Multiple new ETFs in 2011 but few stand out

In a busy year for ETF launches, Standard and Poor's (S&P) has selected only a handful which it favours as the increasingly niche ETFs offered fail to gather assets.

There were 191 exchange-traded products launched in the year to early August, according to a report by Todd Rosenbluth, New York-based S&P equity analyst.

S&P analyses the more than 100 equity ETFs which have been launched but only a few have gathered significant assets and S&P has selected just five for its top two rankings.

It has awarded the Vanguard Total International Stock Index Fund (recent market cap of US$301mn according to S&P) and the PowerShares S&P 500 Low Volatility Portfolio ($244mn) its top ranking of overweight.

The second highest ranking (market weight) is currently awarded to the Schwab US Reit ETF, iShares High Dividend Equity Fund and Schwab US Mid-Cap ETF. The rankings are reviewed daily and are selected based on the underlying portfolios.

"After we got past these top five the rest of the batch has not gathered much interest," says Rosenbluth commenting on the report. He notes that even the Schwab US Mid-Cap ETF which is in the top five only had a recent market cap of $76mn.

Rosenbluth highlights the number of niche ETFs which are currently available and says "we have seen ETF providers try to slice and dice the satellite part of an investors' portfolio in greater ways than might have been imagined a couple of years ago. Not surprisingly to us there hasn't been much market demand for some of those ETFs."

He adds that: "If there is a slight opening of the door ETF providers will push their way through to try to gather assets and there are darts being thrown against the board in the hope that something sticks and will gain investor interest. In some cases they have and in some cases it hasn't yet materialised and maybe it won't materialise."

In some cases he says this could be because "ETF providers are looking to get in front of a trend instead of playing catch up when there is investor demand."

Rosenbluth says that S&P favours more diversified ETFs because they tend to be less volatile than niche ETFs, however, there are sector focused ETFs that it likes and it currently favours consumer staples stocks.