ETF Innovators: 11 people disrupting the industry, creating unique products, and delivering mammoth returns
- ETF issuances have exploded in recent years amid lower costs and looser regulations.
- The boom has led to a number of new and creative products hitting the market.
- We highlight 11 people disrupting the ETF industry and delivering impressive returns for investors.
It's been over thirty years since the first exchange-traded fund launched in the US.
But the space has only recently seen explosive growth. According to PwC, total ETF assets under management have grown by almost 19% a year over the last five years. In 2023, a record 478 ETFs came to market in the US, according to Morningstar.
The industry's expansion is due to a few reasons, perhaps most notably the Securities and Exchange Commission's 2019 move to loosen regulations and lower the bar for entry. ETFs are also generally more favorable tax-wise than mutual funds. And asset management giants seem more willing to enter the ETF space, according to Nate Geraci, president of The ETF Store.
"We're seeing the largest asset managers all now aggressively pursuing an ETF distribution strategy, whereas previously, a number of those firms were just dipping their toes in the water," Geraci said. "They're offering their best strategies and their best managers within the ETF wrapper."
Investors are also increasingly opting for passive instruments versus active management, as costs are lower and passive index returns lately have been stellar.
Whatever the reasons, the abundance of new issuances has allowed investors to enjoy a range of creative new funds offering exposure to just about any market theme imaginable.
Our 2024 ETF Innovators list seeks to highlight some of the people driving change in the industry over the last five years — creating unique funds that are also delivering impressive returns for investors.
We highlight our list of 11 below, as well as the funds they manage or have helped bring to market.
After Beer's time in the hedge fund world — including a stint as a portfolio manager at Seth Klarman's Baupost Group — he wanted to take the strategies he'd learned and make them more accessible to everyday investors.
So, he launched the iMGP DBi Managed Futures Strategy ETF (DBMF), which actively manages futures contracts across asset classes to hedge downside stock-market risk.
While the fund is supposed to be a hedge, this year it has outperformed the S&P 500, returning 17.7%. As of March, long futures on the MSCI EAFE Index had driven the fund's returns the most.
Beer believes the fund will benefit from investors' increasingly shifting portfolios from a 60/40 structure to 50% stocks, 30% bonds, and 20% alternatives.
"I think allocators view this a breakthrough ETF," Beer said. "DBMF is designed to be a straightforward and elegant way of getting exposure to a very valuable asset class."
The fund is the leading managed futures ETF with over $1 billion in assets under management.
Ticker: DBMF
Fund's launch: May 2019
AUM: $1.1 billion
Expense ratio: 0.85%
Pot launched the Tema Obesity & Cardiometabolic ETF (HRTS) last November, in what turned out to be impeccable timing.
Weight-loss drugs like Ozempic and Wegovy, which are produced by firms like Eli Lilly and Novo Nordisk, have skyrocketed in popularity in recent years. But after The Obesity ETF (SLIM) from Janus Henderson was liquidated in 2020, investors had no way to gain pure-play, diversified exposure to the weight-loss theme all in one product — until HRTS came along.
This year, other weight-loss funds have followed Tema's lead, including the Amplify Weight Loss Drug & Treatment ETF (THNR) and the Roundhill GLP-1 Weight Loss ETF (OZEM).
Since its inception, HRTS is up 26.2%.
"We see this as one of the biggest themes this decade," Pot, the founder and CEO of Tema, said. "There's a billion people in the world that are obese."
Ticker: HRTS
Fund's launch: November 2023
AUM: $70 million
Expense ratio: 0.75%
GMO, the firm cofounded by investing legend Jeremy Grantham, launched its first ETF last November, the GMO US Quality ETF (QLTY). Since then, it's amassed an impressive $700 million, perhaps a reflection of investor excitement about being able to invest with the firm without the $1 million minimum it requires for its mutual funds.
The fund, managed by Hancock, differs from other quality-factor ETFs in that it focuses heavily on ensuring its holdings trade at reasonable valuations. Hancock said the firm also has a long track record of being quality factor investors.
"It applies an active approach to investing in high-quality US equities, which is a style the firm first started researching over 40 years ago," Hancock said. "The fund uses fundamental analysis to differentiate from mere factor funds. And our team integrates a conservative approach to valuation, which we believe enhances both return and downside protection."
Year-to-date, QLTY is up 20%, beating the S&P 500 and peers like the Vanguard US Quality Factor ETF (VFQY) and the JPMorgan US Quality Factor ETF (JQUA).
Ticker: QLTY
Fund's launch: November 2023
AUM: $700 million
Expense ratio: 0.5%
While most funds take a fundamental approach to analyzing stocks, considering things like valuation and earnings growth, the Harbor Human Capital Factor US Large Cap ETF (HAPI) employs the unique strategy of identifying firms with a positive work culture and happy employee base, arguing that this drives the success of a company and ultimately its share price.
To identify stocks, Harbor uses the CIBC Human Capital Index and layers on its own proprietary analysis. The CIBC Human Capital Index looks at variables like employee motivation, purpose, autonomy, and other things to measure company cultures.
"Human capital is accounted for as an expense rather than an 'asset' and therefore is systematically overlooked and mispriced, we believe," Gleich said. "This core S&P replacement provides access to those companies with strong performance on this very fundamental factor."
The fund is up 22% year-to-date and 69% since its launch in October 2022, beating the S&P 500 over both timelines.
Ticker: HAPI
Fund's launch: October 2022
AUM: $336 million
Expense ratio: 0.35%
Delevska's Spear Alpha Fund (SPRX) offers exposure to innovative ideas like AI, space exploration, and robotics by investing in companies up and down their value chains.
