‘ETF 20/20’: Monthly Exchange Traded Fund Report Published: April 2015 Report Scope: US 1 Key Highlights Our latest ‘ETF 20/20’ report summarizes Exchange Traded Fund (ETF) trends in the US in the first quarter (Q1) of 2015. It uses data from the First Bridge global ETF database. • Assets for ETFs listed in the US grew by 4.5% in Q1 2015, with ETFs providing global equity exposure gaining the most in net assets. • Both the VIX and BofA ML high yield bond spread were up from a year ago (10% and 28% respectively), but are still below their 10-‐year historical median values. • Developed Ex-‐US equity markets (EFA) and US small caps (IWM) were the best performing of the ETFs representing the major asset classes in Q1 2015. • A review of 5 key US equity strategies showed that low volatility was the only one over the last 10 years to beat the S&P 500 and also have lower volatility. The dispersion between different strategies has fallen significantly in the last 12 months. • Currency hedged ex-‐US ETFs significantly outperformed their unhedged counterparts. As a result, HEDJ took in $10.16B in net new assets in Q1 2015. • China ‘A’ Shares, solar and some currency hedged equity ETFs were the best performing ETF categories in Q1 2015. Brazil small caps and some commodity futures based ETPs were the weakest performers in the quarter. About Us This report is co-authored by Aniket Ullal and Sudhanshu Malik. First Bridge provides ETF data and analytics to reputed institutional clients. Our ETF data sets include daily ETF holdings, global ETF product classifications, historical distributions and risk metrics. Our clients include asset managers, financial software providers and research firms that use ETF data as a critical input into their system & workflow. We often provide ‘high touch’ services to our clients in the form of ETF data sets customized to their needs with related support. The First Bridge team combines deep expertise in the Indexing & ETF domain with skills in statistical programming and data visualization. Email: [email protected] Phone: (650) 762-‐9270 Web: http://www.firstbridgedata.com 2 ETF Landscape Snapshot Assets for ETFs* listed in the US grew by 4.5% in Q1 2015, with global equity ETPs gaining the most in net assets. As of end March 2015, there were 1,687 ETPs listed in the US. A complete updated ETF product list is available here: http://bit.ly/1qeDiQI ETF / ETP Type 1. Bonds 1.1 Broad Market 1.2 Corporate 1.3 Municipal 1.4 Treasury / Sovereign 1.5 Inflation Protected 1.6 Specialty / Other 2. Commodities & Metals 2.1 Diversified Commodities 2.2 Agricultural 2.3 Energy 2.4 Gold & Metals 2.5 Other 3. US Equities 3.1 Broad Market & Size 3.2 Dividend & Fundamental 3.3 Factor & Thematic 3.4 Sector & Industry 3.5 Growth / Value 3.6 Quant Strategy & Other 4. Global Equities** 4.1 Broad Market & Regional 4.2 Country Specific 4.3 Dividend & Fundamental 4.4 Factor & Thematic 4.5 Sector & Industry 4.6 Quant Strategy & Other 5. Currency 6. Multi-‐Asset / Other 7. Inverse / Leveraged All US Listed ETPs Number of ETPs 32 91 33 61 16 27 23 25 22 43 4 65 55 36 165 78 57 118 136 57 78 90 19 27 90 239 1,687 Assets ($M) 104,982 97,454 16,503 59,013 20,587 14,644 7,432 1,372 5,458 42,989 32 546,656 70,765 20,625 252,336 197,885 12,457 341,666 82,870 59,557 18,501 33,818 2,488 3,081 46,725 37,465 2,097,360 Change in Assets from Q4 '14 ($M) 6,632 10,978 1,461 2,652 847 (238) (1,644) (250) 2,534 765 (14) (13,286) 1,169 2,459 7,840 9,941 1,017 35,522 8,816 4,189 2,612 3,608 155 386 2,018 973 91,142 Source: First Bridge Data and individual ETF Sponsors; ETF data as of March 31, 2015 * Since ‘ETF’ is a widely used acronym, we may sometimes use it to refer to all exchange traded ’40 Act and ’33 Act instruments (including ETNs) that collectively fall into the ‘ETP’ category. ** The Global Equities category includes both International (ex-US) and Global (US + International) 3 Investing Environment and Performance of Major Asset Classes At Q1 ’15 end, the VIX index and BofA ML High Yield option adjusted spread were both up 10% and 28% respectively from a year ago (the chart plots the year-‐over-‐year change). While this could be interpreted as rising investor concern over equity and credit market risks, both metrics are still below their 10-‐year median values of 17.16 and 5.06 respectively. The Michigan Consumer Sentiment Index ended Q1 up 16% from a year ago. VIX Data: CBOE; Other Data: St. Louis Fed; Data as of March 2015 month end (03/31/15) Developed Ex-‐US equity markets and US small caps were the best performing of the ETFs representing the major asset classes in Q1 2015. 