By Christian Magoon
CEO, Magoon Capital
According to the ETF Industry Association there was a 17% net increase of ETF and ETN products in the marketplace from May of 2011 to May of 2012. While some new products like PIMCO's Total Return ETF (BOND) received a lot of attention, others have flown under the radar. Here are several ETFs that haven't grabbed as many headlines but are examples of new ETFs delivering benefits to investors.
Gold stocks have had a tough year yet despite that, iShares managed to introduce a new gold miners ETF that has attracted close to $30 million in assets. The iShares Global Gold Miners Fund (RING) delivers an attractive characteristic to the gold miners ETF product set, low cost. RING charges just 39bps which is more than 25% less than the next lowest cost gold mining ETF, the Market Vectors Gold Miners ETF (GDX). Here's a breakdown of RING's top ten holdings from iShares. Only two stocks differ from GDX's top ten.
iShares also made a splash in the India ETF product set challenging the WisdomTree India Earnings Fund (EPI) and the Powershares India Portfolio (PIN) with a low cost rival. The iShares MSCI India Index Fund (INDA) charges just 65bps, a bargain in the India ETF space with rivals EPI and PIN charging 83bps and 78bps respectively. That gives INDA investors a cost advantage of between 17% - 21%. Clearly iShares has decided to use its overall scale to introduce new products that are low cost leaders in an effort to compete for assets in various ETF product sets.
This year Market Vectors launched the Morningstar Wide Moat Research ETF (MOAT) as a way for investors to own a focused list of 20 wide moat companies in a single purchase. The "wide moat" concept is one of the premier ideas to come from Morningstar equity research. Essentially a wide moat is a "sustainable competitive advantage" that a company has which makes it harder for other companies to compete against. Morningstar believes these companies will be more successful and the performance of this focused list of companies appears to prove it. Here's the index performance going back to 2007 versus the S&P 500 from Market Vectors website.
While past performance does not equal future results, it will be interesting to watch the researched based wide moat strategy compete against other alpha seeking equity ETFs.
Risk & Cost Reduction
An ETF that seemed to fly in the face of convention by dramatically underweighting Apple (AAPL) versus the traditional NASDAQ 100 ETF (QQQ) launched earlier this year. The Direxion Nasdaq 100 Equal Weighted Index ETF (QQQE) tracks the equal weighted NASDAQ 100 index. By equally weighting each company at one percent a piece, the concentration risk in large companies like Apple, Microsoft (MSFT) and Google (GOOG) is curtailed. For example, on March 31st of this year just seven companies made up 50% the NASDAQ 100. Here's the graphic from Direxion.
The same seven companies would have comprised just 7% of the equal weighted NASDAQ 100, making the portfolio less volatile through diversification. Direxion's QQQE is the second ETF to track this index but does so charging just 35bps, versus the 60bps fee the First Trust NASDAQ 100 Equal Weight ETF (QQEW) charges. Expect to see investors attracted to QQQE due to its more diversified approach than QQQ and its eye popping 40% lower expense ratio than QQEW.
While some wish ETF product launches would slow, there are compelling new investment strategies, asset classes and pricing structures introduced to the ETF marketplace each month. For that reason, the continued growth of the ETF industry via new offerings remains a healthy trend for investors.