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All Contents © 2020The Kiplinger Washington Editors
By Will Ashworth, Contributing Writer
| November 8, 2019
More than a thousand new ETFs have launched over the past five years. That includes nearly 200 fund debuts through the lion's share of 2019.
But ETFs are hitting the market at a slower pace than in previous years. Last year saw 268 new products come to market, following 276 in 2017 and 246 in 2016. Indeed, August 2019 saw only four launches across the entire month.
"The ETF industry has peaks and valleys in terms of launches," Todd Rosenbluth, head of ETF and mutual fund research at CFRA, told Financial Advisor magazine in September. "It's a sign of maturity – not maturing – that they're not just throwing products out there but are being more rational in trying to spot the trends that investors might find appealing."
Some of this year's new ETFs seem to prove that point. While 2019's crop is smaller than it has been in recent years, fund providers have come up with some truly worthwhile ideas. A few of these cover nascent industries that previously had little to no fund representation, while others are twists on tried-and-true investing strategies.
Here are the seven best new ETFs of 2019. Because they're all less than a year old, several of these funds have extremely low assets under management (AUM). While low assets can eventually force a fund to liquidate, for the moment, it's not a pressing concern. Just make sure to keep an eye on asset growth over time should you invest in any of these.
Data is as of Nov. 7.
Market value: $10.0 million
Expenses: 0.25%, or $25 annually on a $10,000 investment
Launch date: June 4, 2019
Approximately 2.5 billion people play video games globally, including two out of every three Americans, according to Roundhill Investments, developer of the Roundhill Bitkraft Esports & Digital Entertainment ETF (NERD, $15.42). Moreover, 454 million people watch "eSports," and that number is expected to grow to 645 million by 2022.
New ETFs related to video games have trickled out over the past few years, starting with 2016's launch of the ETFMG Video Game Tech ETF (GAMR), at the time under the PureFunds name. Roundhill's NERD, launched in early summer 2019, tracks a modified equal-weighted index of 25 companies in the "competitive video gaming industry." That includes not just video game publishers, but gaming tournament and league operators, as well as competitive team owners, among other companies.
Deloitte research shows that $4.5 billion was invested in the eSports industry in 2018 alone – an 818% surge from the previous year. Meanwhile, the more mature overall global gaming market is expected to reach $152.1 billion by the end of 2019, which still would mark roughly 10% year-over-year growth.
NERD's holdings – which include Afreeca, a South Korean video streaming service that includes video game broadcasts; Turtle Beach (HEAR), an American gaming headset company; and video game publisher Activision Blizzard (ATVI) – stand to benefit from these trends.
The ETF offers a blend of large-cap (34%), mid-cap (35%) and small-cap (31%) stocks. It also is geographically diversified, with the U.S. and China making up about 21% each, Japan at 11% and a handful of other countries at single-digit slices of the portfolio.
Learn more about NERD at the Roundhill Investments provider site.
Market value: $73.5 million
Launch date: Feb. 4, 2019
The ARK Fintech Innovation ETF (ARKF, $22.80) is one of five actively managed ETFs from ARK Invest. The investment company's name buzzed in May after CIO and founder Catherine Wood asserted that Tesla (TSLA) – the top holding in its ARK Innovation ETF (ARKK) – could go higher than its $4,000 price target.
It fits the brand. ARK Invest is all about disruption.
"Disruptive innovation is characterized by controversy and volatility, and so we know we are going to get opportunities to buy stocks. We lie in wait for those opportunities," Wood said in May. "Many people think, because of what we do – disruptive innovation – that we're momentum-driven. Absolutely not. We lie in wait."
ARK Fintech Innovation ETF seeks to invest in potentially disruptive companies within financial technology industry. A company is considered a fintech innovator if it "derives a significant portion of its revenue or market value from the theme of Fintech innovation" or "it has stated its primary business to be in products and services focused on the theme of Fintech innovation."
