Salesforce announced this morning that it will acquire
With this acquisition, Tableau Class A and B shares will be exchanged for 1.103 shares of Salesforce common stock.
But surely we aren’t the only ones interested in how Tableau has been represented in the world of ETFs. In order to dive into Tableau’s ETF ownership, we used the reverse ticker lookup function in the ETFLogic Insights platform and the unique corporate insights report which we provide as a part of our corporate data suite.
|Name||Tableau Software Inc|
As we can see, 69 ETFs have positions of Tableau, totaling $357.6m. For a major tech platform, this seems to be an under-representation compared to its competitors. Below are also the top 5 names with Tableau holdings.
|ETF||Peer Group||Weight % in Fund||Notional Held||Shares||Expense Ratio|
|SYG||U.S. Equity Active Large Cap||2.87%||$962K||7,682||0.61%|
|NUMG||U.S. Equity Fundamental Factor Mid Cap||1.00%||$552K||4,411||0.40%|
|IRBO||Global Equity Non-Cap-Weighted Broad-based||0.99%||$373K||2,976||0.47%|
|SLT||U.S. Equity Non-Cap-Weighted Large Cap||0.93%||$108K||864||0.29%|
|GDAT||Global Equity Technology Sector||0.93%||$93K||739||0.50%|
|XITK||U.S. Equity Fundamental Factor Technology Sector||0.85%||$619K||4,944||0.45%|
|IGV||North America Equity Technology Sector||0.81%||$22M||173,923||0.47%|
|PMOM||U.S. Equity Technical Factor Broad-based||0.73%||$41K||326||0.29%|
|XSW||U.S. Equity Non-Cap-Weighted Technology Sector||0.63%||$1M||11,746||0.35%|
|OGIG||Global Equity Fundamental Factor Technology Sector||0.63%||$319K||2,550||0.48%|
|AIQ||Developed Markets Equity Technology Sector||0.54%||$226K||1,808||0.68%|
|VBK||U.S. Equity Fundamental Factor Small Cap||0.52%||$47M||372,611||0.07%|
|XT||Global Equity Factor Technology Sector||0.46%||$11M||85,756||0.47%|
|JKH||U.S. Equity Fundamental Factor Mid Cap||0.43%||$2M||18,476||0.30%|
|ETHO||U.S. Equity ESG Broad-based||0.36%||$196K||1,566||0.45%|
|JHMT||U.S. Equity Factor Technology Sector||0.31%||$175K||1,401||0.40%|
|SCHM||U.S. Equity Mid Cap||0.29%||$17M||139,599||0.04%|
|IWP||U.S. Equity Fundamental Factor Mid Cap||0.28%||$30M||238,185||0.25%|
|OSIZ||U.S. Equity Large Cap||0.26%||$14K||113||0.19%|
|SFYX||U.S. Equity Fundamental Factor Large Cap||0.25%||$16K||126||0.00%|
|JMOM||U.S. Equity Technical Factor Large Cap||0.24%||$100K||801||0.12%|
|VB||U.S. Equity Small Cap||0.24%||$59M||467,395||0.05%|
|SMMD||U.S. Equity Broad-based||0.20%||$69K||550||0.15%|
|VXF||U.S. Equity Broad-based||0.17%||$13M||100,500||0.07%|
|SIZE||U.S. Equity Non-Cap-Weighted Broad-based||0.17%||$648K||5,173||0.15%|
|EUSA||U.S. Equity Non-Cap-Weighted Broad-based||0.16%||$438K||3,497||0.15%|
|IYW||U.S. Equity Technology Sector||0.16%||$6M||48,855||0.43%|
|FTEC||U.S. Equity Technology Sector||0.16%||$4M||29,321||0.08%|
|IUSS||U.S. Equity Fundamental Factor Small Cap||0.15%||$4K||28||0.23%|
|VGT||U.S. Equity Technology Sector||0.14%||$33M||262,480||0.10%|
|IETC||U.S. Equity Fundamental Factor Technology Sector||0.13%||$13K||105||0.18%|
|QRFT||U.S. Equity Active Large Cap||0.13%||$4K||33||0.75%|
|ROM||U.S. Equity Technology Sector 2x Leveraged||0.13%||$411K||3,279||0.95%|
|IWR||U.S. Equity Mid Cap||0.12%||$23M||184,437||0.20%|
