AROUND THE WORLD OF ETFS

March 02, 2007

Simply SPDRs

State Street Global Advisors (SSgA) has dropped the streetTRACKS brand name from its family of ETFs, and will consolidate all of its funds under the catchier "SPDRs" moniker.

The rebranding was to begin January 8, and is to be completed in stages throughout the year.

This is the second major rebranding of an ETF fund family in the past year, following Vanguard's decision to give up the unfortunate "VIPERS" moniker and call its ETFs, simply, "Vanguard ETFs."

SSgA is in the midst of a significant effort to reinvigorate its ETF franchise, which recently crossed the $100 billion mark on total assets under management. The company says it will launch a major advertising campaign tied to the rebranding.

S&P Tweaks Portfolio

S&P modified its ETF-only model portfolio to reflect a protective stance for 2007, tacking on an additional 5 percent allocation to fixed income and lowering the U.S. equity exposure by 5 percent. The international exposure, while retaining the same 20 percent allocation as last year, looks radically different: Specific mandates to Japan and Asia were eliminated in favor of broad market exposures, including EAFE weighted at 15 percent and emerging markets weighted at 5 percent. The bond segment is not only larger this year, but is heavily weighted in favor of the Lehman Aggregate, clocking in at 20 percent, while short-term debt has been reduced to 5 percent. This weighting scheme, says S&P, serves as a hedge against a slowing economy.

S&P's portfolio is designed to be held for five years.

Few Gains

Rumors are that 2006 was the biggest year for capital gains in recent history. Analysts predict that investors could cough up over $20 billion in capital gain taxes. Early reports, however, suggest that ETF investors have, by and large, dodged the bullet.

BGI said that it would distribute zero capital gains to the vast majority of its equity and fixed-income ETFs. Only two real estate funds—the iShares Dow Jones U.S. Real Estate Fund (NYSE: IYR) and the iShares Cohen & Steers Realty Majors Index Fund (NYSE: ICF)—will make distributions, totaling $0.37/share in long-term gains for IYR and half a penny per share in long-term gains for ICF. The other 115 iShares funds will issue no gains whatsoever.

PowerShares, meanwhile, managed zero capital gains for its entire family of equity ETFs, while Rydex posted no gains for its popular Rydex S&P Equal Weight ETF (AMEX: RSP) and Rydex Top 50 Index (AMEX: XLG) ETFs, either. WisdomTree had gains in nine of its 30 ETFs, and State Street Global Advisors paid out gains on eight of 42 funds.

Vanguard International

Vanguard filed papers with the SEC for the right to launch a new international index fund. The new fund will track the FTSE All World ex-US Index, and will be the second Vanguard fund to cover the broad ex-U.S. marketplace, joining the Vanguard Total International Stock Index Fund (VGTSX). The FTSE product will be launched with three share classes: Investor shares, Institutional Shares and ETF Shares.

Why does Vanguard need two funds tracking the same space? Think Mounties: VGTSX, like almost all large international funds, includes broad exposure to both developed and emerging markets outside the U.S. But because it tracks an MSCI Index, it does not include Canada: MSCI's indexing system uses "North America" and not the "U.S." as a region, so Canada is lumped in with the USA.

In contrast, Canada makes up about 5 percent of the new FTSE Index: a large enough proportion to have a significant impact on performance. Adding Canada to the MSCI benchmarks would have added approximately 40 basis points per year in annual performance over the past five years.

In an interview with TheStreet.com, Vanguard principal Paul Lohrey said that investors who don't already own the Total International fund should "seriously consider" the FTSE fund. One wonders how long it will be until MSCI switches its benchmarks to include Canada as well.

Interestingly, Vanguard is being very aggressive on its ETF pricing: The new ETF share class will charge 25 basis points, while the Investor shares will levy a 40 basis point fee. That will make the ETF the share class of choice for the vast majority of small investors.

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