For many financial advisors and investors, a simple approach to exchange-traded funds works best. A broad basket of low-cost funds representing the spectrum of core asset classes is all they’ll ever need. As a result, any fund not simply replicating an index can have a hard time gaining ETF investors’s attention.
But there are ample success stories among ETFs that target specific market niches. “Thematic” funds such as the ROBO Global Robotics and Automation Index ETF (ROBO), the Robotics & Artificial Intelligence ETF (BOTZ) and the ETFMG Prime Cyber Security ETF (HACK), for example, have each garnered roughly $2 billion in assets.
Todd Rosenbluth, director of ETF and mutual fund research at CFRA, says “there will always be a place for such thematic ETFs in a broader portfolio. The goal of outperforming drives some advisors and investors to focus on these kinds of opportunities.”
Indeed, solid performance helps draw attention. The above-mentioned three funds, for example, rose an average of 41 percent in 2017.
With a 39 percent return over the past 12 months, you’d suspect The Obesity ETF (SLIM) would hold great appeal to alpha-seeking investors. Yet with just $11.6 million in assets, this fund is clearly not on most investors’ radars. At least not yet.
Rosenbluth believes that investors want to see a fund like this build a longer track record before buying shares. The Obesity ETF won’t have a three-year track record until next June. With time, the fund’s strong performance should help it start to see more interest, adds Rosenbluth.
Looking For A Kickstart
Back in the heyday of the dot.com era, the Janus family of mutual funds gathered more than $300 billion in assets thanks to strong-performing tech-focused mutual funds. But Janus missed the boat as investors steadily migrated from mutual funds towards ETFs. Prior to recent mergers, assets under management had fallen by more than $100 billion.
To make up for lost time, the firm acquired ETF provider VelocityShares in 2014. That firm launched in 2009 and had amassed $2 billion by the time the link-up with Janus was announced.
Four years later, Janus Henderson (as the firm is now known) is still struggling for traction in the ETF marketplace. It has scored a winner with the Janus Henderson Short Duration Income ETF (VNLA), which has a healthy $569 million in assets. And a pair of smart beta funds have around $110 million in combined assets. But the four thematic ETFs it launched in June 2016 haven’t fared well on the AUM front. One of those funds, The Health and Fitness ETF, no longer exists, and the three remaining ETFs in this group have assets of just $11 million to $13 million, depending on the fund. Besides SLIM, the other two funds are The Organics ETF (ORG) and The Long-Term Care ETF (OLD).