The U.S. exchange-traded fund (ETF) industry had quite a year in 2022 – due in part to the 413 new ETFs launched, only slightly less than the 446 in 2021.
U.S. ETFs ended 2022 with assets of $6.5 trillion, according to independent research and consultancy firm ETFGI, 9.8% lower than in 2021. Nevertheless, net inflows of $607.2 billion were the second-highest on record, behind only 2021's record $919.8 trillion.
Actively managed ETFs are one area of the industry that continues to grow. In 2022, active ETFs had net inflows of $98.0 billion. While the net inflows were down from 2021, approximately 64% of new ETF launches in 2022 were active exchange-traded funds.
"From 2016 to 2022, the number of purely active ETF launches increased by 30% per annum in the US and by 92% per annum in Europe," said management consultant firm Oliver Wyman in its 2023 report, The Renaissance of ETFs. "European fund providers are following in the U.S.'s footsteps."
But whether it be active or passive funds, the demand for the best ETFs among retail and institutional investors remains strong. And new ETFs offer investors to explore strategies that have not been thought of before or cheaper alternatives to gain exposure to tried-and-true approaches.
With that in mind, here are nine of the most interesting new ETFs that have hit the market this year.
Disclaimer
Data is as of Aug. 7.
Roundhill Generative AI & Technology ETF
- Category: U.S. fund technology
- Assets under management: $89.1 million
- Expenses: 0.75%, or $75 annually on every $10,000 invested
The Roundhill Generative AI & Technology ETF (CHAT, $29.63) is the first of five actively managed ETFs in this article. It is also the newest of the new ETFs featured here, having launched on May 18.
The ETF seeks to ride the growing demand for generative AI (artificial intelligence). Roundhill estimates that the total addressable market is $120 billion. At the same time, Goldman Sachs predicts AI will generate global economic growth of $7 billion over the next seven years due to increased worker productivity.
According to Roundhill's May 18 press release:
Generative AI is a type of artificial intelligence technology that uses neural networks to generate new data that is similar in structure and format to existing data. Unlike other AI techniques that use existing data to make predictions or classifications, generative AI can create entirely new data that is original and unique. This is accomplished through the use of complex algorithms that learn to recognize patterns and relationships within large datasets, allowing the AI system to generate new content or ideas that are similar in style or format.
To be chosen for inclusion in the ETF by the portfolio managers, a company must generate at least 50% of its revenue from AI-related activities such as AI software, cloud infrastructure services to support AI, AI semiconductors, network infrastructure for AI models, AI consulting services, and virtually anything else that's AI-related.
Roundhill Financial, the sub-advisor of the AI ETF, uses a proprietary scoring system to evaluate potential companies for inclusion. Scores range from 1 to 100, considering AI-related keyword analysis across the internet and the percentage of profits and revenue a company generates from artificial intelligence. The higher the percentage, the higher the score.
To qualify, a stock must have a market cap of at least $250 million and a minimum average daily volume of $500,000. It tends to hold between 25 and 50 positions at any given time, and currently has 36 holdings.
Not surprisingly, this new ETF is a who's who of the best AI stocks. Its top three holdings by weighting are Nvidia (NVDA) at 8.4%, Microsoft (MSFT) at 7.5%, and Alphabet (GOOGL) at 6.6%.
Sponsored Content
JPMorgan BetaBuilders Emerging Markets Equity ETF
- Category: U.S. fund diversified emerging markets
- Assets under management: $528.1 million
- Expenses: 0.15%
The JPMorgan BetaBuilders Emerging Markets Equity ETF (BBEM, $49.95) tracks the performance of the Morningstar Emerging Markets Target Market Exposure Index, a collection of stocks from emerging markets.
The index is a free float-adjusted market cap-weighted index that follows the returns of mid- and large-cap stocks in 24 emerging markets, including Brazil, Chile, China and Mexico. The ETF utilizes a sampling strategy to track the index's performance while not owning all of the holdings. As a result, BBEM currently has about 1,100 stocks, considerably less than the 1,500 or so found in the index.
BBEM launched on May 10, a little more than a week after CHAT. Including these two new ETFs, JPMorgan now has 58 exchange-traded funds on the U.S. market, with more than $118 billion in assets under management.
The top countries by weighting in BBEM are China (27.2%), India (16.0%) and Taiwan (13.8%). Outside Asia, the three biggest countries are Brazil (5.1%), South Africa (3.0%) and Mexico (2.2%).
