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Market Overview

Age Is Nothing But A Number With ETFs

Age Is Nothing But A Number With ETFs

Fund industry observers typically like to see track records of at least three years before deeming products worthy of investors' consideration. That conventional wisdom is a relic from the days when mutual funds ruled the fund universe.

Today, there are nearly 1,900 exchange-traded funds trading in the U.S., many of which lack the three-, five- and 10-year track records previously coveted in fund analysis. In fact, CFRA Research, one of the leading independent fund research firms, said 30 percent of the 1,400 ETF it rates have debuted since June 2015.

What To Know

Year-to-date, approximately 100 ETFs have debuted in the U.S. Many are generating solid returns, but not all, at least not yet, are proving adept at gathering assets. The tale of the tape is different for some ETFs that are fast-approaching their third birthdays.

The Goldman Sachs ActiveBeta US LargeCap Equity ETF (NYSE: GSLC), which turns three in September, is one of the stars among the “almost three” crowd of ETFs. GSLC, which is smart beta spin on domestic large-caps, has $3.3 billion in assets under management.

GSLC “is one of the most successful ETF launches. The ETF is constructed based on four established factors (low volatility, momentum, quality and value),” said CFRA ETF & Mutual Fund Research Director Todd Rosenbluth in a note out Tuesday. “CFRA also likes GSLC's 0.09 percent expense ratio, tight bid/ask spread and bullish technical trends.”

GSLC has outpaced the Russell 1000 Index by 670 basis points since coming to market.

Why It's Important

Some other new ETFs have rapidly gained success. The Legg Mason Low Volatility High Dividend ETF (NYSE: LVHD) has a credible following. LVHD, which debuted in late 2015, now has $591.72 million in assets under management. That's a decent total for about two and a half years on the market when considering LVHD faced entrenched competition via the Invesco S&P 500 High Dividend Low Volatility ETF (NYSE: SPHD).

“While single-factor ETFs focused on low volatility and single-factor ETFs focused on dividends have long been popular, LVHD is one of the few that combines these two fundamental attributes,” said Rosenbluth.

What's Next

Rosenbluth highlighted several other ETFs that are less than three years, some of which have easily entered the nine-figure club or are flirting with $1 billion in assets under management. That's just one sign that ETF issuers will continue testing the waters with new products.

CFRA has Overweight ratings on GSLC and LVHD.

Disclosure: The author owns shares of SPHD.

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