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By Scott Burns | 07-18-2011 05:19 PM

What New ETFs Are Catching Investors' Eyes?

In the first half of the year, ETF investors have been looking to find income, diversify away from the dollar, and protect themselves from inflation, says Morningstar's Scott Burns.

Scott Burns: Taking a look at exchange-traded fund new launches half way through 2011. Hi, there, I am Scott Burns with Morningstar's ETF team.

Today, we're going to talk a little bit about the new launches in 2011 in the ETF space, particularly some of the themes that we see and who the real success stories have been. I think it should be really no shock that the largest launch and most successful launch to-date has been the WisdomTree Asia Local Debt ETF pulling in an astounding $485 million in the first six months of 2011.

There are a couple of things about this fund that I think are very interesting. One, it actually provides that access to Asian debt. So, it's really capitalizing on that investor zeitgeist of staying away from the dollar and looking for income outside the United States right now.

The other thing that's interesting about this fund is that it's actually an active ETF. Now, it's not exactly active in the sense of making active manager security selection, which is the traditional active that people are thinking about. But it does not actually follow an index, and so it's using quantitative screens to determine which bonds get in. It's almost self-indexing, and what we may be seeing with this fund is an investor adoption of a new way of ETFs being constructed. That is, instead of following an index, this vehicles are indexing themselves inherently.

Second on the list, again, congratulations to WisdomTree, it is WisdomTree Managed Futures. The managed futures fund has pulled in $200 million so far year to date. This really highlights the theme of alternatives. Managed futures in the alternatives space was, without a doubt, one of the best-performing areas throughout the market disruption of 2008 and 2009, posting positive returns in both '08 and '09. The ETF maintained its low correlation to the general stock and bond market while providing that positive return.

So, managed futures are a hot theme; alternatives are a hot theme. Again, congratulations to WisdomTree for pulling down both the number-one and number-two spot.

When we look at the rest of the list, we see a definite kind of antidollar or dollar-diversification theme playing out. Vanguard International Stock, ETFS Physical Asian Gold Shares, Agribusiness, and so on are the names and the themes where people are worried about U.S. dollar inflation, and that's truly coming through.

Alts, or alternative access to categories, is another area that really continues to play out in the new-launch space. PowerShares has the senior loan portfolio, which is a floating-rate bond that's out there. It's not truly alternative, but I think, generally, when we think about our fixed income, we're thinking about more coupon paying and not floating-type instruments.

IShares has launched the High Dividend Equity ETF. Investors are looking for income, and that is something that's truly out there. For full disclosure, the iShares High Dividend Equity ETF is based on a Morningstar Index, and that is something we want to make sure everybody knows.

So, when we look at these new launches in the ETF market, I think a sign of its maturity is truly aligning with the global themes that we're seeing out there. These are foreign-income, fixed-income, anti-inflationary themes, and alternatives themes, and these are really playing out. So congratulations to all the funds and the firms that made the top 10 list.

I am Scott Burns with Morningstar. For this, another ETF information, please check out Morningstar.com's ETF Center and Morningstar's ETF Investor Newsletter.

 

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