As for its sector representation, the JPMorgan BetaBuilders Emerging Markets Equity ETF leans heavily on financial stocks at 24.7% of the portfolio. This is followed by technology (21.1%) and consumer discretionary stocks (12.6%). The fund is also fairly concentrated, with the top 10 holdings accounting for 21% of its $528 million in assets.
The average market cap of the stocks in the BBEM portfolio is $35.7 billion, with large caps accounting for almost 90% of the portfolio. Mid-cap stocks make up the rest.
Sponsored Content
IQ CBRE Real Assets ETF
- Category: U.S. fund global large-stock blend
- Assets under management: $4.9 million
- Expenses: 0.65%
New York Life Investments subsidiary IndexIQ launched the IQ CBRE Real Assets ETF (IQRA, $24.40) on the same day as BBEM. The actively managed ETF is sub-advised by the investment management arm of CBRE Group (CBRE), the Texas-based global real estate advisory firm.
CBRE Investment Management's Global Listed Real Estate Assets investment team is looking for real estate securities with stable income growth and future capital appreciation potential. Its four portfolio managers have an average of nearly 25 years in the real estate and infrastructure industries.
"Real assets, such as real estate and infrastructure, can play a meaningful role in portfolios, particularly in an environment with rising rates, continued volatility, and inflation," said Sal Bruno, chief investment officer at IndexIQ, in the press release.
Although the ETF is actively managed, its benchmark in the years ahead is the MSCI World Index. IQRA has gathered $4.9 million in assets under management to date. Those funds are invested in roughly 100 companies, with the top 10 stocks accounting for about 30% of the net assets.
Top stocks by weighting include cell tower real estate investment trust (REIT) Crown Castle (CCI), self-storage facility operator Public Storage (PSA) and utility stock NextEra Energy (NEE).
To qualify for inclusion in IQRA, a company must generate at least 50% of its profits or revenues from infrastructure or real estate. It won't invest in companies with market caps of less than $100 million. It will invest at least 25% of its net assets in infrastructure and 25% in real estate, and may invest up to 30% of its net assets in emerging market companies.
Learn more about IQRA at the New York Life Investments provider site.
Sponsored Content
ActivePassive International Equity ETF
- Category: U.S. fund foreign large blend
- Assets under management: $76.2 million
- Expenses: 0.45%
The ActivePassive International Equity ETF (APIE, $25.60) launched on May 3. It was one of four new ETFs launched by Envestnet (ENV), a technology-focused investment platform used by more than 106,000 advisors in the U.S. These four funds combine systematic factor-based active investment strategies with passive investment vehicles to generate more cost-effective returns for investors.
"As pioneers bringing together active and passive investment styles, our mission has always been to provide investors with a single portfolio that marries the best attributes of both active and passive investing at a low cost," said Dana D'Auria, co-chief investment officer and group president of Envestnet Solutions, in the press release announcing the four ETFs.
APIE's benchmark is the S&P Classic ADR Composite Index, a collection of non-U.S. companies with American depositary receipts (ADRs) that trade on U.S. stock exchanges, including the New York Stock Exchange (NYSE), the Nasdaq and over-the-counter.
To be included in the index, a stock must have a level II (partial compliance with GAAP accounting) or level III (complete compliance) ADR program. In addition, it must have traded continuously for at least the past three months.
APIE employs two sub-advisers to carry out the active allocation: AllianceBernstein invests in mid- and large-cap stocks that generate consistent earnings growth, while Causeway Capital Management invests in companies with value characteristics and market caps higher than $5 billion.
The ETFs top 10 holdings, which include French luxury stock LVMH Moët Hennessy (LVMUY) and U.K. industrial stock RELX (RELX), account for roughly 22% of its net assets.
Sponsored Content
Pacer US Small Cap Cash Cows Growth Leaders ETF
- Category: U.S. fund small growth
- Assets under management: $2.9 million
- Expenses: 0.59%
Pacer ETFs launched the latest of the Cash Cows ETF series on May 3 with the Pacer US Small Cap Cash Cows Growth Leaders ETF (CAFG, $22.96). The passively managed fund applies its free cash flow strategies to U.S. small-cap stocks.
"Our impressive sales and asset accumulation across the Cash Cows ETF Series is proof of the viability of this series' cash flow focused approach," said Joe Thomson, president of Pacer Financial, in a press release. "We anticipate CAFG to be an essential addition to our fund offerings, bringing a new small-cap growth solution."
With the addition of CAFG, the Cash Cows ETF Series is up to nine ETFs with more than $17 billion in assets under management. Pacer's total ETFs across all its product lines is 47, with nearly $24 billion in net assets.
