Here at ETF.com, we talk a lot about flows. Each day, each week and each month, we put together lists of the ETFs that garner the largest inflows and the largest outflows of assets—an indication of where investors are putting their money to work.
Most of the time, the same batch of ETFs find themselves on these lists. These funds are usually super liquid, extraordinarily cheap and have billions of dollars in assets. For example, so far this year, the $59 billion iShares Core MSCI EAFE ETF (IEFA) and the $50 billion iShares Core MSCI Emerging Markets ETF (IEMG) are seeing the largest inflows, totaling $16.4 billion and $8 billion, respectively.
No matter how you slice it, those are sizable inflows, and suggest that investors are enthusiastic about international equities this year. That said, IEFA and IEMG aren’t necessarily the ETFs growing the fastest. On an absolute basis they are, but on a percentage basis, their year-to-date inflows represent an increase of 38.8% and 18.6%, respectively, over their total assets at the start of the year. Those are impressive gains for such large ETFs, but nowhere close to the top of the heap.
On a percentage basis, there are loads of ETFs that have grown much faster in 2018—ETFs that almost never make our flows lists because they are starting from a much smaller asset base. In this article, we’ll be taking a look at these fast-growing funds, which, in many cases, are flying under the radar of the ETF investing public at large.
Yield Without Interest Rate Risk
In total, there are over 100 ETFs that have more than doubled their start-of-the-year asset total thanks to strong inflows. The fastest-growing ETF so far this year, the WisdomTree Bloomberg Floating Rate Treasury Fund (USFR), has done much better than that, with an asset surge of 5,000%.
To be sure, USFR, like many fast-growing ETFs, started the year at a low base. The fund only had assets under management (AUM) of $1.3 million at the beginning of 2018. Still, it’s impressive that those assets have grown to $65 million during the first four months of the year.
As a floating-rate product that resets its coupon weekly, USFR has almost no interest rate risk. That makes it an appealing option for investors who believe that interest rates will continue climbing, but who also want to take advantage of this year’s higher rate environment to generate income immediately. USFR currently has a distribution yield of 1.3%.
Saudi MSCI Upgrade Coming
Behind USFR, a completely different type of product takes the mantle as the second-fastest-growing ETF, the iShares MSCI Saudi Arabia ETF (KSA). Assets for this ETF stood at just $14.1 million at the start of the year, but quickly ballooned to $192 million thanks to inflows of $163 million.
Expectations that Saudi Arabia will be upgraded to emerging markets status by MSCI in June may have played a large part in this year’s inflows. If it comes to fruition, MSCI’s upgrade may spur billions of dollars to flow into Saudi Arabia equities as funds tied to MSCI emerging markets benchmarks allocate money to the country.
Saudi Arabia, under the leadership of Crown Prince Mohammed bin Salman, has pushed aggressively to modernize its economy and reduce its dependence on oil.
Multifactor ETF Catches On
Every now and then a product comes out that takes off from the get-go. The IQ Chaikin U.S. Large Cap ETF (CLRG) is one of those. Launched in December of last year, the fund has already accumulated $323 million in assets, easily making it one of the fastest-growing ETFs on the market.
The fund holds an equal-weighted basket of 300 large-cap U.S. equities, which are chosen based on a multifactor model. The “Chaikin Power Gauge” uses 20 factors based on value, growth, technicals and sentiment to select stocks and attempt to outperform.
Rushing Into Pot
Another overnight success to make the fastest-growing ETFs list is the ETFMG Alternative Harvest ETF (MJ).
After completely overhauling its investment strategy from Latin American real estate to marijuana, MJ’s assets surged. About $414 million flowed into the ETF this year, which, after accounting for losses in the share price, leaves current AUM at $363 million.
MJ is the first U.S.-listed ETF targeting marijuana companies, an area that clearly has a lot of hype and growth potential surrounding it.
Excluding State-Owned Enterprises
The WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE) is one of those ETFs that catches on thanks to strong performance and a compelling theme. The ETF surged nearly 50% last year, catching the eye of investors. At the start of 2018, XSOE only had $15.9 million in assets. Today it has $122 million thanks to inflows of $110 million.
For a full list of this year’s fastest-growing ETFs, see the table below:
Data measures year-to-date period through April 30, 2018
Sumit Roy can be reached at [email protected]