fund-of-funds that’s global in scope.
FV invests in five First Trust ETFs that are selected based on a Dorsey Wright relative strength model, and are weighted equally. The portfolio makes bets on U.S. sectors and global themes.
More than 40 percent of the mix is allocated to health care, with 22 percent in consumer staples and 20 percent in consumer discretionary. The fund has $3.3 billion in total assets today.
USMV has gathered a net of $1.3 billion in net assets year-to-date. The fund tracks an index of U.S.-listed firms selected and weighted to create a low-volatility portfolio that limits sector allocations. Still, defensive sectors such as consumer staples and health care comprise a big part of the portfolio, as you would expect.
So far this year, the fund has returned about 3 percent—a performance that’s slightly lower than the 4 percent in gains a fund such as Vanguard Total Stock Market (VTI | A-100) has delivered. But to quote ETF.com Analytics, “the fund’s biases indeed deliver very low market risk as indicated by the lowest beta in the segment, and spin off a bit of extra yield too.” Beta, in this case, is clocking in at 0.79. VTI has a beta of 1.0.
Investors have poured a net of $1.14 billion into VTV so far this year. The $18.75 billion ETF tracks the CRSP U.S. Large Cap Value Index, and invests in stocks from the top 85 percent of market capitalization based on multiple value factors.
It’s essentially a super-popular, cheap and highly liquid value play. Financials are its biggest sector allocation, at nearly 25 percent of the mix, followed by health care stocks and industrials.
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