4 The Success of Currency Hedged ETFs The biggest story in ETFs over the last year has been the outperformance of currency hedged ETFs vs. their unhedged counterparts, due to the stronger dollar (see chart below). This resulted in investors putting significant money into currency hedged ETFs like ‘HEDJ’, which by itself took in $10.16B in net new assets in Q1 2015. Japan: DXJ (H), EWJ (U); Europe: HEDJ (H), VGK (U); Dev: DBEF (H), EFA (U); EM: DBEM (H), EEM (U); Data as of 3/31/15 The dollar continued to strengthen against the Euro and British Pound in Q1 ’15, with investors expecting a tighter monetary policy in the US this year relative to Europe. 5 Performance of Key US Equity Strategies The chart below tracks the total returns of 6 widely followed investment strategies in the US equity space over the trailing 10 years through Q1 ’15. The analyzed indices represent categories that have significant ETF assets: Traditional market cap weighting, low volatility, equal weighting, value & growth and high dividend. We find some interesting results: • Low volatility was the only strategy that beat the S&P 500 and also had lower volatility. Equal weighting, pure value and pure growth also beat the S&P 500 but with correspondingly higher risk (volatility) than the S&P 500. • Although value is traditionally thought of as a defensive strategy, the S&P pure value index under-‐performed the most during the ’07-‐’09 bear market, with the highest maximum drawdown of all the strategies. • The dispersion between the different strategies has fallen significantly in the last 12 months (see this blog post for a chart of rolling returns: http://bit.ly/1NRhwN2). S&P 500 Index S&P Low Volatility Index S&P 500 Equal Weight Index S&P 500 Pure Value Index S&P 500 Pure Growth Index Dow Jones U.S. Select Dividend Index Bear Market (10/9/07 – 3/9/09) Annualized -‐43% Return % Of Days Beat -‐-‐ S&P 500 Annualized Risk 38% Bull Market (3/10/09 – 3/31/15) Annualized 22% Return % Of Days Beat -‐-‐ S&P 500 Annualized Risk 17% Total 10 Year Period* Annualized Return % Of Days Beat S&P 500 Max Drawdown Annualized Risk -‐30% -‐47% -‐61% -‐41% -‐48% 53% 44% 44% 54% 44% 28% 41% 51% 39% 44% 20% 27% 35% 28% 23% 48% 53% 53% 54% 50% 12% 20% 25% 20% 16% 8.0% 9.0% 10.0% 10.0% 11.0% 7.0% -‐-‐ 48% 51% 51% 52% 48% -‐55% 20% -‐40% 15% -‐59% 23% -‐75% 29% -‐53% 23% -‐62% 21% Data: All returns measure Total Returns; First Bridge Data analysis based on index data from S&P Dow Jones; *Data from 03/31/05, for ‘Pure Value’ and ‘Pure Growth’ from 12/19/05 since data was not available for the entire 10 years for these 2 indices 6 Q1 2015 ETF Launches 60 new ETPs were launched in the US in the first quarter of 2015. A complete list of all ETFs listed in the US can be found here: http://bit.ly/1qeDiQI • The two categories with the most new launch activity were factor & fundamental oriented equity ETFs and bond ETFs that hedge against rising interest rates. • There were 4 new entrants in the US ETF market in Q1 ’15 – Lattice, CSOP, ETF Manager’s Capital and Tuttle. Table: Q1 2015 ETP Launches in the US Type of Exposure / Sponsor Tickers Expense Ratios Strategy (in bps) Indexed Equity – Sector & Thematic Real Estate Fidelity FREL 12 Leveraged & Inverse Gold ProShares GDXX, GDXS, 95 -‐ 112 Miners GDJJ, GDJS Small Cap Gold Miners ALPS SGDJ 57 Beta & Leveraged Etracs UBS HOMX, HOML 40 -‐ 80 Homebuilders Exponential Technologies Blackrock (iShares) XT 47 Indexed Equity – Market Cap Weighted Leveraged US Equity 1.25 Leveraged Direxion Shares LLSP, LLSC 50 Ex-‐US Equity 1.25 Direxion Shares LLEM, LLDM 50 Leveraged Indexed Equity – US Factor & Fundamental Leveraged Small Cap UBS SMHD 85 Dividend S&P 500 Buyback State Street (SPDR) SPYB 35 US Consistent Dividend ProShares REGL, SMDV 40 Growers Dividend Long/Short Quant Shares DIVA 99 High Income Infrastructure Guggenheim GHII 45 Diversified Factor US Large ETF Securities SBUS 40 Cap Earnings Analysis ETF Securities ZLRG, ZSML 66 High Dividend Yield Direxion Shares VLML, VLSM 58 ‘Safety’ Stocks Direxion Shares VLLV 58 Emerging Market High Global X SDEM 65 Dividend REIT High Dividend Global X SRET 58 Indexed Equity – Global Factor & Fundamental GDP Based Global Growth Revenue Shares RGRO 70 GDP Weighted Emerging Krane Shares KEMP 68 Markets Risk-‐Optimized Alternative Lattice ROAM, RODM, 35 – 65 7 Type of Exposure / Sponsor Strategy Beta 3 Factor (Quality, Value & Arrow Shares Momentum) Emerging