Top Picks Among New ETFs

02/08/2016 9:00 am EST

Focus: ETFs

Ben Johnson

Director of Global ETF Research, Morningstar

There were 261 new exchange-traded products launched in 2015, explains Ben Johnson, in Morningstar ETFInvestor, who highlights two favorites from among these newcomers.

It is difficult to stand out in this cramped landscape. If anything, standing out can be detrimental, as the traits of successful new entrants are no different than those of existing best-of-breed funds: broad-based asset-class exposure, low fees, and a solid sponsor.

Ideally, we would also like to see early signs of long-run viability. I want to make sure these funds will be around three, five, and ten years from now. 

Vanguard Tax-exempt Bond ETF (VTEB)

VTEB scores high marks across the board. This is the ETF share class of the firm’s (and the industry’s) first-ever municipal-bond index mutual fund.

VTEB tracks the S&P National AMT-free Municipal Bond Index, the same index followed by long-standing ETF incumbent iShares National AMT-free Muni Bond (MUB).

At 0.12%, VTEB’s fee is less than half that charged by MUB (0.25%). While VTEB is nowhere near as liquid as MUB, early signs are promising, as the $111 million fund already sees 42,000 shares trade hands per day.

As for questions of parentage, Vanguard is one of just a small handful of fund families with a Morningstar Stewardship Grade of A and I expect the firm plans to keep VTEB in its stable for a long time to come.

All told, VTEB is a compelling new option for investors seeking low cost passive exposure to the municipal-bond market.

Goldman Sachs ActiveBeta US Large Cap Equity ETF (GSLC)

GSLC caught my attention when it was launched a few months back for a variety of reasons, but the first was its low fee.

At 0.09% (net of a 0.15% waiver that will last through at least September 14, 2016), the fund’s expense ratio is the lowest in the fast growing field of multi-factor strategic-beta ETPs by a long shot.

A low fee and relatively modest factor bets make GSLC a potential low risk, medium-reward proposition.

The fund has seen strong investor interest out of the gate. It has already amassed $207 million in assets and is seeing a fair amount of trading volume. These are promising signs that point towards long-run staying power.

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