Smart-beta ETFs have gathered an astounding $52 billion in fresh net assets year-to-date. That equates to about 30 percent of all assets flowing into U.S.-listed ETFs this year.
Topping that list is none other than the WisdomTree Europe Hedged Equity ETF (HEDJ | B-50), with asset gains of $15.4 billion year-to-date, according to FactSet data.
1. HEDJ Most Popular Smart-Beta ETF This Year
HEDJ’s popularity centers on the idea that the eurozone is poised to rebound, but the euro should remain weak relative to the U.S. dollar. The fund, which tracks an index of eurozone dividend-paying companies that derive most of their revenues from exports outside the eurozone, hedges out currency risk, and it has more than $21 billion in assets today.
While the Federal Reserve is preparing to increase interest rates for the first time in more than six years, the European Central Bank is still easing policies in an effort to spark growth—a dynamic that has made a strategy like HEDJ hugely popular with investors.
Consider the fund’s performance: Compared to a noncurrency-hedged eurozone-focused ETF such as the iShares MSCI EMU ETF (EZU | A-83), HEDJ’s total returns have been stellar in 2015, as the chart below shows:
The fund was the single most popular ETF in 2014, as investors bought into Japan’s three-arrow program for expansion, with an eye for the weakening yen relative to the dollar.
This year, DXJ has remained a popular strategy, attracting $4 billion in fresh net assets so far this year. Yes, the asset-gathering pace has slowed down as some wait to see results from Japan Prime Minister Shinzo Abe’s plans, but the fund remains the go-to pick for many investors who believe Japan will be able to foster economic growth after more than 25 years of deflation.
Year-to-date, the fund hasn’t delivered meaningful outperformance relative to a nonhedged strategy such as the iShares MSCI Japan ETF (EWJ | B-98), but it still has an upper hand.
FV was the most popular new ETF to come to market in 2014, gathering more than $1 billion in its first year. That popularity has only grown in 2015, with $3.2 billion flowing in so far this year.
The ETF is a fund-of-funds that follows Dorsey Wright’s popular Focus 5 Model. It pulls five First Trust sector and industry ETFs exhibiting the greatest relative strength and equal-weights them with a quarterly rebalance. It’s a momentum-driven strategy.
In an interview with ETF.com late last year, Tom Dorsey said the Focus 5 Model—on which FV is designed—had long been used by wire house brokers and investment advisors. The ETF simply made accessing the model much simpler, by offering the strategy with one single ticker. In other words, he says, FV came to market with pre-existing demand.
The fund’s performance this year hasn’t disappointed, either. Relative to the SPDR S&P 500 (SPY | A-99), FV has outperformed.
The $6.6 billion fund tracks an index of U.S.-listed firms that are selected and weighted to create a low-volatility portfolio. What’s unique about USMV is that it’s designed to be a "minimum variance" portfolio, as ETF.com Analytics puts it, instead of merely a basket of low-vol stocks like the competing PowerShares S&P 500 Low Volatility ETF (SPLV | A-64). USMV also overweights defensive, dividend-paying sectors like health care, utilities and consumer staples.
This year, that approach has delivered outsized gains relative to other funds, and has attracted $2.88 billion in new assets.
VUG is a huge fund, and one that keeps getting bigger. At $20.6 billion in total assets, this ETF provides low-cost broad exposure to the largest U.S. growth companies. VUG tracks the CRSP U.S. Large Cap Growth Index, which selects large- and midcap stocks based on six growth factors. The fund has attracted $2.44 billion in new assets.
There are several funds competing in this segment, but 90 percent of the assets tied to large-cap U.S. growth names rests in only three ETFs. VUG is one of them.
Interestingly, compared with the other two ETFs—the $30.5 billion iShares Russell 1000 Growth ETF (IWF | A-91) and the $13.7 billion iShares S&P 500 Growth ETF (IVW | A-94)—VUG has had the weakest performance year-to-date. But VUG costs only 9 basis points a year in expense ratio. IVW costs twice as much at 18 bps, while IWF costs 20 bps.
Charts courtesy of Stockcharts.com
Rounding Out The Top 10
Trailing these five ETFs, but also hugely popular with net creations exceeding $1 billion each, are the smart-beta ETFs listed below.
|HEDJ||WisdomTree Europe Hedged Equity||WisdomTree||15,438.71||21,014.68||72,700.87|
|DXJ||WisdomTree Japan Hedged Equity||WisdomTree||4,031.95||17,194.35||70,552.15|
|FV||First Trust Dorsey Wright Focus 5||First Trust||3,260.20||4,539.78||10,084.34|
|USMV||iShares MSCI USA Minimum Volatility||BlackRock||2,882.68||6,604.70||11,619.53|
|EFAV||iShares MSCI EAFE Minimum Volatility||BlackRock||2,102.77||3,507.76||6,366.43|
|IWD||iShares Russell 1000 Value||BlackRock||1,640.07||26,739.79||42,846.56|
|TOTL||SPDR DoubleLine Total Return Tactical||SSgA||1,396.60||1,377.09||2,864.71|
|NEAR||iShares Short Maturity Bond||BlackRock||1,351.54||1,897.50||2,970.83|
Data provided by FactSet
Contact Cinthia Murphy at [email protected].