By Drew Voros
Looking back at this year for U.S.-listed exchange-traded products, there were several stories that are obvious: More than $400 billion in new assets under management is a new annual record with a month to go. A record number of launches and many new ETF issuers with established wealth management track records have jumped into the ETF pool.
But there were other stories we at ETF.com thought were maybe not as obvious but nonetheless important.
The story of the VanEck Junior Gold Miners ETF (GDXJ), where the $4.2 billion fund changed dramatically after becoming too big for its index, was certainly interesting. Then there was the drama-filled story of the ousting of PureFunds from being associated in any way with the $1 billion cybersecurity ETF that once bore its name (now the ETFMG Prime Cyber Security ETF (HACK)). But there were others as well.
Granted, it's a subjective exercise to pick out “the biggest” stories, but from where we stand, there were a handful of stories that stood out above the rest.
The Bitcoin ETF Saga
Bitcoin has, hands down, been one of the most exciting financial market stories of 2017. No matter your views on the digital currency, it's been impossible to ignore the meteoric rise of this intangible-yet-valuable asset.
From $950 at the start of the year, bitcoin rocketed to nearly $10,000 this week, and is showing no signs of slowing down. Its ascent has gotten people around the world buzzing and asking questions: Is bitcoin the new gold? Is it a bubble? Are cryptocurrencies a legitimate asset class?
Those questions will likely be answered in the months and years to come. Another question that will likely be answered is whether the first bitcoin ETF will come to market anytime soon.
For all the excitement about bitcoin this year, ETFs have been left out of the party, though not for want of trying. The Securities and Exchange Commission shot down a few potential bitcoin ETFs earlier this year, which at first seemed like the nail in the coffin for such a fund.
Then after Cboe Global Markets, parent company of ETF.com, announced it would launch bitcoin futures as early as this year, those hopes were reignited. If bitcoin futures launch as expected, the first bitcoin ETF could follow shortly thereafter.
For better or for worse, ETF investors could soon be joining the bitcoin party.
Heading into 2017, many investors were bracing for a rocky market environment, and who could blame them? The previous year was a tumultuous one: the Federal Reserve was gearing up for an accelerated pace of rate hikes; and the U.S. had just witnessed one of the biggest upsets ever in a presidential election.
Yet, far from being rocky, this year turned out to be one of the least-volatile periods in market history. Consider these astounding facts:
- The CBOE Volatility Index (VIX) hit 8.84 in July, the lowest level ever recorded in the VIX's 24-year history.
- The largest peak-to-trough drawdown in the S&P 500 this year has been 2.8%, the smallest in any calendar year on record.
- The S&P 500 is on track to rise every month this year, an unprecedented feat.
Perhaps the market will throw us a curveball and suddenly take a big dive in December, but even if it does, 2017 will forever be in the history books for its serenity.
ETF Fee War Heats Up
Like the inflows, the fee war in the ETF space has been an ongoing theme, but one that seems to have reached a new gear in 2017. Issuers are doing everything they can, including self-indexing, to bring expense ratios as low as they can go. Investors in turn are responding by rewarding the cheapest funds―even if they are only a basis point or two lower than the competition―with their assets.
According to FactSet, there are now 137 ETFs with annual expense ratios of 0.10% or less. Together, they hold 41% of all U.S.-listed ETF assets. In other words, only 6.5% of ETFs own 41% of ETF assets.
Along with exposure to broad market U.S. equity and bond ETFs, investors can now have access to smart-beta ETFs like the Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (GSLC) and single-country ETFs like the Franklin FTSE Italy ETF (FLIY) for less than 0.10%. Talk about cheap.
Drew Voros can be reached at firstname.lastname@example.org
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