ETF issuers continue to expand investors’ toolboxes with new funds at a rapid clip. This week was no exception as we got four new ETFs that continue to play into the smart-beta trend of “better indexing.”
This week the focus was on insider knowledge and skill.
State Street continued its successful relationship with new heir-apparent bond king Jeffrey Gundlach of DoubleLine Capital with two new launches. Guggenheim hopes to capitalize on its proprietary modeling used for institutional investors with its latest fund and Sprott Asset management’s “trendy” launch hopes to capitalize on all of our collective knowledge.
State Street Follows TOTL
Active managers have finally begun to embrace the ETF structure to get their products into the hands of cost-conscious investors. A few years ago, State Street tapped bond superstar Jeffrey Gundlach of DoubleLine Capital to create its SPDR DoubleLine Total Return Tactical ETF (TOTL ). That ETF has proved to be one of the most successful ETF launches of all time.
On April 13, State Street tapped the DoubleLine well again when it launched the SPDR DoubleLine Short Duration Total Return Tactical (STOT ) and SPDR DoubleLine Emerging Markets Fixed Income (EMTL ) ETFs.
Like the successful TOTL, both the new ETFs will be actively managed by Gundlach and crew, and utilize DoubleLine’s rigorous credit screening and research. Both will follow a similar mandate and invest in investment-grade and high-yield fixed-income securities with an emphasis on total returns, meaning dividends plus capital appreciation. As their names imply, STOT will invest in short-term and low-duration bonds issued by U.S. corporations and the Feds, while EMTL will do the same for emerging-market issued bonds.
Based on the success of TOTL, both of the new funds should prove to be hits as well, as investors continue to pay for active management when it’s worth it. And based on its returns, DoubleLine seems to be one of the few managers where active management does pay off.
Expenses for STOT will run at 0.45%, or $45 per $10,000 invested. EMTL costs a bit more at 0.65%.
Guggenheim Taps the Computers
Mid-tier ETF issuer Guggenheim actually has some pretty impressive funds, and its latest launch on April 19 could join those ranks. The Guggenheim Large Cap Optimized Diversification ETF (OPD ) seeks to remove/reduce some of the risk inherent in various large-cap stocks.
Like many smart-beta ETFs, OPD starts with screens. Utilizing proprietary algorithms developed for institutional investors, the fund’s index, the Wilshire Large-Cap Optimized Diversification Index, seeks to optimize diversification. The index will first search for stocks with higher single-stock risk and then weights them in order create a risk profile similar to its parent index, the broad Wilshire 5000. The idea is that investors get the higher returns of these riskier stocks while reducing the overall risk and volatility of investing in them.
Essentially, this smoothes out the ride for investors and results in higher returns. Risk-adjusted weighting isn’t a new well for ETF issuers to tap, but Guggenheim’s process and screening method is unique and could add additional alpha to an investor’s portfolio.
Expenses for OPD run at 0.40%.
Sprott Buzzes Around Social Media
These days, stocks and social media pretty much go hand in hand. From Twitter and Stock Twits to Facebook and stock-specific communities, people talk about investing in real time, pretty much all the time. Hard asset manager Sprott has come up with a way to tap the “buzz” around various stocks on social media with its latest ETF launch.
Launched on April 18, the Sprott Buzz Social Media Insights ETF (BUZ ) seeks to capitalize on trader and investor sentiment in social media. The fund will screen various media, chat rooms and other social media platforms to find the 25 U.S. stocks with the most positive social media presence. The idea is that if people are talking about a stock, it generally goes up in price, at least in the short term. The ETF will rebalance monthly to continue benefiting from social media buzz, adding the freshest stocks to the portfolio.
It’s an idea on which some hedge funds have recently tried to capitalize, and there certainly can be something said for herd mentality when it comes to trading. The question is whether or not it will work over the longer haul.
The expense ratio for BUZ is 0.75%.