New Kids: Do These New ETFs Have The Right Stuff?
Despite frequent criticisms that the expansion of the exchange-traded products universe has resulted in complex, obscure funds that do not benefit investors, a point that many contest, ETF sponsors have maintained a brisk pace of new fund introductions in 2012. Alone, BlackRock's (NYSE: BLK) iShares unit, the world's largest ETF sponsor, has rolled out more than 40 new ETFs in 2012.
New ETFs are exciting for a couple of reasons. First, many of the new funds that have come to market this year are new concepts, such as emerging markets corporate debt and short-term junk bonds. Second, new ETFs can create competition among issuers for investors' assets and that scenario can prompt lower expense ratios. Obviously, investors win in that situation.
Still, it pays to note that new ETFs are not the Facebook IPO. One doesn't need to be involved with a new ETF on the first day of trading. Probably not the first week or maybe even the first month, either.
Indeed, some new funds have struggled out of the gate. However, a new crop of rookie ETFs are showing they might have the right stuff to not only survive, but to thrive as well.
Market Vectors Morningstar Wide Moat Research ETF (NYSE: MOAT) The Market Vectors Morningstar Wide Moat Research ETF debuted last week and is intended to be a play on 20 companies that have displayed remarkable competitive advantages in their respective market niches for 20 years or more. The time qualifier is what keeps Apple (Nasdaq: AAPL), arguably the epitome of a wide moat company, out of the fund.
MOAT's concept could be up for criticism by ETF pundits and experts, but it's probably best to just let the market decide the validity of a wide moat ETF. For now, it can be argued that several of MOAT's top-10 holdings face intense competition. Not to be harsh, but Amazon (Nasdaq: AMZN), Northern Trust (Nasdaq: NTRS), Pfizer (NYSE: PFE), Merck (NYSE: MRK) and Schlumberger (NYSE: SLB) all face credible competition from multiple rivals.
WisdomTree Emerging Markets Corporate Bond Fund (Nasdaq: EMCB) Simply put, the WisdomTree Emerging Markets Corporate Bond Fund has proven to be one of the best new ETFs of 2012 in terms of attracting assets. EMCB is not even two months old and it already has over $60 million in AUM. EMCB is part of a new and potentially compelling rivalry with a comparable iShares product.
That said, EMCB does have the first-to-market advantage and there's nothing wrong with having two emerging market corporate bond ETFs on the market. Judging by the AUM totals, investors have been waiting for these funds to appear.
PowerShares S&P Emerging Markets Low Volatility Portfolio (NYSE: EELV) EELV is another new ETF locked in an unnoticed rivalry with an iShares fund. That being the iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV).
Looking at the covers and not reading the books might lead investors to assume these are basically the same ETFs. Alas, they are not. EEMV is fine if you want large exposure to China, Taiwan and Brazil (over 40%), but EELV is heavier on different markets, namely Malaysia and South Africa. As a note, the PowerShares fund offers more Latin Amercia exposure than its iShares counterpart.
SPDR Barclays Capital Short Term High Yield Bond ETF (NYSE: SJNK) SJNK is the short-term equivalent of the wildly popular SPDR Barclays Capital High Yield Bond ETF (NYSE: JNK), the second-largest high-yield bond ETF on the market today. Investors like that pedigree as SJNK is now home to almost $63 million in AUM in just six weeks of trading. Let's be honest: Investors really like SJNK's 7.9% yield.
Despite relevant issues with junk bond ETFs that must be considered, yield-hungry investors keep showing a willingness to support these ETFs. That bodes well for SJNK having a long lifespan.
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