With the year about half-over, ETF launch activity has been pretty swift so far. And within that torrid pace of new funds hitting the tape, a few trends have begun to emerge. One is the continued usage of smart beta and advanced screening methods to craft portfolios. The other is the resurgence of actively managed ETFs as mutual fund alternatives.
Both series of new ETF launches this week tapped into these current trends.
| Ticker | Name | Issuer | Launch Date | ETFdb.com Category | Expense Ratio |
|---|---|---|---|---|---|
| (NUDM) | NuShares ESG International Developed Markets Equity ETF | TIAA-CREF/Nuveen | 06/07/2017 | Foreign Large-Cap Equities | 0.40% |
| (NUEM) | NuShares ESG Emerging Markets Equity ETF | TIAA-CREF/Nuveen | 06/07/2017 | Emerging Markets Equities | 0.45% |
| (FFHG) | FormulaFolios Hedged Growth ETF | FormulaFolio Investments | 06/05/2017 | Diversified Portfolio | 1.15% |
| (FFTI) | FormulaFolios Income ETF | FormulaFolio Investments | 06/05/2017 | Total Bond Market | 1.00% |
Nuveen Keeps up With ESG
Asset manager and pension specialist TIAA-CREF has a long history of supporting socially responsible investing (SRI). The firm was one of the first to start using environmental, social and governance (ESG) screening and launched many of the earliest ways for investors to tap ESG/SRI metrics. So, it’s not surprising that TIAA would use ETFs to continue that mission of bringing ESG to the masses.
Using its Nuveen subsidiary, TIAA has launched several ESG-focused products over the last few years covering everything from small caps to various “investing styles.” This week, Nuveen completes its series of ESG funds by adding international stocks to its list with the NuShares ESG International Developed Markets Equity ETF (NUDM) and NuShares ESG Emerging Markets Equity ETF (NUEM).
As their name implies, both NUDM and NUEM will tackle their respective segments of the international markets – developed and emerging countries – with an ESG twist.
Both will track custom TIAA benchmarks that have their beginnings in more traditional indexes. NUDM will take the popular MSCI EAFE Index and apply various ESG screening criteria using data collected by MSCI ESG Research. This includes a firm’s impact on climate change, natural resource use, relations with employees, sourcing practices and business ethics metrics. The ETF will also screen for how a stock complies with national and international regulations. NUEM will do the same for the MSCI Emerging Markets Index.
The idea is that by screening for various ESG criteria, investors can not only make decent returns but put their values into their portfolios. With that, ESG investing has become immensely popular in recent years. With its latest launches, Nuveen/TIAA-CREF now offers a full suite of funds to craft such a portfolio.
Expenses for NUDM run at 0.40%, or $40 per $10,000 invested, while NUEM charges 0.45%.
Learn more about ESG Investing here.
FormulaFolio Takes an Active Approach
Investors may not be familiar will FormulaFolio Investments, but the firm specializes in building various investment strategies using ETFs and other investments. Historically, those strategies have been placed in mutual funds or other separately managed accounts, but the firm has decided to get into the ETF game with the launch of two new active funds.
FormulaFolios Hedged Growth ETF (FFHG) will seek to provide investors with growth and capital appreciation while offering the ability to hedge gains. FFHG’s managers will look toward various trends and, depending on how the market is moving, either go long a series of equity ETFs – including leveraged funds – to capitalize on and maximize gains or invest in Treasury and inverse ETFs to prevent losses. No more than 15% of the fund’s portfolio will be in leveraged or inverse ETFs at any given time.
FormulaFolios Income ETF (FFTI) will seek to provide maximum income for investors by going long a series of fixed-income ETFs. Like FFHG, FFTI’s managers will rank U.S. Treasuries, investment-grade U.S. bonds, high-yield U.S. bonds, U.S. aggregate bonds and international government bonds based on various properties screening methods to craft a winning income portfolio. The ETF will cap the weighting of each class of fixed-income securities.
All in all, both FFHG and FFTI could be a great holding for investors looking to add a dose of active management to their portfolio without the hassle of doing it themselves. The only hurdle could be the new ETFs’ expense ratios. FFHG has an expense ratio of 1.15%, while FFTI charges 1.00%. That’s pretty high for mutual funds, let alone ETFs. With several other world-class issuers now offering funds-of-funds for dirt cheap, FormulaFolio may have its work cut out for itself.
For a list of new ETF launches, take a look at our ETF Launch Center.
The Bottom Line
This week’s launch activity continues the trends outlined in the beginning half of the year. Smart beta and a return to active strategies remain the top draw for issuing firms. In the end, more choice is better for investors. The hope is that the new funds can catch on with portfolios.
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