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Though 2018 proved to be the worst year for the global stock market since 2008, the broader U.S.-listed ETF industry witnessed the second-highest growth year in terms of AUM. Net new inflows were approximately $315 billion, per eftf.com. The strength continues in the New Year with U.S.-listed ETFs pulling in about $12.6 billion in the seven trading sessions of 2019. This suggests a strong appetite for ETFs (read: Most Loved and Hated ETFs of 2018).
The continuation of some of last year’s hottest trends as well as new ones confirms the bullishness in the ETF industry. Below we have highlighted some of these:
Actively-Managed ETFs Rule
As 2019 is likely to be marked by uncertainty and volatility due to U.S.-China trade deal, Brexit concerns, global growth worries and one-month long government shutdown, active investing is expected to garner strong investors’ interest. This is because the actively-managed funds use various skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) and can shift their allocations and positions according to the market environment.
As a result, these funds generally outperform the benchmark index, especially in illiquid or inefficient markets or even if the odds are against it. Though active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of wide bid/ask spread beyond the expense ratio, these could generate superior risk-adjusted returns, after expenses, if chosen carefully (read: 8 Top Active ETFs of 2018).
Some of the ETFs that target the broader stock market are Davis Select U.S. Equity ETF (DUSA - Free Report) with expense ratio of 0.65%, First Trust Horizon Managed Volatility Domestic ETF (HUSV - Free Report) with expense ratio of 0.70%, ClearBridge All Cap Growth ETF CACG with expense ratio of 0.53%, Vanguard U.S. Multifactor ETF VFMFwith expense ratio of 0.18%, and Cambria Core Equity ETF (CCOR - Free Report) with expense ratio of 1.05%.
Marijuana Craze
The emerging marijuana industry is poised for rapid growth, given its increasing legality. Though cannabis remains illegal at the federal level in the United States, 10 states and the District of Columbia have legalized recreational marijuana while 32 states have legalized medical weed. Recreational marijuana is expected to be legal soon for adults over the age of 21 years in New York. Canada is the second country in the world to legalize the drug for both medical and recreational use, trailing Uruguay, and the first country among the G-7 nations. In late November, the European nation of Luxembourg also announced that marijuana will soon be legalized for recreational use by adult residents.
Additionally, FDA approved a cannabis-derived drug for the first time and President Trump signed the Farm Bill legalizing hemp and hemp-based cannabidiol (CBD) oil. All these developments have spurred a large number of deal activities, including mergers and acquisitions in the industry. As such, ETFMG Alternative Harvest ETF MJ — the first and only pure ETF targeting the cannabis/marijuana industry — is poised to rocket this year (read: Why Marijuana ETF is on a High in 2019).
Price War Continues
Price war has been an ongoing theme in the ETF space over the past couple of years. It is now on high gear with most of the ETFs having an expense ratio below 0.10%. This war is likely to continue among asset managers in order to attract investors’ money and gain market share. The ultra-popular low-cost ETFs such as Schwab U.S. Broad Market ETF (SCHB - Free Report) , Schwab U.S. Large-Cap ETF (SCHX - Free Report) , iShares Core S&P Total U.S. Stock Market ETF (ITOT - Free Report) and SPDR Portfolio Large Cap ETF SPLG offer broad exposure to the U.S. equity markets (read: Cheapest ETFs in Focus as Fee War Heats Up).
U.S. Treasury ETFs Take Off
After four rate hikes in 2018, the Fed has turned dovish this year, indicating caution on future interest rate hikes as a result of global growth concerns and the impact of trade tensions. Additionally, slowing growth in most of the corners of the world has made investors jittery. Against such backdrop, U.S. Treasury bonds, especially the long-dated ones, will gain popularity. iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , iShares 10-20 Year Treasury Bond ETF (TLH - Free Report) and Vanguard Ext Duration Treasury ETF (EDV - Free Report) are some of the bond ETFs targeting the long-end of the yield curve (read: Dovish Fed Minutes Should Boost These ETFs).
Thematic ETFs Continue to Grow
A record number of thematic or niche ETFs were launched during 2018 as investors are jumping on the potential to put their money into highly specialized theme (or niche investment). The trend is likely to continue this year as well. This is because thematic ETFs seek to provide exposure to a trend or developing business model through the compilation of securities from multiple sectors. VanEck Vectors Video Gaming and eSports ETF ESPOmade its debut in October and has gathered $7.2 million in its asset base since then. ProShares Pet Care ETF PAWZ, targeting the pet industry, has attracted $21.6 million since its launch on Nov 5. Innovator S&P 500 Buffer ETF BOCT has also been able to garner investor interest, building an asset base of $23 million since its debut on Oct 1 (read: Capture the eSports Craze with this ETF).
Gold Bulls Take Charge
Gold will move higher as the government shutdown coupled with lingering US-China trade tensions and global growth concerns sparked fears of recession and returned the allure of the metal. This is especially true as the bullion acts as a store of value and hedge against market turmoil. Additionally, a slew of disappointing economic data across the globe aggravated the threats of global slowdown, making gold more appealing to investors. Further, the Fed’s dovish view will add to the strength. Given this, gold ETFs like SPDR Gold Trust ETF (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETFs (SGOL - Free Report) and SPDR Gold MiniShares Trust GLDMare expected to see smooth trading.
