New ETFs Grow Up Fast

by on August 20, 2010 | ETFs Mentioned:

Kids today have it rough–at least in the ETF industry. Once upon a time, issuers looking to bring new funds to market had no problem rounding up interested investors; significant demand for new products was a virtual certainty as ETFs made their initial burst on to the scene and all asset values seemed to go up.

After the first wave of ETFs covered the most popular stock and bond benchmarks, product development initiatives focused on more targeted products tapping into increasingly exotic regions and investment strategies. This trend produced some memorable failures, as anyone who remembers some of the ill-fated ETF ideas of recent years can attest [see ETF Hall of Shame: Nine Exchange-traded Debacles]. It has also led some to lament that the ETF industry had gone overboard in rolling out new products that didn’t make sense as investable assets.

As we suspected long ago, reports of an ETF issuance bubble have been largely exaggerated, as evidenced by the tremendous interest in many of the funds that have hit the market in recent months. With as many as thirty new ETFs launching every month, some are bound to be more successful than others. But several of the funds introduced since May have come flying out of the gates, racking up impressive asset levels and trading volumes in no time. Below, we profile some of the most successful ETFs that have launched in recent months:

iShares MSCI Poland Investable Market Index Fund (EPOL)

When iShares launched a Poland ETF in May of this year, there was some skepticism in the ETF industry. Van Eck was established as the first mover in the space, already offering the Market Vectors Poland ETF (PLND). But EPOL has had no problem generating interest, perhaps because Poland has stood out as a high growth market with the potential to decouple from its debt-laden neighbors. EPOL currently has almost $60 million in assets.

UBS E-TRACS 2x Leveraged Long Alerian MLP Infrastructure Index (MLPL)

When JP Morgan introduced its Alerian MLP Index ETN (AMJ) in 2009, few predicted that the firm was uncovering a blazing hot corner of the domestic energy market. Over the last year a number of other MLP ETNs have hit the market–Credit Suisse and UBS have both rolled out similar products–and total assets in MLP ETNs are now well north of $1 billion. So it shouldn’t be much of a surprise that the first 2x leveraged MLP ETN has been a hit with investors. MLPL, which seeks to provide two times leveraged long exposure to the compounded monthly performance of the Alerian MLP Infrastructure Index, has seen assets grow to $33 million since its launch in July.

AdvisorShares Mars Hill Global Relative Value ETF (GRV)

So far the active ETF space has seen plenty of its debate over its future and witnessed varying levels of flirtation from well-known asset management firms who seem to be laying the groundwork for a foray into the ETF waters. But assets have been slow to accumulate, as the hype around the space hasn’t translated into cash inflows. At least until GRV bucked that trend. This ETF, which is sub-advised by Mars Hill Partners, seeks to identify long positions in regions that will outperform the MSCI World Index and short positions in those that will underperform the benchmark. That’s apparently a strategy that interests a lot of investors; since opening its doors in early July GRV’s assets have climbed above $40 million [also read Ten Intriguing ETF Storylines].

Barclays Inverse S&P 500 VIX Short Term Futures ETN (XXV)

The volatility ETNs rolled out by iPath in early 2009 have been smashing successes, having been embraced by investors as a form of “portfolio insurance” that maintains a strong negative correlation with equity markets. Apparently, there is also interest among investors in a product that functions as an inverse of VXX, rising as the VIX falls and vice versa. XXV, an exchange-traded note linked to the inverse of the S&P 500 VIX Short-Term Futures Index, has racked up more than $18 million in assets since debuting in mid-July [read more about XXV's potential uses].

Global X Lithium ETF (LIT)

Global X followed up the tremendous success of its Silver Miners ETF (SIL) with another impressive ETF launch. LIT offers investors to make a play on lithium, a metal already used widely in a variety of electronics products and clean energy batteries that is expected to see demand skyrocket in coming years. This ETF seeks to replicate the Solactive Global Lithium Index, a benchmark comprised of about 20 companies engaged in various aspects of the lithium industry, including mining, exploration, and lithium-ion battery production. LIT has already topped $20 million in assets and regularly tops a million shares in daily volume [see Global X Lithium ETF Hits The Market].

Market Vectors Emerging Markets Local Currency Bond ETF (EMLC)

When Van Eck rolled out EMLC, the firm was betting that investors were anxious for an ETF issuer to make an important tweak to existing funds offering exposure to emerging market bonds. EMLC differentiates itself from other ETFs in the Emerging Markets Bonds ETFdb Category by focusing on debt denominated in local currencies (EMB and PCY, which have aggregate assets of $2.7 billion, focus on dollar-denominated bonds). So far, the market’s reception has been a warm one; EMLC’s assets stood at about $42 million after less than a month of trading.

WisdomTree Emerging Market Local Debt Fund (ELD)

WisdomTree wasn’t far behind in this asset class, introducing its own local currency emerging markets debt fund just a few weeks after EMLC debuted. ELD launched with a staggering $125 million in assets, highlighting the tremendous interest WisdomTree had seen from investors for a product in this space. That total has since climbed to more than $140 million.

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Disclosure: No positions at time of writing, photo is courtesy of DocentX.