Around The World Of ETFs

November 01, 2007

High-Yield Emerging Markets

WisdomTree launched a new dividend-weighted emerging markets ETF on July 13 that boasts an eye-popping 6.47 percent index yield. The Wisdom Tree Emerging Markets High-Yielding Equity Fund (NYSE: DEM) debuted on the New York Stock Exchange (NYSE). On a backtested basis, it has a generally positive record against the benchmark MSCI Emerging Markets Index, although it lags on a 5-year basis.

With its high-yield focus, the WisdomTree index differs significantly from the MSCI index. For instance, the WisdomTree index cuts back exposure to the information technology sector significantly. Country allocations also differ, with the WisdomTree fund significantly overweighting Taiwan, Thailand and Malaysia, while excluding China altogether, even though China nets an approximately 10 percent weight in the MSCI index.

The WisdomTree index has a slightly lower 3-year standard deviation than MSCI’s Emerging Markets index (16.7 percent vs. 17.3 percent). It also (not surprisingly) has a lower price-to-book ratio (2.25 vs. 2.6). Interestingly, the WisdomTree ETF is also cheaper than the iShares MSCI Emerging Markets ETF (AMEX: EEM), at 0.63 percent vs. 0.75 percent in expenses. The cheapest emerging markets ETF is the Vanguard Emerging Markets ETF (AMEX: VWO), which charges 0.30 percent in expenses.

BGI Targets Small-Cap International

Barclays Global Investors (BGI) has filed papers with the SEC for the right to launch three new small-cap international ETFs: the iShares MSCI EAFE Small Cap Index Fund, the iShares MSCI EM (Emerging Markets) Small Cap Index Fund and the iShares MSCI Japan Small Cap Index Fund.

The new funds all track recently launched small cap indexes created by MSCI Barra during the recent revamp of its indexing lineup. The EAFE fund will charge 0.40 percent in expenses, while EM will charge 0.75 percent and Japan 0.59 percent.

The move comes as more and more investors look toward small-cap international for noncorrelated returns. Many believe that small caps will be more exposed to local economies and will therefore provide superior diversification benefits compared to large-cap international equities, which are increasingly correlated with the U.S. market.

BGI Adds International Real Estate

BGI filled one of the few remaining holes in its broad ETF lineup this summer with the launch of the new iShares S&P World Ex-US Property Index Fund (NYSE: WPS). The fund tracks the S&P/Citigroup BMI World ex-US Property Index and serves as a complement to BGI’s existing group of seven U.S. REIT and real estate ETFs.

The international real estate industry is drawing a lot of attention as the domestic real estate situation continues to deteriorate. In addition to the BGI fund, there are currently two other international real estate ETFs trading today. The SPDR Dow Jones Wilshire International Real Estate ETF (AMEX: RWX) tracks the Dow Jones Wilshire Ex-U.S. Real Estate Security Index and charges a 0.60 percent expense ratio. The WisdomTree International Real Estate Fund (NYSE: DRW) tracks the company’s proprietary index and carries a slightly cheaper expense ratio of 0.58 percent. The iShares fund trumps both of these with an expense ratio of just 0.48 percent.

A Luxury ETF

Claymore launched the Claymore/Robb Report Global Luxury Index ETF (NYSE: ROB) in July. The unique new fund tracks the Robb Report Global Luxury Index, which is published by The Robb Report and covers companies that provide luxury goods and services.

By some accounts, this fund could offer investors an interesting return profile. An old investing adage says that the rich are different and that their shopping patterns differ as well. Specifically, the rich don’t vary their spending habits that much, even during economic downturns; recession or no recession, we all need that Tiffany necklace. As a result, companies providing luxury goods and services are sometimes shielded from negative economic news.

These companies also play to a growing market. The current combined wealth of the world’s high net worth individuals is now estimated at $37 trillion and is expected to reach $52 trillion within four years. Meanwhile, the luxury goods market, currently at $150 billion, is expected grow at 6 percent to 7 percent annually over the next five years. For a rather luxurious 70-basis-point expense ratio, ROB gives the average investor a way to harness that projected growth and stability.

