With the sheer explosion in the popularity of exchange-traded funds (ETFs) these days, many traditional mutual fund houses continue to try and cash in on the fund type. While most of the launches have been less than stellar, there have been a few with the potential to capture the spark of popularity.
And this week’s batch of ETFs has that potential.
Both Fidelity and TIAA-CREF’s Nuveen have added either their initial ETFs or built-out their existing ETF suites this week. Given their huge client bases, the new funds should become runaway hits.
| Ticker | Name | Issuer | ETFdb Category | Expense Ratio | Inception Date |
|---|---|---|---|---|---|
| (NUAG) | NuShares Enhanced Yield U.S. Aggregate Bond ETF | Nuveen/TIAA-CREF | Total Bond Market | 0.20% | 09/14/2016 |
| (FDVV) | Fidelity Core Dividend ETF | Fidelity | Large Cap Value Equities | 0.29% | 09/12/2016 |
| (FDRR) | Fidelity Dividend ETF for Rising Rates | Fidelity | Large Cap Blend Equities | 0.29% | 09/12/2016 |
| (FDLO) | Fidelity Low Volatility Factor ETF | Fidelity | Volatility Hedged Equity | 0.29% | 09/12/2016 |
| (FDMO) | Fidelity Momentum Factor ETF | Fidelity | Large Cap Growth Equities | 0.29% | 09/12/2016 |
| (FQAL) | Fidelity Quality Factor ETF | Fidelity | Large Cap Blend Equities | 0.29% | 09/12/2016 |
| (FVAL) | Fidelity Value Factor ETF | Fidelity | Large Cap Value Equities | 0.29% | 09/12/2016 |
Nuveen Gets Started
When it comes to asset managers, TIAA-CREF is often ignored by the mainstream public. That’s because its focus has been college professors, teachers, researchers and humanities professionals. For the longest time, ‘regular Joes’ couldn’t access their products, but with around $900-billion in assets under management and millions of account holders, TIAA is as big as they come – which is why their NuShares Enhanced Yield U.S. Aggregate Bond ETF (NUAG) could be a monster hit.
Sponsored by TIAA’s Nuveen investment arm, NUAG offers broad bond exposure with a twist.
NUAG will track the BofA Merrill Lynch Enhanced Yield US Broad Bond Index – an index of the investment grade U.S. bond market, which includes U.S. Treasury bonds, agencies and corporate bonds. It has the same exposure as popular ETFs like the $41 billion iShares Barclays Aggregate Bond Fund (AGG ); however, unlike AGG which weights its bonds based on amount issued, NUAG will screen and weight the bonds to those securities and sectors that have the potential for higher yield, while maintaining comparable risk. Potentially, NUAG should pay a higher distribution than AGG and its comparable funds.
One of the problems with bond funds is that the market-weighting scheme they all use makes the most heavily indebted firms have a bigger pull on the index. NUAG will attempt to overcome this.
The real win for the fund is that TIAA has a huge audience for its products. One of the reasons Vanguard’s ETFs are so popular is that they can be accessed by every client for free. TIAA/Nuveen is setting itself up in the same way. There’s a built-in base of investors for its future products.
Expenses for NUAG run at a cheap 0.20%, or $20 per $10,000 invested.
Fidelity Finds Factors
Also finding a huge built-in audience for its ETFs has been Fidelity. While late to the game, the mutual fund powerhouse has seen its ETF assets rise, as the manager has offered free trading to its account holders. Fidelity is one of the largest sponsors of brokerage accounts, so traders have flocked to its suite of low-cost sector index ETFs.
But Fidelity is still an active management shop. With that in mind, the mutual fund company has developed a new suite of six smart-beta ETFs that attempt to bridge the gap between active and passive management. The Fidelity Core Dividend ETF (FDVV), Fidelity Dividend ETF for Rising Rates (FDRR), Fidelity Low Volatility Factor ETF (FDLO), Fidelity Momentum Factor ETF (FDMO), Fidelity Quality Factor ETF (FQAL) and Fidelity Value Factor ETF (FVAL) all offer exposure to various “market beating” factors.
While some of the funds like FDVV and FVAL offer standard smart-beta fare of dividends and value, others are truly unique. For example, FDRR offers exposure to dividend stocks that have a high correlation to rising Treasury bond interest rates. This should protect investors if or when the Fed decides to raise rates. While FDLO not only looks at stocks with lower volatility vs. the overall market, it also screens for earnings volatility. This differentiation from rival low-vol ETFs should add another level of stability to the fund’s underlying holdings. These two unique twists on their respective sectors could pull in plenty of investors who aren’t Fidelity account holders.
Also adding to the appeal of Fidelity’s new ETFs is their low expenses. The new suite of factor/smart-beta ETFs will charge just 0.29%. That’s lower than some traditional index ETF products.
The Bottom Line
Both Fidelity and Nuveen should have a few hits on their hands – if for no other reason than their huge client bases. For Fidelity, its launch of six smart-beta ETFs only strengthens its new position in the world of ETFs. As for Nuveen, despite being a late bloomer with regards to ETFs, TIAA’s size and stature should bring success, plus more products down the line. In the end, this week’s new ETFs should appeal to clients of firms and outside investors.
