If you’re looking for a reason why many of the ETFs launched last year failed to raise the $30 million in assets necessary to turn a profit and stay open take a look at the $10 Billion Club.
While there are more than $1 trillion in assets in the entire U.S. ETF industry, the majority are confined to about 100 funds, “leaving the other 1,300 ETFs in the dust,” says ETF Database.
Yesterday, I said many investors remain risk-adverse in today’s volatile market, leaving them squeamish about buying into hypertargeted ETPs. They prefer to stick with big, liquid funds tracking well-known indexes both because they understand what the index tracks and because they can get out quickly in an emergency. Other reasons why small, niche funds are having a hard time gathering assets is because institutional investors and investment advisors are restricted to buying products with minumum requirements for assets under management, average daily volume and age of the fund.
This leaves just 18 ETFs holding nearly half the assets of the entire ETF industry, according to ETF Database, which calls the group the $10 billion club because they all have more than that under management.
It’s no surprise who tops the list:
SPDR S&P 500 (SPY)
SPDR Gold Trust (GLD)
Vanguard MSCI Emerging Markets ETF (VWO)
iShares MSCI EAFE Index Fund (EFA)
iShares MSCI Emerging Markets Index Fund (EEM)
iShares S&P 500 Index Fund (IVV)
PowerShares QQQ (QQQ)
The big surprises to my eyese were the iShares iBoxx $ Investment Grade Corporate Bond Fund (LDQ) and the iShares iBoxx $ High Yield Corporate Bond Fund (HYG).
Posted in BlackRock, Business, ETFs, iShares, PowerShares, State Street, Stock Market, stocks, Wall Street
Tagged EEM, EFA, HYG, iShares iBoxx $ High Yield Corporate Bond Fund, iShares iBoxx $ Investment Grade Corporate Bond Fund, iShares MSCI EAFE Index Fund, iShares MSCI Emerging Markets Index Fund, iShares S&P 500 Index Fund, IVV, LDQ, PowerShares QQQ, QQQ, SPDR S&P 500, SPY, Vanguard MSCI Emerging Markets ETF, VWO
Invesco PowerShares Capital Management changed the ticker symbol for its PowerShares QQQ ETF from “QQQQ” to “QQQ,” as of Wednesday.
Originally called the NASDAQ-100 Index Tracking Stock when it launched in 1999, it traded on the American Stock Exchange under the QQQ symbol. Traders called it “The Triple Q” or “Qubes” for short. In 2004, it moved to the Nasdaq Stock Exchange, where stocks are required to have four-letter tickers. PowerShares bought the fund in 2006, and to keep continuity with the old nickname rechristened it PowerShares QQQ. It will continue to trade on the Nasdaq, so the ticker change seems odd.
It’s possible that nothing symbolizes the euphoria of the stock market’s technology bubble better than this ETF. The day it began trading — exactly one year to the day before the Nasdaq Stock Market hit its all-time high — it was the largest ETF launch in story. Within six months, it was the largest ETF in the world. It tracks the Nasdaq 100 index, which holds the 100 largest non-financial stocks on the Nasdaq, mostly technology, biotech and retail stocks. The expense ratio is 0.2%.
Not only does it have no financials, but also no energy stocks. Energy makes up more than 7% of other large-cap growth ETFs. Meanwhile, hardware, at 32% of the portfolio, and software, at 16%, are each more than twice the size of other growth funds, according to Morningstar.
On particular oddity about the fund is that Apple’s (AAPL) has an index weighting of 21%, while Microsoft (MSFT) is only 4%, despite the software giant being 70% the size of the its rival. This bizarre weighting comes about because of a problem that needed to be solved before it launched in 1999. At that time, the top five companies represented two-thirds the weight of the index, and Microsoft more than 25%. This prevented the EFT from avoiding taxes like a mutual fund. So, the creators modified the index formula, lowering the weightings of the largest stocks to below 40%, then lifting the small stock weightings to make up the difference and regain preferable tax status. Ironically, at the time, Apple was one of the smaller stocks. Now that the computer maker is the second largest stock in the U.S. market, the boosted weighting it received when the fund began trading, has caused it to dominate the ETF.