FocusShares Turns One Year Old

by on April 4, 2012 | ETFs Mentioned:

The FocusShares lineup of ETFs hit its one year milestone this week, marking the anniversary of the launch of 15 products focusing on U.S. equities. When FocusShares made its entrance 12 months ago, it marked the latest development in an ongoing “price war” in the ETF industry; many of the FocusShares ETFs launched as the cheapest options available for the exposure offered, and the availability commission free at one of the largest online brokerages gave investors another option for reducing overall fees. Twelve of the 15 FocusShares ETF posted positive returns in their first year of operations, led by the Morningstar Consumer Defensive Index ETF (FCD) with a gain of almost 17%. The Focus Morningstar Large Cap Index ETF (FLG) outperformed the S&P 500 by about 100 basis points in its first year [see also Under The Hood Of FocusShares: Q&A With Kris Wallace & Erik Liik]. 

Best Kept ETF Secret?

Though starting to gain traction with investors, the FocusShares ETF platform remains relatively small from an AUM perspective–despite some features that should be quite appealing to cost conscious investors. Many of the FocusShares ETFs are among the cheapest in their respective ETFdb Categories, and all are eligible for commission free trading in Scottrade accounts.

The Focus Morningstar US Market Index ETF (FMU) is perhaps the best kept ETF secret among the 1,400+ exchange-traded products now listed on U.S. exchanges. With an expense ratio of just five basis points, FMU is the cheapest ETF available to U.S. investors. As far as portfolio building blocks go, FMU is tough to beat; the fund offers exposure to more than 1,000 U.S. stocks across various sectors and sizes. Throw in the ability to trade commission free in Scottrade accounts, and FMU should have quite a bit of appeal as a foundation for a long-term, buy-and-hold portfolio [download Seven Simple & Cheap All ETF Portfolios].

In addition to FMU, FocusShares offers a lineup of 11 sector-specific ETFs, each of which offers targeted exposure to a corner of the U.S. economy. Though considerably smaller than the Sector SPDRs in terms of assets, the FocusShares sector ETFs stack up quite nicely in terms of cost efficiency and depth of exposure. Generally the FocusShares ETFs, which seek to replicate Morningstar indexes, offer deeper portfolios than Sector SPDRs, and in many cases are less top heavy as well [see also ETF Sector Rotation Strategies: Beyond The SPDRs].

The following table shows a comparison of four ETFs targeting U.S. energy stocks, including a Sector SPDR (XLE), Vanguard ETF (VDE), iShares ETF (IYE), and FocusShares ETF (FEG). Though the composition of these products is generally similar, there are some distinctions in both the depth and balance of the underlying portfolios and the cost efficiency:

Energy ETFs
XLE VDE IYE FEG
Expense Ratio 0.18% 0.19% 0.47% 0.19%
Holdings 44 168 91 101
% In Top 10 63.7% 61.1% 66.7% 60.6%
Commission Free n/a Vanguard n/a Scottrade

“The one-year anniversary of Focus Morningstar ETFs marks an important milestone for FocusShares and Scottrade,” said Erik Liik, president and CEO of FocusShares. “Focus Morningstar ETFs continue to gain traction among investors and advisors. Now all investors can use their favorite screener to compare our funds’ one-year performance and other data with other ETFs and actively managed mutual funds”.

Disclosure: Long FOS.