“The financial sector has been hurting recently, and the market has not yet digested well some of the merger and acquisition activity in the ETF market,” Venuto said. “Given this environment, it’s not surprising that TETF’s correlation to asset growth has come off a bit.”
Among TETF’s portfolio buckets, it’s ETF sponsors that have fared worse this year. As a segment, index providers are up on average about 15% year-to-date; exchanges are up 12%; but ETF issuers have faced average losses of about 20% in 2018, dragging down TETF’s overall returns, according to Toroso data.
Consider WisdomTree Investments, the only publicly listed pure-play ETF sponsor and TETF’s top holding, with an allocation of about 6.7%. The company’s stock is down 43% in 2018.
Other ETF issuers found among the fund’s top 10 holdings—BlackRock, Charles Schwab, State Street, and Invesco, which has gone through a round of mergers and acquisitions this year—are all struggling this year.
The exception is J.P. Morgan, which is up about 5% following a notable year of internal asset shifts into what’s now a very successful lineup of BetaBuilder ETFs.
Charts courtesy of Stockchart.com
As a group, ETF sponsors are the biggest bucket in TETF, representing about 48% of the portfolio. That weight is why TETF has felt the pinch among issuers so clearly this year.
But this type of performance seen in 2018 is why Venuto says the “ETF of the ETF industry” focuses on the entire ecosystem and not just on ETF issuers. It’s diversification within an industry meant to mitigate some of the inherent risks associated with equity investing when the market goes down.
(For a larger view, click on the image above)
Contact Cinthia Murphy at [email protected]