The U.S. exchange-traded fund (ETF) industry had quite a year in 2023 – due in part to the 520 new ETFs launched, considerably higher than 413 in 2022 and 446 in 2021.
U.S. ETFs ended 2023 with assets of $8.1 trillion, according to data from ETFGI, a London-based research firm, 24.8% higher than in 2022. Net inflows of $604 billion were decent but well behind 2021's record $920 billion.
Actively managed ETFs are one area of the industry that continues to grow. In 2023, active ETFs had net inflows of $131 billion. Active ETFs accounted for 21.9% of net inflows in all ETFs, according to Morningstar. As a result, active ETFs accounted for 6.5% of the total ETF market, up from 5.3% a year earlier.
But whether it be active or passive funds, the demand for the best ETFs to buy among retail and institutional investors remains strong. U.S. ETFs saw more than $195 billion in net inflows in the first quarter of 2023, thanks in part to the 144 new funds that launched over the three-month period.
New ETFs allow investors to explore strategies that haven't been considered before or cheaper alternatives to gain exposure to tried-and-true approaches. With that in mind, here are seven of the most interesting new ETFs that have recently hit the market.
Data is as of May 24.
- Category: U.S. fund digital assets
- Assets under management: $19.6 billion
- Expenses: 0.12% for the first $5 billion in assets, or 12$ annually on every $10,000 invested. After $5 billion, it rises to 0.25%, or $25 per $10,000 invested.
The iShares Bitcoin Trust (IBIT) will likely be the most talked about ETF launch in 2024. IBIT and 10 other spot bitcoin ETFs were launched in mid-January after the Securities and Exchange Commission (SEC) gave the cryptocurrency funds its blessing.
On the first day of trading, investors traded more than $4.6 billion in shares of the new ETFs. BlackRock's ETF, cryptocurrency asset manager Grayscale, and Fidelity dominated early trading.
"Trading volumes have been relatively strong for new ETF products," said Todd Rosenbluth, VettaFi's head of research, according to Reuters. "But this is a longer race than just a single day's trading."
IBIT gathered most assets early on because of its dominant and respected position in global asset management. By February 8, the ETF's assets hit $3 billion, and by late May, IBIT's assets under management neared $20 billion.
The ETF makes sense for investors who don't want to open accounts with cryptocurrency brokers or create and maintain digital wallets to hold the coins physically. It's an excellent way to diversify your investments while relying on BlackRock to do the heavy lifting.
The spot bitcoin ETFs are much like the gold trusts created in the early 2000s. They provided investors with an easy way to own gold without holding it in a safety deposit box.
Learn more about IBIT at the iShares provider site.
- Category: U.S. fund large blend
- Assets under management: $1.5 billion
- Expenses: 0.31%
The T. Rowe Price Capital Appreciation Equity ETF (TCAF) is the first of five actively managed ETFs in this article. Launched in June 2023 by T. Rowe Price, its portfolio manager is David Giroux, who also serves as chief investment officer for T. Rowe Price Investment Management.
TCAF is the ETF version of the T. Rowe Price Capital Appreciation Fund (PRWCX), which Giroux has managed for 18 years, generating two annual awards for portfolio management excellence. His mutual fund has been closed to new investors since 2014, so TCAF provides those who missed out a second chance to invest with one of the industry's premier portfolio managers.
There are some similarities and differences between the two funds.
Like the mutual fund, the ETF invests in both large-cap value and growth stocks. Giroux looks for capable and experienced management, strong fundamentals and the potential for excellent risk-adjusted returns.
To do this, he cuts the field of stocks down to 125 from 500 or so in the S&P 500. He excludes stocks that are excessively priced, have poor earnings growth or are poorly managed. You could say that the 96 stocks held by the ETF are best described as growth-at-a-reasonable price, or GARP, stocks.
The biggest difference between the mutual fund and the ETF is that the latter is equities only. However, Giroux can move between asset classes with the mutual fund. This could restrict performance for the ETF in the future depending on what's happening in the economy at that time.
But for now, the T. Rowe Price Capital Appreciation Equity ETF is up more than 21% since its inception.
In addition, because ETFs are intended to be tax efficient, there's less trading with the ETF version, with stocks held for longer periods. This has resulted in a 10% turnover rate for stocks, which is about one-fifth the turnover rate of the mutual fund.
Learn more about TCAF at the T. Rowe Price provider site.
