A Dozen New ETFs in the First Dozen Days of October
Early October saw more new ETFs come to market. The twelve recent introductions push the year-to-date count of new ETFs and ETNs to 260. The industry is on pace to have the most prolific year yet for new exchange-traded products.
October’s early dozen includes four new ProShares ETFs, Russell’s expansion of its Disciplined Index ETFs into the small cap space, additional Chinese Renminbi-based products from CurrencyShares and Market Vectors, a TrimTabs actively-managed fund from AdvisorShares, and a UBS leveraged cloud computing ETN.
Here is a brief description of each new product along with my initial comments:
CurrencyShares Chinese Renminbi Trust (FXCH) (FXCH overview) was launched by Rydex on 10/4/11 and is designed to track the price of the Chinese Renminbi, net of the fund’s 0.40% expenses. FXCH is structured for monthly distributions, but with interest rates at 0.1% investors should not expect distributions anytime soon.
Opinion: While this is not the first Chinese currency fund, FXCH has the lowest cost. CurrencyShares also has the most extensive lineup of currency related ETFs. WisdomTree Dreyfus Chinese Yuan (CYB), the category leader with more than $500 million in assets, is actively-managed and has an expense ratio of 0.45%. Market Vectors Chinese Renminbi/USD ETN (CNY) is the most expensive of the three with a 0.55% annual investor fee.
ProShares Ultra VIX Short-Term Futures ETF (UVXY) (UVXY overview) and ProShares Short VIX Short-Term Futures ETF (SVXY) (SVXY overview) were listed on 10/4/11 with expense ratios of 0.95%. UVXY seeks to provide 2x the daily performance of the S&P 500 VIX Short-Term Futures Index, before fees and expenses. SVXY seeks to provide -1x (non-leveraged inverse) the daily performance of the S&P 500 VIX Short-Term Futures Index.
Opinion: These are the first leveraged and inverse VIX products in an ETF format. ProShares is the only firm offering exposure to VIX futures in an ETF wrapper instead of the less desirable ETN structure used by other firms. As such, volatility traders are likely to quickly embrace these new ETFs.
AdvisorShares TrimTabs Float Shrink ETF (TTFS) (TTFS overview) is an actively managed exchange-traded fund that began trading on 10/5/11. The fund’s sub-advisor, Trim Tabs Asset Management, seeks to produce long term returns in excess of the Russell 3000 with less volatility. How? The plan is to invest primarily in stocks whose outstanding share quantity shrank over the past 120 days (float shrink). The fund will typically hold 100 equally weighted positions that have also been screened for free cash flow and debt ratios. The expense ratio for TTFS is capped at 0.99%.
Opinion: The path to success for an actively managed equity ETF is a tough one, and none have cracked the $100 million asset threshold yet. AdvisorShares Cambria Global Tactical ETF (GTAA) has amassed more than $160 million in assets, but its tactical strategy typically includes a large allocation to bonds. Two established ETFs have similar strategies to TTFS. PowerShares Buyback Achievers (PKW) has an expense ratio of 0.70%, and it is beating the S&P 500 with lower volatility. Guggenheim Insider Sentiment (NFO), with 0.60% expense ratio, has dramatically outperformed the market since inception five years ago.
Russell Small Cap Aggressive Growth ETF (SGGG) came out on 10/5/11 with a 0.45% expense ratio. The underlying Russell U.S. Small Cap Aggressive Growth Index focuses on companies in the Russell 2500 Index expected to have above average near-term earnings growth. The discipline includes companies with average to high consensus forecasted earnings and average to high one-year historical sales growth. It excludes companies with low earnings retention (high dividend yields) and stocks with low price-to-book ratios (SGGG overview and the largest of its 319 holdings).
Russell Small Cap Consistent Growth ETF (SCOG) was launched on 10/5/11 with a 0.45% expense ratio. The underlying Russell U.S. Small Cap Consistent Growth Index focuses on companies in the Russell 2500 Index with above average long-term earnings forecasts and consistent historical earnings growth. The discipline includes companies with average to high consensus forecasted earnings, consistent earnings (average to low earnings per share volatility), and efficient asset utilization (average to high return on assets for the prior quarter). It excludes companies with low anticipated growth prospects as measured by a low price-to-book ratio (SCOG overview and the largest of its 261 holdings).
