While new exchange-traded fund (ETF) launch activity has slowed to a crawl so far in 2017, it hasn’t stopped issuers from debuting some exciting and innovative new funds. Smart-beta or non-traditional indexing continues to dominate the ETF space, and this week did not disappoint. New launches took smart beta and ran with it, covering everything from insider/founder ownership to new ways to score junk volatility.
In the end, this week continued to expand the number of funds investors have to craft great market-beating portfolios.
|Ticker||Name||Issuer||Launch Date||ETFdb.com Category||Expense Ratio|
InfraCap REIT Preferred ETF
|Virtus ETF Solutions||02/07/2017||Preferred Stock/Convertible Bonds ETFs||0.45%|
Global X Founder-Run Companies ETF
|Global X||02/13/2017||Small-Cap Blend Equities||0.65%|
IQ S&P High Yield Low Volatility Bond ETF
|IndexIQ||02/15/2017||High-Yield Bonds ETFs||0.40%|
High-Yield Hedging From IndexIQ
Issuer IndexIQ has made a name for itself in the world of liquid-alts. These are investments that fit outside the norm of stocks and bonds or employ strategies used by hedge funds or institutional managers. Its most popular fund – the IQ Hedge Multi-Strategy Tracker ETF (QAI ) – has attracted billions of investor capital as it has proven to beat measures of inflation. This time, IndexIQ has decided to take on the world of high-yield bonds by making an investor’s ride a bit smoother.
Historically, high-yield bonds have been quite a volatile investment. After all, these bonds are often issued by firms with less-than-stellar credit ratings. Defaults are commonplace, and there is a reason why they call them “junk bonds.” The new IQ S&P High Yield Low Volatility Bond ETF (HYLV) seeks to prevent that roller coaster.
HYLV will bet on a basket of junk that exhibits lower relative volatility and greater liquidity than broader indexes. What the fund does is to screen for bond spreads and durations and then plugs that into a formula to get their "Marginal Contribution to Risk (MCR).” According to research by New York Life, IndexIQ’s parent, and S&P, using MCR as a guide, typically lowered the volatility of returns and exposure to defaults in the high-yield market. By doing this, investors in HYLV should get a decently high junk bond-style yield, while limiting the bounciness of the sector.
For investors starved for income, this could be a godsend. Stubbornly low-interest rates have pushed many portfolios into higher risk investments. HYLV at least overcomes some of that risk, while providing the income people need.
Expenses for the ETF run 0.40%, or $40 per $10,000 invested.
Global X Bets on Founders
It’s a common fact that managers and company founders who eat their own cooking – i.e. own a lot of their self-run companies/funds – tend to outperform those who do not. When you have your own money on the line, you tend to manage differently and try to create long-term value. There are plenty of examples in the stock market: ETF issuer Global X has finally decided to quantify that factor into a new fund, the Global X Founder-Run Companies ETF (BOSS).
BOSS will track an index – the Solactive U.S. Founder-Run Companies Index – of firms that have high insider ownership/founder involvement. The idea is to capture all the benefits of having the original founders still in executive positions and pushing the company forward.
The composition of BOSS is pretty interesting as well. As expected, there is a hefty dose of tech, but materials, consumer stocks and healthcare names also dot the ETF’s top holdings, proving that founders stick with their firms no matter the industry.
All in all, BOSS could prove to be a novel concept and take the guesswork out of finding these firms on your own. Expenses run at just 0.65%.
Use our Head-to-Head Comparator tool to compare two ETFs issued by Global X.
Real Estate Preferred Stocks
The final new ETF of the week comes from multi-manager fund specialist Virtus ETF Solutions and tackles a specialized slice of a specialized market. The new InfraCap REIT Preferred ETF (PFFR) will own preferred stocks issued by real estate investment trusts (REITs).
Preferred stocks are a blend between stocks and bonds that offer high yields as well as callability. In exchange for this yield and a higher place in the bankruptcy ladder, investors get no voting rights for them. Real estate firms are some of the largest issuers of such securities. However, no other preferred-focused ETF on the market has honed in strictly on REIT-issued preferred stocks, which could give PFFR an edge for investors looking for a higher-than-average yield.
An added bonus is that PFFR features a low 0.45% expense ratio. Much, much, much lower than Virtus’ typical expense ratios for its active mutual fund offerings.
For a list of all new ETF launches, take a look at our ETF Launch Center.
The Bottom Line
This week’s launch activity continues the trend of using smart beta to capture new markets and offer innovative solutions to existing ones. All in all, investors now have some more tools at their disposal to get a higher yield and potentially higher returns.
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