As firms continue to launch new ETFs at a dizzying pace, I thought it would be instructive to take a look at 7 new ETFs launched in January of 2011 across a broad spectrum of asset classes and strategies:
1) (EMVX) – Global X Russell Emerging Markets Value - This ETF will rely upon the benchmark Russell Emerging Market MegaCap Value Index, delving into an already heavily populated space in emerging market hot money flows. While many emerging markets and high beta strategies are focused on growth or momentum stocks, the value focus will add a new tilt to a frothy strategy, perhaps opening the way for some different weighting from the likes of smaller outsourcing firms, manufacturers and financials compared to the large-caps and multinationals from more popular emerging markets ETFs.
2) (EWAC) – Rydex MSCI All Country World Equal Weight ETF – This one takes a stab at multiple attractive strategies, combining a broader world market approach with the equal weight strategy. Many investors like the equal weight strategy since it doesn’t rely so heavily on individual issues that tend to monopolize an entire index. Take the Nasdaq for in stance – Apple (AAPL) represents an astounding 20% of the Nasdaq ETF (QQQQ). This ETF would then provide both increased regional, currency and sector diversification while ensuring returns aren’t dominated by large-caps. As evidenced by an existing Equal Weight ETF on the S&P500, we’ve seen prolonged outperformance over its benchmark (SPY). Whether this ETF can deliver similar outperformance remains to be seen, but keep your eye on it.
3) (WDTI) – Managed Futures Strategy Fund – Managed Futures were hot when the market was quite volatile and heading downward. With equities rallying and volatility low, these segments haven’t done all so well. But with the focus on commodities in the news and fears over a weak dollar, it’s no surprise that another managed futures ETF would launch. This particular ETF will seek to track the long/short Diversified Trends Indicator. Another facet to the underlying holdings includes currencies. Since 2004, the DTI has beaten the S&P500 with less volatility, but that isn’t saying much in the face of 2008-2009′s unprecedented market conditions. Fact Sheet can be found here.
4) (ALUM) – Global X Aluminum ETF – With emerging economies consuming Aluminum in record amounts with their infrastructure build-outs, it’s timely to see the launch of an Aluminum-focused ETF. Of course, this isn’t a direct play on the metal itself, but rather, miners that have a heavy presence in dealing with the material like Alcoa and others. As such, expect to see some overlap with other mining ETFs and commodities ETFs.
5) (SCHH) – Schwab U.S. REIT ETF – The ETF universe already abounds with various REIT ETF, yet we have another now from Schwab. Seemingly, the only benefit over existing popular REIT ETFs will be an extremely low expense ratio of 0.13%. This is a major trend in the industry, using price as a value proposition. Many institutions have gone so far as to actually offer FREE ETF trading, in dozens of ETF issues (79 and counting!). The selling point for the REIT sector in general is often the high current yield given the pass-through tax structure, as well as a play on a rebounding economy for a sector that was hammered to heavily during the recent downturn.
6) (AGOL) – ETFS Physical Asian Gold Shares Trust – With no shortage of conspiracy theories circulating amongst the gold bug crowd, “physical” gold ETFs have started to sprout up. The intent is to provide investors with an added level of assurance that the gold an ETF purports to represent is actually physically held in trust – in Asia for this particular ETF. The Sprott Gold (closed end) Fund (PHYS) for instance allows investors to actually redeem their holdings. This has led to some strange premiums that are easily exploited with pairs trades now and then when they deviate too far from the norm. Regardless, I can see little value in this addition to the crowd; whether it’s held in Asia, in Canada or on paper by legitimate financials, AGOL doesn’t seem to present a compelling investment thesis. There are actually a few precious metals ETFs that tend to beat gold returns in an up market, while of course declining rapidly on the way down.
7) (VIXY) – ProShares VIX Short-Term Future – Often referred to as the fear index, the VIX tends to rally when equities sell off and it drops when stocks perform well, as complacency sets in and volatility drops out as measured by put/call ratios. Previously, investors had the opportunity to play the VIX via various ETNs (exchange traded notes) like (VXX) which subject investors to solvency risk of the parent issuer. So, the selling point here is that these new instruments are structured as ETFs, not ETNs, thus removing that liability. One could reasonably expect value decay over time due to contango just like what we saw with VXX, USO and other ETFs/ETNs that rely on futures rolls monthly. The only typical entry point for routine retail investors may be for those looking to take a long position in anticipation of, or during, a rapid decline like the recent flash crash or the 2008-2009 financial collapse. Long term, I would expect VIXY to slowly degrade over time as mentioned previously.
Disclosure: No holdings in the aforementioned ETFs, ETNs. Long AAPL.