April 30, 2008

A Different Kind Of Total Market

The new Claymore U.S.-1 Capital Markets Index ETF (AMEX: UEM) seeks to cover most investable stocks traded in America and almost every investment-grade bond traded in the U.S. The portfolio provides access to Treasuries, investment-grade corporates as well as federal mortgage-sponsored assets and agency issues. The ETF’s expense ratio is capped at 0.37% annually through 2010.

UEM’s bond segment is also captured by the Claymore U.S. Capital Markets Bond ETF (AMEX: UBD), which represents about 80% of investable US bonds.

A third ETF, the Claymore U.S. Capital Markets Micro-Term Fixed Income ETF (AMEX: ULQ), includes investment-grade issues with maturities of one year or less. The portfolio will also hold investment-grade commercial paper and certificates of deposits.

The expense ratios on UBD and ULQ are listed at 0.27%.

PowerShares Launches Multiple Funds

PowerShares launched a number of funds in the past few months. One of the most notable is the Power- Shares S&P BuyWrite Portfolio based on the CBOE S&P 500 BuyWrite Index, which tracks the performance of a covered call strategy as applied to the S&P 500 Index. The strategy tends to outperform in down markets, but sacrifices some upside performance when the market is rising. It is often used to reduce volatility in a portfolio. The new ETF trades under the symbol “PBP” on the NYSE Arca exchange and is the first ETF available to investors using the Buy- Write strategy. It charges 0.75%.

PowerShares also launched the PowerShares DWA Developed Market Technical Leaders (NYSE Arca: PIZ) and PowerShares DWA Emerging Markets Technical Leaders (NYSE Arca: PIE). The funds rely on the technical strategies of Dorsey Wright Associates. PIZ charges 0.80%, while PIE charges 0.90%.

The PowerShares FTSE RAFI International Real Estate Portfolio’s (Amex: PRY) underlying index tracks real estate companies from developed markets excluding the United States. It charges 0.75%.

Claymore And AlphaShares Target China

AlphaShares, the index provider that claims Dr. Burton Malkiel as one of its executives, and Claymore Securities, the ETF provider, have collaborated to launch two ETFs in the past few months that address previously uncharted areas of the Chinese market.

The Claymore/AlphaShares China Real Estate ETF launched on the NYSE Arca platform under the symbol ”TAO.” The fund is the first to combine two very hot areas of investment under one umbrella: China and real estate. TAO’s underlying index, the AlphaShares China Real Estate Index, tracks roughly 50 publicly traded companies and REITs that engage primarily in the development, management or ownership of real estate properties in mainland China, Hong Kong and Macau. It includes only shares available to foreign ownership, and eligible companies must have total market capitalizations of at least $500 million to be included in the index. TAO has an expense ratio of 0.65%.

Another fund, the Claymore/Alpha- Shares China Small Cap Index ETF (AMEX: HAO), tracks an index that covers 120 companies between $200 million and $1.5 billion in market capitalization. Individual companies are capped at 5% of the index. According to AlphaShares, the small size of the companies means that it contains fewer banks and government-owned entities. Claymore’s HAO comes with a price tag of 0.70%.

AlphaShares Sells Stake

Private equity firm Northern Lights Ventures has bought a share of an index provider with Burton Malkiel as its chief investment officer.

AlphaShares, which is based in the San Francisco Bay Area, said it has sold an undisclosed stake in its start-up business to the Tacoma, Wash.-based Northern Lights.

The indexing company is headed by the founder and ex-chief executive officer of Active Investment Advisors, Kevin Carter. Its research director, Mark Adams, also came from the firm. AIA was bought by IXIS Asset Management in 2004.

The firm has two ETFs based on its benchmarks: The Claymore/ AlphaShares China Real Estate ETF (NYSE: TAO) launched in December and the Claymore/AlphaShares China Small Cap ETF (AMEX: HAO) opened at the end of January.

The managing director of Northern Lights, Paul Greenwood, will join AlphaShares’ board of directors. Also, AlphaShares board member Julian Rainero has stepped down and the company has converted to an LLC structure.

Vanguard MegaCap Funds

Vanguard launched three index funds covering the “mega-cap” segment of the U.S. stock market; the funds are available as ETF and institutional shares, but not regular investor shares. The ETF shares—the Vanguard Mega Cap 300 (MGC), Vanguard Mega Cap 300 Value (MGV) and Vanguard Mega Cap 300 Growth (MGK) funds— all began trading on the NYSE Arca upon their launch.

