ETF Stats For January 2016: Currency Hedging 2.0

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Includes: DDEZ, DDJP, DDLS, DDWM, DEFA, DEWJ, DEZU, DFND, EMDV, GARD, GNRX, LEAD, XITK
by: Ron Rowland

January witnessed 13 ETF launches along with the closure of four ETFs and one ETN, putting the new count at 1,853 (1,653 ETFs and 200 ETNs). The net increase of eight might seem like a slow pace of product introductions, but it is much better than a year ago when the 23 closures swamped the 13 launches. Assets fell 4.5% during January but remain above the $2 trillion mark for now. The quantity of actively managed ETFs dropped from 137 to 134, yet assets grew 4.3%.

If 2015 was the year of currency hedging, then 2016 could be the year of "managed" currency hedging. On a single day in January, two firms introduced seven next-generation currency-hedged ETFs employing "Currency Hedging 2.0" techniques. WisdomTree calls its new hedging approach "Dynamic," while iShares chose the "Adaptive" moniker. Despite these slight naming differences, both firms employ a similar process for managing currency exposure based on changing market conditions.

The iShares methodology uses four indicators: interest rate differential, relative valuation, momentum, and volatility. Each indicator controls a 25% increment of each currency being hedged. The WisdomTree approach also uses interest rate differential, relative valuation, and momentum factors, but does not use a volatility factor. Each indicator controls one-third of each currency's exposure, and the relative valuation hedge is applied in two 16.7% increments. Both methodologies are likely to be popular with retail investors who do not want to manage their own level of currency hedging. I expect more of these next generation currency-hedged ETFs to roll out in the months ahead.

Three ETNs had early terminations in January. The CS X-Links Commodity Benchmark ETN (NYSEARCA:CSCB) was the result of Credit Suisse voluntarily exercising its option to accelerate ("call") the notes prior to their 2033 maturity. The UBS ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN (NYSEARCA:MLPL) and the UBS ETRACS 2xMonthly Leveraged S&P MLP Index ETN (NYSEARCA:MLPV) triggered mandatory acceleration and redemptions due to adverse market conditions on January 20. Anti-ruin triggers are needed for these products because they reset leverage monthly instead of daily. Although the two triggers were independent, they both occurred on the same day during a sell-off in the MLP market. The two ETRACs products were still listed as the month came to a close, so they will not show up as closures until February.

The quantity of funds with more than $10 billion in assets held steady at 51 for January. The number of products with at least $1 billion in assets decreased from 256 to 243. The median asset level is just $61.4 million, which is a level some analysts considered to be unprofitable. Trading activity jumped 16.7% for the month to $2.17 trillion. This represents a 107% turnover ($ volume/industry assets) for the month.

January 2016 Month End

ETFs

ETNs

Total

Currently Listed U.S. 1,653 200 1,853
Listed as of 12/31/2015 1,644 201 1,845
New Introductions for Month 13 0 13
Delistings/Closures for Month 4 1 5
Net Change for Month +9 -1 +9
New Introductions 6 Months 130 7 137
New Introductions YTD 13 0 13
Delistings/Closures YTD 4 1 5
Net Change YTD +9 -1 +9
Assets Under Mgmt ($ billions) $2,003 $20.2 $2,023
% Change in Assets for Month -4.5% -5.9% -4.5%
% Change in Assets YTD -4.5% -5.9% -4.5%
Qty AUM > $10 Billion 51 0 51
Qty AUM > $1 Billion 239 4 243
Qty AUM > $100 Million 761 34 795
% with AUM > $100 Million 46.0% 17.0% 42.9%
Monthly $ Volume ($ billions) $2,0736 $98.5 $2,171
% Change in Monthly $ Volume +16.1% +33.1% +16.7%
Avg Daily $ Volume > $1 Billion 14 1 15
Avg Daily $ Volume > $100 Million 114 6 120
Avg Daily $ Volume > $10 Million 358 12 370
Actively Managed ETF Count (w/ change) 134 -3 mth -3 ytd
Actively Managed AUM ($ billions) $23.9 +4.3% mth +4.3% ytd
Click to enlarge

Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge.

New products launched in January (sorted by launch date):

