Amid Closures, Some New ETFs are Thriving
First it was Direxion saying it will shutter nine ETFs. Then it was Scottrade scrapping the FocusShares ETF suite. Add in hints that Russell Investments may do the same with its ETF lineup and it is easy to see why some folks are fretting about ETF closures.
The result is an assumption by many that the current environment is somehow toxic for new ETFs. In fact, an expert quoted by Reuters said, "it's no country for new funds."
Everyone is entitled to their own opinion and it is true that the ETF landscape has become increasingly competitive. As iShares, State Street Global Advisors and Vanguard control about $1 trillion of the industry's $1.2 trillion in assets under management, it is easy to assume to that there is little room for new funds to not only survive, but thrive.
The assumption that new ETFs cannot attract robust asset hauls is erroneous. In fact, some ETFs that have come to market over the past year have done quite well and for the sake of this argument, the PIMCO Total Return ETF (NYSE: BOND) will be excluded. Just six months old, the "Bill Gross ETF" is home to over $2.4 billion in AUM, a stunning total for an ETF that young.
Not all new funds can be like BOND, but plenty of others are doing pretty well when it comes to attracting assets.
WisdomTree Emerging Markets Corporate Bond Fund (NASDAQ: EMCB) The WisdomTree Emerging Markets Corporate Bond Fund is one of the funds that refutes the argument that these are tough time for new funds. EMCB is a niche product that faces competition from iShares and SPDRs products.
EMCB has dealt with that competition easily because it was the first of the three emerging markets corporate debt funds to come to market. The ETF has shown there is room for new ETFs to succeed by attracting over $62 million in AUM since its March debut.
EMCB also dispels the notion of treating new ETFs like fine cheese and wine. There has been no need to let EMCB mature. Sitting on the sidelines with this ETF would have cost investors 3.5 percent in returns and a distribution yield of almost five percent.
Market Vectors Preferred Securities ex Financials ETF (NYSE: PFXF) Once again, a niche product dispels the notion that new ETFs cannot catch investors' eyes. As is the case with EMCB, the Market Vectors Preferred Securities ex Financials ETF is a yield play and that is one reason the fund has raked in $30.5 million in AUM in just one month of trading.
While REITs do account for almost 31 percent of PFXF's weight, the ETF is the first to track preferred stocks that is not excessively weighted to bank stocks. A net expense ratio of 0.4 percent means PFXF is also the least expensive preferred ETF to hold and that is another trait that is probably helping this new fund thrive.
iShares MSCI Emerging Markets Minimum Volatility Index Fund (NYSE: EEMV) Sure, one could say the only reason why the iShares MSCI Emerging Markets Minimum Volatility Index Fund has been a success in 10 months of trading is because it is an iShares fund. Maybe that is right, maybe that is wrong. The reason for EEMV's success is not as important as just realizing the fund has hauled in almost $392 million in AUM in less than a year of trading.
EEMV, which has an expense ratio of just 0.25 percent, is up almost 12 percent year-to-date. Again, another prime example that shows thinking that some new ETFs are doing quite well.
SPDR Barclays Capital Short Term High Yield Bond ETF (NYSE: SJNK) The SPDR Barclays Capital Short Term High Yield Bond ETF is one of the more anonymous members of a sub-sector of the ETF universe that gets plenty of attention. Or maybe it is fair to say that SJNK is one of the biggest junk bond ETFs many investors have not heard of.
Either way, there is no getting around the fact that SJNK has attracted almost $195 million in AUM since it debuted in March. SJNK's 30-day SEC yield is nearly six percent.
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