One of my favorite sessions at The World’s Largest ETF Conference (“Inside ETFs”), which I attended a couple weeks ago in Hollywood, Fla., was People’s Choice: The Best New ETF of 2016.
The panel discussion featured five distinguished ETF experts: Matt Hougan (CEO — Inside ETFs), Ben Johnson (Director of Global ETF Research — Morningstar), Tom Lydon (Publisher — ETF Trends), Dave Nadig (CEO — ETF.com) and Todd Rosenbluth (Senior Director of ETF & Mutual Fund Research — CFRA).
Via a pre-conference two-round snake draft (think fantasy football), these five industry experts selected two ETFs apiece. In total, 10 ETFs were up for the award.
Panelists presented their case for their first-round selections. Then after all arguments and counter-arguments were heard, the audience voted by applause for the winner.
Here were the first-round selections and a short summary of the investment case for each one:
Johnson Round 1 Pick: Vanguard International High Dividend Yield ETF (VYMI)
What you see is what you get: VYMI tracks the FTSE All-World ex-U.S. High Dividend Yield Index. It looks at all the stocks outside the U.S. and takes the half of this universe that has the highest forward-looking yield.
The index, taking into account a haircut of 30 bps, has placed in the top 15% of 140 comparable funds over the last 10 years.
0.30% expense ratio (lowest decile in the foreign large value category).
Nadig Round 1 Pick: WisdomTree Dynamic Currency Hedged International Equity ETF (DDWM)
Dynamically switches its currency hedge.
DDWM tracks the performance of dividend-paying companies in the industrialized world, excluding Canada and the U.S., while dynamically hedging exposure to foreign currencies relative to the U.S. dollar.
The ETF launched on Jan. 7, 2016. It’s off to a nice start. In 2016, DDWM returned +14.2% … the MSCI EAFE Index returned +6.8% … and the MSCI EAFE Local Currency Index returned 11.2%.
Hougan Round 1 Pick: NuShares Enhanced Yield U.S. Aggregate Bond ETF (NUAG)
This ETF solves for a big problem. The composition of the Agg has changed over time. Today, it’s more concentrated in higher-duration and lower-yield bonds. The preeminent fixed-income benchmark has almost 70% in Treasuries and mortgage-backed securities. And its yield is just 2%.
NUAG tweaks up its allocation to higher-yielding segments. But, it doesn’t go nuts. NUAG stays within 0.25 duration of the Agg and guardrails allocations in 38 different slices.
Rosenbluth Round 1 Pick: Vanguard International Dividend Appreciation ETF (VIGI)
Tracks the Nasdaq International Dividend Achievers Index, which is comprised of non-U.S. incorporated securities with at least five years of increasing annual regular dividend payments.
Focuses on dividend growth, not dividend yield.
According to Ned Davis Research, dividend-growth stocks beat all other types of stocks over time.
Roughly, 75% foreign developed markets and 25% emerging markets.
Dirt-cheap with expenses of 0.25%.
Lydon Round 1 Pick: SPDR SSGA Gender Diversity Index ETF (SHE)
Almost $300 million in assets.
SHE was created at the wishes of CalSTRS (accounts for the large majority of its assets).
We have a problem in corporate governance: not enough gender diversity.
Less than 5% of S&P 500 company CEOs are women and less than 20% of S&P 500 company boards have a woman on them. That’s ridiculous in this day and age!
MSCI study reports a 36.4% higher ROE for companies with strong female leadership compared to companies without a critical mass of women at the top.
This ETF has 186 holdings with women at the board level and in senior leadership positions.
Round 1 Winner: SPDR SSGA Gender Diversity Index ETF (SHE).
And here’s how the second round unfolded (remember, a snake draft reverses order each round):
Lydon Round 2 Pick: The Obesity ETF (SLIM)
Janus-offered ETF tracks the Solactive Obesity Index.
SLIM invests in global companies that could benefit from fighting the obesity epidemic. These companies provide treatment and care for obesity through biotechnology, healthcare, obesity, obesity related disease, and weight loss programs and supplements.
We spend a ton of time on cancer and cancer research, but we don’t spend enough time on obesity.
More people die of heart disease than cancer.
Rosenbluth Round 2 Pick: Guggenheim S&P 100 Equal Weight ETF (OEW)
It’s proven that equal weight beats market cap weight over the long run.
OEW rounds out Guggenheim’s equal weight line-up.
RSP, the Guggenheim S&P 500 Equal Weight ETF, has almost $13 billion in assets.
OEW has a 1% weight in all 100 names. Rebalanced regularly.
Many holdings are attractively-valued according to CFRA Research.
Hougan Round 2 Pick: Deutsche X-trackers USD High Yield Corporate Bond ETF (HYLB)
Junk bonds provide investors with the potential for high income in the current low interest rate environment.
Geographic exposure: 80% U.S. and 20% foreign.
HYLB is the lowest cost ETF (0.25% expense ratio) in the high-yield bond market. Considerably cheaper than its main competitors: JNK (0.40% expense ratio) and HYG (0.50% expense ratio).
Nadig Round 2 Pick: Fidelity Dividend ETF for Rising Rates (FDRR)
Very straightforward. Says what it intends to do right in its name.
The underlying index includes stocks of large and mid cap, dividend-paying companies. These companies are expected to continue paying and growing their dividends.
And they have a positive return correlation to increasing 10-year U.S. Treasury yields.
3% yield (45% higher than S&P 500’s yield).
Johnson Round 2 Pick: iShares MSCI EAFE ESG Optimized ETF (ESGD)
High returns and “doing good” are not mutually exclusive.
Access to large and mid cap stocks in Europe, Australia, Asia and the Far East with positive environmental, social and governance (ESG) characteristics.
Seeks similar exposure to MSCI EAFE Index with greater exposure to companies with higher ESG ratings.
Morningstar sustainability rating: 5 globes (top score).
Round 2 Winner: Deutsch X-trackers USD High Yield Corporate Bond ETF (HYLB).
In the end, it came down to SHE vs. HYLB.
And the winner — crowned by highest decibel level of audience applause — of The People’s Choice for Best New ETF of 2016 …
Overall Winner: SPDR SSGA Gender Diversity Index ETF (SHE).
According to SSGA’s Jennifer Bender (Director of Research for the Global Equity Beta Solutions team), her company had a clear vision when it brought this ETF to market:
“We wanted to give investors an opportunity to direct capital to companies that have demonstrated a commitment to gender diversity. At the same time, companies with greater percentages of women at the top have also been shown to demonstrate financial success, both in terms of performance and profitability. We see this as a win-win for investors and for diversity in corporate America.”
SSGA is also putting its money where its mouth is …
To show its commitment to gender diversity, the company directs a portion of its revenue to charitable organizations that partner with K-12 schools to address gender bias and prepare girls for future business leadership roles.
But does it really pay to “invest like a woman”? Research says it does. And so does SHE’s performance.
Back in October, I told you all about this ETF: An Investment “She” Will Love, but “He” Should be Interested In. Since then, shares have gained 7.5%.
Granted, that’s not the 9.7% run the S&P 500 has enjoyed since then. But consider this …
In the last five years, the 20 S&P 500 companies with the highest percentage of female board members have outperformed the broader index by an average of 3% per year.
So if you’re looking for longer-term performance that also gives you a way to add some diversity … literally … to your portfolio, SHE certainly has a lot to offer.