The year 2013 was a significant one for the ETF world. About 150 launches on top of 2012’s 168 rollouts point to the growing investor interest for exchange-traded products in this market. Credit goes mainly to a wide range of innovative products in the space, which hold investors’ attention despite the peaks and valleys of the market (read: 4 Best New ETFs of 2013).
Among the new products, active funds, high yield options, international products both in bonds and equities were much liked by investors. Below, we have highlighted three ETFs launched halfway through the year that have already made a killing despite their short time on the market (read: ProShares Launches Emerging Market Bond ETF (EMSH)).
Barclays ETN+ FI Enhanced Global High Yield ETN (FIGY)
FIGY saw huge success within just seven months of its launch, earning as much as $1.4 billion in assets. The ETN provides investors with a cash payment at the scheduled maturity or optional redemption based on leveraged participation in MSCI World High Dividend Yield USD Gross Total Return Index.
This index includes large and mid cap stocks across 23 Developed Markets countries, denominated in USD. The index includes stock securities that have provided relatively high dividend yields consistently.
On the other hand, the companies that are likely to cut their dividends are generally removed from the index. The note charges 64 bps in annual fees plus the three-month Libor rate effective on the applicable valuation date.
The product has drawn out income-starved investors in an ultra-low interest rate environment currently prevailing in major countries. Geographically, the index is heavily inclined toward the U.S. and the U.K. both of which are presently running on an accommodative monetary policy thus leading to a low interest rate environment. This clearly explains why investors rushed into this ETN.
With a modest Fed taper decided on for 2014, international dividend picks have made a pretty strong comeback. Further, the Fed has testified to keep the interest rate low for longer which will make income investing a hot proposition in a trapper-trodden 2014 (see 3 High Yield Bond ETFs to Watch on Fed Tapering).
Barclays ETN+ FI Enhanced Europe 50 ETN (FFEU)
The runner up in the list of most successful new ETFs was FEEU – also a Barclays ETN hitting the market simultaneously with FIGY. FEEU is also a leveraged ETN designed to deliver twice the returns of the 50 European blue-chip companies. Within seven months of inception, the product has amassed total assets of about $1.05 billion.
The note looks to track the STOXX Europe 50 USD Gross Return Index. The index is capitalization weighted. Though the product charges a lower expense ratio of 29% per year compared to the other Europe-based exchange traded products, it also calls for a variable exposure fee.
The exposure fee rate is the sum of 0.76% and the 3-month Libor rate. However, both FIGY and FEEU trade in a paltry average daily volume of about 9,000 and 12,000 shares, thus costing investors higher in terms of an increased bid-ask spread ratio.
The note provides exposure to the broad European market which has just started to recover from issues like sovereign debt, high unemployment and stagnant growth. Greater exposure to better-positioned nations in Europe like the U.K., Switzerland and Germany is another positive for the product.
However, being debt instruments, both FIGY and FEEU carry credit risk. Also, the products’ leveraged nature can be risky in a sudden downturn.
Vanguard Total International Bond Index ETF (BNDX)
BNDX takes up the third position in the list. The fund debuted in June 2013 and piled up a huge asset base of about $810.1 million. The ETF looks to provide broad exposure to the non-U.S. dollar denominated investment grade global bond market.
The fund seeks to match the performance of the Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This benchmark is capped, so exposure to any particular issuer is limited to a maximum of one-fifth of the total.
The product is cheap, charging 20 bps in expense ratio which might have helped it to bring around investors money so fast. Average daily volume is relatively good at above 150,000 shares a day (read: Vanguard Launches New International Bond ETFs).
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