ETF Life Cycle Thrived In 2020
Key Takeaways
Nearly one in four of the 300-plus ETFs that launched in 2020 ended the year with more than $50 million in assets. The list includes the Global X Telemedicine & Digital Health ETF (EDOC), Invesco NASDAQ 100 ETF (QQQM), iShares ESG MSCI EM Leaders ETF (LDEM) and Xtrackers MSCI Kokusai Equity ETF (KOKU), which all earn high ratings from CFRA.
With 40 new products, BlackRock added the highest number of new funds among the top 10 ETF providers, while Invesco shut down 45 offerings, many of which were around for a decade, expanding the ETF graveyard.
More than 60% of exchange-traded products from the 2020 class are ending the year with less than $25 million in assets; thus, we expect some of these offerings to fail to reach their three-year birthday. However, we plan to provide forward-looking star ratings to assess investment prospects on the funds until then.
Launches In Review
In 2020, asset managers were actively launching new products and closing less popular ones. In a recent piece, ETF.com’s Heather Bell laid out the record-breaking number of launches of closures.
Indeed, according to CFRA’s First Bridge ETF database, last year, 83 firms launched new products versus the 54 asset managers that closed a combined 277 offerings. Seven of the 10 largest ETF providers, based on assets under management, launched or closed more than five ETFs in 2020.
The product development industry leaders among the top firms were BlackRock (BLK) and First Trust, which brought 40 and 22 new ETFs to market, respectively, while only eliminating 12 and six.
In contrast, Invesco launched just 10 new funds but closed 45, many of which the firm acquired through acquisitions in the last three years. WisdomTree and ProShares also shrunk their lineups in 2020, shuttering 13 and 10 products, respectively.
Net New Products From Leading ETF Providers
Source: CFRA’s First Bridge ETF Database as of Dec. 31, 2020
However, it was not just the largest providers adding products in 2020. Innovator ETFs, which already had a broad suite of defined outcome ETFs, added 22 new ETFs in 2020, while Direxion and Global X brought a double-digit number of new offerings to market, including the Direxion Connected Consumer ETF (CCON) and EDOC.
In addition, there were several new entrants, such as Emles and Simplify ETFs, which launched funds including the Emles @Home ETF (LIV) and the Simplify US Equity PLUS Convexity ETF (SPYC).
Notably absent on the product development front are Vanguard and Charles Schwab, the second and fifth largest ETF providers, which added just one new fund in 2020 between the two of them—the Vanguard ESG U.S. Corporate Bond ETF (VCEB)—while closing zero offerings.
Meanwhile, State Street Global Advisors added three offerings and closed two last year, showcasing some activity, but much less than other top 10 firms.
Assets In Perspective
Despite more than 2,000 exchange—traded products, many new offerings were successful in year one. Based on year-end assets, there were 37 ETFs (12%) that launched in 2020 with more than $100 million in assets, with an identical number (37) between $50 million and $100 million in assets.
While CFRA rates ETFs regardless of asset size—using a combination of holdings-level and fund-level analysis—many investors either choose to wait until a fund hits the $25 million or $50 million milestone, or are precluded from buying the fund on a brokerage platform until it passes this somewhat arbitrary threshold. Unfortunately for those investors, 60% of the funds that came to market in 2020 remain under the $25 million mark at year end.
Year-End Assets For ETFs Launching In 2020
Source: CFRA’s First Bridge ETF Database as of Dec. 31, 2020
There were a handful of new ETFs that quickly climbed the leaderboard in 2020. The JPMorgan BetaBuilders U.S. Mid Cap Equity ETF (BBMC) came out in April 2020, and quickly crossed the $1 billion mark, ending the year with approximately $1.4 billion in assets.
J.P. Morgan has had prior success with lower-cost asset allocation-oriented products, but BBMC’s success is impressive. BlackRock had the second and fourth most popular new ETFs last year, with the iShares 0-3 Month Treasury Bond ETF (SGOV) and LDEM pulling in $870 million and $833 million, respectively.
Most Popular New ETFs
Source: CFRA’s First Bridge ETF Database as of Dec. 31, 2020
Meanwhile, DWS launched KOKU in April, a developed market ex-Japan fund, and the fund ended the year with $842 million in assets.
The lone new ETF in the top five to roll out in the second half of the year was the $585 million Invesco NASDAQ Next Gen 100 ETF (QQQJ), which owns the 100 largest Nasdaq-listed securities not included in the $152 billion Invesco QQQ Trust (QQQ). Invesco also launched QQQ’s newer and cheaper alternative, QQQM, which had $305 million in assets at year end.
The graveyard is filling up with exchange-traded products that barely had time to be marketed.
In 2020, many of the ETFs that Invesco closed had been around prior to 2009, and yet failed to gain sufficient traction. Meanwhile, UBS shuttered a series of commodity-focused exchange-traded notes that began trading in 2008. Yet more than 60% of the products that died in 2020 were launched in the last six years, with one-quarter of the overall universe having less than a three-year track record.
Even more surprising, one ETF—the North Shore Dual Share Class ETF (DUAL)—lasted only four months and shuttered in December 2020, with dozens more failing to make it to a second birthday before their issuers—including Direxion, Goldman Sachs and Principal Financial Services—chose to pull these products off the shelves to make room for more appealing offerings.
Inception Date Of ETFs That Closed In 2020
Conclusion
While we will not hazard a guess as to which ETFs from the class of 2020 will stop trading before 2022, we have confidence that some of the new entrants that failed to gain traction in their first year will be replaced by younger alternatives before long.
We view the ongoing life cycle in the ETF market to be a sign of health. In the interim, we will continue to provide forward-looking ratings on approximately 1,900 ETFs based on their risk, reward and cost attributes, so that CFRA clients can compare these new offerings with more established peers.
All of the views expressed in this research report accurately reflect the research analyst's personal views regarding any and all of the subject securities or issuers. No part of the analyst's compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For more information and disclosures, please refer to CFRA's Legal Notice at https://www.cfraresearch.com/legal/.
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