|IGM||North America Equity Technology Sector||0.12%||$2M||15,129||0.47%|
|JHMM||U.S. Equity Factor Mid Cap||0.11%||$1M||9,602||0.45%|
|EQWM||U.S. Equity Non-Cap-Weighted Mid Cap||0.11%||$27K||218||0.25%|
|VFMO||U.S. Equity Active Broad-based||0.11%||$13K||108||0.13%|
|EQAL||U.S. Equity Non-Cap-Weighted Large Cap||0.09%||$504K||4,026||0.20%|
|IWF||U.S. Equity Fundamental Factor Large Cap||0.07%||$28M||227,077||0.20%|
|VONG||U.S. Equity Fundamental Factor Large Cap||0.06%||$1M||10,282||0.12%|
|SCHG||U.S. Equity Fundamental Factor Large Cap||0.06%||$5M||37,280||0.04%|
|PRFZ||U.S. Equity Fundamental Factor Broad-based||0.06%||$1M||9,230||0.39%|
|OMOM||U.S. Equity Technical Factor Large Cap||0.06%||$3K||26||0.19%|
|RWCD||U.S. Equity Non-Cap-Weighted Broad-based||0.05%||$8K||65||0.45%|
|ONEO||U.S. Equity Factor Large Cap||0.05%||$193K||1,544||0.20%|
|JUST||U.S. Equity ESG Large Cap||0.04%||$47K||372||0.20%|
|SPLG||U.S. Equity Large Cap||0.04%||$848K||6,769||0.03%|
|SCHX||U.S. Equity Large Cap||0.03%||$6M||46,080||0.03%|
|PBUS||U.S. Equity Broad-based||0.03%||$1K||8||0.04%|
|MXDU||U.S. Equity Technical Factor Broad-based||0.03%||$38K||300||0.34%|
|SCHK||U.S. Equity Large Cap||0.03%||$268K||2,138||0.05%|
|IWB||U.S. Equity Large Cap||0.03%||$7M||52,322||0.15%|
|IYY||U.S. Equity Broad-based||0.03%||$393K||3,136||0.20%|
|VONE||U.S. Equity Large Cap||0.03%||$317K||2,529||0.12%|
|ITOT||U.S. Equity Broad-based||0.03%||$6M||51,018||0.03%|
|SCHB||U.S. Equity Broad-based||0.03%||$5M||37,296||0.03%|
|IWV||U.S. Equity Broad-based||0.03%||$3M||22,812||0.20%|
|DYNF||U.S. Equity Active Broad-based||0.03%||$6K||44||0.30%|
|VTI||U.S. Equity Broad-based||0.03%||$37M||291,974||0.03%|
|SPTM||U.S. Equity Broad-based||0.03%||$988K||7,888||0.03%|
|VTHR||U.S. Equity Broad-based||0.03%||$127K||1,011||0.15%|
|TILT||U.S. Equity Factor Broad-based||0.03%||$371K||2,963||0.25%|
|TOK||Developed Markets Equity Broad-based||0.02%||$33K||266||0.25%|
|JHML||U.S. Equity Factor Large Cap||0.02%||$200K||1,597||0.35%|
|ACWI||Global Equity Broad-based||0.02%||$2M||15,906||0.31%|
|VT||Global Equity Broad-based||0.02%||$2M||17,011||0.09%|
|RGLB||Global Equity Fundamental Factor Broad-based||0.01%||$2K||13||0.43%|
|ESG||U.S. Equity ESG Broad-based||0.01%||$6K||45||0.32%|
This table is also interactive and includes all 69 ETFs with Tableau holdings.
In order to dive even deeper into ETF ownership, we looked at a report from our corporate insights suite.
Overall, we found Tableau was under-represented in ETFs. Only 35% of Tableau stock is held in smart-beta names – versus 42% for peers. What’s also notable is that Tableau is only listed in a small number of thematic ETFs – which is surprising given
To receive the full investor insights report for Tableau, or to get more information on the implications of what this acquisition will do for Salesforce stock and its passive ownership by ETFs, please fill out the form below.
The market is at all-time highs and earnings season is upon us. So we decided to crunch some numbers and put an ETF lens on Q1 2019 earnings. Below we have some stats for ~600 U.S equity-focused ETFs. We’ve looked at underlying components that have reported earnings and then basket-weighted the actual EPS and consensus EPS numbers.
