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As The ETF Industry Booms, Are There Too Many to Choose From?


As The ETF Industry Booms, Are There Too Many to Choose From?

You may have heard that there are too many ETFs in the market and investors should be concerned that more are coming as it could cause chaos and lead to Marxism. Inspired by the strong demand for passive strategies, existing and new ETF providers have launched new offerings in the past year. Such efforts are commonplace by asset managers, including the rollout of new mutual funds, even though investors have pulled money out.

S&P Global Market Intelligence has research on 219 ETFs that launched since the end of August 2015 and is aware of filings from asset managers such as Fidelity to bring more to market. However, in contrast, there are 878 mutual fund share classes launched between August 31, 2015 and February 17, 2016; mutual funds must be six months old before entering our database and, as such, there may be even more new mutual funds, increasing the gap between the number of new ETFs and new mutual funds.

Many of the new ETFs and mutual funds have so far failed to gather interest from investors. In particular, many ETF providers rolled out currency hedged versions of their existing global or international equity products. A year ago, as the dollar weakened against the euro and the yen, iShares launched a suite of hedged products, including iShares Edge MSCI Minimum Volatility EAFE Currency Hedged (HEFV). While minimum volatility products have gained traction in the past year, HEFV has just $9 million in assets, as the currency trends shifted.

Other currency hedged products that have struggled to break through include WisdomTree Global EX-US Hedged Real Estate (HDRW) and PowerShares Developed EuroPacific Currency Hedged Low Volatility (FXEP).

Nevertheless, there are new ETFs that have found a strong following. One strong new ETF is Goldman Sachs ActiveBeta US Large Cap Equity ETF (GSLC), a multi-factor, sector diversified ETF with a modest 0.09% net expense ratio. GSLC has $1.2 billion in assets and incorporates value, quality, low volatility, and momentum characteristics. S&P Global Market Intelligence views the stocks inside, such as Johnson & Johnson (JNJ) and Microsoft (MSFT) appealing on various valuation and risk considerations.

Another recent ETF entrant able to collect assets is SPDR S&P North American Natural Resources ETF (NANR), which primarily invests in energy and materials stocks, such as Exxon Mobil (XOM) and Newmont Mining (NEM); NANR is ranked favorably for the valuation of its holdings. The ETF has $825 million in assets and a 0.35% expense ratio. 

Despite facing competitive challenges, asset managers have continued to roll out new mutual fund offerings as well as to expand the available share classes of existing products.

MFS Investment Management launched 45 fund share classes between August 31, 2015 and February 17, 2016, nearly a six-month period. One such portfolio, MFS Blended Research Emerging Markets Equity Fund (BRKVX) came to market in mid-September 2015 with nine share classes. The largest, BRKVX, has just $2.9 million in assets, even though the fund has outperformed its Lipper peers year to date through August 26.

Meanwhile, Alliance Bernstein launched 18 mutual fund share classes including three tied to AB Asia Ex-Japan Equity Portfolio (AXJYX). Despite also outperforming its Lipper peers year to date, the largest of these share classes, AXJYX, had $5.3 million in assets.

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