Van Eck Adds Two ETF “Firsts”

Van Eck Global has added two new ETFs to its small but growing Market Vectors family. The Market Vectors Nuclear Energy ETF began trading August 15 on the AMEX under the symbol NLR, while the Market Vectors Agribusiness ETF launched on September 5 with the symbol MOO. Both represent the first ETFs of their kind to trade in the United States.

NLR is based on the Deutsche Börse’s DAX global Nuclear Energy Index. It includes 38 companies from several countries including companies involved in uranium mining, nuclear plants, equipment, uranium enrichment, uranium storage and nuclear fuel transport.

Meanwhile, MOO tracks the DAX Agribusiness Index, which covers agriculture chemicals, agriproduct operations, agricultural equipment, livestock operations and ethanol/biodiesel. The index covers 40 companies trading on 13 global exchanges worldwide, and offers investors a unique play on the hot agriculture market. Both funds have an expense ratio of 0.65 percent.

PowerShares Plans Fixed-Income ETFs

PowerShares has filed prospectuses with the SEC to launch 13 fixed-income ETFs.

One of the funds included in the filing, the PowerShares Emerging Markets Sovereign Debt Portfolio, is expected to be the first emerging markets debt portfolio to hit the ETF market. The fund is expected to begin trading in October. Other funds included in the filing are the PowerShares Aggregate Preferred Portfolio, the PowerShares High Yield USD Bond Portfolio, the PowerShares Investment Grade Corporate Bond Portfolio and the PowerShares Aggregate Bond Portfolio. An additional four funds in the filing cover the U.S. Treasury market, tied to five-, 10-, 20- and 30-year Treasuries using a laddered strategy.

The other filings covered municipal bonds. The PowerShares Insured National Municipal Bond Portfolio will track the Merrill Lynch Insured Core Municipal Securities Index, which covers insured securities with an average rating of AAA. Meanwhile, the PowerShares National Municipal Bond Portfolio tracks the Merrill Lynch US Core Municipal Series Index, which covers debt with an S&P rating of BBB or higher. The remaining ETFs mentioned in the filing are for a New York muni fund and a California muni fund, two of the biggest markets for municipal bonds in the country.

PowerShares Wins Exemption

PowerShares has received an exemption from the SEC allowing other mutual funds to invest large sums of money in PowerShares ETFs. Restrictions typically prevent mutual funds from owning more than 3 percent of another fund’s total voting shares, 5 percent of total assets for a single fund and 10 percent for two or more funds. The exemption removes those restrictions.

The ruling is pretty standard: Most major ETF providers have sought and received a similar ruling, including BGI, State Street Global Advisors (SSgA) and Vanguard. However, it helps even the playing field between PowerShares and those other ETF giants.

Claymore Launches Some Super ETFs

Claymore Securities launched three new ETFs tied to “Super Sectors” from Morningstar. The launches bring Claymore’s ETF lineup to 35 funds.

The Morningstar Supersectors indexes divide the broad U.S. equity markets into three buckets: service, manufacturing and information.

The Service Super Sector includes business services, financial services, consumer services and healthcare companies. Manufacturing includes energy, industrial materials, consumer goods and utility companies. The Information Super Sector covers software, hardware, media and telecommunications companies.

The Claymore/Morningstar Information Super Sector Index ETF (NYSE: MZN), the Claymore/Morningstar Service Super Sector Index ETF (NYSE: MZO) and the Claymore/Morningstar Manufacturing Super Sector Index ETF (NYSE:MZG) carry expense ratios of 0.40 percent.

SET ETF Finally Trading In Thailand

Thailand finally has its first ETF, and U.S. investors may benefit. After an IPO that began in late August for the ThaiDEX SET 50 ETF, TDX began trading on September 6 on the Stock Exchange of Thailand (SET). Unlike U.S. ETFs, which launch with seed money from specialist firms, the initial assets in certain overseas markets ETFs come through an IPO/sales process.