While the institutional shares charge an expense ratio of just 0.08%, the ETF shares charge 0.13%. The three funds track the MSCI U.S. Large-Cap 300 Index and its growth and value subindexes.

BGI ETF Covers Emerging Market Debt

Barclays Global Investors added the iShares JPMorgan USD Emerging Markets Bond Index Fund (NYSE Arca: EMB) to its lineup in December; the new fund tracks the JPMorgan EMBI Global Core Index covering sovereign and quasi-sovereign emerging-market debt issued in U.S. dollars.

Previously, PowerShares was the only firm offering an ETF for that particular asset class, with its Power- Shares Emerging Markets Sovereign Debt Portfolio (AMEX: PCY) tracking the DB Emerging Market USD Liquid Balanced Index. PCY was launched in October, and currently has about $35 million in assets.

EMB is more expensive than PCY. The iShares fund charges 60 basis points versus the PowerShares fund’s 50-basis-point expense ratio.

Van Eck Continues Muni Bond Blitz

While the pace of municipal bond ETF launches has largely subsided, Van Eck has continued to build its family after entering the market late.

In January, the firm launched its second muni bond ETF. The Market Vectors-Lehman Brothers AMT-Free Long Municipal Index ETF (AMEX: MLN) tracks the Lehman Brothers AMT-Free Long Continuous Municipal Index. The index is weighted by market value and includes fixed-rate, investment-grade municipal bonds with durations of at least 17 years. As implied by the index’s name, its components are all exempt from the alternative minimum tax. MLN carries a net expense ratio of 0.24%.

In February, Van Eck launched the Market Vectors-Lehman Brothers AMT-Free Short Municipal ETF (AMEX: SMB), which tracks the Lehman Brothers AMT-Free Short Continuous Municipal Index. The index covers investment-grade municipal bonds with a nominal maturity of one to six years. SMB charges a net expense ratio of 0.16%.

The new ETFs join the Market Vectors- Lehman Brothers AMT-Free Intermediate Municipal Index ETF (AMEX: ITM), which was launched December 6 and tracks the Lehman Brothers AMT-Free Intermediate Municipal Index. Van Eck has another three muni bond ETFs in registration.

New Currency iPaths

Barclays Capital has filed for three new currency-based ETNs.

Interestingly, two of the notes will make cash payments to noteholders on a quarterly basis to reflect interest income earned by the note. This stands in contrast to earlier ETNs, which incorporate the value of the interest into the share price of the note. The change comes in response to an IRS tax ruling requiring all ETN holders to pay taxes on interest income on an annual basis. The new notes will incorporate the implied interest over the course of the quarter and then go ”ex-dividend” once the interest is paid. Both will charge 0.89% in expenses.

The first ETN filing with this interest income payout is for the Barclays Asian and Gulf Currency Revaluation Notes, which are designed to provide exposure to five Middle Eastern and Asian market currencies that are officially tied to the value of the U.S. dollar.

Barclays will also make interest payments on the new Barclays GEMS Strategy ETN, where GEMS stands for Global Emerging Markets Strategy. The ETN offers exposure to a 15-currency money market account, incorporating both local currency movements and local interest rates into the value of the note.

The third ETN—and one that Barclays will not make interest payments for—is the Barclays Intelligent Carry ETN, which intends to offer exposure to the carry trade. The carry trade is an institutional strategy that seeks to profit by borrowing money in low-yielding currencies and investing that money in high-yielding currencies. This index uses long and short forward positions in G10 currencies to execute the trade. Interestingly, the ETN charges investors for the bid/ask spread required to buy and sell the various currencies; it levies a fee of 0.007% for each index component. The note charges 0.65%.

Taiwan: The Next ETF Hot Spot?

The Taiwan Stock Exchange has said that deals are in the works to list a wide array of ETFs within the next six months, according to The Financial Times. The exchange currently lists just seven ETFs covering mainly the Taiwan stock market. But the exchange is pursuing additional listings in many ways.

For starters, it is in talks with the Tokyo Stock Exchange about crosslisting both exchanges’ ETFs, and has signed an agreement with the Abu Dhabi Securities Market (ADSM) to jointly develop and list ETFs as well.

Société Générale, which already offers a number of ETFs on the Euronext Paris exchange, has detailed 10 different possible ETFs to list on the Taiwan Stock Exchange, while two more Taiwan firms are looking to list ETFs on their home exchange.