*Data updated as of 5/9 @ 9am
What we did
|Ticker||Name||AUM||Total # Companies in Basket||# companies reported||Weight Reported||Actual Over Consensus EPS||Surprise||Total Returns (ytd)||Total Returns (w1)||Total Returns (w2)||Total Returns (m1)|
|SPY||SPDR S&P 500 ETF Trust||$276,455,200,000||506||478||94%||105%||5%||16%||-1%||-2%||0%|
Let’s look at SPY as an example: 478 companies in SPY’s basket have reported Q1 2019 earnings so far. This is about 94% of the fund’s total weight.
If we divide basket-weighted Actual EPS by Consensus EPS, the average is 105%. Or, viewed another way, we had about 5% positive surprise on average for the 478 companies earnings for Q1. With only 28 companies left to report, the surprise for SPY’s earnings is unlikely to fluctuate greatly.
Full Q1 ETF Earnings Table[table “Q1EARN” not found /]
Taking a deep-dive into ETF flows is a good way to track potential investment opportunities and keep abreast of trends in the marketplace. At ETFLogic we like to focus on flows – so let’s look at Q1 2019 stats by asset class, sector and themes.
*all data listed is for time range 1/1/2019 to 4/1/2019.
Asset Class Flows
Fixed income inflows of $32.5bn topped equities by nearly $15bn. But equities still had the best quarter since 2009. Commodities and currency ETFs overall experienced slight outflows.
Inflows into fixed income ETFs were led by shorter duration corporate exposures: Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and Vanguard Short-Term Corporate Bond ETF (VCSH). These strong flows were matched with strong returns as VCIT posted a total return of nearly 5% in Q1
|Ticker||Name||AUM||YTD Flows||YTD %|
|VCIT||Vanguard Intermediate-Term Corporate Bond ETF||$23bn||$4bn||4.91%|
|VCSH||Vanguard Short-Term Corporate Bond ETF||$24bn||$3bn||2.47%|
|MBB||iShares MBS ETF||$16bn||$3bn||1.65%|
|BNDX||Vanguard Total International Bond ETF||$16bn||$3bn||2.55%|
|IEF||iShares 7-10 Year Treasury Bond ETF||$13bn||$2bn||1.88%|
|LQD||iShares iBoxx USD Investment Grade Corporate Bond ETF||$34bn||$2bn||5.18%|
|JNK||SPDR Bloomberg Barclays High Yield Bond ETF||$9bn||$2bn||8.92%|
|EMB||iShares JP Morgan USD Emerging Markets Bond ETF||$17bn||$2bn||6.96%|
|HYG||iShares iBoxx USD High Yield Corporate Bond ETF||$16bn||$2bn||7.27%|
|GOVT||iShares U.S. Treasury Bond ETF||$9bn||$2bn||1.36%|
|Ticker||Name||AUM||YTD Flows||YTD %|
|VOO||Vanguard S&P 500 ETF||$10bn||$5bn||14.64%|
|IEMG||iShares Core MSCI Emerging Markets ETF||$59bn||$5bn||10.96%|
|USMV||iShares Edge MSCI Min Vol U.S.A. ETF||$25bn||$3bn||14.03%|
|IEFA||iShares Core MSCI EAFE ETF||$60bn||$3bn||12.15%|
|VTI||Vanguard Total Stock Market ETF||$109bn||$3bn||15.07%|
|EEM||iShares MSCI Emerging Markets ETF||$34bn||$2bn||11.26%|
|VWO||Vanguard FTSE Emerging Markets ETF||$63bn||$2bn||12.78%|
|QUAL||iShares Edge MSCI U.S.A. Quality Factor ETF||$10bn||$2bn||16.92%|
|XLC||Communication Services Select Sector SPDR Fund||$5bn||$2bn||13.53%|
|IJR||iShares Core S&P Small Cap ETF||$43bn||$2bn||12.39%|
- The Telecommunications sector led inflows with the Communication Services Select Sector SPDR Fund (XLC)bringing in $2bn.
- Real Estate sector ETFs saw $3bn of inflows led by $1.4bn into Vanguard Real Estate ETF (VNQ)and $872m into iShares U.S. Real Estate ETF (IYR).
