Around The World Of ETFs

July 01, 2002

UBS Licenses Morningstar Indexes

Having formally announced the launch of its new style-box-based indexes, Morningstar signed a licensing deal with UBS Global Asset Management, which will license Morningstar's 16 proprietary equity indexes as the basis for exchange traded funds (ETFs).

With much of the index landscape already staked out by ETF providers and often locked up in exclusive deals, UBS saw opportunity and a financial advisor asset allocation market in the Morningstar brand. The new indexes are being calculated by Dow Jones and are based on the widely recognized Morningstar style boxes, which break down the equity and fixed-income universe into nine boxes of value, blend, growth; small, medium, large.

UBS has licensed Morningstar indexes for both the U.S. and Europe, said Joseph LaCorte, managing director for UBS Global Asset Management. Which products and the timing will be decided based upon identification of specific demand.

In building the indexes, we wanted to combine the ways we think people should pick, build and monitor portfolios, said Morningstar Managing Director Don Phillips. Existing indices really were constructed independent of stock and fund research,said Phillips. When we first developed our style boxes we looked at only two valuation factors: p/b and p/e, which was reasonable ten or fifteen years ago. Later we realized the system wasn't perfect, because fund managers aren't just looking backwards. Now the style box methodology also includes some forwardlooking growth criteria.

UBS and Morningstar hope to capitalize both on the style box methodology and the strong brand name that Morningstar enjoys among advisors and that UBS enjoys globally. UBS also has locked in an exclusive deal with STOXX to license its indexes in the U.S. While there is no official word about when the launch of the new ETFs might be, it was hoped that the first UBS ETFs in the United States might be launched in late summer or fall of 2002. UBS has already launched a number of Fresco branded ETFs in Europe.

ProFunds To Launch Leveraged ETFs

ProFund Advisors said it has filed a formal registration statement with the Securities and Exchange Commission (SEC) to launch the world's first leveraged exchange traded funds (ETFs).

If approved, the funds could be the precursor to the first actively managed ETFs. They would be well suited for this role because they are enhanced index funds, not funds featuring active stock picking.

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