Morningstar’s Favorite New ETFs

ETF Trends

The most popular new ETFs launched the past year have been focused on low-volatility stocks, dividends, high yield debt and emerging market debt. Over the past year there have been about 240 new ETF launches as providers try and capture market share with specialized products.

“Morningstar’s ETF research team has identified five favorite ETF launches in the past year. We believe these ETFs represent the best in innovation and the best use of the ETF vehicle and believe they all should be at the front of investors’ minds as they consider various exposures,” Robert Goldsborough for Morningstar wrote. [Where in the World is ETF Risk Today?]

Most of the latest ETF launches have not been focused on broad-based, comprehensive indices. Many of the most popular funds in 2012 have focused on funds that are used for tactical investing, and can enhance a properly diversified portfolio. [How to Diversify with Alternative ETFs]

Here’s Morningstar’s list:

  1. PIMCO Total Return ETF (NYSEArca: BOND ) This ETF has been the biggest game-changer this year. BOND has paved the way for actively managed ETFs, and proven that the strategy is possible.
  2. iShares MSCI All Country Minimum Volatility ETF (NYSEArca: ACWV ) The suite of minimum volatility ETFs covers emerging markets as well. Low-volatility stocks have outperformed on a risk-adjusted basis in most international stock markets studied, too, and as a result, these three ETFs open up easy and inexpensive ways for investors to tap these corners of the market. While these funds can underperform in a bull market, the low risk feature, and low expense ratio give good risk-adjusted returns.
  3. PIMCO Global Advantage Inflation-Linked Bond Strategy (NYSEArca: ILB ) Yet another active ETF from PIMCO, it invests in developed- and emerging-markets inflation-linked bonds. Managed by PIMCO’s head of its real return portfolio management team, ILB is an appealing option as a core holding, and it’s the only such product currently trading that is actively managed.
  4. MAXIS Nikkei 225 Index ETF (NYSEArca: NKY ) This fund gives the only access to Japan’s Nikkei stock average other than those in Japan. This is denominated in U.S. dollars and returns are also reflected in the exchange rate between the U.S. dollar and Japanese yen.
  5. iShares Floating Rate Note Fund (FLOT - News) This ETF holds investment-grade, floating-rate bonds. FLOT offers investors the opportunity to benefit from floating-rate bonds. Unlike traditional fixed-rate debt, floating-rate bonds see their coupon payments “float,” based on wherever interest rates go. As a result, the prices of floating-rate bonds tend not to move much when interest rates change. The fund favors an economy in which rates are rising. [Morningstar Reveals Alternative Investments Ratings]

Tisha Guerrero contributed to this article.

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