Got a case of TMI (Too Much Information)? ETF Trends takes a condensed look at latest ETF launches and happenings…
CrowdInvest Launches Crowd Sentiment-Weighted ETF
The creators of the CrowdInvest Wisdom Index (CROWDWIS) and the Crowd-Invest mobile application launched the CrowdInvest Wisdom ETF (NYSE: WIZE), an exchange-traded fund that tracks the CrowdInvest Wisdom Index.
WIZE begins trading today on the NYSE. This next generation, smart-beta product allows investors to achieve exposure to a diversified index. This index is composed of U.S.-listed equities weighted by sentiment built by an independent, diverse crowd.
WIZE is unique in that it harnesses the democratized opinions of users, not the opinion of biased portfolio managers. WIZE is an alternative to more common passive index-based strategies. App users’ bullish or bearish views on stocks determine the selection and weighting of the 35 equities in the rules-based CROWDWIS. CROWDWIS outperformed the S&P 500 during its first year by 147 basis points (Jan. 7, 2015 – Jan. 7, 2016). The index was down 0.56 percent for the year ended Jan. 7, 2016 versus the S&P 500 down 2.04 percent on a total return basis.
Martin Mickus, founder and Chairman of CrowdInvest, said WIZE is a smart-beta product in that it provides an alternative weighting to broad U.S. stock market exposure and the ETF puts the average investor in position to own an investment that they can influence themselves.
“Investors can incorporate WIZE into their portfolios by reallocating some of their core S&P 500 holdings into this fund,” he said. “Additionally, people can look at WIZE as a tool to demonstrate their frustration with the underwhelming performance of the average portfolio manager.”
In the interest of staying true to a crowd sentiment-weighted portfolio, the CrowdInvest Wisdom ETF rebalances on a monthly basis in response to changes in user sentiment.
A Changing ESG Investing Landscape
In the past two years, there have been significant developments in Environmental, Social and Governance (ESG) index-based investing. S&P Global Market Intelligence thinks that a more modest global economic expectation, a focus on climate changes and the gender pay-gap disparity and a new generation of investors comfortable with alternatively-weighted passive strategies plays a role.
According to Alka Banerjee, a managing director of S&P Dow Jones Indices, in the last 15 months, the index provider launched more than 30 new ESG indices covering a gamut of climate change issues, fossil fuels and broader ESG metrics. She noted demand for such indices has been strong from both institutional and retail investors.
One such S&P Dow Jones index-based product is SPDR S&P 500 Fossil Fuel Free ETF (SPYX), which launched in December 2015 and had $75 million in assets. The ETF has a 0.20% net expense ratio and excludes companies who own any fossil fuel reserves. Relative to its older sister ETF, SPDR S&P 500 (SPY), SPYX’s energy exposure (2% of assets vs. 7%) is more modest.
Calvert US Large Cap Core Responsible Index Fund (CSXAX), which had approximately $700 million in assets across various share classes, was one of the Calvert index-based equity products that has been performing relatively well.
Within Calvert’s governance criteria are board diversity and support of women and minority-owned businesses. Last month, State Street launched an ETF that focused specifically on investments where women play a significant role within the company’s leadership.
At McGraw Hill Financial, which is the parent company of S&P Dow Jones Indices and S&P Global Market Intelligence, our corporate responsibility mission is to strengthen our communities and build more inclusive and sustainable economies, with a particular focus on supporting women’s leadership and entrepreneurship; McGraw Hill Financial will be changing its name to S&P Global, pending shareholder approval this month.
SPDR SSGA Gender Diversity Index ETF (SHE) is an investment that fits those criteria as the ETF is constructed with companies that exhibit the best gender diversity within each sector. The criteria include the ratio of female executives and female members of the companies’ board of directors to all executives and members of the board of directors. The ETF has $275 million in assets, despite first trading in March 2016.
According to a SSGA, the firm was inspired to develop the Index by the California State Teachers’ Retirement System’s (CalSTRS) efforts to move the needle on gender diversity in corporate America, especially for women in leadership positions. CalSTRS has been a significant investor in SHE and provides the new ETF with liquidity. The ETF has a 0.20% expense ratio.
SHE’s top-10 holdings include Home Depot (HD), Berkshire Hathaway (BRK.B) and Oracle (ORCL).
Meanwhile, mutual fund investors focused on women’s leadership have a strong choice with Pax Ellevate Global Women’s Index Fund (PXWEX).
Unlike SHE, PXWEX is a global multi-cap core fund. Holdings include Carrefour (CA), Estee Lauder (EL) and Yahoo! (YHOO); PXWEX’s S&P Global Market Intelligence’s mutual fund ranking is aided by its attractively valued holdings. PXWEX has outperformed its Lipper peer group on a three-year annualized basis (8.9% vs. 6.7%).
Alternative Funds Remain Out of Favor
While the mutual fund industry gathered $24.1 billion of fresh money in the first three months of the year (excluding money markets), according to Lipper data, led by $27.1 billion from taxable and tax-free bond mutual funds, alternatives had $15.8 billion of outflows.
S&P Global Market Intelligence thinks in prior years the appeal for alternative mutual funds was that they are less correlated with traditional equity and fixed income funds that buy individual securities in hopes of capital appreciation and income generation. After the great recession, investors sought out alternative strategies focused on analysis of interest-rate trends or that sold short stocks or bonds in hopes that these would perform better when the market sold off.
However, the appeal appears to be dissipating, as 18 of the 20 largest alternative mutual funds had outflows in March, even as they employ different strategies.
Alternative global macro funds had $9.9 billion in net client withdrawals in the first quarter of 2016, hurt by $3.8 billion in March alone.
PIMCO All Asset Fund (PASAX), the second-largest alternatives portfolio and largest global macro fund with $19 billion in assets under management, saw its asset base shrink by $980 million in March 2016, bringing the asset decline to $2.3 billion for the first quarter of 2016. PASAX’s 9.3% decline in 2015 was even worse than its peers, though its 5.2% first quarter gain was stronger than the 0.76% for its brethren.
Ivy Asset Strategy (WASCX), a $10 billion portfolio, saw a larger $1.5 billion outflow in March, pushing its first quarter shrinkage to $4.2 billion. WASCX, which is managed by Waddell & Reade, had a wider 2015 loss than its peers, with a 9.05% decline. The fund declined an additional 5.29% in the first quarter of 2016.
Another investment style out of favor in 2016 was alternatives credit focus. The Lipper peer group had $8.7 billion in outflows in the first quarter, with $2.4 billion.
Goldman Sachs Strategic Income Fund (GSZAX), a $13.7 billion-asset portfolio, had $8.4 billion of outflows in 2015. The fund declined 1.66% in the first quarter of 2016, which we think caused ongoing concern among investors. Withdrawals of $835 million in March alone continued the shareholder trend.
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