Barclays Rolls Out 'Shiller' Sectors ETN

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October 10, 2012
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Barclays carts out the first ETN that’s based on its indexing partnership with Yale’s Robert Shiller.

Barclays Bank Plc, the sponsor behind the iPath family of ETNs, today rolled out an equities-focused ETN using an index developed by Yale finance professor Robert Shiller to target four undervalued sectors, as determined by a standardized CAPE ratio and price momentum over the most recent 12-month period.

The Barclays ETN+ Shiller CAPE ETN (NYSEArca: CAPE), the first exchange-traded product to come out of Barclays’ recently announced indexing collaboration with Shiller, will have an annual “investor fee” of 0.45 percent, according to a prospectus Barclays filed with the Securities and Exchange Commission detailing the new exchange-traded note.

The ETN fits neatly into a broader trend in the exchange-traded product industry toward so-called intelligent beta indexed investment strategies that seek a quasi-active leg up on pure beta products that use market-capitalization indexing methodologies.

One of the biggest ETF launches in the past 18 months was a smart-beta fund cherry-picking lower-volatility stocks that are part of the S&P 500. The PowerShares S&P 500 Low Volatility Portfolio (NYSEArca: SPLV) has attracted almost $2.5 billion in assets since coming to market in May 2011.

The new Barclays ETN uses an index that incorporates the cyclically adjusted price earnings ratio, or CAPE ratio, to assess equity market valuations of nine sectors on a monthly basis to identify the relatively undervalued sectors represented in the S&P 500, according to the prospectus.

The index then selects the top four undervalued sectors that possess relatively stronger price momentum over the past 12 months and allocates an equally weighted notional long position in the total return version of the S&P Select Sector Indices corresponding to the selected sectors.

The prospectus said the ETN will have an initial value of $50 a share.

ETNs are debt obligations backed by a bank, Barclays Bank in the case of CAPE. That means that unlike ETFs, holders of ETNs can lose their entire investment should the backing bank declare bankruptcy.

Including CAPE, Barclays backs six ETNs under the Barclays brand, and 72 in the U.S. under the iPath brand.

The distinction between the two brands is that 72 iPath ETNs are marketed by BlackRock’s iShares unit, the biggest ETF company in the world, while Barclays markets the Barclays notes.

 

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