The four ‘most interesting’ smart beta ETF launches this year

Aug 12th, 2016 | By | Category: ETF and Index News

Assets in smart beta exchange-traded funds hit an all-time high of $429bn at the end of July, according to data from ETF Consultancy ETFGI, and it is being supported by new products launched into the European market on an almost a weekly basis.

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Driving the uptake in smart beta ETFs are investors looking for risk-reducing strategies, according to new research from Morningstar. These ETFs attracted €2.16bn of net inflows between April and June, making up over one quarter – 27% – of the total inflows for the European ETF market.

Deborah Fuhr, managing partner at ETFGI, previously told ETF Strategy: “The preference for volatility factor ETFs….. shows that investors are seeking to better manage their risk exposure during a period of heightened market uncertainty.”

On the back of Morningstar’s research it named four of the most “interesting” smart beta product launches within the last year. These were the London-listed Lyxor J.P. Morgan Multi-Factor Europe Index UCITS ETF (LSE: LYX5), the PowerShares FTSE Emerging Markets High Dividend Low Volatility UCITS ETF (LSE: EMHD), the German Xetra-listed Source FTSE RAFI Europe Equity Income Physical ETF (XETRA: DVEU), and the Amsterdam-listed Think Morningstar High Dividend UCITS ETF (Amsterdam EN: TDIV).

Lyxor J.P. Morgan Multi-Factor Europe Index UCITS ETF

While smart beta ETF providers tended to focus on single factors in the past, there are now more products combining multiple factors and strategies, the research said.

This synthetically-replicated fund costs 0.40%. It launched in October 2015 and has already grown to more than €61m assets, tracking companies that pertain to five so-called equity risk factors – value, low size, momentum, low beta and quality. Financials make up 21% of the fund and almost half the companies are listed in the UK, Germany and France.

It has returned 8.6% year-to-date in sterling terms, slipping short of the iShares MSCI Europe UCITS ETF (IMEU)’s 10.3% over the same period.

Source FTSE RAFI Europe Equity Income Physical UCITS ETF (DVEU)

The general risk-off environment during the second quarter and throughout the first six months of 2016 was favourable for risk-reducing strategies, read the report.

One example is DVEU, which launched on 8 March this year and has around €36m in assets. It is up almost 3% in the last three months in euro terms and costs 0.35% in annual fees.

It has a similar make-up to LYX5 in terms of geography and sector, with financials slightly heavier at 24% of the fund. It is much more concentrated, however. Its top three holdings, BP, Royal Dutch Shell and British American Tobacco, make up almost a third of the investment.

PowerShares FTSE Emerging Markets High Dividend Low Volatility UCITS ETF (EMHD)

More than 61% of net new money in Europe in the second quarter was placed in ETFs tracking a minimum-volatility or a minimum-variance index, according to Morningstar.

EMHD, one example of this trend, launched in May and has gathered around $5.5m in assets. The physically replicated fund costs 0.49% and tracks an index of 100 stocks with more than 22% in utilities. It only invests around 12% in banks, half the amount of exposure compared to DVEU and LYX5.

It has returned 25% since 31 May in sterling terms, more than the iShares MSCI Emerging Markets UCITS ETF (IEEM)’s 23% over the same period.

Think Morningstar High Dividend UCITS ETF (TDIV)

TDIV launched in May and has gathered just over €3m. It costs 0.38% and is up more than 5% in euro terms since inception.

The physical fund from the Netherlands-based provider holds 50% in stocks that are listed in the US, the UK and Canada. The top two holdings are US-based telecommunications companies AT&T and Verizon, which make up 10% of the exposure.

The Morningstar report revealed that €5 billion of net new money flowed into smart beta ETFs during the first half of the year, pushing total smart beta ETF assets in Europe to €36.8 billion. Smart beta ETF assets now make up 7.6% of total assets in European-listed ETFs, up from 7.2% at the end of the first quarter.

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