Content provided by Grant Engelbart, CFA, CLS Portfolio Manager

How much have Exchange Traded Funds (ETFs) grown so far this year? The quick answer is “tons” (TONS, ironically, is the ticker symbol of the ETF launched this year with the lowest assets). So far this year, 112 exchange-traded products have been launched, on pace to match last year, which saw 207 products launched. Of these, three have already gained over $100 million in assets under management.

Here are a few trends deciphered from this year’s product launches and ETF flows:

• First is the rise in actively managed ETFs, of which 12 products have been launched, including the SPDR DoubleLine Total Return ETF (TOTL), the largest ETF launched this year. Actively managed ETFs have thus far been most successful in the fixed income realm. BlackRock/iShares’ newly launched U.S. Fixed Income Balanced Risk (INC) is an actively managed fixed income product and is the fifth largest ETF launched this year.

• We’ve also seen a rise in currency-hedged product issuance. This year, 11 products have been launched, including WisdomTree Europe Hedged Small Cap (EUSC). This fund has raised over $200 million in assets, making it the third largest fund launched this year. Flows into currency-hedged products have been very strong, although less so as the dollar has slowed its climb recently.

• Another strong trend is in “strategic,” or “smart” beta. In sum, 42 products have been launched in this space, and asset growth continues to climb substantially. Essentially, smart beta funds re-weight traditional indices by something other than market cap in an attempt to provide incremental excess return. It can be thought of as an overlap between active and passive management. Low volatility, dividend weighting, and quality are all common examples.

• Finally, there has been an expansion of the issuer base for ETFs. Fifteen new issuers have launched ETFs for the first time in 2015 (ironically). The usual players – iShares, State Street, Vanguard, and PowerShares – have only launched 32 of the 112 new ETFs trading this year. Companies such as Elkhorn, Lattice, Highland, and Tuttle have ventured into the ETF world to name a few.

ETFs are definitely here to stay. In my opinion, some of the best ideas in asset management are being developed in the form of new ETFs. As the ETF marketplace grows and evolves, the due diligence and trading expertise required to purchase new and more intricate ETFs must also improve and increase.

CLS is not affiliated with any of the companies listed above. While some CLS portfolios may contain one or more of the specific ETFs mentioned, CLS is not making any comment as to the suitability of these, or any investment product for use in any portfolio. This material does not constitute any representation as to the suitability or appropriateness of any security, financial product or instrument. There is no guarantee that investment in any program or strategy discussed herein will be profitable or will not incur loss. This information is prepared for general information only. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that security values may fluctuate and that each security’s price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not a guide to future performance. Individual client accounts may vary. Investing in any security involves certain non-diversifiable risks including, but not limited to, market risk, interest-rate risk, inflation risk, and event risk. These risks are in addition to any specific, or diversifiable, risks associated with particular investment styles or strategies. An ETF is a type of investment company whose investment objective is to achieve the same return as a particular index, sector, or basket. To achieve this, an ETF will primarily invest in all of the securities, or a representative sample of the securities, that are included in the selected index, sector, or basket. ETFs are subject to the same risks as an individual stock, as well as additional risks based on the sector the ETF invests in.

1995-CLS-7/9/2015