Got a case of TMI (Too Much Information)? ETF Trends takes a condensed look at latest happenings…
New ETF Launches: IGRO & FAAR
Bats Exchange on Thursday launched the iShares International Dividend Growth ETF (BATS: IGRO).
IGRO seeks to track the investment results of the Morningstar Global ex-US Dividend Growth Index. iShares, which was the first issuer to list products on Bats, now has 41 ETFs listed on Bats’ U.S. market.
Also on Thursday, Nasdaq launched the First Trust Alternative Absolute Return Strategy ETF (Nasdaq: FAAR).
FAAR is actively managed and seeks to provide investors with long-term total return by investing primarily in exchange-listed commodity futures contracts through a wholly-owned subsidiary of the fund. The fund’s investment process involves taking long and short positions in commodity futures contracts through its subsidiary.
Guggenheim Transitions Spin-Off and Timber ETFs to New Indices
Effective today, Guggenheim Investments, the global asset management and investment advisory business of Guggenheim Partners, will change the underlying indices for Guggenheim Spin-Off ETF (CSD) and Guggenheim Timber ETF (CUT). The name of each ETF also will be changed to reflect its new underlying index. The ticker symbol of each ETF will remain the same.
The S&P Index is a rule-based index comprised of, as of February 29, 2016, approximately 58 securities of U.S. companies that have recently been spun-off from larger corporations and meet market capitalization requirements. Any eligible spin-offs occurring at least seven business days prior to the rebalancing date are included in the index at the monthly rebalancing.
The MSCI Index is a rules-based index comprised of, as of February 29, 2016, approximately 90 securities of companies in developed and emerging markets that own and/or manage forests and timberlands and produce wood-based products.
Fidelity Plans to Jump Into The Smart Beta ETF Market
Written by Todd Rosenbluth, Director of ETF & Mutual Fund Research, S&P Global Market Intelligence
Non-market-cap weighted smart-beta ETFs have been gaining traction with investors in 2016, led by iShares Edge MSCI USA Minimum Volatility (USMV) and iShares Edge MSCI EAFE Minimum Volatility (EFAV). These two ETFs have gathered $5.24 billion and $2.36 billion in new assets year to date through May 19, according to etf.com data, and are among the 10 most popular ETFs to buy this year. In addition, with bonds providing limited income, investors have gravitated toward dividend ETFs. PowerShares S&P 500 High Dividend Low Volatility (SPHD), offered by Invesco, pulled in $985 million of fresh money.
Related: Smart Beta ETF Industry Gets Vote of Confidence from Central Bank
Fidelity’s six planned ETFs are each focused on one broad criteria and will seek to track the firm’s proprietary rules-based index rather than partnering with index providers such as MSCI or S&P Dow Jones Indices. There will be two dividend ETFs, Fidelity Core Dividend ETF and Fidelity Dividend for Rising Rates, both focused on companies that have high dividend yields, low payout ratios, and the ability to increase their dividends. However, the latter ETF will focus on companies that have positive correlation to increasing bond yields.
The four other products also put an active-management spin on existing ETFs offered by iShares, PowerShares, and others. For example, PowerShares S&P 500 Low Volatility ETF (SPLV) and USMV track indices that hold companies that have the low volatility of returns relative to the broader market, but the new index that Fidelity Low Volatility Factor ETF will track will do so plus add an earnings volatility component.
[related_stories]It is not yet known what the ticker or expense ratio of these products will be. However, when Fidelity launched its 10 market-cap weighted sector ETFs in October 2013, the expense ratio of 12 basis points was equal to that of the Vanguard sector ETFs, the cheapest competitor. Since then Fidelity MSCI Real Estate (FREL) was launched for the same cost and the 11 ETFs have $2.8 billion in assets. Vanguard subsequently lowered the cost of its sector ETFs to 10 basis points.
For perspective, USMV has a 15 basis point expense ratio. If Fidelity were to price its products much higher, that would limit its ability to gather assets, according to S&P Global Market Intelligence.
According to BlackRock, which offers the iShares products, there were $282 billion in mid-May in smart beta products globally. The firm announced last week that it expects the asset base to triple in size to $1 trillion by 2020 and climb to $2.4 trillion by 2025.
Related: What’s So Special About Smart Beta ETFs?
S&P Global Market Intelligence thinks the addition of Fidelity to the smart beta market later in 2016, once the products go live, will support the continued growth of this market. Fidelity has distribution through its brokerage platform and a strong brand among advisors and individual investors comfortable with its stock selection approaches through mutual funds. Fidelity is entering a crowded market for smart beta products and will face formidable competitors that have a more established ETF presence, but as investor education for smart beta products increases, all related products can gather assets.