Wood, who manages ARKF, typically invests in 35 to 55 stocks in the fintech space. Top holdings at the moment include payments provider Square (SQ); Apple, with its Apple Pay technology and new credit card issued by Goldman Sachs (GS); and Chinese internet giant Tencent (TCEHY), which has two payment platforms: Tenpay and WeChat Pay.
ARKF has attracted more than $70 million in assets since inception in February, at a rate of about $8 million per month. While that's considerably less than ARKK's $26 million per month since inception, it's still a strong pace and bodes well for ARK Invest's newest ETF.
Learn more about ARKF at the Ark Funds provider site.
Market value: $2.0 million
Launch date: Jan. 30, 2019
Amplify ETFs was founded by CEO Christian Magoon, who long ago served as president of Claymore Securities, which was acquired by Guggenheim Investments in 2009. The company's first product, the Amplify Online Retail ETF (IBUY), went live on April 20 – just two months after Magoon launched the business. The fund surpassed $200 million in assets under management less than two years later, and today it has $232 million in AUM.
Amplify International Online Retail ETF (XBUY, $26.98) – essentially, the international version of IBUY – launched in January of this year. It tracks the performance of the EQM International Ecommerce Index, a collection of stocks that generate at least 90% of their revenue from online sales.
The ETF's 60 holdings are spread across 11 countries, with Japan making up 26% of the portfolio, China accounting for 24% and Germany and the U.K. representing almost 14% of assets each. Top holdings at the moment include British online fashion company ASOS plc (ASOMY), Japan industrial supply e-commerce company Monotaro (MONOY) and Chinese online video platform iQiyi (IQ).
Investors interested in an ETF with smaller stocks will like XBUY. Large-cap stocks account for just 26% of its overall portfolio, and mid-cap stocks another 23%. The remaining 51% are small- and even micro-cap companies.
XBUY's management expenses of 0.69% annually aren't exactly cheap. But remember: International funds typically are costlier than similar domestic ETFs. And if XBUY does anywhere near IBUY's performance – an annualized total return of nearly 19% since inception – investors won't be complaining about the price.
Learn more about XBUY at the Amplify ETFs provider site.
Market value: $32.5 million
Launch date: Jan. 16, 2019
Direxion in January launched 10 new ETFs to mark the start of its "Relative Weight" suite. These funds allow investors to capture both sides of an expressed view – e.g., large caps will outperform small caps, or growth will outperform value – instead of just one.
"You can overweight growth if you believe it's going to outperform the market," Dave Mazza, managing director and head of product for Direxion, said in the announcement press release. "But, for some investors, that only captures half of their view. If growth beats the market, then it obviously beats value by even more."
"The beauty of these funds is they allow you to extend your viewpoint to the short side to seek additional returns."
The Relative Weight ETFs does this by providing a long component weighted at 150%, then a short component at a weight of 50%. In other words, it bets on some stocks while betting against their "opposites," so to speak.
Consider the Direxion Russell 1000 Value Over Growth ETF (RWVG, $56.55). If you thought value stocks were about to come alive after years of underperforming growth, you would buy the RWVG, which tracks the performance of the Russell 1000 Value/Growth 150/50 Net Spread Index. The ETF currently holds the iShares Russell 1000 Value ETF (IWD) to provide long exposure to value stocks. It uses swaps and derivatives to provide extra long exposure, as well as to bet against the Russell 1000 Growth Index for its short exposure.
Practically speaking, that means you're long stocks including Berkshire Hathaway (BRK.B) and JPMorgan Chase (JPM), while betting against Microsoft (MSFT) and Apple (AAPL), among others. In fact, at the moment, technology is almost negative 10% of the portfolio because of its short bets, while financials (~34%) are its top long bet.
This is a riskier tactic that many conservative investors might want to avoid. But the Relative Weight series is one of the most original concepts that has come down the ETF pipeline in some time.
Learn more about RWVG at the Direxion provider site.
Market value: $212.2 million
Launch date: Feb. 7, 2019
The Virtus Private Credit Strategy ETF (VPC, $24.86) wasn't launched until February 2019, but it has already racked up more than $210 million in AUM.
That's a significant accomplishment in this crowded ETF market.