- Category: U.S. fund large blend
- Assets under management: $12.4 million
- Expenses: 0.20%
DoubleLine, the firm run by well-known investor Jeffrey Gundlach, launched the DoubleLine Fortune 500 Equal Weight ETF (DFVE) on February 1, 2024. It tracks the performance of the Barclays Fortune 500 Equal Weighted Total Return Index.
This ETF is one of those rare funds that's equal-weighted rather than market cap-weighted. This means each holding has the same weight after the quarterly rebalance and annual reconstitution. Market capitalization doesn't factor into the equation.
That said, the index includes stocks from the Fortune 500, the 500 largest companies in the U.S. by revenue, so they're not insignificant businesses. Stocks excluded from the portfolio include private companies, those not listed on the New York Stock Exchange (NYSE) or Nasdaq, master limited partnerships and limited partnerships, companies that haven't been listed for at least three months, and those with little liquidity.
Further, the fund doesn't fully replicate the index but rather constructs a portfolio that mimics the index's performance without holding all of the stocks. DFVE currently holds roughly 450 stocks.
The top three sectors by weight are consumer discretionary (17.3%), industrials (15.8%) and financial services (14.1%). Because the fund is equal-weighted rather than market cap-weighted, its top 10 holdings account for just 4% of its net assets.
If you're looking for a passive ETF that diversifies across all sizes of companies, DFVE is it. Large caps account for 31% of the portfolio and mid-caps make up more than 47% of the ETF's holdings. The rest of DFVE is made up of small- and micro-cap stocks.
Learn more about DFVE at the DoubeLine provider site.
- Category: U.S. fund large value
- Assets under management: $53.7 million
- Expenses: 0.60%
The Miller Value Partners Appreciation ETF (MVPA) launched on January 30, 2024. The actively managed ETF invests in a small, concentrated group of stocks that its portfolio managers consider to be undervalued because they trade below their intrinsic value.
According to the new ETF's summary prospectus, the fund's adviser, Miller Value Partners, invests in stocks it believes will outperform the S&P 500 over several years. It estimates a stock's intrinsic value by estimating its future free cash flows and asset values. As a result of its value tilt, the fund is likely to have little correlation to the index, taking positions that aren't a part of the S&P 500.
Further, it considers a company's capital allocation policies, business strategy and management team's economic alignment with its shareholders.
The portfolio manager of MVPA is Bill Miller IV, a chartered financial analyst and chief investment officer at Miller Value Partners, the fund's investment adviser. Miller is also the son of legendary investor Bill Miller, who bought out the Miller Value Partners from Legg Mason in 2017. In May 2023, Bill Miller IV acquired 80% of the family firm with his dad retaining 20% of the company.
The ETF's portfolio currently consists of 28 holdings – it tends to hold between 20 and 40 stocks over an average of three to five years. MVPA also has a weighted average market cap of $18.5 billion, as of January 30, significantly smaller than the S&P 500's $771.7 billion.
The top three sectors by weight are consumer discretionary (30%), technology (16%) and financial services (13%). The top 10 holdings account for 54% of its net assets.
As noted earlier, it uses future free cash flow projections as part of the process to evaluate a stock's intrinsic value. The stocks in the portfolio trade at 9.1 times free cash flow, about one-third the multiple for the index.
Learn more about MPAV at the Miller Value Partners provider site.
- Category: U.S. fund small blend
- Assets under management: $41.9 million
- Expenses: 0.49%
San Antonio-based Victory Capital Management launched the VictoryShares Small Cap Free Cash Flow ETF (SFLO) late last year. The fund tracks the performance of the Victory U.S. Small Cap Free Cash Flow Index.
The index is a collection of profitable small-cap U.S. companies with high free cash flow yields and good growth prospects.
"We are excited to expand our free cash flow lineup with the introduction of SFLO," said Mannik Dhillon, president of investment franchises and solutions at Victory Capital. "SFLO will take the innovative methodologies employed by the VictoryShares Free Cash Flow ETF (VFLO) to the small-cap segment."
VFLO launched on June 21, 2023, six months ahead of SFLO. The large-cap ETF has gathered more than $375 million in net assets in less than a year. Since its inception, SFLO has also been off to a fast start, hitting nearly $42 million in AUM.
Its prospectus states that a small cap is defined as the greater of a market cap of less than $3 billion at the time of purchase or 120% of the market cap of the largest holding in the Russell 2000.
