Two hundred twenty new exchange traded products launched in 2016 but many are too niche, complex or high priced for the average investor, according to Ben Johnson, Morningstar’s director of global ETF research.
At the same time 114 ETPs – the label includes exchange-traded funds and exchange-traded notes – closed in 2016, setting a record. Since the first ETF was launched in 1993 – the SPDR S&P 500 ETF (SPY) – nearly 23% of them have closed.
Against this backdrop of ETP openings and closings Morningstar has just published a short list of the best and worst new ETFs of 2016.
Best New ETFs
Johnson notes that best-of-breed funds have low fees, a “solid sponsor” and offer exposure to a broad base of securities within an asset class. Ideally they also show signs of long-run viability.
Given these attributes, his top picks for ETFs that debuted in 2016 are the Vanguard International Dividend Appreciation ETF (VIGI) and NuShares Enhanced Yield U.S. Aggregate Bond ETF (NUAG).
Vanguard International Dividend Appreciation ETF
VIGI is Morningstar’s “valedictorian of the ETF class of 2016,” writes Johnson. It’s a low-cost diversified “foreign cousin” of the Vanguard Dividend Appreciation ETF (VIG), which carries Morningstar analysts’ top gold rating.
VIGI has a 0.25% expense ratio – almost half the 0.47% median of its ETF peers — and tracks the Nasdaq International Dividend Achievers Select Index to focus on stocks with a long history of paying and growing dividends.
More than 80% of its stocks possess an economic moat, which is Morningstar’s measurement of a company’s competitive advantage, compared to just under 70% average for its peers.
Through the end of October VIGI’s return on invested capital of 13.62% versus 10.55% for average fund in category.
NuShares Enhanced Yield U.S. Aggregate Bond ETF
NUAG is a strategic beta, investment-grade, fixed income ETF from Nuveen, and the firm’s first ETF. It invests in government and corporate investment-grade debt, mortgage-backed and asset-based securities as well as U.S. dollar-denominated debt issued by foreign governments and corporations.