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ETF Observer - 2014 July

Our ETF analyst team has recently published the ETF Observer.

Party Like it's 1999

The S&P 500 notched a fresh all-time high in June. Exchange-traded product, or ETP, flows indicate that investors scrambled to join the party. Morningstar Asset Flow data show that $13.5 billion of net new capital flowed into ETPs offering exposure to U.S. equities during the month of June. This marks the largest month of inflows into this category since December of last year. Are investors late to the party? The debate around whether stocks are over-, under-, or fairly-valued will rage on for the foreseeable future. But there is no debating--and Prince would certainly agree--that “…parties weren’t meant to last.”

June was a busy month on the new launch front, as 23 new ETPs made their debut. State Street launched a suite of strategic beta ETFs tracking MSCI Quality Mix benchmarks, iShares expanded its “core” series via a combination of new launches and new additions from its existing lineup, and JP Morgan made its ETF debut —launching a strategic beta fund tracking a multi-factor benchmark. There are two common themes at play here. The first is that the latest generation of strategic beta ETPs is being designed to combine multiple factors in such a way as to position themselves as relatively low cost substitutes for traditional active managers as core portfolio building blocks (though they are still in many cases substantially more expensive than their peers benchmarked to traditional cap-weighted indexes). The second is that the “fee war” that has been raging within “bulk beta” (think S&P 500) continues to spread into strategic beta.

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