The stock selection process for the Pacer US Small Cap Cash Cows Growth Leaders Index starts with the 600 companies from the S&P SmallCap 600 Index. It then takes the 100 stocks with the highest free cash flow margin, defined as free cash flow from the trailing 12 months divided by revenue. It then weights these 100 stocks based on price momentum, with a cap of 5%. The stocks are reconstituted and rebalanced quarterly.
According to the fund's summary prospectus, the largest stock in the index as of February 28 had a market cap of $5.97 billion, while the smallest was $304 million. The stocks in CAFG, meanwhile, have a weighted average market cap of $2.4 billion. They also have an average free cash flow margin of 16.1% and a price-to-earnings ratio of 13.3, as of June 30.
The top three holdings in the ETF by weight are electrical equipment manufacturer Powell Industries (POWL), beauty products retailer e.l.f. Beauty (ELF) and semiconductor equipment maker Axcelis Technologies (ACLS) . The top three sectors are technology (31.4%), industrials (14.9%) and healthcare (14.7%).
Sponsored Content
Harbor Small Cap Explorer ETF
- Category: U.S. fund small blend
- Assets under management: $13.3 million
- Expenses: 0.80%
Harbor Capital Advisors launched the Harbor Small Cap Explorer ETF (QWST, $33.29) in late April. It is actively managed by the asset manager's Multi-Asset Solutions Team. The managers look for small-cap stocks within the Russell 2500. It is the 13th actively managed, fully transparent exchange-traded fund launched by the company since entering the ETF space in September 2021.
It is somewhat unique in that Harbor's team handles the portfolio construction, including selecting external portfolio managers to manage certain portions of the ETF. They then allocate a predetermined amount to each of these managers.
QWST spreads its net assets across five active small-cap managers, each with different investing styles. The managers are selected through the Multi-Asset Solution Team's Alpha Edge process, which thoroughly evaluates each manager's investment strategies and performance.
The five managers include Connacht Asset Management (conviction-driven small and mid-cap investments), Copeland Capital Management (dividend growth investing), Granahan Investment Management (invests based on a company's LifeCycle), Huber Capital Management (value investing), and Reinhart Partners (looks for quality companies trading at a discount to private market value).
Harbor Capital believes the fund can be successfully managed with up to $4 billion in net assets. Given that it has less than $15 million since its launch in April, it has a significant growth pathway ahead.
QWST's top three sectors by weight are industrials (23.8%), financials (15.5%), and healthcare stocks (15.3%). Its top 10 holdings, which include regional bank stock First Citizens BancShares (FCNCA) and waste management firm Casella Waste Systems (CWST), account for 14.7% of its net assets, with the 250 other holdings making up roughly 85% of the fund.
Sponsored Content
Xtrackers MSCI USA Climate Action Equity ETF
- Category: U.S. fund large blend
- Assets under management: $2.3 billion
- Expenses: 0.07%
You read the assets under management listed above correctly. The Xtrackers MSCI USA Climate Action Equity ETF (USCA, $27.95) launched at the beginning of April with a significant investment from Ilmarinen, Finland's largest private occupational pension insurance company.
However, investors must know that the $2 billion investment from Ilmarinen was not additional funds raised by Xtrackers, but rather funds moved from the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG) to reflect the urgency of climate concerns relative to environmental, social and governance (ESG) considerations.
"There's much more urgency on this climate angle in particular than on broader based ESG," said Amanda Rebello, head of Xtrackers sales, U.S. Onshore at DWS Group, as reported by Bloomberg. "This time the thinking was to put dollars to work and help with the solution."
The passive ETF focuses on investing in U.S. mid- and large-cap companies taking action relative to their industry peers preparing for climate change. The launch was the largest for a U.S.-based ETF. It surpassed the previous record of $1.35 billion held by the Goldman Sachs MarketBeta US 1000 Equity ETF (GUSA), which launched in April 2022.
USCA tracks the performance of the MSCI USA Climate Action Index. Stock selection considers several variables of U.S. businesses, including emissions intensity, emissions reduction commitments, climate risk management, and revenue from greener enterprises. As a result, it tends to select approximately 50% of the companies from each Global Industry Classification Standard (GICS).
The top three sectors by weighting are technology (31.0%), healthcare (16.7%) and communication services stocks (11.9%). The top 10 holdings, which include Dow Jones stocks Apple (AAPL) and Microsoft, account for about 30% of USCA's net assets. It currently holds 318 stocks.
