The proliferation of ETFs continued Thursday with the launch of four “thematic” equity funds from Janus Capital that are designed to reflect global demographic and consumer shifts.
The funds — the Long-Term Care ETF (OLD), Health and Fitness ETF (FITS), Organics ETF (ORG) and Obesity ETF (SLIM) – are all passive ETFs based on proprietary indexes developed for Janus by Solactiv. They trade on the Nasdaq, have an expense ratio of 50 basis points and double the number of ETFs from Janus.
Nick Cherney, head of exchange traded products at the Janus Capital Group Janus, says the funds reflect “long-term investable themes,” such as the global aging population and obesity epidemic that has spread from the developed world into the developing world, but is there room for even more funds in the $2.1 trillion-plus U.S. ETF market? Just last week Morgan Stanley filed papers with the SEC to launch its own line of ETFs.
“Time will tell if investors will be constructing portfolios with these kinds of funds,” said Todd Rosenbluth, director of ETF research for S&P Global Market Intelligence.
“Most of the money continues to go to well-diversified products,” said Rosenbluth, referring to ETF flows into passive index-based products like S&P 500 ETFs. But he noted that some themes such as low volatility have resonated with ETF buyers.
‘I don’t know if there will be a quick uptake but products can gather assets if they offer something that’s different.”
That is exactly what Janus is hoping for. The Janus ETFs are “all pretty unique in the market, with the exception of health and fitness ETF,” said Cherney.
According to the Janus press release, all four ETFs are focused on markets that have been growing at a fast pace, which is expected to continue or pick up in the future.
Here are some of the statistics it cites from government and private sector reports:
- The number of Americans who are 65 or older will double to 83.7 million and those 85 or older will jump four times to 19 million by 2020, according to the Social Security Administration
- Sales of fitness trackers and other wearable technology may double to $5.4 billion by 2019, according to a Parks Associates report from March 2015
- More than 640 million people are classified as obese, marking a 600% increase in 40 years, according to the World Health Organization
- The global organic food market is projected to grow at 16% through 2010, according to Tech Sci Research, Organic Trade Association report
Cherney hopes that the Organic ETF will help boost demand for publicly traded companies included in the ETF. “Ultimately decisions are driven by economics. If we can create demand for publicly traded companies in organic foods more companies could consider shifting toward organic if valuations are higher.”
Ben Johnson, global director of ETF research at Morningstar, says the new Janus ETFs are “another case in point of things getting borderline silly.” He doubts they will have much “usefulness for the average investor in the context of a sensible portfolio.”
Johnson agrees with Cherney that the new Janus ETFs reflect changing demographics and consumer trends but questions whether they can “adequately capture in an economically meaningful way any of the benefits for the end investor.”
“Generally speaking the vast majority of these thematic funds don’t deliver the goods to these investors,” says Johnson. “Thematic ETFs are looking to exploit investors’ proclivities based on what they be hearing about on the evening news… Many are unlikely to survive.”
How the new Janus ETFs fare will depend largely on Janus, says Rosenbluth. “It will be Janus’ job to educate investors that there is a case for them. It has a strong brand among equity investors.”
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