Plain-vanilla index exchange-traded funds still control most of the assets, but it’s the tinier niche-oriented funds that have been growing their asset bases at a quicker rate. Which are among 2019’s top gainers?
Before we answer that, let’s provide some context on the current state of the exchange-traded product marketplace.
Robust Product Growth
Thus far, 2019 has been a stellar year for new ETP launches and one of the busiest over the past five years. According to First Look ETF, a total of 138 ETPs were introduced through July. The climate for new products has been good. Global stock prices have provided decent performance returns and credit markets have been mostly calm.
Still, after accounting for the brisk pace of ETP closures (75) this year, there only 63 net new ETPs to date in 2019. For fund sponsors, the strategy of “build it and they will come” hasn’t worked. And the sad reality is that half of all new ETPs making their debut will fail to reach their three-year anniversary. That’s an important milestone because that’s when fund research shops like Morningstar typically begin to rate funds based on their historical performance, which in turn provides greater visibility to young ETPs.
Show Me The Assets!
Which new ETPs have experienced the biggest asset growth on a percentage basis? Topping the list are a pair of exchange-traded notes linked to a micro-index focused on 10 highly liquid stocks across the tech and internet/media sectors comprising the so-called FANG stocks—Facebook, Amazon, Netflix and Google (i.e., Alphabet)—plus Alibaba, Apple, Baidu, Nvidia, Tesla and Twitter.
Since the start of the year, assets in the MicroSectors FANG+ Index Inverse ETN (GNAF) and the MicroSectors FANG+ Index 2x Leveraged ETN (FNGO) have ballooned by more than 16,900% and 11,500%, respectively. Both ETNs began 2019 with less than $500,000 in assets and have since climbed to $51 million at GNAF and $36 million at FNGO.
Other products with huge asset growth on a percentage basis are a pair of equity ETFs from Invesco. The Invesco RAFI Strategic US ETF (IUS) has grown its assets by 5,025% while the Invesco S&P 500 Value with Momentum ETF (SPVM) has enjoyed asset growth of 1,986%. Both ETFs attempt to outperform traditional market-cap weighted indexes by using quantitative screens to choose their stock holdings.
A Curious Leader
Among the asset growth leaders is the Franklin Liberty Investment Grade Corporate ETF (FLCO). FLCO is not leveraged nor does it have a highly concentrated portfolio, and it carries a modest annual expense ratio of 0.35%.
FLCO is actively managed and the bulk of the fund’s portfolio owns U.S. corporate bonds with the top credit ratings. Being active permits the fund more freedom compared to index-linked bond ETFs. For example, FLCO’s portfolio allows for up to 15% of its assets to be invested in non-U.S. corporate debt. As such, FLCO has an 11% allocation to U.K. corporate debt and a 3.7% stake in Chinese corporate debt.
Summary
While the asset growth of these products has been impressive, none of the top-ten leaders in growth on a percentage basis are close to cracking the highly coveted $1 billion mark. In fact, the two closest funds, the Invesco RAFI Strategic Developed ex-US ETF (ISDX) and FLCO, have just $231.7 million and $235.4 million in assets, respectively.
In the end, gathering ETF assets at a rapid clip is tough work. And keeping those assets can be even tougher.
Ron DeLegge is founder and chief portfolio strategist at ETFguide, and is the author of “Habits Of The Investing Greats.”