September 01, 2006

Massive PowerShares Expansion

PowerShares Capital Management filed with the SEC for the right to launch 31 new ETFs, including a full line-up of RAFI-branded "fundamental indexing" ETFs, a host of Intellidex funds and a number of interesting stand-alone portfolios.

The RAFI funds are based on the "fundamental indexing" methodology of Rob Arnott's Research Affiliates (RAFI). PowerShares already sponsors one RAFI fund, the RAFI U.S. 1000 ETF (ticker: PRF), which debuted in December 2005 and has attracted more than $115 million in assets. The new funds include one U.S. small-/mid-cap ETF and nine sector-based funds.

The remaining 21 filings cover a wide range of ETFs tied to a number of different strategies. Among these, the India Tiger Portfolio may prove to be one of the more popular. The fund will track an equal-dollar-weighted index of Indian companies that trade on U.S. exchanges, and will likely be the first India-specific ETF on the U.S. market. A full listing of the funds is available at

One concern about the new ETFs is that they will charge 70 basis points in expenses, pus up the boundaries of expense ratios among ETFs.

Vanguard Embraces Its ETFs

Vanguard  has dropped the VIPERs brand name from its rapidly growing family of ETFs. The funds wil now be called, simpl "Vanguard ETFs" Th move impacts all 24 Vanguard ETFs, wh together hold more than $15.4 billion in assets. M see this move as a tacit a edgement by Vanguar that ETFs will play a critica role in the company's future .

Exemptive Relief

In related news, Vanguard received exemptive relief from the SEC permitting mutual funds to invest in Vanguard ETFs in excess of the limits outlined in section 12(d)(1) of the Investment Company Act of 1940. A number of ETF fund families have received this kind of exemption recently, which allows mutual funds to place more than 5 percent of their assets in a given ETF.

Pounds, And Pesos, And Krona: Oh My!

Following on the re markable success of its first currency ETF, the Euro Currency Trust (FXE), Rydex Investments launched six new Currency Shares ETFs:

• Currency Shares Australian Dollar Trust (FXA)
• Currency Shares British Pound Sterling Trust (FXB)
• Currency Shares Canadian Dollar Trust (FXC )
• Currency Shares Mexican Peso Trust (FXM)
• Currency Shares Swedish Krona Trust (FXS)
• Currency Shares Swiss Franc Trust (FXF)

The funds have a beautiful simplicity: They hold the given foreign currency as their sole asset, with the requisite number of pounds (or pesos or krona) deposited at the London branch of J.P. Morgan. The deposits earn interest income based on the home country funds rate. At launch, the peso paid the highest yield, at 6.43 percent, while the Swiss franc

Offered just 0.78 percent. All of the ETFs charge 40 basis points in annual expenses .

Better Bullion?

Van Eck Associates, an old-line, hard assets securities firm, joined the ETF revolution by launching the new Market Vectors-Gold Miners ETF (ticker: GDX) onto the American Stock Exchange (AMEX). GDX is designed to track the Amex Gold Miners Index, a 44-component, modified cap-weighted index of U.S.-list-ed gold mining companies.

With GDX trading alongside the wildly popular gold bullion ETFs, the question for investors is whether it is better to gain exposure to the physital metal or to gold mining compahe The arguments could easily fill this agazine. Generally speaking, gold mining shares are more volatile than gold bullion, often moving twice as much as the underlying metal. They also come with the corporate risks involved in owning any company, including executive asance, environmental litigation xposure and other issues. On the flip side, gold bullion is woefully ax-disadvantaged for wealthy tors: Gold bullion is classified as a ectible, "making it subject to a 28 cent tax from the IRS, whereas gold mining companies are classified as an investment" and subject to the 15 percent maximum long-term capital  gains tax.

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