March 02, 2007




Crazy Eights

The paucity of fixed-income ETFs in the U.S. has baffled industry observers for some time. Despite representing a market nearly as large as equities, there have been just six fixed-income ETFs available to investors until recently.

BGI, developer of the original six fixed-income funds, significantly expanded its bond ETF offerings with the launch of eight new funds onto the NYSE in January.

The new funds are shown in the blue box below. The funds complement the existing iShares funds, and fill out BGI's offerings in the Treasury, Corporate and Mixed-Security markets. It's nice to see the expense ratios on the funds stay low.

There are other fixed-income ETFs in development: Ameristock, creator of the U.S. Oil Fund (AMEX: USO), is working on five fixed-income Treasury bond funds tied to indexes from Ryan ALM.

Milken Cookies

In related news, BGI filed papers with the SEC to launch a new junk bond ETF. According to the filing, the fund is designed to track the International Index Co.'s iBoxx Liquid High Yield Index, which covers 50 of the "most liquid and tradable U.S. dollar-denominated, high-yield corporate bonds for sale in the United States."

Vanguard Says "En Garde"

In related news, Vanguard appears ready to challenge BGI's hegemony in the fixed-income ETF space. The indexing giant filed papers with the SEC for the right to offer ETF shares on four of its popular bond funds: the Vanguard Total Bond Market Index Fund, Vanguard Short-Term Bond Index Fund, Vanguard Intermediate-Term Bond Index Fund and Vanguard Long-Term Bond Index Fund.

The ETFs will charge expenses of just 11 basis points, far below the 15-20 basis point fees levied by BGI. The fees are also substantially lower than the 18-20 basis point fees Vanguard charges for the comparable Investor shares.

The Claymore Clipper

Claymore Advisors continues to lay plans for rapid expansion in the ETF market. Claymore, which already runs an array of unusual ETFs, has filed with the SEC for the right to launch 14 new ETFs that use 14 different approaches to try to "beat the market."

The funds track indexes from 10 different index providers, and run the gamut in terms of investing philosophy. They use a bewildering variety of fundamental factors, momentum analysis and general indexing mojo. The quirks of these methodologies, along with the "black box" nature of the underlying strategies, mean that any backtested results should be treated with caution.

The most interesting filings are created in partnership with Sabrient. The new Claymore/Sabrient CEF Balanced Opportunity and Claymore/Sabrient CEF Income Opportunity funds are ETFs-of-CEFs: They hold multiple closed-end funds in a single, open-ended ETF structure.

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