- Healthcare sector ETFs experienced $1bn in inflows, led by $540m into iShares U.S. Medical Devices ETF (IHI)followed by general health care sector ETFs Health Care Select Sector SPDR Fund (XLV) With inflows of $444m and Vanguard Health Care ETF (VHT)with $415m. However, the Biotechnology subsector saw major outflows, led by a $443m outflow from iShares NASDAQ Biotechnology ETF (IBB).
- The Consumer sector had outflows of $625m for the quarter, which might reflect on the growing worries of a global economic cooling throughout Q1.
- The Financial sector experienced the largest outflows of $4.6bn led by the Financial Select Sector SPDR Fund (XLF)with $2.6bn of outflows.
- Industrials had outflows of $1.46bn, led by the Industrial Select Sector SPDR Fund (XLI)
- A significant $16bn of inflows into emerging markets ETFs led by iShares Core Emerging Markets ETF (IEMG) with $5bn and iShares MSCI Emerging Markets ETF (EEM)with $2.5B. The interest in emerging markets may be related to the hopes for progress in a U.S.-China trade deal. The Institute of International Finance (IIF) also predicts a recovery of emerging markets throughout 2019, fueled by loose international monetary policy.
- China A-Shares exposure ETF (ASHR), was near the top with $800mm inflows. With the close of the quarter we saw strong manufacturing data out of China and the U.S., which diminished investor worries about a potential global economic slowdown. The quarter closed out with significant progress in trade talks between the U.S. and China, and the President is now hinting at finalizing a deal within the next few weeks.
- Japan saw outflows of $4bn in Q1, led by a $2.3bn out of the iShares MSCI Japan ETF (EWJ)
- Europe had outflows of $1.9bn, led by $692m exiting the Vanguard FTSE Europe ETF (VGK)
- Middle East & Africa had inflows of $294m, led by a $173m into iShares MSCI Saudi Arabia ETF (KSA)
- Looking at Q1 ETF investment themes, top inflows were into ESG – totaling nearly $1.4bn. This comes as no surprise given investors are placing greater emphasis on the potential impact of their investments. The new ESG ETF Xtrackers MSCI U.S. ESG Leaders Equity ETF (USSG) led the charge with close to $900m of inflows.
- Infrastructure names had $109m inflows. Infrastructure is projected to continue to be a hot investment area throughout the rest of 2019.
- Top inflows came from FlexShares STOXX Global Broad Infrastructure Index Fund (NFRA)with $59m
- Hedge fund replication themed ETFs posted $108m of inflows
- Significant outflows of $614m from Natural Resources ETFs led by United States Oil Fund (USO)with -$377m. SPDR S&P Global Natural Resources ETF (GNR) and iShares North American Natural Resources ETF (IGE)also posted over $100m in outflows in Q1. FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR)still managed to post $70m in inflows, followed by SPDR S&P North American Natural Resources ETF(NANR)with $18m.
- Vice related ETFs posted $50m in flows
- Artificial intelligence themed ETFs saw inflows of $15m.
Top 10 Issuers by YTD Flows
BlackRock still holds first place but Vanguard is catching up very quicky, probably related to the “fee wars.” Interesting to see Charles Schwab and First Trust with more flows than SSGA.
ETFLogic is introducing a new twist on the NCAA Sweet Sixteen Tournament. We have assigned ETFs to each of the 16 remaining teams based on ETFs that have exposure to “themes, sectors or companies” that one may associate with the school / state.
For example, when you think of Kentucky, you may associate the Kentucky Derby which is held at Church Hill Downs Race Track CHDN. The ETF with the largest exposure to CHDN is Invesco S&P MidCap 400 Pure Growth ETF (RFG).
Fill out a bracket – you decide how you make your selections (off the ETF or team)
ETFs compete on price return for the one day the game is played or the closest trading day.
How does it work?
After each of the remaining rounds: The Sweet Sixteen Thursday and Friday, The Elite Eight Saturday and Sunday, The Final Four April 6 and The National Championship Final April 8, you will collect points based on the success of your selections.
The player with the most points at the end of the tournament on April 8th wins
- If the ETF and associated team wins
- You get 3 points
- If the ETF you selected wins, but not the Team it is associated with
- You get 2 points
- If the Team you selected wins, but not the associated ETF
- You get 1 point
The Winner will receive a $100 Amazon gift card from ETFLogic!
