Every year, a large number of ETFs launch in December, aiming to get the benefit of a fresh calendar year of performance. Six months later, some of them have done so and garnered investor interest.
Our friends at Morningstar recently published an interesting piece titled, “Investors, Be Careful When Buying New ETFs.” For the sake of brevity, here is the final paragraph. “Most of the big investment problems, such as increasing access to markets and cutting fees, have been solved, and ETFs enabled a lot of that. New ETFs with good long-term merit are increasingly rare. Exercise caution when looking at the latest choices. “
New ETFs Are Not Necessarily Gimmicks
This opinion piece was the basis for an Investors Business Daily article that quoted me saying, "I do not believe new ETFs are gimmicks, but investors need to determine which, if any, are adding value to their portfolios…”
Morningstar argued that investors focus on ETFs that have crossed the $1 billion mark in assets. In the below, I focus on three examples that hit a lower — but still key — milestone of $100 million. Hitting the century mark in the first six months is a key accomplishment.
First Eagle Rings the Bell
Last week, I attended the NYSE opening bell event hosted by First Eagle. The firm launched its first pair of ETFs in late December. First Eagle has a strong active management heritage. Its flagship First Eagle Global mutual fund, which manages $60 billion in assets, is a Morningstar five-star fund. While approximately 80% of assets are in equities, the remainder is split between gold and short-term fixed income income.
Indeed, the First Eagle Global Equity ETF (FEGE) has $250 million in assets and was up 12% year-to-date through May 28. Relative to the mutual fund, FEGE has more exposure to U.S. equities and less, but some, exposure to gold.
MFS Not Too Old to Learn New Trick
While FEGE’s assets are largely split between the U.S. and international equity markets, another nearly six-month-old international ETF has come out strong. The MFS Active International ETF (MFSI) launched in early December and has approximately $250 million in assets as well.
MFS launched the first mutual fund, more than 100 years ago. While it was later than some to the ETF party, the old firm is still proving it has some new tricks. MFSI was up 14% this year.
The international ETF aims to take a growth-at-reasonable-price approach with a quality bias. MFSI is a mix of developed and emerging market stocks. MFS launched other active ETFs in December.
GFLW is different from the two other ETFs listed here. This is not Victory Capital’s first ETF. Indeed, this is a quality growth cousin of the VictoryShares Free Cash Flow ETF (VFLO) that has $4 billion in assets. VictoryShares also offers a broad suite of ETFs, including active fixed income products.
GFLW has approximately $500 million in assets. Most growth ETFs are primarily invested in information technology stocks, communications services and consumer discretionary stocks. GFLW is invested there but has high exposure to industrial (14% of assets) and healthcare (14%) stocks too. Unlike the First Eagle and MFS ETFs, GFLW is an index ETF.
The fund’s index methodology considers a company's forward-looking free-cash flow, not just trailing. The result is a portfolio of higher-quality large-cap growth stocks, like Spotify Technologies and Palantir Technologies. GFLW was up 4.8% year-to-date through May 28.
VettaFi LLC (“VettaFi”) is the index provider for GFLW and VFLO, for which it receives an index licensing fee. However, GFLW and VFLO are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of GFLW and VFLO.
