Observers of the exchange-traded products industry know that 2012 has been long on closures, 99 to be a precise -- a record. They also know that new fund listings have reached "just" over 160 according to Lipper data; the slowest pace in several years.
However, an argument can be made that, broadly speaking, the lack of new ETF quantity has been made up for in terms of quality. Said another way, while a fair amount of 2012's new ETFs have niche focuses, many have investment objectives that are easy to understand and are not as opaque as some critics would like to believe.
The good news for investors is that the straight forward investment objectives combined with quick success in terms of asset-gathering and performance bodes well for some of these ETFs on two levels. First, they could be equally if not more successful next year. Second, many of 2012's new ETFs look destined to be around for a while and not head to the ETF graveyard.
With that here is a review of some of the best new ETFs of 2012. Here, "best" means a combination of understandable investment objectives, asset-gathering proficiency and performance. Please not all of the successful new product launches of 2012 are included here.
PIMCO Total Return Exchange-Traded Fund (BOND) There is not much more praise that can be heaped upon the Bill Gross ETF. Following its February 29 inception date, BOND is on track to haul in $4 billion in assets. BOND is already the largest actively managed ETF and the ETF has delivered the goods in terms of performance since its debut. In fact, it has been better than the Total Return Mutual Fund, the world's largest bond fund. By returns, AUM and ease of understanding what this ETF tries to do, BOND has impressed. There is no arguing that. Year to date, BOND is up 7.4 percent
iShares MSCI Global Select Metals & Mining Producers Fund (PICK) On the basis of performance, PICK has been lousy as it has tumbled about 18 percent since its early February debut. That is not because this ETF is a bad idea. PICK's woes are attributable to not enough of 2012 being a risk on year. Investors have been worried about the Chinese economy, the fiscal cliff and a myriad of other issues that have hamstrung materials stocks.
PICK does deserve some credit for entering a crowded field (there is no shortage of equity-based mining ETFs) and proving adept at attracting assets. The fund has nearly $236 million and if 2013 brings a risk on flair, PICK could soar.
WisdomTree China Dividend Ex-Financials Fund (CHXF) The WisdomTree China Dividend Ex-Financials Fund is another ETF that entered an arena fraught with competition. There are hundreds of ETFs that offer some exposure to China, and in terms of China-specific funds, that universe is dominated by the iShares FTSE China 25 Index Fund (FXI), which has an expense ratio of 0.74 percent, versis CHXF's expense ratio of 0.63 percent.
In other words, any new China-specific ETF that comes to market these days had better offer up something unique or risk being passed over in favor of more familiar fare. CHXF is unique. Not only does the fund feature a lower expense ratio than FXI, it excludes Chinese bank stocks in favor of Chinese equities with better dividend reputations. Up almost eight percent since its September debut, CHXF is straightforward in its approach and has accumulated $29.4 million in assets.
SPDR Barclays Short Term High Yield Bond ETF (SJNK) For all the attention being paid to outflows from large, longer duration junk bond ETFs, SJNK is off to a banner start on the AUM front. Since its mid-March debut, SJNK has hauled in $548.3 million in assets and that number is steadily rising.
In late September, SJNK's AUM total was $289 million. A month ago, it was $433.1 million. SJNK's modified adjusted duration of 2.12 years is just under half that of its longer duration cousin, the SPDR Barclays High Yield Bond ETF (JNK). If there is a knock on SJNK it is that its longer duration rivals have outpaced it this year.
Market Vectors International High Yield Bond ETF (IHY) Keeping with the theme of soaring inflows to bond funds this year, the Market Vectors International High Yield Bond ETF has been an unheralded beneficiary of that movement.
The simple explanation of what IHY does is that it is an international equivalent of JNK or the iShares iBoxx $ High Yield Corporate Bond Fund (HYG). IHY is 10 basis cheaper than HYG and has the same expense ratio, 0.4 percent as JNK. The Market Vectors offering features a slightly higher 30-day SEC yield than its two larger rivals. Importantly, IHY has not deviated much from the performance of its U.S.-focused rivals. Since, its April debut IHY has slightly outpaced HYG while lagging JNK by a scant amount.
For those that believe a new ETF has to have $100 million in AUM to be validated as a "good" fund, IHY does better than that. The ETF now has over $201 million in assets, implying asset growth of nearly tenfold since late September.
Market Vectors Morningstar Wide Moat Research ETF (MOAT) Upon debut, critics could have said that MOAT was too esoteric and too much of a niche play. Well, touting Warren Buffett's love of wide moat business has proven to be a smart marketing tool because MOAT has accumulated almost $99 million in AUM. Home to just 21 stocks, MOAT has jumped 6.6 percent since coming to market. An interesting footnote is that Facebook (FB) is currently MOAT's largest holding with a weight of almost 6.7 percent.
First Trust NASDAQ Technology Dividend Index Fund (TDIV) The First Trust NASDAQ Technology Dividend Index Fund represents a direct play on an important theme for dividend investors: The tech sector's rise to dividend prominence. While yields are still not impressive across the board, tech is the largest dividend-paying sector in the U.S. in dollar terms. TDIV 30-day SEC yield is 2.19 percent, and its index yields 2.96 percent.
Add to that, with the massive cash hoards held by the likes of Microsoft (MSFT), IBM (IBM) and other familiar tech names, the sector is expected to provided dividend growth in the coming years. That is assuming the fiscal cliff is avoided and that is the one of the hurdles TDIV faces in the near term.
A unique aspect to TDIV is that it is not a straight tech play. Rather, the volatility that sector is often known for is tempered somewhat because the ETF is sure to include a 20 percent weight to telecommunications names at each rebalancing. That means Verizon (VZ), AT&T (T) and related issues are TDIV holdings.
TDIV has outperformed the Nasdaq 100 since its August debut, but both have traded lower. Still, TDIV deserves credit for being a play on an important, that being dividend growth potential, and for garnering $46.4 million in AUM to this point.
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