Issuers Like Their Own Multifactor ETFs
Of course, performance isn't everything. It's entirely possible that—middling returns or no—retail investors would be buying these ETFs anyway, because they believe that much in their potential.
But 13F filing data suggests many of the most popular multifactor ETFs are owned largely by their own issuers, indicating asset managers are the ones funneling client cash into their own in-house products.
Goldman Sachs, First Trust, Franklin Templeton and John Hancock are all the largest stakeholders in their own multifactor ETFs:
|Ownership Of Multifactor ETFs|
|Ticker||Fund||Issuer||Top Holder Of Fund||Outstanding Shares Owned|
|GSLC||Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF||Goldman Sachs||Goldman Sachs||9%|
|FXU||First Trust Utilities AlphaDEX Fund||First Trust||First Trust||44%|
|RODM||Hartford Multifactor Developed Markets (ex-US) ETF||Hartford||Morgan Stanley||12%|
|OMFL||Invesco Russell 1000 Dynamic Multifactor ETF||Invesco||Invesco||68%|
|FLQL||Franklin LibertyQ U.S. Equity ETF||Franklin Templeton Investments||Franklin Templeton Investments||83%|
|SPHD||Invesco S&P 500 High Dividend Low Volatility ETF||Invesco||Merrill Lynch||4%|
|JHEM||John Hancock Multifactor Emerging Markets ETF||John Hancock||ManuLife Financial||97%|
|IGF||iShares Global Infrastructure ETF||BlackRock||Northern Trust Investments||17%|
|AGGY||WisdomTree Yield Enhanced U.S. Aggregate Bond Fund||WisdomTree||Horizon Investments||7%|
|JHMM||John Hancock Multifactor Mid Cap ETF||John Hancock||ManuLife Financial||33%|
Sources: ETF.com, FactSet; data as of July 26, 2019
The $1.2 billion Franklin LibertyQ U.S. Equity ETF (FLQL), for example, is owned 83% across two Franklin Templeton divisions: Franklin Advisers and Franklin Mutual Advisers. The $814 million John Hancock Multifactor Emerging Markets ETF (JHEM), meanwhile, is owned 97% by ManuLife Financial, parent company of John Hancock.
That's not the case for most multifactor funds launched by legacy ETF issuers like iShares, WisdomTree and Invesco. For most of these products, the largest stakeholders tend to be market makers and asset managers targeting financial advisors. The one exception is the $1 billion Invesco Russell 1000 Dynamic Multifactor ETF (OMFL), 68% of which is owned by Invesco itself.
There's nothing inherently wrong with money managers buying their own book. To some extent, we ought to expect it; these companies attract clients based on the value proposition offered by their proprietary investment approaches, so why wouldn't they put clients' money into products reflecting their unique brand of thinking?
However, despite strong flows and good press, multifactor ETFs clearly remain a niche product for a niche audience. It's unclear what—if any—appeal multifactor ETFs have to a wider audience of retail investors and independent advisors; and for now, their growth appears to be hamstrung by the size of their issuers' pocketbooks.
Contact Lara Crigger at [email protected]