A Lesser-Known ETF Indexer Shines
Key Takeaways
U.S.-listed ETFs tracking Solactive indexes gathered $12 billion in the year ended April 7, pushing the collective asset base to $26 billion.
Many newly popular thematic ETFs track a Solactive index, including the 3D Printing ETF (PRNT), Global X Lithium & Battery Tech ETF (LIT) and the Global X Telemedicine & Digital Health ETF (EDOC).
Meanwhile, some ETF providers use Solactive benchmarks to compete with iShares, State Street Global Advisors and Invesco. Lower-cost ETFs like the Goldman Sachs Equal Weight U.S. Large Cap Equity (GSEW), the SoFi Select 500 ETF (SFY) and the Xtrackers USD High Yield Corporate Bond ETF (HYLB) are some examples.
Fundamental Context
The index provider behind some popular thematic ETFs is not a household name. According to Global X, $133 billion was invested in thematic ETFs at the end of March 2021—more than a fivefold increase in the past year.
Investors have embraced their diversification and ease-of-use, with targeted assets toward strategies focused on cannabis, clean energy, electric vehicles, health care innovation, 3D printing, video games, and more.
S&P Dow Jones Indices has had some success supporting thematic ETFs, such as the SPDR S&P Kensho Clean Power ETF (CNRG). Yet a big winner among index providers has been the lesser-known German firm Solactive AG, where none of the ETFs that license a Solactive index list the firm alongside the ETF names.
Solactive was the 13th largest index provider, with $26 billion of ETF assets tracking the firm’s benchmarks as of April 7, according to CFRA’s ETF Database, but net inflows of $12 billion in the past yearpute Solactive in eighth place in terms of new assets attached to its indexes tracked by ETFs—ahead of the larger ICE Indices, Markit, NYSE and others, aided in part due to thematic ETF investing.
The Issuers
Many Global X ETFs are tracking a custom index run by Solactive. In the past year, Global X gathered $14 billion of net inflows, pushing its overall asset base to $30 billion, according to CFRA. Many of the firm’s larger ETFs are tracking a custom Solactive index.
For example, LIT, which has $2.8 billion in assets, aided by $1.8 billion in net inflows in the past year, tracks the Solactive Global Lithium Index. Meanwhile, most of the money inside $870 million Global X Autonomous & Electric Vehicles ETF (DRIV)—which tracks a similarly named Solactive index—flowed in during the past year. Both ETFs are rated favorably by CFRA and are benefiting as soaring demand for electric vehicles further impacts suppliers.
Solactive is also the index provider for some Global X ETFs that experienced demand from the stay-at-home economy following the onset of COVID-19, including EDOC and the Global X Video Games & Esports ETF (HERO). EDOC and HERO gathered $741 million and $477 million in the past year, and now have $830 million and $690 million in assets, respectively.
According to our research, ETFs tracking Solactive indexes represented 42% of Global X’s assets, making it the largest—albeit an under-the-radar—index partner. Global X works with FTSE Russell, Indxx, MSCI and S&P Dow Jones Indices as well.
Known for actively managed thematic ETFs, ARK Funds works with Solactive as well. PRNT has $620 million in assets, with $585 million flowing in during the past year as ARK became a more established ETF provider.
But unlike the ARKK Innovation ETF (ARKK), PRNT is passively managed, replicating the Solactive Total 3D-Printing Index. The ETF holds companies making 3D printing hardware and materials such as 3D Systems (DDD) and HP Inc, (HPQ).
Examples Of ETFs Tracking A Solactive Index
Fund | Ticker | 1 Year Net Inflows ($M) | Assets ($M) |
585 | 620 | ||
771 | 870 | ||
1,802 | 2,839 | ||
830 | 742 | ||
477 | 690 | ||
323 | 700 | ||
87 | 206 | ||
310 | 475 | ||
2,800 | 6,800 | ||
Total |
| 7,985 | 13,942 |
Source: CFRA's ETF Database as of April 7, 2021
Lower Costs
Solactive also supports asset managers seeking to offer a lower-cost ETF. Asset manager DWS derives 35% of its U.S.-listed ETF assets from Solactive indexes, despite long offering a broad suite of international equity ETFs tied to MSCI benchmarks and ESG products tied to S&P Dow Jones.
The largest of these Solactive-based funds is the $7 billion HYLB, which launched in December 2016 as a cheaper high-yield alternative to the iShares iBoxx USD High Yield Corporate Bond ETF (HYG) and the SPDR Bloomberg Barclays High Yield Bond ETF (JNK). Rather than seek to match the fee of the DWS offering, iShares and State Street Global Advisors rolled out or converted funds to match or undercut HYLB’s fee. Nonetheless, HYLB pulled in $2.8 billion in the past year and remains attractively priced, with a 0.15% expense ratio, and appealing to CFRA.
The Xtrackers Low Beta High Yield Bond ETF (HYDW) also seeks to replicate a Solactive index. While smaller than HYLB, at $475 million, HYDW gathered over $300 million of net inflows in the past year, and helped round out the low-cost fixed income suite DWS offers. HYDW charges a modest 0.20% fee.
Meanwhile, the $700 million GSEW tracks the Solactive U.S. Large Cap Equal Weight Index and charges a modest 0.09% expense ratio. GSEW is less than half the price of the $25 billion Invesco S&P 500 Equal Weight ETF (RSP). While GSEW’s nearly $325 million of net inflows is less than RSP’s $7 billion, aided by Solactive, Goldman Sachs provides an alternative to the cost-conscious investor.
When SoFi crashed the ETF party, it worked with Solactive as well. In April 2019, SoFi launched its first ETFs, and did so with a splash as the first provider to charge a 0% expense ratio on its initial products. The now $206 million SFY tracks the Solactive Sofi US 500 Growth Index and gathered $87 million in the past year.
BNY Mellon joined SoFi in offering a large cap ETF with no fees a year later, but investors have largely stuck with more established asset managers like BlackRock and Vanguard, charging 3-4 basis points for equity exposure. Nonetheless, the Solactive-tracking SFY is a worthy candidate for fee-conscious large cap growth investors.
Conclusion
Some asset managers who do not want to leverage the strong brand name of an index provider, such as S&P or Bloomberg Barclays, have turned to Solactive over the last few years. ETF providers often work closely to develop the rule book, but benefit from a third party running the index process and calculation. While CFRA thinks what’s inside the fund matters more than the fee, many funds tracking a Solactive fund are competitively priced, adding to the appeal.
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/.
Copyright © 2021 CFRA. All rights reserved. All trademarks mentioned herein belong to their respective owners.
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