2015 has been an outstanding year for growth in the ETF industry if you measure success by the number of new funds that were created. Over 260 exchange-traded products have debuted so far this year, and with a full month still to go, that number is expected to increase even further. This new crop of freshman funds
2015 has been an outstanding year for growth in the ETF industry if you measure success by the number of new funds that were created. Over 260 exchange-traded products have debuted so far this year, and with a full month still to go, that number is expected to increase even further.
This new crop of freshman funds span a wide spectrum of investment strategies and are all vying to attract significant investment dollars from the rapidly saturating field. Nevertheless, only a small cadre of unique ETFs have been able to attract noteworthy inflows.
The fastest growing ETF has been the SPDR Doubleline Total Return Tactical ETF (TOTL), which is the only fund to debut this year that has surpassed the billion-dollar mark. This ETF has amassed over $1.4 billion in assets since its February entrance. That month I noted TOTL has a worthy candidate for fixed-income mavens to watch and it has not disappointed with its rapid progress.
This fund was conceived as a joint venture between State Street’s well-known ETF platform and the investing prowess of bond guru Jeffrey Gundlach. The concept behind the TOTL strategy is to use Gundalch’s research and investment methodology in order to create an actively managed portfolio of global bonds that seeks superior returns versus the aggregate U.S. fixed-income benchmark.
A comparison of TOTL versus the iShares Core U.S. Aggregate Bond ETF (AGG) demonstrates that the active strategy has been able to make slight gains over its benchmark since its debut. Yet more importantly, the chart below denotes how TOTL has been able to minimize peaks and valley associated with lower interest rate sensitivity.
TOTL is also regularly compared against the PIMCO Total Return Bond ETF (BOND), which is nearing its fourth year of existence as one of the largest actively managed ETFs in the world.
Companies that have proven to be leaders in technology innovation represent the underlying theme of the iShares Exponential Technologies ETF (XT). This ETF is based on an index created by Morningstar to screen a basket of 200 global stocks with developing or pioneering advancements in their field of expertise. Top holdings include well-known names such as Amazon.com Inc (AMZN) and Netflix Inc (NFLX).
XT debuted in March and has managed to grow its asset base to over $686 million so far. This was helped by an early infusion of capital from the investment arm of well-known advisor Ric Edelman, who spearheaded the initiative with Blackrock and Morningstar.
XT takes a unique approach in that its underlying stocks are spread amongst nearly every sector of the market. This enhances diversification versus a typical sector ETF that only owns technology stocks. In addition, one-third of the holdings are made up of companies outside the United States, which makes this a truly global offering.
The Trend Is Your Friend
The third largest ETF debut this year is geared towards investors that believe in a trend-following strategy. The Pacer Trendpilot 750 ETF (PTLC) made its entrance in June as a diversified portfolio of large-cap U.S. stocks that reduces its exposure and moves to cash when the market falls below its long-term trend line. PTLC has amassed nearly $300 million in just a few short months and found its strategy quickly tested during the late-summer volatility.
As you can see on the chart below, this rules-based ETF moved to cash as the market experienced a pernicious drop and has now begun to re-enter its stock positions. The goal of PTLC is to reduce the impact of bear markets and other extreme drops that can quickly erase multiple years of gains.
An ETF of this nature may be suitable for investors that want an automatic sell plan in place that also resumes its normal stock exposure according to a strict set of guidelines.
The Bottom Line
With over 1,800 exchange-traded products, it’s becoming more difficult for new funds to attract assets away from well-established indexes or favored investment vehicles. To underscore this point, over 60% of the new ETFs created in 2015 have yet to gain more than $10 million in new assets.
Nevertheless, ETF investors will stand up and take notice when a distinctive strategy comes along with a value-added approach. That is the lightning in a bottle that every ETF issuer hopes to capture