in assets under management. 2014 has so far turned out to be another significant year for the ETF industry.
There have been twelve dozen new ETF launches year to date as compared to roughly 134 new products launched in 2013. Given the huge popularity of ETFs supported by soaring equity markets, it wouldn’t be surprising if we hit the $2 trillion mark before the year is out. This might indeed turn out to be true if strong asset prices help to buoy markets and push asset prices even higher to close out the year.
Encouraged by the popularity, some veteran issuers lined up new products, while we also saw some new players entering the U.S. ETF industry too. Among them all, the new ETF issuer WBI – the manager of the Absolute Shares Trust – rocked the space during the third quarter. The issuer garnered $1 billion from 10 actively managed ETFs within just a day of their launch.
Below we highlight three best new ETFs launched during the third quarter, which in our view could reward investors nicely over the longer term, or at least be worth putting on watch lists as potential popular funds later this year.
WBI Tactical Income Shares
The actively managed fund seeks to provide long-term capital appreciation, while protecting capital during unfavorable market periods. For this purpose WBII invests in both debt and equity securities of foreign and domestic companies.
The issuer uses quantitative computer screening to select fundamentally strong stocks with attractive growth opportunities and uses technical analysis to decide the appropriate time for purchase. Moreover, the fund uses its proprietary bond model to reduce interest rate risk in order to protect invested capital. The fund shortens or lengthens duration to minimize loss in tandem with the rise or fall of interest rates.
Most importantly, the fund follows a strict stop loss approach and sells a particular security or bond if its price falls below an acceptable price range (read:Absolute Shares Trust Debuts with 10 Active Multi-Asset ETFs).
Presently, Short Term Treasury investments dominates the fund with a little less than half of fund assets, followed by Powershares ETF Trust II Senior LN Port with 10.8%. The remaining securities have single-digit allocations in the fund.
However, the active management renders the fund expensive with 1.05% as expense fee. The product has made its debut on August 27 this year and has amassed $147 million since then.
Apart from WBII, two other products launched by Absolute Shares last month – WBI Tactical High Income Shares (WBIH) and WBI Large Cap Tactical Growth Shares (WBIE) have been among the top asset garners during the third quarter.
Both these funds use the same strategy employed by WBII. WBIH has gathered $143.5 million since inception and charges 1.08% as fees, while WBIE charges 1% as expense and has amassed $117.6 million since inception.
U.S. 500 Enhanced Volatility Weighted Index ETF
The fund tracks the CEMP U.S. Large Cap 500 Long/Cash Volatility Weighted Index to provide exposure to the broad U.S. Large Cap stock market aiming to hedge downside risk potential.
With this approach, the index screens for companies with consistent net positive earnings for four consecutive quarters. The 500 stocks selected via this process are then weighted based on their daily standard deviation (volatility) over the last 180 trading days compared to the aggregate mean.
Moreover, the index also uses a pre-defined exit and re-investment strategy to provide downside protection. The index liquidates 75% of its stock holdings when the index falls 10% from its daily highest value (DHV) and reinvests back as per its strategy.
The fund holds a well diversified basket of stocks with none of the individual securities having more than a 0.5% allocation in the fund. Presently, Markel Corporation, McDonald’s Corp. and ConocoPhillips take the top three spots.
The fund also does a nice job is spreading out its assets well among various sectors. Industrials, Consumer Discretionary, Financials, Information Technology, Consumer Staples and Health Care have double-digit allocation in the fund (read:3 Top Ranked Consumer ETFs to Ride On Solid Data).
The product was launched on July 1. CFO charges 68 basis points as expenses and has gathered $38.7 million since its launch.
Direxion iBillionaire Index ETF
The fund provides an opportunity to invest like billionaire investors. IBLN tracks the iBillionaire Index to provide exposure to 30 large-cap U.S. equities having the highest allocation in the investment portfolios of billionaires.
The index uses 13F forms to narrow down a list of 10 U.S. billionaires based on several criteria including personal net worth, source of wealth, portfolio concentration, turnover, and performance over time. The index then selects 30 stocks based on the highest allocations in the billionaire’s portfolio.
The fund follows an equal-weighted approach and hence does not carry company-specific concentration risk. Williams Companies Inc., Micron Technology Inc, Apple Inc, Halliburton Co and Google Inc are some of the top holdings.
Financials dominate the fund with a little over one-third of fund allocation, followed by Energy, Financials and Consumer Discretionary, each with double-digit allocations.
The fund was launched in August and while not expensive, isn’t cheap either. IBLN charges 65 basis points as fees and has amassed $37.5 million since inception.
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