Russell Small Cap Contrarian ETF (SCTR) was launched on 10/5/11 with a 0.45% expense ratio. The underlying Russell U.S. Small Cap Contrarian Index focuses on companies in the Russell 2500 Index that have consistently lagged the market and their sector peers. The discipline includes companies where opportunities exist for the stock price to improve as measured by a low historical price to sales and cash flow multiples. It excludes companies that have outperformed their market and sector peers as measured by cumulative total return over the last one to three years (SCTR overview and the largest of its 225 holdings).
Russell Small Cap Low P/E ETF (SCLP) was launched on 10/5/11 with a 0.45% expense ratio. The underlying Russell U.S. Small Cap Low P/E Index focuses on companies in the Russell 2500 Index trading at lower multiples relative to their prior level or their sector peers. The discipline includes companies that have a price to one-year forecasted earnings, price to trailing earnings, and/or price to trailing cash flow multiple below their five-year historical average. It excludes stocks that have a price-to-sales or price-to-book multiple that exceeds their sector peers (SCLP overview and the largest of its 396 holdings).
Opinion: Russell introduced the Large Cap Investment Discipline Index ETFs on 5/19/11. Those ETFs select stocks from the Russell 1000 Index, which has a 500 stock overlap with the Russell 2500 Index used for the new ETFs. The new small cap versions do not include the Growth at a Reasonable Price (“GARP”) and Equity Income disciplines. The lineup of Russell Discipline ETFs offers pseudo-active strategies by indexing established investment disciplines.
UBS ETRACS Monthly 2x Leveraged ISE Cloud Computing TR Index ETN (LSKY) (LSKY overview) was introduced on 10/5/11 and provides exposure to the monthly compounded two times leveraged performance of the ISE Cloud Computing Total Return Index, reduced by accrued tracking fees of 0.60% and accrued financing charges.
Opinion: The First Trust ISE Cloud Computing Index Fund (SKYY), introduced in July, is an ETF tracking the same underlying index. The new LSKY, in an apparent attempt to capitalize on the success of the First Trust offering, is a monthly leveraged version of SKYY. However, it comes in the less desirable ETN wrapper that brings with it the full credit risk of UBS.
ProShares Ultra DJ-UBS Natural Gas (BOIL) (BOIL overview) and ProShares UltraShort DJ-UBS Natural Gas (KOLD) (KOLD overview) were introduced on 10/ 6/11. Both have expense ratios of 0.95%. BOIL seeks to provide 2x the daily performance of the Dow Jones-UBS Natural Gas Subindex, before fees and expenses, while KOLD seeks to provide -2x (200% inverse) the daily performance.
Opinion: These are the first US-listed ETPs to provide either magnified or inverse exposure to natural gas futures. The funds will hold futures and swaps, and are therefore exposed to performance impacts from contango and backwardation conditions in the futures markets.
Market Vectors Renminbi Bond ETF (CHLC) (CHLC overview) was introduced by Van Eck Global on 10/12/11 and it will have expenses capped at 0.39%. It seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Renminbi Bond Index. Fixed-rate Chinese renminbi-denominated (RMB) bonds are issued by Chinese and non-Chinese corporate, government, quasi-government or supranational issuers, and are available to market participants outside of mainland China. Bonds included in the index, or the parent company of an RMB bond issuer, must have at least one investment grade rating.
Opinion: This is the third Dim Sum bond ETF for US investors and the market is likely too small for all three to survive. Guggenheim Yuan Bond ETF (RMB) and PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM) both launched in September. I gave the nod to DSUM in my original analysis and comparison of the two. The new CHLC offering has the lowest expense ratio of the three, but the offering materials lack information on yield and duration. Until additional operating history on these three funds is established, I will continue to favor DSUM for its higher estimated yield.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.