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All Contents © 2018The Kiplinger Washington Editors
By Kyle Woodley, Senior Investing Editor
| January 9, 2018
The exchange-traded fund industry sure isn’t running out of ideas. More than 270 new ETFs were launched in 2017, bringing the number of U.S. listings to more than 2,100.
Don’t expect the constant beat of new offerings to stop in 2018, either – not as long as investors continue to greedily gobble up ETFs. Independent research and consultancy firm ETFGI says U.S.-listed ETFs and other exchange-traded products achieved record inflows of $468 billion in 2017, crushing 2016’s haul by 68%.
So, what can we expect in 2018?
A look through various filings and reports shows a few potential new ETFs that really stand out from the crowd. They include a wild change of pace from a major fund provider, long-awaited plays on the cryptocurrency Bitcoin and even a fund that invests in what’s most important to Americans.
Here’s a look at 11 new ETFs to watch out for this year.
Click on ticker-symbol links in each slide for current share prices and more.
Vanguard is the name that really put low-cost indexing on the map. So it’s no surprise the company made such a splash late last year when Vanguard announced that in 2018, it would launch its first actively managed ETFs in the U.S.
But don’t worry about Vanguard shaking things up too much. The ETFs, while using an active, rules-based quantitative approach, still will feature the fund provider’s signature low fees.
Vanguard is expected to launch a total of six actively managed ETFs in the first quarter of 2018 – five single-factor funds, as well as a multifactor ETF. The list (with the focus briefly explained in parentheses):
Vanguard also will launch a mutual fund, the Vanguard U.S. Multifactor Fund.
The market currently is devoid of an ETF dedicated to Bitcoin. The cryptocurrency has commanded the attention of not just investors, but the world, by surging from roughly $1,000 to nearly $14,000 in a mere year.
It hasn’t been for lack of trying.
The Winklevoss Twins of Facebook fame are among Bitcoin’s most high-profile investors, and the pair tried for years to launch a Bitcoin ETF. However, the SEC rejected their application for a fund in March 2017. Later last year, the SEC convinced both REX ETFs and VanEck to withdraw their proposal for Bitcoin-derivatives-based funds.
Hope still exists for some sort of Bitcoin ETF this year, however. ProShares filed in September 2017 for two bitcoin ETFs – one long fund and one short fund – that would track Bitcoin futures traded on the Chicago Board of Options Exchange. That filing has not been pulled, and the New York Stock Exchange took the next step by filing with the SEC to list ProShares’ ETFs.
The SEC is no fan of the largely unregulated nature of Bitcoin and other cryptocurrencies, so there’s still no guarantee that we’ll see a Bitcoin ETF anytime soon. However, the fact that Bitcoin futures have received approval gives would-be investors some hope for a product launch in 2018.
EDITOR'S NOTE: Since the publication of this article, ProShares withdrew plans for its funds after pushback from the SEC, as did Direxion and Exchange Listed Funds Trust – two other providers that recently had filed to create Bitcoin ETFs. One common thread amid most filings, however, is that providers want to create both long and short Bitcoin funds, so it's likely that the launch of any Bitcoin-related products would include at least two funds.
The Arrow Dogs of the World ETF (DOGS) was the first exchange-traded fund launch of the new year, so this isn’t hypothetical – this is a real product that is trading right now.
Typically, the moniker “Dogs” refers to some strategy around the downtrodden. The “Dogs of the Dow” strategy, for instance, involves buying the best-yielding Dow components, which are considered by some as the worst Dow stocks (thus the “dogs” of the Dow) because high yields often can reflect battered share prices. Other “Dogs” funds and strategies revolve around purchasing the stocks that performed worst over a certain time frame.
Arrow Dogs of the World essentially is a global value fund that considers a universe of 44 developed, emerging and frontier markets, then picks the five worst-performing countries that the system also determines should revert to the mean (and thus improve). The countries at the moment are Canada, Israel, Pakistan, Qatar and the UAE, which DOGS invests in via just five ETFs. As such, current holdings include the likes of the iShares MSCI Qatar ETF (QAT) and Global X MSCI Pakistan ETF (PAK).
The fund charges 0.65% in expenses, or $65 annually on every $10,000 invested.
The Dow Jones Industrial Average has long been considered a leading representative of the American economy, though over time, pundits and investors alike have questioned just how representative it is.
MBF Clearing Corp. founder and CEO Mark Fisher may exacerbate that question with his Essential 40 Index – what he calls “today’s version of the Dow Jones.”
The index is a 40-stock portfolio of companies that are considered essential to American life. “People say ‘invest in what you know,’” Fisher told CNBC in an interview, “this is ‘invest in what you need.’”
There’s unsurprisingly some overlap. Half the Dow’s 30 components, including Apple (AAPL), Boeing (BA) and UnitedHealth Group (UNH), also are found in the Essential 40 Index. However, the Essential 40 also has exposure to utilities via Duke Energy (DUK), and transportation via American Airlines (AAL) and FedEx (FDX) – two areas excluded from the DJIA.
Another key difference between the Dow and the Essential 40 is the weighting methodology. The industrial average is price-weighted, which means the nominal share price dictates how much effect a stock has on performance; thus, Boeing, as the highest-priced Dow stock, is the most important component at the moment, even though it’s several times smaller by market capitalization than, say, Apple or Microsoft (MSFT). The Essential 40 index is equally weighted, so every stock has the same influence.
KKM Financial launched the Essential 40 as a mutual fund – the Essential 40 Stock Fund – in December 2017. The index is expected to launch as an ETF sometime in 2018.
Investors may be familiar with SRI (socially responsible investing) and ESG (environmental, social and governance) themes, where investments are selected based on certain ethical and conservational guidance. However, a potential ETF product backed by data and analysis from independent research organization JUST Capital takes this idea in a new direction.
JUST Capital has built a ranking of Russell 1000 companies based on themes such as paying their workers more, having fewer employment discrimination cases and avoiding FDA fines. But these aren’t JUST Capital’s ideas about morality – they’re yours.
“The criteria are determined by the American people,” says JUST Capital CEO Martin Whittaker. “In the end, there are approximately 40 separate components, themes, issues – all of those come from surveying and polling work we do throughout the year.”
While JUST Capital has plans to create sector-specific and other indices based on its rankings, the original index takes the 50% of the Russell 1000 rated “most JUST” by its system. “That index is up 250 basis points on a live basis, from Nov. 16 through now, over its benchmark,” Whittaker says.
Goldman Sachs (GS) has filed to launch an ETF based on this index, with the intent of debuting in the first half of 2018.
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