ETFs could provide the Taiwan Stock Exchange with a way to respond to and capitalize on domestic investors’ increasing interest in foreign investment opportunities, rather than losing business to foreign stock exchanges. According to the FT article, Taiwan’s capital outflows have increased in the past few years as a result of pension reform and deregulation in the asset management industry.

Van Eck Offers Pure-Play Gambling ETF

Van Eck Global launched the first gambling-only ETF: The Market Vectors- Gaming ETF (AMEX: BJK) is the only pure-play ETF for that particular industry. Its cap-weighted index divides those companies into five different areas: casinos and related resorts is the biggest, followed by tech, sports and race books, horse racing and online gaming. Although the U.S. is the most heavily represented country, the index takes a global approach. The expense ratio for BJK is 0.65%.

Old CRB Underlies New ETF

GreenHaven Commodity Services launched an ETF tied to an old iteration of the popular CRB Commodity Index. The GreenHaven Continuous Commodity Index ETF (AMEX: GCC) is charging 0.85% in annual fees.

The ETF tracks the Continuous Commodity Total Return Index. That’s an equal-weighted portfolio with 17 commodities ranging from cotton to gold.

The CRB was the first and is still one of the best-known commodity indexes. The fund tracks the CRB Index as it existed prior to a 2005 reformulation, when the benchmark was rebranded the Reuters/Jefferies CRB Index and underwent a major design overhaul.

The GreenHaven ETF, like all commodity ETFs, will invest its collateral cash in Treasuries. Its returns will incorporate changes in the spot prices, income (or losses) from the roll yield on the various contracts and interest income from the collateral Treasuries investments.

Canada Gets First Money Market ETF

Canada has gotten North America’s first money market ETF. Claymore Investments, the second-largest ETF issuer in Canada, has launched the Claymore Premium Money Market ETF (CMR) on the Toronto Stock Exchange. Interestingly, the fund does not track an index.

Money market funds typically hold high-quality, short-term debt, and are mostly used for capital preservation or as cash reserves. They typically pay substantially higher interest than standard savings or brokerage accounts, with a small risk of default. CMR carries an expense ratio of 0.25%. Regular and advisor shares are available.

KOL Tracks Alternative Energy Source

Van Eck’s new Market Vectors - Coal ETF (NYSE Arca: KOL) tracks the coal industry, a nice spot to be in as coal comes into vogue and oil prices continue to rise. According to the World Coal Institute, coal meets roughly a quarter of the world’s energy demand and is the source of 40% of the world’s electricity.

KOL mimics the performance of the recently released Stowe Coal Index, which covers 60 companies from around the world that are involved in the coal industry. The index is weighted by float-adjusted market capitalization and includes stocks from 12 countries. It was up over 103% in 2007 and has a three-year annualized return of 43.81%.

Components are involved in five areas of the coal industry: mining and production, which is the largest subset; mining equipment; transportation; technology; and power generation. KOL charges an expense ratio of 0.65%.

WisdomTree Launches First-Ever India ETF

WisdomTree won the race to get the first ETF to cover India to market in February with the listing of the WisdomTree India Earnings Fund (NYSE Arca: EPI). Roughly one million shares changed hands on the first day of trading.

EPI’s index is weighted by earnings rather than dividends because fewer companies in India pay dividends. Most importantly, the underlying index was constructed with India’s newest foreign capital restrictions in mind; the methodology includes an investable weighting factor that reflects both available float and the government’s foreign investment limits. The WisdomTree India Earnings Index includes approximately 150 stocks.

EPI charges an annual expense ratio of 0.88%.

ProShares Files For 130/30 ETF

ProShares has filed papers with the Securities and Exchange Commission for a new “130/30” ETF.

The new fund will use a proprietary, quantitative analytical system to rank all of the large-cap stocks in the U.S. market. It will then take a 130% long position in the high-ranked stocks and a 30% short position in the low-ranked stocks. The goal is to capture additional alpha and generate excess returns while retaining a net 100% exposure to the market.

This kind of ”130/30” strategy is one of the fastest-growing segments of the financial industry. According to Morgan Stanley, there is now more than $100 billion invested in 130/30 funds worldwide. Most of that money is run by hedge funds and other high-cost products targeted at institutions and ultra-high-net-worth investors, and nearly all of it by active managers. The new ProShares fund, in contrast, will make the strategy available to all investors at relatively low cost using an index-based approach. The index has not been announced.