  1. Reality Shares DIVCON Leaders Dividend ETF (BATS:LEAD), launched 1/6/16, seeks to invest in the large-cap U.S. companies with the highest probability of increasing their dividends within a year, based on their DIVCON dividend health scores, a rating methodology which ranks dividend growth prospects based on a weighted average of seven quality factors correlated to dividend growth. The ETF weights it holdings based on their DIVCON score and has an expense ratio of 0.43% (LEAD overview).
  2. iShares Adaptive Currency Hedged MSCI EAFE ETF (BATS:DEFA), launched 1/7/16, is a fund-of-funds holding the iShares MSCI EAFE (NYSEARCA:EFA) and overlaying an adaptive currency hedge. The currency hedge uses four indicators (interest rate differential, relative valuation, momentum, and volatility) with each controlling a 25% increment in each currency's hedge. DEFA has its expense ratio capped at 0.35% until November 2020 (DEFA overview).
  3. iShares Adaptive Currency Hedged MSCI Eurozone ETF (BATS:DEZU), launched 1/7/16, is a fund-of-funds holding iShares MSCI Eurozone (BATS:EZU) and overlaying an adaptive currency hedge. The currency hedge uses four indicators (interest rate differential, relative valuation, momentum, and volatility) with each controlling a 25% increment of euro hedging. DEZU has its expense ratio capped at 0.50% until November 2020 (DEZU overview).
  4. iShares Adaptive Currency Hedged MSCI Japan ETF (BATS:DEWJ), launched 1/7/16, is a fund-of-funds holding iShares MSCI Japan (NYSEARCA:EWJ) and overlaying an adaptive currency hedge. The currency hedge uses four indicators (interest rate differential, relative valuation, momentum, and volatility) with each controlling a 25% increment of yen hedging. DEWJ has its expense ratio capped at 0.47% until November 2020 (DEWJ overview).
  5. WisdomTree Dynamic Currency Hedged Europe Equity Fund (BATS:DDEZ), launched 1/7/16, seeks to track the performance of European dividend-paying companies while dynamically hedging exposure to currency fluctuations. The currency hedge uses three indicators (interest rate differential, relative valuation, and momentum) with each controlling a 33.3% portion of the euro hedging. DDEZ will cap its expense ratio at 0.43% for one year (DDEZ overview).
  6. WisdomTree Dynamic Currency Hedged International Equity Fund (BATS:DDWM), launched 1/7/16, seeks to track the performance of dividend-paying companies in the industrialized world outside of North America while dynamically hedging exposure to currency fluctuations. The currency hedge uses three indicators (interest rate differential, relative valuation, and momentum) with each controlling a 33.3% portion of the hedging. DDWM will cap its expense ratio at 0.35% for one year (DDWM overview).
  7. WisdomTree Dynamic Currency Hedged International SmallCap Equity Fund (BATS:DDLS), launched 1/7/16, seeks to track the performance of the small-capitalization segment of dividend-paying companies in the industrialized world outside of North America while dynamically hedging exposure to currency fluctuations. The currency hedge uses three indicators (interest rate differential, relative valuation, and momentum) with each controlling a 33.3% portion of the hedging. DDLS will cap its expense ratio at 0.43% for one year (DDLS overview).
  8. WisdomTree Dynamic Currency Hedged Japan Equity Fund (BATS:DDJP), launched 1/7/16, seeks to track the performance of Japanese dividend-paying companies while dynamically hedging exposure to currency fluctuations. The currency hedge uses three indicators (interest rate differential, relative valuation, and momentum) with each controlling a 33.3% portion of the yen hedging. DDJP will cap its expense ratio at 0.43% for one year (DDJP overview).
  9. Market Vectors Generic Drug ETF (NASDAQ:GNRX), launched 1/13/16, tracks an underlying index that includes global exchange-listed companies that derive a significant proportion of their revenues from the generic drug industry. The underlying index defines the generic drug industry as any company involved in the research, development, production, manufacturing or sale of generics, supergenerics, biosimilars, biobetters, or their active pharmaceutical ingredients. The ETF employs a rules-based, modified capitalization- weighted scheme and caps its expense ratio at 0.55% (GNRX overview).
  10. Reality Shares DIVCON Dividend Defenders ETF (BATS:DFND), launched 1/14/16, seeks to provide long-term capital appreciation through the use of a hedged (long/short) equity portfolio that may provide more stable returns than a long-only equity portfolio. It invests 75% of its portfolio in the large-cap U.S. companies with the highest probability of increasing their dividends within a year, based on their DIVCON dividend health scores. The remaining 25% of the portfolio is used to short the large-cap U.S. companies with the highest probability of cutting their dividends within a year. DFND has an expense ratio of 0.95% (DFND overview).
  11. Reality Shares DIVCON Dividend Guard ETF (BATS:GARD), launched 1/14/16, seeks to provide exposure to large-cap U.S. companies with the highest probability of increasing their dividends, as measured by their DIVCON Scores. It dynamically adjusts its market exposure based on the Guard Indicator market-strength gauge, which may reduce the impact of market downturns. When the Guard Indicator signals a strong market, GARD invests 100% of its portfolio in the large-cap U.S. companies with the highest probability of increasing their dividends within a year, based on their DIVCON dividend health scores. When the Guard Indicator signals a weak market, that long-stock weight is reduced to 50%, and the remaining 50% of the portfolio is allocated to a short-stock position in the large-cap U.S. companies with the highest probability of cutting their dividends within a year. This ETF has an expense ratio of 0.95% (GARD overview).
  12. SPDR FactSet Innovative Technology ETF (NYSEARCA:XITK), launched 1/14/16, is designed to represent the performance of U.S.-listed stocks and American Depository Receipts ("ADRs") of technology and technology-related companies within the most innovative segments of the technology sector and electronic media subsector, as defined by FactSet Research Systems, Inc. (NYSE:FDS). The underlying index considers the most innovative segments to be those with the highest revenue growth. Holdings are equally weighted at the annual rebalancing. XITK sports an expense ratio of 0.45% (XITK overview).
  13. ProShares MSCI Emerging Markets Dividend Growers ETF (BATS:EMDV), launched 1/27/16, will track the MSCI Emerging Markets Dividend Masters Index, which focuses on companies with the longest track records of year-over-year dividend growth. EMDV has its expense ratio capped at 0.60% through September 2017 (EMDV overview).