Below are the explanations for the School and ETF pairings…
|Duke||HECO||Strategy Shares EcoLogical Strategy ETF||Zion Williamson’s Nike (NKE) shoe exploded while playing North Carolina in regular season. It was “kind of a big deal.” HECO is the ETF with the 2nd largest exposure to NKE.|
|Virginia Tech||JHMT||John Hancock Multifactor Technology ETF||As a Tech school, we decided to select a tech ETF that was not from one of the biggest Issuers, but one of the biggest growing Issuers.|
|LSU||RETL||Direxion Daily Retail Bull 3x Shares||When you think of Louisiana, you think of New Orleans. When you think of NOLA, you think Mardi Gras and going 3x harder than usual. We selected RETL for its exposure to Party City, PRTY.|
|Michigan St||QVM||Arrow QVM Equity Factor ETF||Domino’s Pizza (DPZ) is headquartered in Ann Arbor Michigan, home of Michigan State. QVM holds a good amount of DPZ.|
|Gonzaga||WOOD||iShares Global Timber & Forestry ETF||Gonzaga is located in Washington State. Forestry, Pine Trees come to mind hence ticker WOOD.|
|Florida St||OLD||Janus – The Long-Term Care ETF||Florida is often known as a retirement community hence the reason for selecting the ETF OLD with a focus on Long Term Care.|
|Texas Tech||OIH||VanEck Vectors Oil Services ETF||Texas is known for a lot (Lone Star, Long Horn, Football, BBQ, Oil) so this was a hard choice. We decided to go with Oil hence ticker OIH.|
|Michigan||FTXR||First Trust Nasdaq Transportation ETF||General Motors (GM) is headquartered in Detroit, MI. The ETF holding the largest weight in GM is FTXR.|
|Virginia||CWS||AdvisorShares Focused Equity ETF||Virginia is known for its peanut farming. J.M. Smucker (SJM) is known for JIF peanut butter. The ETF with highest weight in SMJ is CWS.|
|Oregon||FDIS||Fidelity MSCI Consumer Discretionary Index ETF||Oregon is the home of Amazon (AMZN). FDIS has significant exposure to AMZN.|
|Purdue||SCHH||Schwab U.S. REIT ETF||Purdue is located in Indiana. Simon Property Group (SPG) is the largest Retail Estate Investment Trust which is based in Indianapolis. SCHH is the ETF with the largest concentration in SPG.|
|Tennessee||NOBL||ProShares S&P 500 Dividend Aristocrats ETF||Tennessee is known for Jack Daniels Whisky which is owned by Brown-Forman (BF.A). BF.A is one of the 50 U.S. stocks that has increased its dividends for the last 25 years consecutively thus is part of NOBL.|
|North Carolina||VFH||Vanguard Financials ETF||Bank of America (BAC) is headquartered in Charlotte, NC. An ETF with a large holding in BAC is VFH.|
|Auburn||CSB||VictoryShares U.S. Small Cap High Div Volatility Wtd ETF||Auburn is located in Alabama the “Suns out, Guns out” State. The ETF holding the largest weight of gun producer, Sturm Ruger (RGR), is CSB.|
|Houston||XAR||SPDR S&P Aerospace & Defense ETF||Houston is known as the world capital of space exploration|
|Kentucky||RFG||Invesco S&P MidCap 400 Pure Growth ETF||The Kentucky Derby is held at Churchill Downs (CHDN). RFG is the ETF with largest holding in CHDN.|
The ETF Backdrop
ETFLogic was created to bring transparency to the fast-growing ETF market. Today, more than 1 in 3 shares traded in the US marketplace is an ETF. ETF assets under management have grown to $3 trillion and are expected to double in the next three years. On average, there is a new ETF listing every single day, adding to the more than 2000 products already in existence. US-listed ETF assets surpassed that of hedge funds earlier this year.
The ETF revolution has also expanded globally, with products listed in over 50 countries and accounting for an additional $2 trillion assets and 4000 more products.
This demand is being driven by several benefits over more traditional funds: daily fund transparency, tax efficient structures and all-day trading — all of which have brought these products to the top of investor’s minds.
Regulation has largely kept pace, allowing market participants to test the waters with new investment concepts and ideas. Current proposals for new ETF structures hope to combine actively-managed strategies with the all-day-trading benefits of ETFs. Initiatives like this will further chip away at the $4 trillion of assets tied up in actively managed mutual funds.