The new ETF will track the SET 50, Thailand’s blue-chip stock index. The fund is exempt from the usual capital controls that are applied to mutual funds, allowing foreign investors to put significant assets in the fund.

SET expects the ETF to be cross-listed on other Asian exchanges next year, according to a Dow Jones Newswires article. The article also said that the SET plans to launch sector-based ETFs in the future.

DJ-AIG Commodity Index Sees Second European ETF

European investors now have a choice of two ETFs tied to the popular Dow Jones-AIG Commodity Index. INDEXCHANGE Investment AG launched the Dow Jones-AIG Commodity SwapEX on August 21 on the Deutsche Borse’s XTF segment. The new fund kicked off trading with nearly €20 million in assets.

ETF Securities currently trades the ETFS All Commodities DJ-AIGCI (ticker AIGC, on multiple European exchanges). In the U.S., Barclays Capital offers the iPath DJAIG exchange-traded note (NYSE: DJP), which is currently the world’s largest exchange-traded commodity basket product, with approximately $2 billion in assets.

The new fund fills a vacancy in INDEXCHANGE’s broad offering of ETFs, which does not include any other commodity-based products. It has an expense ratio of 0.45 percent, less than AIGC’s of 0.49 percent. INDEXCHANGE is a subsidiary of Barclays Bank.

Claymore Plans To Merge Two Funds In Canada

The Canadian affiliate of Claymore Securities is merging two similar ETFs as it looks to boost liquidity and grow assets in the funds. The two funds are the Claymore Canadian Fundamental 100 Monthly Income ETF (TSX: RFI) and Claymore Canadian Fundamental Index ETF (TSX: CRQ).

Both funds track “fundamental” indexes designed by Rob Arnott’s firm, Research Affiliates; the index tied to RFI was designed by Research Affiliates alone, while the one behind CRQ was designed in partnership with FTSE. The two funds hold eight of their top 10 components in common.

Still, the funds are not identical. RFI has 100 different components, while CRQ holds just 57. RFI has about CAD20 million in assets versus CAD16 million for CRQ, but CRQ appears to have higher volumes, and will be the “last fund standing” when the two are merged.

Shareholders were scheduled to vote on September 24, and the proposal needs approval from a two-thirds majority to take effect.

Long-Term Oil ETFs

ETF Securities, the European commodities-focused ETF provider, recently launched six funds designed to give investors exposure to the long-term price expectations for crude oil. The move is part of a broader trend in the ETF industry to develop new approaches to the energy market that are designed in part to sidestep the vicious “contango” that has—until recently—been harming returns in futures-based funds.

The new ETF Securities funds will be tied to the 1-, 2- and 3-year futures contracts in the two leading types of oil: Brent crude and West Texas Intermediate. The funds were scheduled to launch first on the London Stock Exchange, and will charge 0.49 percent in expenses.

By focusing further out the “oil yield curve,” the new ETFs from ETF Securities may be more closely tied to the long-term price trends of oil, rather than to the vagaries of the commodities futures market.

In the U.S., Victoria Bay Asset Management, the proprietor of the U.S. Oil Fund (AMEX: USO), has filed for a new ETF that will track a blended average of the next 12 months’ worth of oil futures contracts.

Black Economic Empowerment

ETF Absa Capital, a division of Absa Group, and Vunani Capital, are jointly launching an ETF on South Africa’s Johannesburg Stock Exchange (JSE) that favors companies with high ratings in the area of black economic empowerment (BEE). The new product will be called the NewSA ETF and will track blue-chip companies in the JSE Top 40 Index using a modified weighting scheme. The weightings of the components will be based upon the companies’ BEE status, as determined by Empowerdex, a rating agency. The ETF was scheduled to launch on September 19. Absa Group is a subsidiary of Barclays Bank.


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