Halfway through the year and the number of new ETF launches is almost identical to what it was last year. As of July 17, 2018, 124 new ETFs have launched, just one more than the 123 ETFs that launched during the same period in 2017.
There’s no question, the flow of new exchange-traded products coming to market remains robust. Whether that’s a good thing, or a bad thing or a neutral thing is open to debate.
We probably don’t need yet another S&P 500 fund or even another broad commodities ETF. Within this year’s new launches, there’s some of that—unoriginal ETFs that offer similar exposure to products that are already out there.
But there’s also some truly interesting ETFs that offer investors unique exposure and that could shake things up. Out of this year’s 124 new launches, I selected four that caught my eye. Here they are, in no particular order.
Amplify Transformational Data Sharing ETF (BLOK)
First off, let’s call a spade a spade. The Amplify Transformational Data Sharing ETF (BLOK) is a blockchain ETF. The SEC may not allow issuers to use that term in a product’s name, but that’s what BLOK and five other similar funds that launched this year really are.
BLOK was the first to market and commands the greatest share of assets, $171 million, though I could have put any one of those five other ETFs on this list. They’re all funds that, while using different strategies, invest in companies involved with blockchain—the distributed ledger technology that underpins bitcoin.
For ETF investors, BLOK and similar products may be the next best thing to the elusive bitcoin or cryptocurrency ETF. As most people are aware, the SEC has yet to approve any exchange-traded product that holds bitcoin or bitcoin futures.
Blockchain ETFs are a way for investors to potentially capture the upside in cryptocurrencies indirectly. They could even prove to be superior to investing in cryptocurrencies directly. After all, blockchain technology has many other applications than just digital currencies.
By providing exposure to this potentially revolutionary technology, blockchain ETFs are certainly worthy of consideration and are one of the most interesting new areas for investors to explore in 2018.
Rogers AI Global Macro ETF (BIKR)
In the ETF world, there’s only one buzzword that’s arguably hotter than blockchain: artificial intelligence. Though the first ETFs to use A.I. came about in 2016 and 2017, this year has seen an explosion of funds using artificial intelligence.
Distinct from ETFs that hold stocks of AI-related companies, these funds use AI models and algorithms to pick which stocks to hold. One such fund is the Rogers AI Global Macro ETF (BIKR), which launched amid much fanfare in June.
BIKR is not necessarily any better than other AI-powered ETFs, but it has the benefit of being associated with famed investor Jim Rogers.
BIKR tracks an index of single-country ETFs that was developed by Ocean Capital Advisors, a company headed by Rogers. To help choose which ETFs to buy, the fund uses an AI-driven algorithm that analyzes macroeconomic data “to identify likely changes in market directions in individual countries and within the global economy” over the next 18-month period.
It will be interesting to see whether Rogers’ star power can attract inflows into BIKR and whether his expertise (as well as his AI. model) can help it outperform.
Communication Services Select Sector SPDR Fund (XLC)
One year after real estate became a standalone sector, another major change is about to hit the Global Industry Classification Standard (GICS). Effective Sept. 21, the telecommunications sector will become the communication services sector, a change that will shuffle the classification of dozens of stocks and alter the makeup of key indices maintained by S&P Dow Jones and MSCI.
The Communication Services Select Sector SPDR Fund (XLC), launched in June, will likely be one of the biggest, if not the biggest, ETF to track this new and important sector.
Large, weighty names from the tech sector, such as Facebook and Alphabet, will be moved into the communication services sector, and by extension, are held in XLC. Similarly, large names from consumer discretionary, like Comcast, Disney and Netflix will be held in the new sector and XLC.
Indeed, three of the five stocks that make up the high-flying FAANG group will be held in XLC, making this sector ETF an instant powerhouse. It will be interesting to see how the communication services sector performs going forward and whether it manages to steal some of the thunder from the tech sector, which has been the darling of investors for the past couple of years.
Vanguard U.S. Liquidity Factor ETF (VFLQ)
A lot of investors were caught off guard in February, when Vanguard announced the launch of six actively-managed factor ETFs. It was Vanguard’s first foray into actively-managed ETFs of any kind.
Who would have though that Vanguard, the firm that is synonymous with indexing, would make its way into the active ETF space— and to do it with factor ETFs, which are typically index-based strategies? Yet, here was Vanguard, offering these funds for a dirt-cheap price tag of 0.13%.
The most interesting of the bunch might be the Vanguard U.S. Liquidity Factor ETF (VFLQ), currently the only fund to specifically target stocks with low levels of liquidity.
In Vanguard’s view, less liquid stocks tend to outperform more liquid stocks over the long term. It’s the same factor that big investors such as endowments and foundations try to get by buying real estate and private equity, according to the firm.
Time will tell whether VFLQ and the other factor ETFs catch on with investors. On the one hand, Vanguard has a sterling reputation. On the other, Vanguard faithful are accustomed to the firm’s passive, market-cap-weighted offerings, and these are anything but that.