The rise of ETFs has created an interesting dynamic with the underlying assets they track. Average ETF ownership of the US equity market stands at 5% and is growing rapidly. This ownership can be higher in many individual cases — over 10% in about a third of US publicly traded companies. All this means there are deeper relationships that need to be understood by both corporations and active managers.
What we do
ETFLogic helps our clients make better investment decisions. ETFs have democratized access to both global markets and asset classes. This wealth of choice creates new challenges in choosing the right investment, understanding the cost and risk profile of those investments and constructing well diversified portfolios.
Our clients use ETFLogic to get our TruLiquidity scores — a quantitative metric to quickly gauge whether an ETF matches their liquidity needs. Some ETFs may not trade or have a viable on-exchange market — however they may be good investment ideas. In other cases, the ETF may be much more liquid than the underlying basket. TruLiquidity applies a transaction cost model to both the ETF and the basket to tell you right away how much liquidity you can acquire via that name.
Our Overlap Analysis, or transition management tool allows investors to visualize the cost and risk dynamics of shifting their portfolio with ETFs. Many investors may put undue emphasis on investing in the lowest cost ETFs in a particular peer group. However, there may be subtle differences in that fund’s construction (factor tilts, rebalancing methodologies, etc…) that drive outperformance over that cost differential in the long run.
Our multi-factor analysis allows us to stylistically characterize ETF performance on various fundamental and technical factors, such as Value and Growth, Market Cap, Quality or Profitability, Dividends, Momentum and Volatility. Such factors help explain stock returns in terms that investors understand. With the rise of smart-beta and factor investing, these tools also help distinguish between similarly labeled ETFs. For example, the half-dozen ETFs labeled as both Large Cap and Value may have different Quality and Momentum tilts, contributing to slightly different returns over the same period.
In the screenshot you see an example of our ETF Scorecard. These can be customized and emailed to investors, providing a uniform and immediate way to communicate a fund’s most important characteristics. Our quantitative suite of tools allows for a deeper look into ETF and portfolio dynamics: portfolio transition profiling across liquidity and risk, digging into the actual holdings, and screening for particular fundamental and technical factors.
A Deeper Look
In a subsequent post we will dig into a more quantitative analysis and highlight the implications of the rise of ETFs. As we alluded to earlier, as ETF’s grow in assets and in complexity, the assets they hold are affected by daily inflows and outflows, rebalancing and methodology changes. These underlying movements are of great importance to both active managers and corporations. Active managers need better guidance on how to manage risk. Corporations care about who their investors are and how they will vote in the next shareholder meeting.
We are in the middle of an exciting new time as access to markets and products opens up. ETFLogic is about empowering investors with the right tools to make better investment decisions in this new environment.
Quadruple witching! Sounds ominous. But it happens every quarter, on the 3rd Friday of the last month of that quarter (March, June, September and December). Quadruple witching occurs when index futures, stock options, stock index options and single stock futures all expire simultaneously. In addition, the date coincides with large index and ETF portfolio rebalances. This perfect storm of trading creates a lot of interesting undercurrents and opportunities.
At ETFLogic, we have a special focus on factors. As a little experiment, let’s look at market adjusted factors during the February to March timeframe in 2018 and 2019.
Let’s first look at value vs growth performance over these two time periods. Here are some interesting points to note:
- Growth and Value Factor trends in Q1 2019 are somewhat mimicking Q1 2018.
- Growth continues to be the Street’s favorite factor over Value. Growth has continuously outperformed while Value underperforms.
- Around the 32nd day of our analysis – March 16, 2018 – we see a mean reversion in this performance.
- You could – conceivably – expect a mean reversion in these spreads after quadruple witching on Friday – March 15, 2018 – the 30th day on the graph.
The picture isn’t as neat and clean with dividends and quality factors.
- We see around 150-200bps of outperformance in both factors right before the 3rd Friday.
- There is an expected reversion post-Friday
- Quality in 2019 seems to be following in its Q1 2018 shadow.
- Dividends have languished a bit, relatively speaking. With the prospect of a rising rate environment, investors have overall been less interested in equity yields.
Moving to more technical factors, let’s focus in on momentum and volatility.
- Momentum 2018 seems to have taken us on a wild ride: outperforming over 300bps between February 1, 2018 and March 15, 2018. We see a strong mean reversion of over 200bps in the few days after.