As of September 30, 2023, that was $14.6 billion, so the index can go up to $17.5 billion for inclusion. At the end of September of last year, the actual range of market caps was $162 million to $11.1 billion.
The selection process starts with the VettaFi US Equity Mid/Small-Cap 2500 Index. It excludes financial companies and REITs. It then screens the remaining companies for projected free cash flow and earnings, removing those with projected negative free cash flow or earnings.
The remaining companies are ranked based on free cash flow yields, with the top 300 selected to move on to the second step of the process. It then ranks all 300 for sales and earnings growth trends. The top 200 become the constituents of the index.
If small caps are part of your portfolio construction, SFLO is worth a look.
Learn more about SFLO at the Victory Capital provider site.
- Category: U.S. fund global bond-USD hedged
- Assets under management: $317.4 million
- Expenses: 0.22%
On June 23, 2023, Dimensional Fund Advisors filed a preliminary registration statement with the SEC for the Dimensional Global Core Plus Fixed Income ETF (DFGP) and five other active ETFs.
"In only 2½ years, the growth of our business has brought Dimensional's suite to the verge of $100 billion in AUM," said co-CEO Dave Butler. "The new ETFs expand our offering and provide broader access to systematic active strategies across equities and fixed income."
DFGP was one of three fixed-income ETFs launched later that year, on November 9. The others were the Dimensional Global ex US Core Fixed Income ETF (DFGX) and the Dimensional Global Credit ETF (DGCB).
The ETF's portfolio managers seek to maximize the fund's total return by investing in U.S. and global fixed-income securities. It's considered a go-anywhere fund because the managers can buy virtually any fixed-income security. However, the prospectus states that its focus is on investment-grade bonds rated from BBB- to A+ by S&P and Fitch and Baa3 to A1 by Moody's.
The ETF currently has nearly 860 holdings with weighted average maturities of 9.28 years with a 4.7% 30-day SEC yield, a standard measure for bond funds. Nearly 76% of the maturities are five years or greater, with approximately two-thirds of corporate bonds.
DFGP is less than a year old but has managed to accumulate more than $315 million in net assets. That''s a testament to Dimensional's stellar reputation in asset management.
It's the only fixed-income fund of the seven new ETFs mentioned here, but it should serve the best interests of long-term investors.
Learn more about DFGP at the Dimensional provider site.
- Category: U.S. fund target-date retirement
- Assets under management: $3.3 million
- Expenses: 0.08%
The iShares LifePath Retirement ETF (IRTR) is an actively managed fund for those expecting to retire soon or planning to start withdrawing assets from their account shortly.
It launched on October 17, 2023, with several iShares LifePath target-date funds with retirement dates ranging from 2025 through 2065.
"ETFs have become more mainstream in recent years, helping meet a variety of investor goals," said Rosenbluth last October. "However, there has been a limited supply of products designed for retirement specifically. As the ETF industry leader, BlackRock is well-equipped to educate more investors about the benefits."
How is IRTR different from other target-date funds that launched last October?
If you plan to retire in 2043, the iShares LifePath Target Date 2045 ETF (ITDE) is the one for you. It holds 11 different iShares equity and fixed-income ETFs with weights from a high of 51.47% for the iShares Russell 1000 ETF (IWB) to a low of 0.38% for the iShares 5-10 Year Investment Grade Corporate Bond ETF (GIB).
As you get closer to 2045, the equity component will lower, and the fixed-income portion will increase.
IRTR, on the other hand, doesn't have what the industry calls a "glide path," where the asset mix alters as time passes to account for getting closer to your retirement date. In contrast, all the other target-date funds launched last October have a glide path.
Why is that?
As mentioned earlier, IRTR is intended for impending retirees. You'll notice that the fixed income and equity weights are 58.03% and 41.46%, respectively. The iShares LifePath Target Date 2025 (ITDA) has a fixed income/equity split of 56.6% and 42.6%, not too far off IRTR. The difference represents the time left between now and a 2025 retirement.
The beauty of IRTR is that you might decide to retire in five years, opting for a 2030 target date, but ultimately you retire in two years. At that point, you buy IRTR to own into retirement. BlackRock ensures the ETF is appropriately invested into retirement.
For 0.09%, it's a very inexpensive way to enter retirement.
Learn more about IRTR at the iShares provider site.
