ETF Launches Worth Watching
July 27, 2012
Some ETFs now in registration may fail; others may never even launch; but some are worth waiting for.
With over 670 new ETFs in filings with the SEC and more being filed every week, there are bound to be a number of duds. Still, there are a few exciting funds in the pipeline I’m keeping an eye on.
Last week, I blogged about fund closures and came up with a list of surprising fund closures. With so many niche markets and strategies already covered, the chances of success are becoming increasingly slim for issuers.
As expected, the recent wave of new fund launches has brought its fair share of yawners—I won’t even single out any funds here, because there are simply so many. Some launches look like “Hail Mary” attempts, while others look promising, only to go unnoticed, collecting dust and few assets.
Simply put, I think ETF investors are getting “launch fatigue” and harder to impress.
But as I said, some in registration look interesting. When I say "interesting," I mean some have blockbuster potential, while others are the first of their kind and I have no idea how the investing public will respond.
For example, one filing on my radar with blockbuster potential is the iShares MSCI Frontier 100 Index Fund (NYSEArca: FM), which looks to be launching soon.
This will be the first global frontier markets ETF to hold local shares and will include frontier countries such as Kuwait, Qatar, Vietnam, Pakistan, Nigeria and Kazakhstan. The other global frontier ETF, the Guggenheim Frontier Markets ETF (NYSEArca: FRN), is severely limited in scope, holding only depositary receipts.
Going out on a limb, I’d say FM should be a sort of frontier markets equivalent to the $33 billion iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).
While we’re on the subject of emerging markets, I wouldn’t be surprised to see the Global X Next 11 ETF (NYSEArca: NXTE) to launch in the near future.
The “next eleven” are a combination of 11 emerging and frontier countries considered by Goldman Sachs’ Jim O’Neill—made famous for coining the acronym BRIC back in 2001—to have higher-than-average growth potential in the coming decades.
While I’m not sure how the markets will respond to this launch, it’s the first of its kind and an interesting theme.
Merk’s Hard Currency, The ETF Version
Merk Investments’ ETF version of its flagship mutual fund, the Merk Hard Currency Fund (MERKX), is another launch I’m excited about. This actively managed fund will target currencies of countries with sound monetary policies to protect investors against a downside move in the dollar.
The Merk Hard Currency ETF (NYSEArca: HRD) will also have an allocation to gold, which makes the fund more than a simple currency product. In our current zero-interest rate environment and the odds for QE3 increasing, I’m thinking I’m not alone in finding this fund interesting.
MERKX currently has $500 million in assets, so we’ll see how the ETF version does. HRD might also get some competition from Pimco and US Commodity Funds, which have their own currency strategy ETFs in filings—the Pimco Foreign Currency Strategy ETF and the U.S. Golden Currency Fund (NYSEArca: HARD).
While we’re discussing Pimco, another fund worth watching on their filings list is the Pimco Real Return ETF, another actively managed fund that looks to use a mix of fixed-income securities from around the globe, for a real return strategy.