- Low Volatility 2018 languished sideways throughout the period.
- In 2019, we don’t see any clear trends in momentum and volatility, yet…
Note, none of this is trading advice.
Exchange Traded Funds (ETFs) are among the fastest growing financial products today. Launched just over twenty-five years ago, they provide numerous benefits to investors. The ETF landscape is a highly dynamic and fast-moving one, constantly experiencing new developments and rising trends. Here are some of the top trends shaping the future of the ETF industry.
The Rise of the Theme-Focused Investment
Issuers strive to create new, valuable ETFs for investors and constantly need to innovate around the products they provide. The theme-focused ETF gives investors a vehicle to benefit from a particular investment trend. A prime example of this is the Robo-Stox Global Robotics & Automation ETF (ROBO), invested specifically in the firms that derive some of their profits from robotics and automation-related products or services. It’s easy to see the attraction of investing in a fast-growing field such as robotics, which offers potential for fast growth in a field where technology is the catalyst for rapid improvements. Theme-focused ETFs take ETF issuers further into the territory of traditional asset managers and will likely serve to attract significant new investment.
Cryptocurrency and Blockchain ETFs
We’ve all been witness to the cryptocurrency and blockchain explosion over the past few years. Though the euphoria has subsided a bit today, the motivation to capitalize on this trend continues. ETF issuers are focused on building baskets around both digital currencies and the companies that benefit from the technology upheaval they are causing.
While the US markets are still working through the regulatory challenges involved in holding actual cryptocurrency in an ETF, issuers have managed to identify companies that benefit from the technology baskets around these digital currencies. A prime example is the Innovation Shares NextGen Protocol ETF (KOIN), which uses artificial intelligence to pick global stocks that have an interest in blockchain. VanEck also recently filed for a Bitcoin ETF in June – their third attempt at doing so. Shares of the VanEck SolidX Bitcoin Trust are proposed to cost $200k each. All that said, given the volatile nature of cryptocurrencies, and potentially the companies fueling the technology, it’s possible these ETFs may not represent the most attractive proposition to risk-averse investors in the near term.
Many people cite the transparency of the ETF as one of its prime benefits. It follows that the proliferation of semi, or even non-transparent, baskets could be a significant shift in how ETFs are run. These would allow investment managers to “do what they do best”, whilst retaining a competitive edge by not disclosing their asset selections for competitors to see on a daily basis. The SEC views this type of vehicle with skepticism as investors would likely prefer to know precisely the assets they are exposed to. In addition, less transparency around the basket also dulls the “all day trading” benefits of ETFs – as market-makers and liquidity providers will have more difficulty hedging or arbitraging these products. So expect wider spreads and lower volume.
Some investment strategies simply don’t fit with the paradigm of passive or static indexing. Certain fixed income strategies, for example, can be more suited to active management. This is one of the reasons for the growth in the number of actively managed ETFs being made available by issuers. They offer the chance to beat a benchmark and earn above-average returns for investors. Fund costs can also be lowered by cutting out or reducing holdings that are deemed to be of lower quality than other components of the basket, which would inherently not happen in a traditional index. Compared to traditional actively managed mutual funds, investors will likely benefit from lower fees and tax advantages.
As of September 2018, only about 2% (or $61bn) of ETF assets are considered to be actively managed. We expect this segment to grow substantially over the next year as regulatory barriers to entry (for example the proposed removal of the SEC’s exemptive relief process) have been lowered.
Who’s using ETFs? The bulk of investment comes from institutional investors who can actively benefit from massively reduced fees, enhanced liquidity and access to asset class and geographic regions which were not readily available even a decade ago. With the current shift to self-directed retirement savings, there is an ever-growing number of individuals reaping the benefits of ETFs.
An often cited example is millennials opting for SRI (Socially Responsible Investing) focused ETFs. According to the Charles Schwab’s 2018 ETF Investor Study, millennials invest in ETFs more than any other demographic age segment, with 35% of those surveyed having at least one ETF in their portfolio Compare this with only 6% on average in older segments. 45% of the individuals surveyed made their investment research and decisions autonomously, without the use of an investment advisor or broker, while a quarter use technology to select their ETFs.
