If there is one thing that is unique about the exchange-traded fund (ETF) industry, it’s that they are constantly trying to improve their methods. Typically, after a ground-breaking product is launched, other issuers will realize what is wrong with it – either in index construction or structure – and then try to improve it with newer launches. That process continues to this day.
This week’s launches try to tackle some of the major issues with commodities, ESG and even fixed income.
GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF
GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF
ClearBridge Large Cap Growth ESG ETF
ClearBridge Dividend Strategy ESG ETF
JPMorgan Ultra-Short Income ETF
No K-1 for You!
One of the biggest complaints from investors in the natural resource space is receiving a dreaded K-1 statement during tax time. Thanks to the fact that many old-school futures-based commodity products are considered “commodity pools” for tax purposes, they are treated as partnerships, which means that you receive a different kind of tax form – even if the fund is placed inside an IRA or another tax-deferred vehicle. While the K-1 is a breeze when using tax software or an accountant, it can be intimidating for some investors.
With that in mind, many new commodity funds have begun to adopt a no K-1 structure in which they invest in a Cayman Island subsidiary that owns futures rather than owning the futures themselves. And new issuer GraniteShares takes that spin even further.
GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB n/a) and GraniteShares S&P GSCI Commodity Broad Strategy No K-1 ETF (COMG n/a) will use the Cayman Islands/No K-1 approach, but will do so with active management. Each will try to outperform its respective broad commodity indexes. The difference between the two is that S&P GSCI is more heavily weighted in energy, while Bloomberg is more rounded in its exposure. The idea is that by being active, both COMB and COMG can use a better roll technique and avoid some of the problems with contango and backwardation.
Aside from the roll-beating potential, COMB and COMG will offer some of the lowest expenses in the space. COMB will charge just 0.25%, while COMG will cost 0.35%. The hope is that these moves will be enough to shift big investment dollars away from the BlackRock’s of the ETF world. Only time will tell, as iShares already has a few K-1 free/Cayman products on the market, like iShares Commodities Select Strategy ETF (COMT A).
Until then, GraniteShares is the cheapest way to get exposure.
Legg Mason Improves ESG Offerings
A lot has been written about socially responsible investing, and the number of funds in the space has exploded in recent years. Mutual fund, and now ETF, powerhouse Legg Mason has used the ESG approach to focus on certain investing styles. The vast bulk of ESG funds are strictly broad elements.
ClearBridge Large Cap Growth ESG ETF (LRGE n/a) will seek to apply various ESG screens to U.S. large-cap growth stocks in an attempt to find firms with faster-moving revenues than the broader market, as well as positive SRI scores. The idea is that combination of the two factors will provide a better overall total return than the broader Russell 1000 Growth index.
ClearBridge Dividend Strategy ESG ETF (YLDE n/a) will take the ESG approach and apply it to dividend stocks. Not only will YLDE screen for various SRI metrics, but the fund will also focus on current and growing yields. This means applying various cash flow, earnings and other dividend-related fundamentals to the S&P 500. Again, the idea is that the combination of ESG factors and dividends will help to create a strong portfolio of firms and to produce better long-term outcomes.
The kicker for both ETFs is that they are actively managed. So, the real driver of the funds will be the ability of the managers to select which firms best meet their criteria. Both ETFs charge a relatively expensive fee at 0.59%.
For a full list of all of Legg Mason ETFs, check out its issuer page here.
J.P. Morgan Tries Its Hand at Cash Management
Despite recent bumps up, yields remain in the basement. For investors who are holding a lot of cash, that’s a big problem. With that in mind, many investors have turned to ultra-short duration bonds as a way to get a little more yield out of their short-term holdings. But even then, yields aren’t super high. J.P. Morgan’s approach to this problem? Go anywhere for yield.
JPMorgan Ultra-Short Income ETF (JPST n/a) will scour the globe for shorter-termed, investment-grade U.S. dollar-denominated debt. This can be of the fixed, variable or floating rate kinds. So, the fund will pretty much hold anything. The ETF’s active managers will screen for credit quality and other valuation metrics. Top holdings include a variety of loans – including Chinese debt, corporate bonds, and structures debt instruments such as collateralized loan obligations (CLO).The overall idea is to keep a low volatility of principal while still providing a higher yield. For investors looking for more out of their cash holding, JPST could be a valuable option. Especially when you consider the ETF’s rock-bottom expenses of 0.18%.
For a list of all new ETF launches, take a look at our ETF Launch Center.
The Bottom Line
Improving upon old funds has continued to drive innovation in the ETF sector. Whether it’s been commodities or fixed income, this week’s launches have certainly pushed issuers to adopt new strategies.
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