Now that the world has rung in the New Year, the U.S. exchange-traded fund industry has good reason to toast 2014. Its total assets under management rose 18 percent over the past 12 months and broke through the $2 trillion mark just before Christmas, according to ETFGI, a London-based research and consulting firm.
Contained within that number is the story of 2014’s new ETFs, which included several instant successes. The PureFunds ISE Cyber Security ETF (HACK) debuted at just the right moment, 12 days before the Sony Pictures Entertainment cyberattack made headlines on November 24. HACK, sponsored by PureFunds of Mendham, New Jersey, had already gathered $106 million in assets as of December 26 and posted a total return of 8.96 percent.
The fund was “an idea in the making for a couple of years,” says Christian Magoon, CEO of Wheaton, Illinois–based Magoon Capital, who consulted on its development. PureFunds is a small firm with just one other ETF, a niche silver product that began trading in 2012. But Magoon is a well-known industry veteran who has helped launch more than 50 ETFs, including the first solar offering, the Guggenheim Solar ETF (TAN), in 2008.
Before a pure-play cybersecurity ETF could launch, the universe of companies had to grow to the point where there were enough with the market capitalization and trading volume to support a niche product, Magoon says. But now that HACK is here, there’s little overlap with the broad-based technology ETFs, which “don’t have much ownership in these types of companies,” he asserts.
Topping the list of this year’s new funds is the First Trust Dorsey Wright Focus 5 ETF (FV). Launched in March, it finished the year with $1.3 billion in assets, posting a 12.38 percent total return.
New Money U.S.-Based Exchange-Traded Funds Launched in 2014 and Managing at Least $50 Million in Assets1
| Name | Ticker Code | Assets ($ Millions) 2 | 2014 Year-to-Date Total Return 2 |
| First Trust Dorsey Wright Focus 5 | FV | $1,299.1 | 12.38% |
| First Trust Enhanced Short Maturity | FTSM | 761.5 | n/a |
| Vident Core U.S. Bond Strategy | VBND | 366 | –0.75 |
| First Trust Eurozone AlphaDEX | FEUZ | 312.4 | 2.1 |
| iShares Currency Hedged MSCI Japan | HEWJ | 291.5 | 24.36 |
| Vident Core U.S. Equity | VUSE | 289.4 | 9.26 |
| iShares Core Short-Term USD Bond | ISTB | 253.7 | 1.73 |
| iShares Core MSCI Pacific | IPAC | 225 | –3.75 |
| Deep Value | DVP | 213.5 | 3.91 |
| iShares Core MSCI Europe | IEUR | 199.4 | –9.93 |
| iShares Core Long-Term USD Bond | ILTB | 158.8 | 53.51 |
| iShares Core Dividend Growth | DGRO | 154.6 | 10.13 |
| iShares Currency Hedged MSCI Germany | HEWG | 147.8 | n/a |
| iShares MSCI ACWI Low Carbon Target | CRBN | 143.9 | 0.62 |
| PIMCO Low Duration | LDUR | 138.1 | 1.35 |
| PowerShares Variable Rate Preferred | VRP | 115.3 | 1.44 |
| Sprott Gold Miners | SGDM | 110.4 | –28.68 |
| First Trust RBA American Industrial Renaissance | AIRR | 109.2 | –5.75 |
| PureFunds ISE Cyber Security ETF | HACK | 100.6 | 8.96 |
| SPDR MSCI ACWI Low Carbon Target | LOWC | 88.8 | –1 |
| Market Vectors Short High-Yield Municipal Index | SHYD | 81.2 | 3.98 |
| C-Tracks Miller/Howard Strategic Dividend Reinvestor ETN | DIVC | 76.7 | 2.28 |
| Barclays OFI SteelPath MLP ETN | OSMS | 63.6 | 0.23 |
| YieldPro | YPRO | 60.9 | –2.11 |
| iShares Currency Hedged MSCI EAFE | HEFA | 60.3 | n/a |
| iShares Enhanced International Large-Cap | IEIL | 60.3 | –3.75 |
| iShares Currency Hedged MSCI EMU | HEZU | 59.1 | n/a |
| Merk Gold | OUNZ | 58.1 | –7.88 |
| Cambria Global Value | GVAL | 57.2 | –17.60 |
| First Trust Dorsey Wright International Focus 5 | IFV | 55.5 | –8.15 |
| Compass EMP US 500 Enhanced Volatility Weighted | CFO | 55.3 | 6.20 |
| Compass EMP US EQ Income Enhanced Volatility Weighted | CDC | 52.2 | 8.44 |
1Does not include funds launched for specific client bases 2As of December 26. | Source: ETF.com. | ||
During the past 12 months 201 ETFs launched in the U.S. and 71 closed, bringing the total to 1,670 funds with a combined $2.02 trillion in assets as of December 26.