Considering her experience conducting fundamental research for hedge funds like Citadel Asset Management, Delevska believes her approach to examining entire value chains allows her to see opportunities.
"With this approach, we are able to spot ideas and trends before they become mainstream," Delevska said. "An example is Nvidia and the AI trade."
Delevska's way of thinking about future opportunities has been a moneymaker for investors. The fund was up 88% in 2023 and, over the last year, has returned 30%, beating the S&P 500's 26%.
Ticker: SPRX
Fund's launch: August 2021
AUM: $70 million
Expense ratio: 0.75%
F/m Investments has launched its US Benchmark Series of Treasury ETFs over the last few years. The largest — the US Treasury 3 Month Bill ETF (TBIL) — has garnered $3.8 billion in assets under management.
Alex Morris, the firm's CIO, said F/m decided to bring the funds to market so that investors could trade Treasurys of all durations like they would stocks.
"Have you ever tried to buy a Treasury bond directly? It's harder than you'd think," Morris said.
"Necessity is the mother of invention," he continued. "Our goal has been to equitize the yield curve and give investors low-friction access to US Treasurys as well as the ability to short or potentially use equity options to express views on rates."
F/m's US Benchmark Series funds are made up of "on the run" Treasurys, or the bonds that are just hitting the market. They are the first funds to be duration-specific, with prior Treasury ETFs on the market grouping multiple durations together in one product.
Ticker: TBIL
Fund's launch: August 2022
AUM: $3.8 billion
Expense ratio: 0.15%
One of the biggest breakthroughs in the ETF space in recent years was the January approval of spot-price Bitcoin ETFs. Products from several different issuers have flooded the market since then, but one firm stands out as a pioneer in the crypto space: Bitwise.
The asset manager was the first to have a crypto index fund — the Bitwise 10 Crypto Index Fund (BITW) — allowing investors to gain diversified exposure to the digital asset class. The company is focused solely on crypto, which it believes gives it an edge over more generalist competitors.
"Crypto is all that we do. You wouldn't trust an equity manager to build a bond portfolio, or a bond manager to help you invest in commodities," said Hougan, Bitwise's CIO. "Crypto is a challenging space, and our funds are designed with the expertise earned from 7+ years of operating successfully in this market."
Year-to-date, BITW is up 39%.
Ticker: BITW
Fund's launch: December 2020
AUM: $903 million
Expense ratio: 2.5%
Goldman Sachs Asset Management launched the Goldman Sachs S&P 500 Core Premium Income ETF (GPIX) and the Goldman Sachs Nasdaq-100 Core Premium Income ETF (GPIQ) in October 2023. These were in response to clients' increasing demand for steady-income products.
The funds, which Helm manages, essentially offer exposure to the two benchmark stock indexes, while also offering a steady stream of income by selling call options on them. In other words, investors can have the best of both worlds and take advantage of stock-market appreciation while having a nice monthly income stream, all in one product.
These, of course, are not the first covered call ETFs on the market. But the S&P 500-tied fund, GPIX, has seen particularly noteworthy outperformance since its issuance. Its price per share has risen 22.7% since October (in addition to distributions), while other major S&P 500 covered call ETFs have returned less than 10% over that time.
Ticker: GPIX
Fund's launch: October 2023
AUM: $141 million
Expense ratio: 0.35%
When it came to market in March, the Eagle Capital Select Equity ETF (EAGL) became the largest conversion from a separately managed account to an ETF, with $1.8 billion of its assets under management switching over. The ETF format, Henry said, gives investors higher liquidity levels and more tax efficiency compared to the SMA.
Henry takes a three-pronged approach to managing the fund, emphasizing concentration in just 20-30 stocks, attractive valuation levels, and planning to hold them for five to 10 years.
Since its first day of trading in March, the fund is up 6%.
Ticker: EAGL
Fund's launch: March 2024
AUM: $2 billion
Expense ratio: 0.8%
The ProShares S&P 500 High Income ETF (ISPY), launched in December, is another S&P 500 covered call strategy. However, it differs from other covered call funds in that it generates its income by selling call options that expire within a day rather than a month like other funds. The firm believes this approach offers a better return opportunity.
More importantly, however, the fund has smashed many of its peers since coming onto the market in December. Year-to-date, it's up 9.8%, beating funds like the JPMorgan Equity Premium Income ETF (JEPI), which is up about 1.9% over that time.
"Every product decision starts with the customer in mind—specifically, whether we can deliver potential value that is not otherwise available to them," Sapir said. "In the case of ISPY, the answer was clear: it offered the opportunity for what many investors want — high income — coupled with the total return of the S&P 500, which other covered call ETFs usually fall significantly short."
Ticker: ISPY
Fund's launch: December 2023
AUM: $177 million
Expense ratio: 0.55%
Reid manages a different kind of covered-call fund than the index-based ones mentioned above. The Westwood Salient Enhanced Midstream Income ETF (MDST), launched in April, is made up of about 25 individual stocks in the energy space, all of which have call options written on them to produce income if their share prices aren't rising meaningfully.
But writing call options isn't the only way the fund brings in steady income — the stocks in the fund are also dividend-producing.
"We own a portfolio yielding about 6% from the stocks, and we can make about 5-6% more on the covered calls," Reid said. "So we're effectively monetizing cash flow on the stocks and monetizing volatility on the options."
Reid said one advantage of writing calls on individual holdings as opposed to indexes is that since individual stocks tend to be more volatile, their options premiums are higher.
Since April, the fund is up 3.2%.
Ticker: MDST
Fund's launch: April 2024
AUM: $43 million
Expense ratio: 0.8%