The following are new investments that those saving for or living in retirement might consider for their portfolios. This week: A non-U.S. small-cap ETF and two new bond ETFs.
EntrepreneurShares has launched ERShares Non-US Small Cap ETF (ERSX). The fund seeks investment results that correspond (before fees and expenses) generally to the performance of its underlying index, the Entrepreneur Non-US Small Cap Index. That index comprises 50 non-US companies from around the world with market capitalizations between $300 million and $5 billion USD.
Alex Shepard, the founding partner of ETF Action, says ERSX is "very niche." It appears, he says, to be targeted for the growth sleeve of a portfolio by combining small-cap and non-U.S. exposures, both of which inherently maintain higher risk.
"Looking at composition, the portfolio is positioned about 65% developed ex-U.S., primarily in Europe with other strong positions in Asia whereas Vanguard currently offers a similar product in Vanguard FTSE All World ex US Small Cap ETF (VSS), which tracks the FTSE Global ex-U.S," says Shepard. "ERSX has a larger portion of the portfolio in the Asia-Pacific region. Both hold average market-caps of $2-2.5 billion but ERSX is a higher conviction strategy with only 32 holdings compared to VSS with 3,479."
Fee wise, Shepard says VSS charges 0.12% versus a fee of 0.75% for ERSX. "ERSX has edged out VSS by nearly 1% since the start of 2019, and if it intends to build market share versus VSS, the higher limited holdings and European exposure (for now) will have to drive performance in order to validate the fee," says Shepard.
JAGG seeks to provide long-term total return. It principally invests in corporate bonds, U.S. Treasury obligations and other U.S. government and agency securities, and asset-backed, mortgage-related and mortgage-backed securities, that are rated investment grade. At least 80% of its assets will be invested in bonds.
JIGB seeks to provide total return. It mainly invests in corporate bonds that are rated investment grade by a nationally recognized statistical rating organization or in securities that are unrated but are deemed by adviser to be of comparable quality. At least 80% of its assets will be invested in corporate bonds.
According to Shepard, both ETFs fall in line with JP Morgan's splash into the ETF scene over the past two years. "Prior to 2017, JPM had less than 15 ETFs in the marketplace and since they have more than doubled that number by launching a series of factor, country and region, and now fixed-income ETFs," he says. "Most likely, JPM saw that many of their clients were using ETFs from other issuers so in efforts to keep those assets in house they launched their own comparable ETF products and incentivized current clients with commission free trading."
Shepard says JAGG is essentially JPM's version of the iShares Core U.S. Aggregate Bond ETF (AGG) but with active management and a slightly higher expense ratio. Similarly, he says, JIGB aligns risk traits with the Bloomberg Barclays U.S. Corporate Bond Index (similar to Vanguard's VTC and State Street's CBND), but also with active management and double the expense ratio. "Performance since their late 2018 launches have been very similar so time will tell if the management team pays off for the higher expense ratio," says Shepard. "Ultimately, the investor is making the decision of whether they want to pay for the higher fee for JPM's management team."
As always, with new ETF launches, Shepard says, "investors should always take trading volume and spreads into consideration when making trades in addition to utilizing limit orders."
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