New ETFs Look To Separate Themselves

There may not be a cure for the summertime blues, but the exchange-traded funds industry is making things interesting with a spate of new product launches. Dispelling the notion that July is a slow, uneventful time on Wall Street, new ETF launches topped double digits last week.

Many of these new ETFs are smart beta funds, a growing and increasingly competitive segment of the ETF universe. In fact, some new ETFs combine the concepts of smart beta and fixed income investing, a growing but still nascent concept in the ETF space.

“CFRA thinks there are similarities to variations on existing themes in the broad suite of ETF launches last week: some will sound similar to existing products, while others are aiming to break new ground,” said CFRA Research director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Wednesday. “What’s clear is these are not just variations of plain vanilla.”

Enhanced Indexing

The PowerShares S&P 500 Minimum Variance Portfolio SPMV is one of the newest additions to the equity-based smart beta fray. SPMV is based on the S&P 500 Minimum Volatility Index, but offers some important differences relative to rivals such as the iShares Edge MSCI Min Vol USA ETF USMV and the PowerShares S&P 500 Low Volatility Portfolio SPLV.

“SPMV’s approach has similarities to USMV in that it includes sector constraints, but it’s done relative to the large-cap index,” said Rosenbluth. “In addition, semi-annual rebalance and reconstitution efforts are done at different times: February and August for the S&P minimum volatility index vs. May and November for the MSCI index.”

The new SPMV allocates over 34 percent of its combined weight to consumer discretionary and healthcare stocks.

Smart Beta Meets Bonds

Last week, iShares, the world's largest ETF issuer, introduced four new bond ETFs, including a pair rooted in smart beta methodologies. One of those two is the iShares Edge High Yield Defensive Bond ETF HYDB.

As Rosenbluth noted, HYDB allocates more of its roster to B-rated bonds and less to CCC-rated issues than do the two largest, traditional junk bond ETFs. The new HYDB also features a lower expense ratio at 0.35 percent per year, or $35 on a $10,000 investment. HYDB has an effective duration of just over four years.

The new ETF holds 123 high-yield bonds and has $10 million in assets under management.

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