Newly Launched ETFs Less Likely To Hit $1B
With over 1,450 ETFs targeting practically every asset class, sector, country and niche market you can think of, it’s no surprise that issuers are having a tougher time launching blockbusters, especially if they’re second, third or even fourth to market in well-established ETF segments.
Worse yet, many newly launched funds have a hard time just surviving.
The table below illustrates a clear trend. On a percentage basis in proportion to the number of funds launched yearly, it’s clearly getting harder to join the billion-dollar ETF club.
Percentage of New Funds Hitting $1 Billion in AUM by Year | |||
Year | $1 Billion+ ETFs | Total ETFs Launched | Percentage |
1993 | 1 | 1 | 100.00% |
1995 | 1 | 1 | 100.00% |
1996 | 8 | 17 | 47.06% |
1998 | 10 | 10 | 100.00% |
1999 | 1 | 1 | 100.00% |
2000 | 25 | 45 | 55.56% |
2001 | 13 | 22 | 59.09% |
2002 | 4 | 10 | 40.00% |
2003 | 5 | 12 | 41.67% |
2004 | 14 | 34 | 41.18% |
2005 | 9 | 49 | 18.37% |
2006 | 21 | 133 | 15.79% |
2007 | 32 | 215 | 14.88% |
2008 | 8 | 175 | 4.57% |
2009 | 11 | 118 | 9.32% |
2010 | 3 | 205 | 1.46% |
2011 | 2 | 277 | 0.72% |
2012 (YTD) | 1 | 141 | 0.71% |
Source:IndexUniverse
Based on this table, since 2007, where almost 15 percent of the funds launched that year eventually hit the billion-dollar mark, less than 3 percent of the 916 funds launched after 2007 have reached $1 billion.
In both 2011 and so far this year, less than 1 percent of newly launched funds have surpassed that mark thus far.
That said, you can certainly make the argument that it takes a specific number of months or even years for a fund to reach $1 billion in assets. So, I’ve listed at the end of this blog all the ETFs launched since 2010 with more than $400 billion that might be on their way to the billion-dollar club.
But even if all of these funds eventually reach $1 billion, we’re still looking at less than 4 percent of launches since the beginning of 2010 that will have reached that milestone.
The Few Exceptions
So which funds were the standouts of the past few years?
The Pimco Total Return ETF (BOND) is easily the biggest standout.
BOND has been the ultimate blockbuster, helped by the fact that it’s the ETF version of the largest mutual fund in world, with Bill Gross at the helm. It hardly matters that the ETF’s holdings differ from the mutual fund; the crucial takeaway, again, is that Gross is running the new exchange-traded fund.
In fact, BOND is the second-fastest-growing ETF in history, surpassed only by the SPDR Gold Shares (GLD), which climbed into the billion-dollar club in just three days after launching in November 2004. BOND took three months to reach that level, after coming to market on March 1 of this year and, in just shy of seven months of trading, it’s already amassed $2.76 billion. That’s impressive.
Another recent blockbuster has been the PowerShares S'P 500 Low Volatility Portfolio (SPLV), which has seen explosive growth and amassed $2.46 billion since its May 2011 launch.
Then there’s the iShares High Dividend Equity Fund (HDV) which, in its 18-month life span, has grown into a $2.19 billion fund.
But that’s all:Solely three funds since 2011 have thus far surpassed $1 billion in assets.
Going Forward
So does this mean the ETF industry is losing steam? Hardly.
Assets are continuing to pour into ETFs. Since surpassing the $1 trillion mark in December 2010, total assets in U.S. ETFs have now grown to $1.3 trillion.
And while ETF closures are on a record pace this year, as my colleagues Paul and Ugo suggested in recent blogs, that’s not necessarily a bad thing; in fact, it could be a healthy sign.
While I fully expect the industry to continue its growth, I suspect new launches to continue struggling to reach blockbuster status.
But there will be exceptions like BOND, SPLV and HDV once in a while, while many of the $400 million-plus funds might eventually get there as well.
Still, I expect this sub-10 percent trend we’ve seen since 2008 to continue in the near future.
BOND And Beyond
I wouldn’t be surprised if the next wave of new $1 billion-plus funds comes when big mutual fund companies—most of them actively managed—start launching ETF versions of their established funds as the ETF industry continues to grow.
The Pimco Total Return Fund’s entry into the ETF market was very significant, especially because it’s the largest mutual fund on the planet and the first to reinvent itself in an ETF wrapper.
I think Pimco might have set a new trend here.
For example, Axel Merk has already filed for an ETF version of his Merk Hard Currency Fund (MERKX).
Just imagine if American Funds, Franklin Templeton, T. Rowe Price, Oppenheimer, Fidelity, Dodge ' Cox, and Janus start launching ETF versions of their most popular mutual funds.
Think that’ll change the trend and reinvigorate the ETF juggernaut? I do.
Funds Launched Since 2010 with $1 Billion Potential | |||
Ticker | Name | Launch Date | AUM ($M) |
PPLT | ETFS Physical Platinum | 1/8/2010 | $853 |
PALL | ETFS Physical Palladium | 1/8/2010 | $528 |
SCHE | Schwab Emerging Markets Equity | 1/14/2010 | $544 |
EMLC | Market Vectors Emerging Markets Local Currency Bond | 7/22/2010 | $831 |
SCHP | Schwab U.S. TIPS | 8/5/2010 | $524 |
USCI | United States Commodity | 8/10/2010 | $457 |
GNR | SPDR Global Natural Resources | 9/13/2010 | $424 |
ECON | EGShares Emerging Markets Consumer | 9/14/2010 | $444 |
VXUS | Vanguard Total International Stock | 1/28/2011 | $948 |
BKLN | PowerShares Senior Loan | 3/3/2011 | $855 |
ALD | WisdomTree Asia Local Debt | 3/17/2011 | $429 |
HYS | PIMCO 0-5 Year High Yield Corporate Bond | 6/16/2011 | $486 |
GUNR | FlexShares Morningstar Global Upstream Natural Resources | 9/16/2011 | $512 |
TDTT | FlexShares iBoxx 3-Year Target Duration TIPS | 9/19/2011 | $606 |
ACWV | iShares MSCI All Country World Minimum Volatility | 10/18/2011 | $622 |
SCHD | Schwab US Dividend Equity | 10/20/2011 | $516 |
GOVT | iShares Barclays U.S. Treasury Bond | 2/14/2012 | $489 |
Source:IndexUniverse
At the time this article was written, the author held long positions in BOND and HDV. Contact Dennis Hudachek at dhudachek@indexuniverse.com.
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