A new investment offering tied to major league sports shows
just how saturated the market for exchange-traded funds has
become over the past few years.
Theres now one comprised of companies that sponsor or
broadcast the four major U.S. professional sports leagues:
football, basketball, baseball and hockey. But some financial
advisers, analysts and investors arent ready to play ball
with the new ETF, ProSports Sponsors Fund (Ticker: FANZ ), and perhaps for good reason.
This is gimmicky. Its the first fund Ive
seen thats based on companies marketing
departments, said Ethan Anderson, a financial adviser at
Rehmann Financial in Grand Rapids, Michigan. I cant
see putting this in a portfolio, except for fun. If a client is
interested in sports, when they watch a game on TV, they know
they own those companies that are advertising.
A 36.4 percent weighting in consumer discretionary stocks,
such as McDonalds, and a 15.1 percent weighting in
technology stocks, such as Microsoft, tilt the fund toward a
growth strategy. Thats fine, experts say, as the
companies are likely doing well and confident if they are
spending big money on sports sponsorships.
But the strategy leaves out the element of price. The
question shouldnt be how fast theyre growing,
said Tom Frederickson, a financial adviser with
the Garrett Planning Network in New York. The question is
how much are you paying for growth. Their screen doesnt
account for valuations.
And if youre simply looking for a large-cap,
growth-oriented ETF, you can find one for much less than the
ProSports Sponsors Funds 0.69 percent expense ratio,
according to Fredrickson and other critics. The average expense
ratio for U.S. large-cap stock ETFs is 0.39 percent, according
In addition, experts say its unlikely that
sponsorships of pro sports leagues lead to a major portion of
revenue for most of the 66 companies in the fund. These
stocks will be affected by so many other factors, said
Mick Heyman of Heyman Investment Counseling in San Diego.
The index on which the fund is based the ProSports
Sponsors Index outperformed the S&P 500 over the
one-, three-, five- and 10-year periods through June 23,
according to the funds sponsor, SportsETFs. ProSports
Sponsors Fund began trading July 11.
Over time we believe that the companies that invest in
pro sports partnerships grow faster than the broader
economy, the funds marketing document states.
Experts arent convinced. Im glad they
believe, said Elisabeth Kashner, director of ETF research
for financial information company FactSet. But belief and
back-testing arent enough.
As justification, ProSports Sponsors Funds management
cites a 2016 study from PwC estimating that sports sponsorships
will grow at a 3.9 percent compound annual rate from 2015
through 2020, reaching $18.7 billion. But a 2014 McKinsey &
Co. report that they also cite says, linking sales
directly to sponsorships is typically challenging.
Nick Fullerton, president and co-founder of SportsETFs, said
in an email that no other industry gives companies access to
such "loyal and passionate" customers.
"We found both statistical and anecdotal evidence that
supports and shows sponsorships and partnerships help drive
revenues," he said. "The official sponsors of the leagues are
getting increasingly sophisticated in how they spend their
marketing budgets and will use their money wisely to get the
greatest returns possible."
The marketing document says the ETF "can be utilized in a
portfolio as a core equity position, and can be viewed as
offering exposure to the S&P 500 with a sports specific
lens." Again, critics take issue with that claim. With its
narrow focus and high fee structure, the fund doesn't represent
a core position if you're seeking an allocation to the entire
In terms of allocation to large-cap stocks, it may be
considered a core position, but you could own the same
companies in a fund without the constraints of the ProSports
Sponsors Fund, said Anderson. Almost two-thirds (43) of the
funds stocks are in the S&P 500. But FactSet
benchmarks it to the MSCI ACWI (All Country World Index) Plus
Frontier Markets index, because it includes foreign stocks.
Rogers Communications of Canada is the new ETFs biggest
Kashner questions the funds decision to equally weight
its 66 holdings, because the smaller companies may carry more
risk. The weighted average market capitalization of companies
in the fund was $89.7 billion as of Aug. 14, just over half the
$172.1 billion total for the iShares S&P 500 Index ETF.
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Anderson wasnt blown away by the qualifications of the
co-founders of SportsETFs. Fund manager Fullerton is a
registered investment adviser, spending the last eight years as
a principal at Fullerton Advisors in San Ramon, California. And
Chief Marketing Officer Jim Kozimor was an Emmy-Award winning
sports broadcaster. The biographies dont look like
those of most money managers, said Anderson.
So, will their fund prove to be an investment winner?
Many fans have an emotional or spiritual attachment to
sports thats similar to religion, according to Kashner.
But the last time I checked thats not a great
investment philosophy, she said. Its divorced
from a cold, hard, analytical approach.
Kasner says the introduction of an investment offering like
the ProSports Sponsors Fund reflects the saturated state of the
ETF market, as the space for broad-based, cheap, vanilla funds
is already occupied.
Most of round 2 and round 3 in complexity have been
taken too, she said. Theres not a lot