SSgA Active Target Date ETFs

State Street Global Advisors filed an exemptive relief request with the SEC for the right to launch a family of nine actively managed target date ETFs. According to SSgA, the ETFs will be funds of funds holding other ETFs, and the active management will be in terms of asset allocation. Funds will be available with target dates of 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045 and ”Retirement Income.” They will not track an index, so there is no intraday indicative value. However, SSgA will publish a NAV on a 15-second basis based on the values of the underlying funds and securities.

The new funds will rebalance annually. Should they launch, they would be the first funds to package other ETFs into a tradable ETF package.

WisdomTree Teams With Dreyfus On Cash, Fixed-Income ETFs

WisdomTree Investments announced a new partnership agreement with Dreyfus Corp. to help market its new line of cash and fixed-income ETFs. Under the deal, all WisdomTree cash and fixed-income ETFs will be cobranded and co-marketed by Dreyfus, which is a division of The Bank of New York Mellon.

WisdomTree filed papers with the SEC to launch 12 foreign currency money market funds. The funds will act like traditional money market funds except they will be denominated in foreign currencies and pay local currency rates. The filing includes funds tied to developed market currencies like the British pound, the euro and the Japanese yen, but also emerging markets currencies like the Chinese yuan, Indian rupee and Brazilian real.

WisdomTree ETFs Available In Chile

WisdomTree Investments has expanded into Latin America. The New York-based ETF company says that its filing with the Comisión Clasificadora de Riesgo, which regulates pension funds in Chile, has been approved. As a result, some 34 WisdomTree ETFs from the WisdomTree Trust are now available for investment by Chilean pension funds.

Currently, WisdomTree estimates the country’s pension funds hold about $114 billion in assets. Chile has been very aggressive about encouraging its workers to invest for retirement, and ETFs are already being used by investors, with both iShares and SPDRs funds registered in the country.

The pension plans have also recently seen their restrictions on foreign holdings eased to 40%. WisdomTree didn’t register some of its smaller ETFs in Chile, as the country had set a threshold requirement of at least $20 million in assets.

Frontier ETFs Launch Overseas

As part of its recently formed db x-trackers platform, Deutsche Bank has issued two ETFs focused on so-called frontier markets. Frontier markets are essentially preemerging markets, and they have been undergoing hyper-growth in the past several years.

The db x-trackers ETFs are listed on multiple stock exchanges across Europe. Those include Euronext Paris, Borsa Italiana, Frankfurt Xetra, London Stock Exchange and SWX Swiss Exchange. The funds are supported by a number of market makers providing liquidity in the ETFs, according to DB in a statement.

One fund tracks the FTSE Vietnam Index, which includes about 20 companies, and the other follows the S&P Select Frontiers Index. The latter tracks the S&P Frontiers Index, and offers exposure to 30 companies in markets like the United Arab Emirates, Pakistan, Panama, Cambodia and Bulgaria.

Lehman Enters ETN Market

Lehman Brothers entered the ETN market in February with the launch of three products under the “Opta” name.

The Opta S&P Listed Private Equity Index Net Return ETN (NYSE Arca: PPE) includes the stocks of 30 listed companies whose primary business is private equity investing. It will come with an expense ratio of 0.75%.

The Opta Lehman Brothers Commodity Index Pure Beta Total Return ETN (AMEX: RAW) covers energy, metals, agriculture and livestock. It will have an expense ratio of 0.85%.

The Opta Lehman Brothers Commodity Index Pure Beta Agriculture Total Return ETN (AMEX: EOH) tracks an underlying index that includes eight futures contracts broken down into grains (corn, soybean meal, soybean oil, soybeans, and wheat) and softs (coffee, cotton, and sugar). It will charge an expense ratio of 0.85%.

Both of the commodities products use sophisticated and unusual weighting systems in an attempt to outperform standard commodity benchmarks.

Revenue-Weighted ETF Offer S&P Alternative

Three ETFs from RevenueShares Investor Services were recently launched tracking modified versions of popular S&P benchmarks. The funds weight names by revenue rather than market-cap sizes.

The RevenueShares Large Cap Fund (NYSE: RWL) tracks a revenue- weighted version of the S&P 500, while the RevenueShares Mid Cap Fund (NYSE: RWK) is designed to complement the S&P 400. The RevenueShares Small Cap Fund (NYSE: RWJ) holds the components of the S&P 600.

The idea for a revenue-weighted index was developed by Vince Lowry and his company, VTL Associates. RevenueShares was hired to do sales and marketing and S&P will maintain the new indexes.

The revenue-based ETFs will start out charging 0.49% in annual fees.

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