Sponsored Content
AB US Low Volatility Equity ETF
- Category: U.S. fund large blend
- Assets under management: $10.0 million
- Expenses: 0.48%
AllianceBernstein (AB) launched AB US Low Volatility Equity ETF (LOWV, $55.65) on March 22. It was one of three actively managed ETFs introduced by the asset manager that day.
"Drawing upon the success of our inaugural ETFs launched in 2022, this new suite of Equity ETFs demonstrates our commitment to delivering best-in-class investment strategies in adaptable and accessible vehicles for all investors," said Noel Archard, global head of ETFs and Portfolio Solutions at AllianceBernstein, in the press release.
As the name suggests, LOWV seeks to generate long-term capital appreciation with lower volatility than the broader U.S. equity market. The low-volatility ETF aims to hold 60-80 mid- and large-cap U.S. stocks of high-quality companies with lower downside risk, while benefiting from their upside potential.
LOWV currently has 73 holdings with a weighted average market cap of $544.5 billion. The top 10 holdings, which include blue chip stocks Merck (MRK) and UnitedHealth Group (UNH), account for over a third of its $10 million in net assets. The top three sectors by weighting include technology (30.1%), healthcare (14.4%), and financials (13.9%).
The manager of the fund is Kent Hargis, Ph.D. Based in New York, Hargis has been with AllianceBernstein for 20 years and in the investment industry for 28.
Learn more about LOWV at the AllianceBernstein provider site.
Sponsored Content
American Century Multisector Floating Income ETF
- Category: U.S. fund ultrashort bond
- Assets under management: $20.2 million
- Expenses: 0.27%
The American Century Multisector Floating Income ETF (FUSI, $50.60) was launched by American Century on March 14. It is the only fixed-income product featured on this list of new ETFs. American Century started its ETF business in 2018, and now has $21 billion in assets under management as of Feb. 10.
"FUSI compliments our current ETF income offerings, Short Duration Strategic Income ETF (SDSI) and American Century Multisector Income ETF (MUSI), by adding a floating rate product to the suite that is primarily focused on high credit quality," said Sandra Testani, vice president of ETF product and strategy, in the press release. "We believe a diversified floating rate mandate has the potential to mitigate downside risk and increase income."
The ETF is actively managed by three investment professionals at the company, including Charles Tan, co-chief investment officer for Global Fixed Income. He's been in the investment industry since 1994.
FUSI currently has 70 holdings with a weighted average coupon of 6.0% and a weighted average life to maturity of 1.8 years.
The top three investments by weighting include U.S. government securities (33%), commercial mortgage-backed securities (29%) and collateralized loan obligations (25%). Nearly 92% of the fixed-income securities held have a credit rating of A or better, meaning investors can rest easy knowing the risk of default is low.
Learn more about FUSI at the American Century provider site.
Sponsored Content
-
-
Tax Relief for Maine and Massachusetts Following Hurricane Lee
Tax Deadline Following Hurricane Lee, the IRS has granted tax relief for Maine and Massachusetts taxpayers. Here are the payments and filings that qualify.
-
Three Strategies to Build Wealth and Secure Your Financial Future
Here are three strategies to keep in mind as you embark on your path to wealth accumulation and financial security.
-
What Is Market Cap?
What is market cap? Here we discuss the basics, significance and related issues of the metric that is often used to gauge a company's size and value.
-
Stock Market Today: Stocks Head South as Treasury Yields Hit New Highs
Expectations for another potential rate hike sent yields on both the 2-year and 10-year Treasury bonds to their highest levels in almost two decades.
-
What Are FAANG Stocks?
The "FAANG" acronym is used to describe a group of popular tech and tech-adjacent stocks. But what are FAANG stocks and are they a good investment?
-
Stock Market Today: Stocks Rise After PPI Report, Arm IPO
The main indexes closed comfortably higher, while Arm stock soared on its first day of trading.
-
Stock Market Today: Markets Close Mixed on Inflation Data
August's inflation reading keeps the Fed on course to leave interest rates unchanged at its next meeting.
-
Stock Market Today: Stocks Close Lower Ahead of August CPI Report
The main indexes were choppy Tuesday as investors looked ahead to August inflation data and the Arm IPO.
-
Stock Market Today: Nasdaq Leads Broad Rally as Tesla Stock Soars
Tesla shares surged after receiving an AI-related upgrade, which helped boost the broader market.
-
Stock Market Today: Stocks Rise With Inflation Data on Deck
The main benchmarks eked out modest gains to end the week as investors look ahead to next week's August CPI report.
