It’s no accident that the growth in exchange-traded funds has been so torrid. What’s not to love? ETFs allow you to own just about anything — stocks, bonds, commodities — in bulk, and they allow you to do so cheaply.
So when you hear that ETFs recently surpassed $3 trillion in total investor assets across the globe, you shouldn’t be too stunned.
Part of that figure is just increased popularity of already-existing products, but some of those assets have been plowed into Wall Street’s continuous stream of new, innovative strategies and sectors.
According to Bloomberg’s resident ETF guru Eric Balchunas, we’ve gotten 116 new ETF launches so far this year, as well as $105 billion in net flows into ETFs — both first-half records.
That said, it’s not exactly easy to weed through more than a hundred new funds, so we’ll do the work for you. Today, we’ll identify three of the best ETFs that have launched so far in 2015.
Best ETFs of 2015: iShares Exponential Technologies ETF (XT)
Type: Technology equity
Expenses: 0.47%, or $47 annually for every $10,000 invested
The tech sector has always been full of “buzzworthy” subsectors. Today, that includes everything from 3D printing and big data analytics to cloud computing and biotechnology.
Of course, it used to be that if you wanted to bet on these sorts of “disruptive” technologies, you had to just go out and buy the individual companies as they listed, or cobble together a few ETFs.
The problem: For every winning tech subsector, there are plenty of losers. (B2B stocks, anyone?)
That’s where the new iShares Exponential Technologies ETF (XT) comes in. XT tracks the Morningstar Exponential Technologies Index — a measure of all sorts of firms engaging in game-changing technologies. You want robotics? Got it. Gene sequencing? Got it. Nanotechnology? Yeah … XT’s got it.
There’s plenty of established large-cap muscle in the ETF — top holdings include Valeant Pharmaceuticals (VRX) and T-Mobile (TMUS) — which helps tamp down volatility. So does the equal weighting of the fund, which allows smaller stocks like Charles River Laboratories (CRL) and Parexel (PRXL) to do some of the lifting.
XT offers the best of two worlds, and theoretically, better long-term growth opportunities.
Exponential Technologies has proven popular right out of the gate, amassing some $670 million in assets in just a few months (inception was March 19).
No wonder, considering that XT allows you to play a number of growthy areas under one banner for a low price.
Best ETFs of 2015: SPDR DoubleLine Total Return Tactical ETF (TOTL)
Type: Diversified bond
Like Bill Gross, DoubleLine CEO and CIO Jeffrey Gundlach has made a name for himself in the bond world by going against the grain, making gutsy calls and shifting assets among various types of IOUs.
More often than not, Gundlach has been correct — in fact, many market pundits have dubbed him the new “Bond King.”
Also like Gross, Gundlach saw ETFs as a great way to expand his fixed income acumen.
The SPDR DoubleLine Total Return Tactical ETF (TOTL), launched on Feb. 23, is run just like Gundlach’s $47 billion flagship DoubleLine Total Return Bond Fund (DLTNX). That means Gundlach and TOTL will have the ability to bet on any kind of bond that the guru deems worthy, from staid U.S. Treasuries and corporate bonds to emerging-market debt and junk bonds.
However, the ETF should be a better performer in the long term than its mutual fund twin. The sheer size of DLTNX limits what Gundlach can invest in to move the needle. When you have so much capital to play with, small purchases don’t amount to much, and if you invest too much into one thing, you’ll literally “move the market.” With just $740 million in assets, TOTL can be more nimble.
It’s cheaper too, at 0.55% vs. the N-class shares’ 0.73%.
Best ETFs of 2015: PowerShares S&P 500 ex-Rate Sensitive Low Volatility Portfolio (XRLV)
Type: Large-cap equity
Two things have been at the front of investors’ minds in the past few months: rising interest rates, and the volatility that will create.
The new PowerShares S&P 500 ex-Rate Sensitive Low Volatility Portfolio (XRLV) hopes to circumvent these issues.
XRLV screens the S&P 500 for stocks that exhibit both low volatility and low interest-rate risk. The ETF basically will hold stocks that traditionally don’t jump around as much but also perform well during rising-interest-rate environments.
XRLV’s holdings are weighted relative to the inverse of their volatility — less volatile stocks get a greater weighting in the index. Current top holdings are recently acquired Chubb (CB) and Procter & Gamble (PG). Holdings are capped at 100 stocks.
PowerShares notes that the combination of rising volatility and interest rates has an unpleasant effect on stock prices:
“Since 1990, during periods when the CBOE VIX Index (an indicator of market volatility) rose 75% or more and the 10-year Treasury yield also increased, the price of the S&P 500 Index declined 80% of the time by an annualized average of 30.4%.”
Given the current Greek drama and pending rate hike expected to come sometime this year, XRLV could be one of the best ETFs for safety.
It’s also one of the cheapest new ETFs, at just 0.25% in expenses.
As of this writing, Aaron Levitt was long XT.