One way of building a low-cost portfolio is employing the use of robo advisors. These offer cost advantages, tax efficiencies and take out the aspect of subjective human input in portfolio creation. The low fees and high level of competition, amongst robo advisors may make it difficult for the system to survive. At our last count earlier this year, we identified over 40 robo-advisors. The most notable recent entrants have been Vanguard and Schwab. These benefit from a natural source of funds from their existing client base and already existing infrastructure and roster of products that gives them a substantial leg up over the Betterments and Wealthfronts of the world.
Similar to the theme-focused trend mentioned earlier, ETFs have become natural vehicles to express factor exposures. The ability for certain risk premia – value/growth, size, momentum, liquidity – to outperform the market has been well studied in academia and applied in practice for decades now. So the race is on to capture these risks and potential out performance in ETFs. Factor funds may offer investors the ability to outperform standard index benchmarks.
The factor game is a crowded one however. By our count we see over ten US-Equity Small-Cap Value funds from various issuers. Do all these ETFs provide the same exposures? In addition to single-factor exposures, we are now getting to multi-factor products which provide a blend of different exposures. Finally, as factors are well understood in the equity space, there is still quite a bit of R&D required in fixed income. We expect to see many more innovations around fixed income factors in the near future.
The Race to Zero and the “Core Wars”
The cost to manage ETFs are already wafer thin, especially when compared against those of more traditional investment vehicles. Cut throat competition amongst issuers trying to undercut each other and attract new investment leads to an inevitable race to zero total expense ratios (TERs). This proves beneficial to investors, while low fees and competition can encourage regulators, legislators and the media to view the industry positively.
The “core wars” that many issuers are engaging in at the moment is related to this drive to reduce costs – especially in the core building blocks of an investment or retirement portfolio.
Fixed Income and Liquidity
Fixed income ETFs have a strong appeal to institutional investors, particularly of small and medium sized institutions. They offer access to products they would otherwise struggle to obtain. This is particularly true for assets such as corporate high yield or emerging market debt. We believe the accessibility of a wide range of fixed income ETFs will act as a catalyst for growth, especially in regions such as Asia where adoption of ETFs has been relatively slower than in the US. Investors also use ETFs as a liquidity vehicle via the broker market. ETFs tend to be more liquid than their underlying bonds. If an investor wants to own the bonds outright, they may find it easier to simply purchase the ETFs and then “redeem” the ETF for the bonds. This type of trading has brought substantial transparency and increased price-discovery to fixed income.
As the ETF world continues to flourish and expand, we can expect more innovation and emerging trends in the future. The ETFLogic platform will keep you abreast of these developments. We provide robust, cutting-edge tools, analytics and data to institutional members of the ETF ecosystem, offering information from a cornucopia of sources, updated daily. The structure of the global financial system continues to be redefined by the vehicle and levels of current investment may well be just the tip of the iceberg in terms of what will occur in the coming years. Try out the ETFLogic platform, and stay one step ahead of the curve.
Most newly launched ETFs face one key hurdle: Liquidity. This leads to long conversations between capital markets, sales and trading teams and the client. Having reliable third-party guidance around liquidity helps frame this conversation. The fallback option is often an Implied Liquidity measure.
Implied Liquidity alone cannot convey the full liquidity picture as it relies solely on the ADV of individual basket components to extrapolate for maximum ETF liquidity. In addition, it typically assumes that you will want to trade 25% of the average share volume in the least liquid name of the basket to achieve this liquidity. This methodology faces serious issues since it fails to incorporate how trading in ETF’s actually occur.
ETFLogic’s TruLiquidity™ approaches the problem differently. We understand that investors and market-makers care about volume, impact costs and slippage. Our TruLiquidity™ tools answer one simple question:“How many shares of this ETF can I trade if I am willing to pay up to X basis-points?”
You can instantly get this answer by logging into ETFLogic.
We also provide you a complete look through:
- What is the cost-limiting component?
- What happens when you remove some components?
- What is the basket liquidity at the chosen impact level?
We capture the impact on every basket component by incorporating market-specific costs, spreads, volatility and trade urgency – you can also download the resulting calculations instantly.
Our analysis is also summarized in the TruLiquidity™ ranking that does a relative cost-comparison of a name to its peers. For example, a large-cap factor-focused fund may be more liquid than small-cap factor fund, but we will rank the small-cap fund versus vehicles that provide similar exposures in a similar fashion. The benefit: Investors get pertinent information right away on the specific asset-class exposure they seek.
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