The recent spate of new smart-beta products slows down this week, while several new triple-leveraged ETFs take center stage. The United States Commodity Funds, the exchange-traded product provider that offers more than a dozen energy-focused ETFs, added two more funds to its ranks, while leveraged fund giant Direxion added another 3x ETF to its roster.
Here is the list of new ETF launches in focus this week.
|USCF United States 3x Oil Fund
|United States Commodity Funds
|USCF United States 3x Short Oil Fund
|United States Commodity Funds
|Direxion Daily EURO STOXX 50® Bull 3X Shares
|Principal Spectrum Preferred Securities Active ETF
|Preferred Stock/Convertible Bonds
|iShares MSCI Emerging Markets ex China ETF
|Emerging Markets Equities
For a list of all new ETF launches, take a look at our ETF Launch Center.
USCF Races to Capture Leveraged Oil ETF Space
When Credit Suisse made the surprising announcement back in November that it was delisting the popular VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI), the United States Commodity Funds group was quick to pounce in order to fill the gap. Within a couple of weeks, the company filed to launch the United States 3x Oil Fund (USOU ) and, later, the United States 3x Short Oil Fund (USOD ). This past week, those funds officially launched.
The 3x Oil ETF is designed to reflect three times the daily price movements of West Texas Intermediate (WTI) light, sweet crude oil by using short-term futures contracts expiring, typically, within about 1-2 months. The 3x Short Oil ETF moves in the opposite direction. The expense ratios for the two funds, while not uncommon for triple-leveraged funds, are still high and underscore the risks involved in holding onto these products for more than a few trading days.
UWTI and DWTI were soon replaced with new ETNs from VelocityShares (which are substantially the same funds but with Citigroup acting as the issuer instead of Credit Suisse). Those two funds have only recaptured half of the assets of their predecessors, leaving an opportunity for the new USCF funds.
Direxion Looks Overseas for Its Latest Leveraged Fund
Direxion manages dozens of leveraged products and adds to its lineup this week with a fund based on the popular EURO STOXX 50 index. The Direxion Daily EURO STOXX 50 Bull 3x Shares (EUXL ) focuses on the biggest companies residing in the Eurozone and captures approximately 60% of the free-float market capitalization of the EURO STOXX TMI Supersector Index.
Following three years of struggles and recessionary pressures from many of the region’s biggest economies, Eurozone stocks have roared back to life. The region is up more than 20% on the year, so it’s not surprising that Direxion is capitalizing on the timing. The fund’s net expense ratio of 1.04% is modest by leveraged ETF standards, although the same caution against holding for more than a couple of trading days applies.
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Actively Targeting the Top Preferreds
The Principal Funds group continues to go against the grain by building up its actively managed fund lineup. The Principal Spectrum Preferred Securities Active ETF (PREF ) is the third actively managed fund out of the eight total ETFs on its roster and the second active ETF launched just this year following the debut of the Principal Active Global Dividend Income ETF (GDVD ) in May.
The fund seeks to provide monthly income by investing in preferred securities such as preferred stock, certain depositary receipts and junior subordinated debt. The fund also aims to invest at least 25% of fund assets in the financial services industry. Despite the added cost that comes with active management, the fund’s expense ratio of 0.55% still lands in the middle of its peer group. Preferred securities ETFs have gained popularity in recent years thanks to yields that often top 5%.
iShares Adds China-Free Emerging Markets ETF
Emerging markets has been another hot area of the market in 2017 with many of the biggest ETFs, including iShares’ own MSCI Emerging Markets ETF (EEM ) returning almost 25%. The iShares MSCI Emerging Markets ex China ETF (EMXC ) plugs a hole in BlackRock’s lineup by offering a product that provides emerging markets exposure but excluding the potentially risky China region.
China has had a solid year in its own right with the IMF raising its growth forecasts for the coming years, but there’s plenty of uncertainty still to be had. The country is accumulating a lot of debt in order to support that growth, while the Chinese government has a history of devaluing the yuan. The new iShares fund offers shareholders a means of investing in the potential of emerging markets while limiting some of the risks involved.
For a look at all of the iShares ETFs, click here.
The Bottom Line
There’s a lot of variety in this week’s new launches, but the common theme is striking while the iron is hot. There has been much volatility in the energy sector making the leveraged oil plays intriguing for short-term traders. The non-leveraged funds also target sectors or strategies that have performed well lately.
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