Product closures in January and last day of listing:

  1. CS X-Links Commodity Benchmark ETN (CSCB) 1/27/16 - Credit Suisse exercised its optional acceleration right.
  2. Guggenheim Russell 1000 Equal Weight (EWRI) 1/27/16 - assets were merged into the Guggenheim S&P 500 Equal Weight ETF (NYSEARCA:RSP).
  3. Columbia Large Cap Growth (NYSEARCA:RPX) 1/28/16 - unable to attract sufficient assets after more than six years on the market.
  4. Columbia Select Large Cap Growth (NYSEARCA:RWG) 1/28/16 - unable to attract sufficient assets after more than six years on the market.
  5. Columbia Select Large Cap Value (NYSEARCA:GVT) 1/28/16 - unable to attract sufficient assets after more than six years market.

Product changes in January:

  1. WisdomTree closed on its acquisition of Greenhaven Commodity Services and its two ETFs with an effective date of January 4, 2016. The fund names changed from Greenhaven to WisdomTree, becoming the WisdomTree Continuous Commodity Index Fund (NYSEARCA:GCC) and the WisdomTree Coal Fund (NYSEARCA:TONS).
  2. UBS ETRACS 2xMonthly Leveraged Alerian MLP Infrastructure Index ETN (MLPL) triggered a mandatory redemption on January 20 when its intraday index value dropped by more than 30% from its most recent monthly closing value. It was delisted after trading on 1/29 and was liquidated at $12.8994 per unit. MLPL became a broken product on October 8, 2015, when UBS announced it would not issue additional notes, and the situation became exacerbated on December 4 when UBS suspended all sales.
  3. UBS ETRACS 2xMonthly Leveraged S&P MLP Index ETN (MLPV) triggered a mandatory redemption when its intraday indicative value dropped below $5.00 per unit on January 20. It was delisted after trading on 1/29 and was liquidated at $6.4895 per unit.
  4. Barclays warned investors that its iPath S&P GSCI Crude Oil ETN (NYSEARCA:OIL) was a broken product and subject to a "persistent and material premium in the trading price" after the ETN traded at a 41% premium on January 19. Barclays issued "further guidance" on January 22, stating the firm is making the problem worse by limiting the sale of the ETNs from inventory.
  5. Guggenheim changed the names and underlying indexes for three of its ETFs effective January 27, 2016. The Guggenheim Russell 2000 Equal Weight ETF (EWRS) became the Guggenheim S&P SmallCap 600 Equal Weight ETF (NYSEARCA:EWSC), the Guggenheim Russell MidCap Equal Weight ETF (EWRM) became the Guggenheim S&P MidCap 400 Equal Weight ETF (NYSEARCA:EWMC), and the Guggenheim Russell Top 50 Mega Cap ETF (NYSEARCA:XLG) became the Guggenheim S&P 500 Top 50 ETF (XLG).

Announced Product Changes for Coming Months:

  1. Van Eck Global originally planned to acquire Yorkville MLP ETFs and hoped to close the transaction in the fourth quarter. The plans were approved on December 17, 2015, and the reorganizations are now expected to close on February 8, 2016.
  2. Invesco PowerShares will change the names and underlying indexes on four ETFs, with two receiving new ticker symbols, effective March 18. The PowerShares S&P Emerging Markets High Beta (EEHB) will become the PowerShares S&P Emerging Market Momentum (NYSEARCA:EEMO), the PowerShares S&P International Developed High Beta (IDHB) will become the PowerShares S&P International Developed Momentum (NYSEARCA:IDMO), the PowerShares S&P International Developed High Quality (NYSEARCA:IDHQ) will become the PowerShares S&P International Developed Quality (IDHQ), the PowerShares S&P 500 High Quality (NYSEARCA:SPHQ) will become the PowerShares S&P 500 Quality (SPHQ).
  3. Invesco PowerShares will close four ETFs with March 18, 2016, being their last day of listed trading. The affected funds are the PowerShares China A-Share (NYSEARCA:CHNA), the PowerShares Fundamental Emerging Markets Local Debt (NYSEARCA:PFEM), the PowerShares KBW Capital Markets (NYSEARCA:KBWC), and the PowerShares KBW Insurance (NYSEARCA:KBWI).

Previous monthly ETF statistics reports are available here.

Disclosure: Author has no positions in any of the securities, 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.