Published November 06, 2012
It is often said that new ETFs are to be avoided until those funds reach certain assets under management and volume thresholds. No, a new ETF should not be treated like a hot technology IPO in 1997. That is to say being involved with a rookie ETF on its first day of trading is not necessary.
However, the problem with waiting for certain AUM and/or volume benchmarks to be reached is that the very folks that extol such virtues offer no uniformity on the matter. Really, the only thing that critics of new ETFs can agree on is these funds need time to sit around gathering dust before investors should get involved.
In many cases, waiting months upon months for new ETFs to mature as if they are fine red wines proves to be the wrong move. The waiting game means investors can miss out on capital appreciation and healthy dividends, too.
The new ETFs featured here share some traits in common. All have gathered impressive inflows to this point in their young lives. By virtue of that fact, these ETFs look not only like survivors, but funds with the potential to be quite successful. Arguably, the most interesting characteristic shared by these funds is that all debuted in September or later and they are already showing signs of being winners.
PowerShares S&P 500 High Dividend Portfolio (SPHD) Judging by returns (the fund has dropped 3.3 percent), the PowerShares S&P 500 High Dividend Portfolio is a victim of bad timing. October was a rough month for U.S. equities and with SPHD making its debut on October 19, it is not surprising the ETF has struggled a bit out of the gate.
Do not expect that phenomenon to last long. Not even three full weeks old, SPHD has already raked in $12.3 million in assets under management and it is easy to understand why. The popularity of dividend ETFs is undeniable. So is the popularity of low volatility funds.
If SPHD were candy, it would be a Reese's Peanut Butter Cup. Most investors love chocolate (dividends) and many love the low volatility theme (peanut butter.) Now those two popular tastes come together in one ETF.
WisdomTree China Dividend Ex-Financials Fund (CHXF) If SPHD is suffering through a case of bad timing, then CHXF had impeccable timing. The fund debuted around September 20 and Chinese equities have been perking up since earlier that month. CHXF's good timing is evident in its returns. Since September 20, the ETF has jumped almost 6.7 percent.
There are risks with the ex-financials, particularly when that sector performs well, which it is doing right now in China. However, there are arguably more risks with Chinese banks than there are rewards. Noted short-seller Jim Chanos remains bearish on Chinese banks and Forbes recently ran an article comparing Chinese banks to Enron.
Clearly, some investors like the idea of investing in China while taking a pass on banking shares. CHXF is not even two months old and it already has almost $29.4 million in AUM.
FlexShares Morningstar Emerging Market Factor Tilt Index ETF (TLTE) The FlexShares Morningstar Emerging Market Factor Tilt Index ETF is another example of a new ETF with some good timing. Coming to market on October 1 was a wise idea, because within a few weeks, analysts and investors started becoming more vocal about about the compelling valuations available in the developing world.
TLTE has a couple of interesting traits investors should acknowledge. First, the fund offers ample exposure to large, mid and small caps whereas most emerging markets ETFs of this nature would be excessively weighted to large caps. Second, TLTE is not overly risky at the country level. South Korea, Taiwan and Hong Kong combine for over a third of the fund's weight. Now five weeks old, TLTE has almost $20 million in AUM.
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