By Todd Rosenbluth, CFRA
Within CFRA’s more than 1,400 equity and bond ETF rating coverage universe, there are also hundreds of funds that have launched in the last three years. Some like products launched in 2018 from JPMorgan and SSGA have quickly gathered more than $1 billion in assets. Meanwhile, others are just waiting to be found, but offer unique, but diversified exposure to a slice of the market.
CFRA recently kicked off a series of ETF educational video content https://bit.ly/2QP6q44 to highlight the variety of compelling ETF products available for advisor consideration. We typically rate ETFs within the first three months of its history and can help compare what, if anything, is unique about a new ETF.
JPMorgan BetaBuilders Canada ETF (BBCA) is a great example of a new fund that has gathered assets. Many investors seeking exposure to Canada will have this $2.2 billion ETF on their radar screen, despite it launching in August 2018. The ETF holds 46% of assets in its top-10 holdings, including Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia and Enbridge.
BBCA charges a 0.19% expense ratio, which is half the fee of more established and similarly market-cap weighted peer iShares MSCI Canada (EWC). However, the trading volume for EWC is sharply higher, providing more liquidity. CFRA thinks investors need to go beyond an ETF’s expense ratio to understand the total cost of ownership.
Meanwhile, Communications Services Select Sector SPDR ETF (XLC) is only slightly older, having launched in June 2018, though the $3 billion of assets began flowing in primarily following the GICS sector realignment in late September. With the GICS changes, investors who used Technology Select Sector SPDR (XLK) to gain exposure to Facebook and Alphabet or held Consumer Discretionary Select Sector SPDR (XLY) for its stakes in Disney and Netflix needed to shift focus to a new fund.
These four mega-caps have long been followed by CFRA equity analysts, but the stocks and many others were sold by index-based XLK or XLY in September. Through XLC, investors can gain exposure to these and other attractively valued stocks in a low-cost liquid wrapper. XLC charges a 0.13% expense ratio and trades approximately $160 million shares a day.
While SSGA launched a new ETF to reflect the GICS changes, Vanguard converted a pre-existing telecom fund into Vanguard Communications Services Index ETF (VOX). While VOX still holds AT&T and Verizon Communications, as does XLC, the 14-year-old VOX has gradually added in former tech and consumer stocks to the portfolio, making the prior track record less meaningful than the newer positions. VOX charges a 0.10% expense ratio, but trades less than up-start XLC.
This holdings-level approach is combined with some fund-specific characteristics focused on costs and liquidity. See more about CFRA’s proprietary ETF ranking methodology here: https://bit.ly/2QISSHE.
CFRA also covers other ETFs that launched in 2018, including considerably smaller iShares Evolved US Consumer Staples ETF (IECS), Oppenheimer Emerging Markets Ultra Dividend Revenue (REDV) and ProShares Online Retail (ONLN). These strategies are different than some of the more established offerings, based on exposure and costs and warrant attention according to our research.
Todd Rosenbluth is Director of ETF & Mutual Fund Research at CFRA.