FV combines five ETFs from First Trust Advisors of Wheaton, Illinois, in a relative-strength sector rotation strategy developed by Tom Dorsey, co-founder and president of Richmond, Virginia–based technical analysis firm Dorsey, Wright & Associates. “The future is ETFs that are combined together,” Dorsey said via e-mail. “I coined a term, ETF Alchemy, which is like combining steak, mashed potatoes, toast and salad for a dinner.”
FV benefited from Dorsey’s large following among the retail advisers who were already adhering to his model by buying the five First Trust ETFs focused on the sectors he’s currently recommending: biotechnology, Internet, consumer discretionary, consumer staples and health care. Now they can simply buy FV, “the ETF that does it all,” says Celeste (“Penny”) Frause, principal of PnF Management, a registered investment adviser based in Denver. Frause says she’s been allocating “new money” to the fund; over time, as the sector calls change, she expects to move more of her clients’ money into FV rather than trade the individual ETFs. “Since FV raised $1 billion, obviously a lot of people have gone straight to that,” she notes.
Dorsey’s new ETF is just one of 15 launched by First Trust in 2014, bringing the firm’s total to 94 funds, according to Ryan Issakainen, senior vice president and ETF strategist. Assets under management have grown from $19.7 billion at the end of 2013 to $33.7 billion as of December 26, he says.
“First Trust has been the fastest-growing major ETF provider on a percentage basis over the last two years,” says Matt Hougan, president of news and analysis website ETF.com in San Francisco. The firm has “a lot of good stories” to tell about the performance of some of its ETFs, especially its smart beta products, and there’s now more willingness to “experiment with ETFs that aren’t just market-cap-weighted funds,” he adds. It’s also been aggressive about getting its story out to wholesalers by “knocking on doors, getting meetings, winning clients,” Hougan says.
First Trust takes the top three spots on the 2014 list of new launches, and it has two more new ETFs that have gained some $50 million in assets, including the international version of the Focus 5 ETF (IFV), which managed $55.46 million and posted a year-to-date total return of 8.15 percent as of December 26.
In particular, in late October the firm launched the First Trust Eurozone AlphaDEX ETF (FEUZ), the latest addition to its AlphaDEX lineup, which now includes 40 ETFs managing a combined $17.3 billion, or slightly more than half of the firm’s total ETF assets as of December 26, Issakainen says.
AlphaDEX is a smart beta series dating back to 2007; its managers select and weight stocks based on a variety of factors that measure value and momentum, he explains. First Trust added the euro zone product because “some specific RIAs had requested exposure to the euro zone using the AlphaDEX model,” Issakainen says. As of December 26, FEUZ had $312.39 million in assets and a total return of 2.10 percent.
The First Trust RBA American Industrial Renaissance ETF (AIRR), launched in March, has also crossed the $100 million mark, the point at which new ETFs are seen as having a chance at long-term viability, though it had lost 5.75 percent as of December 26.
“The goal is to create a strategy that will benefit from the whole theme of domestic manufacturing coming back,” Issakainen says, adding that “it may be one of those stories that’s a little bit early.” The U.S. industrial sector hasn’t done well in 2014, but “long-term secular trends take shape over a relatively long period of time, more like five or ten years,” he says.
In June iShares, the ETF arm of U.S. asset manager BlackRock, doubled the number of funds in its Core series by adding 10 — notably, the iShares Core MSCI Pacific (IPAC) and the iShares Core MSCI Europe (IEUR), which gathered $225.04 million and $199.4 million, respectively, during the second half of 2014, even though both have posted year-to-date losses. By December 26 total assets for the U.S. portion of the expanded group had grown to $154 billion, with year-to-date inflows of $26.3 billion, the New York– and San Francisco–based firm said.
iShares initiated the Core series in 2012, gaining immediate attention for the funds’ low expense ratios: For instance, IPAC’s and IEUR’s stand at 14 basis points. But the equity and bond ETFs are also “very simple and easy for investors to understand,” says Patrick Dunne, head of global markets and investments at iShares in San Francisco. “They’re a great place to start if building a long-term, buy-and-hold portfolio.”
Will McGough, a portfolio manager at $5.2 billion Stadion Money Management, says he sometimes uses the Core and non-Core versions of the same ETF in the Watkinsville, Georgia–based firm’s retirement strategies.
He cites as an example the iShares MSCI EAFE ETF (EFA) and the iShares Core MSCI EAFE ETF (IEFA) because EFA is the more-established and liquid ETF and has “great tradability,” whereas IEFA has the advantage of being low-cost. “We use the low-cost vehicle strategically [for long-term investing], and the more well-known EFA tactically [for short-term trading].”
McGough isn’t using the new iShares Core Dividend Growth ETF (DGRO) yet, but its addition to the Core lineup is “definitely interesting to us,” he says. “A lot of investors like dividend themes.” DGRO, which has an expense ratio of 12 basis points, had $154.56 million in assets and a year-to-date total return of 10.13 percent through December 26.
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