Virtus' fund focuses on the private credit market, delivering an alternative to fixed income for investors interested in generating high yield. It does so by investing in business development companies (BDCs) and closed-end funds (CEFs). The former provides financing for small to midsize businesses, and has rules similar to real estate investment trusts (REITs) that dictate that 90% or more of taxable income must be distributed as dividends. The latter is a type of fund that can use debt leverage, trade options and use other mechanisms to generate large distributions to investors.
VPC's portfolio includes more than 60 BDCs and CEFs that are weighted based on three-year dividend yield. It excludes CEFs that trade at a significant premium or discount to its net asset value. This fund is fairly balanced, with no holding representing more than 3.4% of the fund's assets. Top holdings currently include Barings BDC (BBDC), FS KKR Capital Corporation (FSK) and BlackRock Capital Investment Corporation (BKCC).
The ETF boasts a thick SEC yield (a standard measure for bond funds that reflects the interest earned for the most recent 30-day period, after deducting fund expenses) of 8.5%. That's well above all of the new ETFs listed in this article ... and most funds on the market.
* Management fees are 0.75%. The remaining 6.89% is made up of acquired fund fees and expenses, which are not paid by the ETF itself but incurred within the BDCs and CEFs that it holds. These management and performance fees are standard industry practice.
Learn more about VPC at the Virtus provider site.
Market value: $5.4 million
Launch date: March 1, 2019
Motif Investing burst onto the investment scene in September 2010, then launched its dollar-based trading platform 21 months later in June 2012. In May 2014, it partnered with JPMorgan Chase to offer individual investors access to initial public offerings (IPOs). By March 2018, it had launched its 100th IPO allocation.
A year later, Motif and Goldman Sachs Asset Management launched a suite of five innovation-focused ETFs using benchmarks developed by Motif Investing subsidiary Motif Capital Management.
Goldman Sachs Motif New Age Consumer ETF (GBUY, $54.39) is particularly interesting. GBUY tracks the Motif New Age Consumer Index – a collection of common stocks listed in developed markets that may benefit from consumer shifts caused by demographics, technology and preferences. This theme has seven subthemes. E-commerce (34.7%), health and wellness (21.6%) and online gaming (16.3%) are the largest, but the fund also invests in social media, online music & video, "evolution of education" and "experiences over goods."
The fund's 120 holdings are evenly balanced across market sizes – 34% large-cap, 35% mid-cap and the rest in smaller companies. Though the top 10 holdings are massive firms such as Facebook (FB) and Alibaba (BABA).
GBUY offers an interesting blend of geographical exposure, too. The U.S. makes up the largest chunk at 44%, followed by … the Cayman Islands, at 31% of the fund. But rather than a play on the Cayman Islands itself, many of those companies call Britain and other developed countries home and just use the island nation as a tax shelter. Japan (10.4%), Germany (4.6%) and the U.K. (3.9%) are the few other significant international weights.
Learn more about GBUY at the Goldman Sachs Asset Management provider site.
Market value: $2.5 million
Launch date: May 3, 2019
Pacer ETFs celebrated its fourth anniversary in June. The strategy-driven ETF provider has grown into a well-respected company with more than $5 billion in assets under management across 21 funds, which includes five new ETFs launched in May.
One of those funds was the Pacer Cash Cows Fund of Funds ETF (HERD, $25.36), which invests in all five of the Pacer Cash Cows Index Series of ETFs. It invests 20% of its net assets in each of these ETFs:
Each of those ETFs hold 100 constituents selected from a benchmark index. For example, COWZ is comprised of 100 companies from the Russell 1000 Index that are selected based on projections for future profits and free cash flow over the next two years, as well as trailing 12-month cash flow. CALF is similarly constructed, but from the S&P SmallCap 600 Index. You get the idea.
HERD blends all five of these funds together – a sort of best-in-class mash-up of domestic and international companies that know how to generate cash.
* Management fees are 0.15% annually. The remaining 0.59% is acquired fund fees and expenses from the five Pacer ETFs HERD holds.
Learn more about HERD at the Pacer ETFs provider site.