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Top ETF Trends for 2019
Though 2018 proved to be the worst year for the global stock market since 2008, the broader U.S.-listed ETF industry witnessed the second-highest growth year in terms of AUM. Net new inflows were approximately $315 billion, per eftf.com. The strength continues in the New Year with U.S.-listed ETFs pulling in about $12.6 billion in the seven trading sessions of 2019. This suggests a strong appetite for ETFs (read: Most Loved and Hated ETFs of 2018).
The continuation of some of last year’s hottest trends as well as new ones confirms the bullishness in the ETF industry. Below we have highlighted some of these:
Actively-Managed ETFs Rule
As 2019 is likely to be marked by uncertainty and volatility due to U.S.-China trade deal, Brexit concerns, global growth worries and one-month long government shutdown, active investing is expected to garner strong investors’ interest. This is because the actively-managed funds use various skills and attributes (like top-down approach, bottom-up approach, value investing, growth investing or absolute returns strategy) and can shift their allocations and positions according to the market environment.
As a result, these funds generally outperform the benchmark index, especially in illiquid or inefficient markets or even if the odds are against it. Though active funds are arguably expensive as these involve research expenses associated with the manager’s due diligence and additional cost in the form of wide bid/ask spread beyond the expense ratio, these could generate superior risk-adjusted returns, after expenses, if chosen carefully (read: 8 Top Active ETFs of 2018).
Some of the ETFs that target the broader stock market are Davis Select U.S. Equity ETF (DUSA - Free Report) with expense ratio of 0.65%, First Trust Horizon Managed Volatility Domestic ETF (HUSV - Free Report) with expense ratio of 0.70%, ClearBridge All Cap Growth ETF CACG with expense ratio of 0.53%, Vanguard U.S. Multifactor ETF VFMF with expense ratio of 0.18%, and Cambria Core Equity ETF (CCOR - Free Report) with expense ratio of 1.05%.
Marijuana Craze
The emerging marijuana industry is poised for rapid growth, given its increasing legality. Though cannabis remains illegal at the federal level in the United States, 10 states and the District of Columbia have legalized recreational marijuana while 32 states have legalized medical weed. Recreational marijuana is expected to be legal soon for adults over the age of 21 years in New York. Canada is the second country in the world to legalize the drug for both medical and recreational use, trailing Uruguay, and the first country among the G-7 nations. In late November, the European nation of Luxembourg also announced that marijuana will soon be legalized for recreational use by adult residents.
Additionally, FDA approved a cannabis-derived drug for the first time and President Trump signed the Farm Bill legalizing hemp and hemp-based cannabidiol (CBD) oil. All these developments have spurred a large number of deal activities, including mergers and acquisitions in the industry. As such, ETFMG Alternative Harvest ETF MJ — the first and only pure ETF targeting the cannabis/marijuana industry — is poised to rocket this year (read: Why Marijuana ETF is on a High in 2019).
Price War Continues
Price war has been an ongoing theme in the ETF space over the past couple of years. It is now on high gear with most of the ETFs having an expense ratio below 0.10%. This war is likely to continue among asset managers in order to attract investors’ money and gain market share. The ultra-popular low-cost ETFs such as Schwab U.S. Broad Market ETF (SCHB - Free Report) , Schwab U.S. Large-Cap ETF (SCHX - Free Report) , iShares Core S&P Total U.S. Stock Market ETF (ITOT - Free Report) and SPDR Portfolio Large Cap ETF SPLG offer broad exposure to the U.S. equity markets (read: Cheapest ETFs in Focus as Fee War Heats Up).
U.S. Treasury ETFs Take Off
After four rate hikes in 2018, the Fed has turned dovish this year, indicating caution on future interest rate hikes as a result of global growth concerns and the impact of trade tensions. Additionally, slowing growth in most of the corners of the world has made investors jittery. Against such backdrop, U.S. Treasury bonds, especially the long-dated ones, will gain popularity. iShares 20+ Year Treasury Bond ETF (TLT - Free Report) , iShares 10-20 Year Treasury Bond ETF (TLH - Free Report) and Vanguard Ext Duration Treasury ETF (EDV - Free Report) are some of the bond ETFs targeting the long-end of the yield curve (read: Dovish Fed Minutes Should Boost These ETFs).
Thematic ETFs Continue to Grow
A record number of thematic or niche ETFs were launched during 2018 as investors are jumping on the potential to put their money into highly specialized theme (or niche investment). The trend is likely to continue this year as well. This is because thematic ETFs seek to provide exposure to a trend or developing business model through the compilation of securities from multiple sectors. VanEck Vectors Video Gaming and eSports ETF ESPO made its debut in October and has gathered $7.2 million in its asset base since then. ProShares Pet Care ETF PAWZ, targeting the pet industry, has attracted $21.6 million since its launch on Nov 5. Innovator S&P 500 Buffer ETF BOCT has also been able to garner investor interest, building an asset base of $23 million since its debut on Oct 1 (read: Capture the eSports Craze with this ETF).
Gold Bulls Take Charge
Gold will move higher as the government shutdown coupled with lingering US-China trade tensions and global growth concerns sparked fears of recession and returned the allure of the metal. This is especially true as the bullion acts as a store of value and hedge against market turmoil. Additionally, a slew of disappointing economic data across the globe aggravated the threats of global slowdown, making gold more appealing to investors. Further, the Fed’s dovish view will add to the strength. Given this, gold ETFs like SPDR Gold Trust ETF (GLD - Free Report) , iShares Gold Trust (IAU - Free Report) , Aberdeen Standard Physical Swiss Gold Shares ETFs (SGOL - Free Report) and SPDR Gold MiniShares Trust GLDM are expected to see smooth trading.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>