Markets JP Morgan Diversified Factors International Developed Blackrock (iShares) Momentum International Developed Blackrock (iShares) Quality Diversified Factor ETF Securities Developed Europe Indexed Equity – Currency Hedged Europe Hedged Small Cap Wisdom Tree Indexed Equity – China China A Shares CSOP Indexed Bonds –Rising Rate Hedged Corporate Bonds Deutsche (DBX) Indexed Bonds – Corporate Specific Maturity Year Blackrock (iShares) Active - Bonds Broad Market Bonds State Street (SPDR) Balanced Risk Bonds Blackrock (iShares) Floating Rate Securities Advisor Shares Negative Duration ETF Managers Treasury Capital Short Maturity Municipal Blackrock (iShares) Bonds Active - Equity US Core Equity Tuttle Commodities & Alternatives Coal Futures Green Haven MLP and Pass-‐Through Master Shares Structures Hedge Fund Replication Index IQ ETF Data: First Bridge Data; Data as of March 31, 2015 8 Tickers Expense Ratios (in bps) ROUS, ROGS QVM 65 JPEM 45 IMTM 30 IQLT 30 SBEU 40 EUSC 58 AFTY 99 HYIH, IGIH, EMIH 25 – 50 IBDJ, IBDK, IBDM, IBDN, IBDO, IBDP, IBDQ 10 TOTL INC FLRT RISE 55 25 110 50 MEAR 25 TUTT 134 TONS HIPS 95 87 QED, QLS 100 -‐ 110 Best and Worst Performing ETF Categories from US ETF Universe China ‘A’ Shares, Solar and some currency hedged equity ETFs were the best performing ETF categories in Q1 ‘15. This analysis excludes inverse/leveraged ETPs and the chart displays the best performing ETF within each specific category (e.g. China A Shares). ETF Data: First Bridge Data; Data as of March 2015 month end (03/31/15) Brazil small caps and some commodity futures based ETPs (natural gas, coffee, nickel and sugar) were the worst performing ETF categories in Q1 ‘15. ETF Data: First Bridge Data; Data as of March 2015 month end (03/31/15) 9 More First Bridge ETF Resources •
ETF Book -‐ ‘ETF Investment Strategies’ (McGraw-‐Hill): http://amzn.to/19DP5ya •
US ETF Product List: http://firstbridgedata.com/etfproductlist •
ETF Daily Holdings: http://etf.firstbridgedata.com/etf-‐daily-‐holdings-‐and-‐product-‐
list/ First Bridge also maintains a dataset of all globally listed ETFs, with key metrics. For more information, email: [email protected] 10 Important Disclaimers First Bridge Data LLC does not intend this guide to provide investment advice, and the information provided in this guide is not and should not be considered investment advice. First Bridge Data LLC shall not be liable for any actions or decisions made based on the information provided in this document, and the reader assumes all risk associated with any investment decision made based on information contained in this document. First Bridge Data LLC is not a registered investment advisor or broker, and does not recommend specific securities, funds, or investment strategies, nor does it advocate the purchase or sale of any individual investment vehicle. Discussion or references to specific securities or investment products in this book should not be considered endorsements or offers to buy or sell those products. The past performance of a mutual fund or exchange-‐traded fund (ETF), security, or investment strategy cannot guarantee its future performance. First Bridge Data LLC has no obligation to update this document or to correct any errors or omissions that might be contained in this document. First Bridge Data LLC disclaims all warranties of any kind, expressed or implied, and hereby disclaim and negate all other warranties, including—without limitation—implied warranties or conditions of merchantability, fitness for a particular purpose, or non-‐infringement of intellectual property or other violation of rights. First Bridge Data LLC does not guarantee the completeness, accuracy, or timeliness of any data in this document, including any data sourced through third-‐party content providers. Neither First Bridge Data LLC nor its employees, third-‐party content providers, nor any person through whom the First Bridge Data LLC makes this document available, shall be liable for any direct, indirect, incidental, punitive, special, or consequential damages (including, without limitation, attorneys’ fees), whether in an action of contract, negligence, or other tortious action, that result from the use of this book. Neither First Bridge Data LLC nor its content providers shall be liable for any punitive, special, indirect, or consequential damages arising from or relating to the foregoing, whether in contract or tort or otherwise, even if First Bridge Data LLC has been advised of the possibility of such damages. 11