It’s no secret that traditional active managers of mutual funds are pretty scared these days.
As low-cost index ETFs continue to attract assets at a record pace, these managers and mutual fund houses are quickly becoming a dying breed. In order to compete and extend their lives a bit, many have decided to add ETFs of their own – either actively managed or smart beta – to their offerings. The start of the new year had the managers coming out swinging, and this week saw the launch of several of these ETFs.
For a list of all new ETF launches, take a look at our ETF Launch Center.
|Ticker||Name||Issuer||Launch Date||ETFdb.com Category||Expense Ratio|
|(DUSA n/a)||Davis Select U.S. Equity ETF||Davis Advisors||01/11/2017||Large-Cap Value Equities||0.60%|
|(DFNL n/a)||Davis Select Financial ETF||Davis Advisors||01/11/2017||Financials Equities ETFs||0.65%|
|(DWLD n/a)||Davis Select Worldwide ETF||Davis Advisors||01/11/2017||Global Equities||0.65%|
|(CLTL n/a)||ETF PowerShares Treasury Collateral Portfolio||Invesco PowerShares||01/11/2017||Money Market||0.08%|
|(CUMB n/a)||Virtus Cumberland Municipal Bond||Virtus||01/17/2017||National Municipal Bond||0.59%|
The Davis Method in an ETF
Value investors tend to be the stuff of legends and Shelby Davis – and now his son Christopher – are no different. The duo has guided the Davis Select family of mutual funds to some decent returns over the last few decades. Those market-beating returns come from the firm’s deep value and high-conviction process. The only problem is that Davis Select funds tend to be on the expensive side, and some even come with sales loads. This has investors fleeing the coop these days.
To combat that, Davis has recently launched a line of active ETFs that will employ the firm’s value approach but at a cheaper cost for investors. The Davis Select U.S. Equity ETF (DUSA n/a), Davis Select Financial ETF (DFNL n/a) and Davis Select Worldwide ETF (DWLD n/a) each seeks high-conviction, best-of-breed businesses that are trading for cheap metrics. By employing the so-called Davis method, the ETFs are looking to outperform their benchmark indexes, rather than match them.
DUSA will focus on large-cap stocks domiciled in the United States, while DFNL will hone in on U.S. financials of any size. DWLD will take its value approach across the globe and own stocks from the entire planet, including the U.S., developed-market international stocks and emerging markets.
Expenses run 0.60% for DUSA, and 0.65% for DFNL and DWLD. Not cheap by ETF standards, but still cheaper than Davis’s regular mutual funds.
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Virtus’ Latest ETF
Virtus Investment Partners, Inc. isn’t your typical investment manager. That’s because it doesn’t have internal managers of its own. It uses various subadvisors to guide its mutual funds and other investment vehicles. The idea is that Virtus can find “the best of the best,” and you’re not stuck with a subpar manager because you’re using the fund group. The problem is that subadvised mutual funds are generally some of the most expensive and they never really perform as well as they should – thanks in part to that high expense hurdle.
Virtus has seen the writing on the wall and continued to offer active ETF solutions using its various contracted subadvisors. Its latest is the Virtus Cumberland Municipal Bond ETF (CUMB n/a).
CUMB will bet on tax-free or tax-efficient municipal bonds. The active management comes into play as it seeks to use a barbell strategy and own both short- and long-term bonds. The blend creates an intermediate portfolio with the ability to rollover its shorter bonds to higher yielding ones when rates rise. That should benefit CUMB investors given the Fed’s current course of action.
CUMB charges 0.59%, which is pretty cheap by Virtus fund standards.
Did you miss our coverage of the largest ETF conference of the year: Inside ETFs? Check it out here.
PowerShares Preps for Money Market Reform
Invesco is a prime example of how a mutual fund manager can turn things around and do it right in the world of ETFs. Its PowerShares lineup is one of the biggest on the planet, and its latest launch – the PowerShares Treasury Collateral Portfolio (CLTL n/a) – expands that huge suite of ETFs.
CLTL is basically a money market or ultra-short duration bond fund. The fund will invest in U.S. Treasuries that have maturities of less than a year. Because it’s not as short term as cash, it does have the ability to have a slightly higher yield and it can benefit from rising rates at a faster clip. What it really does is set up PowerShares to take advantage of money market reform and the shift to moving NAVS. As regulations kill the prime money market fund as we know it, ETFS should benefit as investors look for alternatives.
And with a 0.08% expense ratio, CLTL should gather plenty of assets when that happens.
The Bottom Line
This week was all about the traditional mutual fund players getting into the ETF game. In the end, the continued flight of assets from expensive active mutual funds to ETFs will continue. By embracing the fund type, these managers should mitigate some of the losses. In the end, investors win.