Last year, hedging was a popular strategy employed by new ETFs coming to market. I referred to it as a “land rush,” with sponsors throwing caution to the wind in their quest to achieve first-mover status. In my year-end summary, I identified 74 new ETFs following this theme. Of these, 57 have currency hedges, 12 use various equity hedges (mostly long/short portfolios), and five use interest-rate hedging to help mitigate the impact of rising interest rates on bond holdings.
With no real investor demand for many of these funds, I predicted many would end up here on ETF Deathwatch. This month, more than half of the 25 products added to ETF Deathwatch are hedged ETFs. Two of the additions are interest-rate hedged, one is an equity-hedged funds, and ten use currency hedging. Additionally, two others are based on currency themes (strong U.S. dollar and weak U.S. dollar), although they do not use any direct currency hedging.
At the end of 2015, there were 87 currency-hedged ETFs with a median asset level of just $5.25 million, well below the level required for profitability. If this supply glut wasn’t enough, funds using currency hedging 2.0 are now coming on stream. These second-generation currency-hedged ETFs automatically adjust their currency exposure based on market conditions. This is a feature I believe many investors will appreciate, and it will further reduce demand for funds using the old first-generation static approach to hedging.
Thirteen products came off of ETF Deathwatch this month. Nine were the result of improved health, and four are no longer with us. The net increase of 12 puts the total count at 398, consisting of 295 ETFs and 103 ETNs.
The average asset level of products on ETF Deathwatch dropped from $6.9 million to $6.3 million, and the quantity of products with less than $2 million jumped from 83 to 91. The average age decreased from 48.8 to 47.8 months, and the number of products more than five years old decreased from 137 to 134.
Here is the Complete List of 398 ETFs and ETNs on ETF Deathwatch for February 2016 compiled using the objective ETF Deathwatch Criteria.
The 25 ETFs and ETNs added to ETF Deathwatch for February:
- ALPS Enhanced Put Write Strategy (PUTX)
- ALPS Sector Leaders (SLDR)
- ALPS Sector Low Volatility (SLOW)
- Deutsche X-trackers MSCI ACAP x-Japan Hedged (DBAP)
- ELEMENTS S&P Commodity Trends Indicator ETN (LSC)
- ETRACS ISE Exclusively Homebuilders ETN (HOMX)
- GaveKal Knowledge Leaders Developed World (KLDW)
- GaveKal Knowledge Leaders Emerging Markets (KLEM)
- Global X SuperDividend Alternatives (ALTY)
- iShares Currency Hedged MSCI ACWI (HACW)
- iShares Currency Hedged MSCI ACWI ex U.S. (HAWX)
- iShares Currency Hedged MSCI Australia (HAUD)
- iShares Currency Hedged MSCI Canada (HEWC)
- iShares Currency Hedged MSCI EAFE Small-Cap (HSCZ)
- iShares Currency Hedged MSCI Mexico (HEWW)
- iShares Currency Hedged MSCI United Kingdom (HEWU)
- iShares Interest Rate Hedged 10+ Year Credit Bond (CLYH)
- iShares Interest Rate Hedged Emerging Market Bond (EMBH)
- Market Vectors Morningstar International Moat (MOTI)
- PureFunds ISE Big Data (BDAT)
- SPDR BofA Merrill Lynch Emerging Markets Corp Bond (EMCD)
- WisdomTree Global ex-U.S. Hedged Dividend (DXUS)
- WisdomTree International Hedged Equity (HDWM)
- WisdomTree Strong Dollar U.S. Equity (USSD)
- WisdomTree Weak Dollar U.S. Equity (USWD)
The 9 ETPs removed from ETF Deathwatch due to improved health:
- Deutsche X-trackers Muni Infrastructure Revenue Bond (RVNU)
- First Trust International Multi-Asset Diversified Income (YDIV)
- First Trust Low Duration Mortgage Opportunities (LMBS)
- FlexShares Credit-Scored US Corporate Bond (SKOR)
- iShares MSCI International Developed Value Factor (IVLU)
- Oppenheimer ADR Revenue (RTR)
- Sit Rising Rate ETF (RISE)
- SPDR S&P 1500 Momentum Tilt (MMTM)
- WisdomTree Europe Quality Dividend Growth (EUDG)
The 4 ETPs removed from ETF Deathwatch due to delisting:
- CS X-Links Commodity Benchmark ETN (CSCB)
- Columbia Large Cap Growth (RPX)
- Columbia Select Large Cap Growth (RWG)
- Columbia Select Large Cap Value (GVT)
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Disclosure: Author has no positions in any of the securities mentioned and no positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.