The ETF marketplace was hot again in 2020. ETFs took in more than $500 billion in net new flows for the year, while more than 300 new funds launched. While many companies continue to expand their lineups and new issuers attempt to catch the wave, more than 200 ETFs closed throughout the year as well, suggesting you have to still catch the right niche at the right time in order to catch on.
Many of these new funds are still finding their footing and it may be another year or two before they can be considered a success. And I'm sure we'll see more than a few 2020 launches turn into 2021 closures.
The COVID pandemic also accelerated some trends in 2020 and established some new ones. The ETF market, never one to be too far behind the trends, quickly pounced and helped investors target some of these spaces.
With that, I wanted to focus on some of the more notable fund launches of 2020. These won't necessarily be the largest funds by assets, although there are certainly several on the list. Instead, I want to detail some of the most "interesting" launches, for lack of a better term. These launches both caught investors' attention and have a solid chance of success going forward.
Here are my top 10 biggest ETF launches of 2020.
Direxion Work From Home ETF (WFH)
WFH was early to respond to how the COVID pandemic was impacting the global economy. As many workers left the office and began working remotely, technology to support this trend suddenly became in demand.
This fund targets companies that operate within one of four pillars affecting the work-from-home economy: Cloud Technologies, Cybersecurity, Online Project & Document Management, and Remote Communications.
This fund uses a natural language processing algorithm to identify 40 stocks for the portfolio. WFH, not surprisingly, is almost entirely dedicated to the tech and communication services sectors. Top holdings include Zoom, CrowdStrike, Alibaba and Oracle.
Roundhill Sports Betting & iGaming ETF (BETZ)
It's a bit ironic that this ETF debuted at a time when most sporting events were shut down and there were almost no professional sports to bet on. Still, the online gambling industry, whether it's gaming, poker or daily fantasy, has demonstrated continuous strength and is expected to grow by double digits over the next few years.
BETZ includes companies that operate in-person and/or online sports books, companies that operate online/internet gambling platforms and companies that provide infrastructure or technology for the first two groups.
Top holdings include DraftKings, Penn National Gaming, Evolution Gaming and William Hill.
Global X Telemedicine & Digital Health ETF (EDOC)
Another COVID economy play, EDOC plays on the idea that the consumer healthcare space would need to evolve as well. Instead of visiting their doctor in person, people would need to meet with them via conference calls and exchange documents online.
The fund's index is designed to provide exposure to companies that are positioned to benefit from further advances in the field of telemedicine and digital health, including those involved in telemedicine, healthcare analytics, connected healthcare devices, and/or administrative digitization.
Top holdings include M3, Guardant Health, Illumina and Invitae.
iShares 0-3 Month Treasury Bond ETF (SGOV)
BlackRock already operates the iShares Short Treasury Bond ETF (SHV) targeting government notes with a maturity of less than one year. SGOV goes even shorter than that by focusing on the T-bill market.
There's nothing terribly exciting or unusual about this fund, but its expense ratio of a scant 0.03% makes it one of the cheapest ETFs available. SGOV has already managed to gather nearly $900 million in assets.
iShares ESG MSCI Emerging Markets Leaders ETF (LDEM)
Socially conscious investing was one of the biggest developing trends of 2020 and figures to only get bigger in 2021. The iShares MSCI USA ESG Select ETF (SUSA) is already one of the largest ESG-focused funds around and BlackRock has focused on expanding its lineup.
LDEM offers exposure to companies of all sizes from emerging markets and avoids companies with low ESG ratings and severe controversies. The fund could be used as a core international portfolio holding for those who wish to stay away from firearms, alcohol or weapons producers.
Top holdings include Taiwan Semiconductor, Tencent and Alibaba.
JPMorgan BetaBuilders U.S. Mid Cap Equity ETF (BBMC)
JPMorgan has been trying to make a huge splash in the ETF industry by becoming one of the industry's low cost leaders. Helping the issuer even further is its ability to bring existing customer assets into these funds. JPMorgan is already the 9th biggest issuer in the industry.
JPMorgan operates 10 different "BetaBuilders" funds designed to provide broad, diversified exposure at a bare minimum price. BBMC is the latest addition to the suite and costs just 0.07% annually. JPMorgan made waves in 2019 when it launched the JPMorgan BetaBuilders U.S. Equity ETF (BBUS) with an expense ratio of just 0.02%.
Innovator Nasdaq 100 Power Buffer ETF — January Series (NJAN)
Funds that offer market upside potential with a protective downside have become huge over the past couple years. Innovator was one of the first issuers develop and bring these funds to market. Innovator now offers more than 50 different funds, many of which use the "buffer" strategy.
Defined outcome ETFs use an option overlay strategy to provide returns up to a predetermined cap but offer downside protection from a percentage of losses. These caps and protections vary depending on the ETF, but Innovator has expanded their lineup to include Nasdaq 100 buffer ETFs.
The Power Buffer ETFs, such as NJAN, offer protection against the first 15% of losses. The Buffer series offer 9% downside protection, while the Ultra Buffer series offers protection against 30% of losses.
Cabana Target Drawdown 10 ETF (TDSC)
Cabana got into the ETF business for the first time in 2020 with their own version of defined outcome ETFs. TDSC is one of five ETFs that offer varying amounts of protection, including 5, 7, 10, 13 and 16 percent.
Target drawdown refers to the maximum amount an investment in the fund is expected to fall from peak to trough, but Cabana notes that target drawdown percentages are targets, not guarantees.
American Century Focused Dynamic Growth ETF (FDG)
You'll hear a lot about active non-transparent funds in the coming year. Whereas most ETFs use a passive strategy and disclose their holdings on a daily basis, active non-transparent funds adopt the mutual fund approach in which they're actively managed and only disclose their holdings on a monthly or quarterly basis.
FDG has already gathered more than $200 million in assets, so there's some interest here, but I'll be honest, I just don't get their appeal. Part of the reason why the ETF industry has been booming is its low cost, highly transparent, tax-advantaged structure. Going back to the old model seems like a step back, but we'll see if this trend grows in the new year.
Goldman Sachs MarketBeta U.S. Equity ETF (GSUS)
Goldman debuted five ETFs in 2020 and GSUS, which is more or less a diversified large-cap index fund, was one of the biggest. The calling card for Goldman has been to compete on cost and GSUS is no different.
With an expense ratio of 0.07%, GSUS is the cheapest fund in Goldman's lineup and would certainly compete with just about any equity ETF in the market.