In early April, PowerShareslaunched three new exchange-tradedfunds that evaluate well-knownmarkets in innovative ways.
The PowerShares Global NuclearEnergy Portfolio (NYSE Arca: PKN)uses an underlying index with ahybrid weighting methodology combiningequal weighting and marketcapitalizationweighting to track thenuclear energy market. The index isprovided by WNA Global Indexes,which was formed last year in partnershipwith the World Nuclear Association, an industry trade group.PKN charges 0.75 percent.
PKN charges 0.75 percent.The PowerShares FTSE NASDAQSmall Cap Portfolio (NASDAQ: PQSC)invests in the smallest 10 percent ofthe broader FTSE NASDAQ Index.The index is capitalization-weightedand adjusted annually. As of March,it included some 1,159 companies.
The PowerShares NASDAQ Next-QPortfolio (NASDAQ: PNXQ) does justwhat its name implies: It buys the50 securities next in line to replacestocks in the popular NASDAQ-100Index (which forms the basis forthe QQQ ETF, hence “Next-Q”). It ismarket-cap weighted.
PQSC and PNXQ both charge0.70 percent.
BGI Launches New Funds
On the same day it launchedits all-world ETF, BGI launched atrio of single-country iShares: theiShares MSCI Israel Capped InvestableMarket Index Fund (NYSE Arca:EIS), iShares MSCI Turkey InvestableMarket Index Fund (NYSEArca: TUR) and iShares MSCI ThailandInvestable Market Index Fund(NYSE Arca: THD). Each charges0.74 percent and tracks foreignmarkets not previously covered byU.S.-listed ETFs.
Also included in the Barclayslaunch was the iShares MSCI ACWIex-US Index Fund (NASDAQ: ACWX),which charges 0.45 percent andtracks the same index as the establishedSPDR MSCI ACWI Ex-US ETF(AMEX: CWI) from State StreetGlobal Advisors.
ProShares Launches First Inverse Bond ETF
U.S.-based ProShare Advisorslaunched the world’s first inversefixed-income ETFs on May 1.
The ProShares UltraShort Lehman7-10 Year Treasury ETF (AMEX: PST)and the ProShares UltraShort Lehman20+ Year Treasury ETF (AMEX:TBT) are designed to deliver twicethe inverse of the daily performanceof their underlying index. The twofunds each charge an expense ratioof 0.95 percent.
Van Eck, Claymore Launch Solar-Powered ETFs
The rainy month of April heraldedthe launch of two new globalsolar-focused ETFs. Skyrocketing oilprices, along with growing environmentalconcerns, are creating agrowth area for solar products andservices markets. Currently, solarpower provides less than 1 percentof the world’s electricity.
The Claymore ETF (TAN) tracksthe MAC Global Solar Energy Index,while the Market Vectors ETF (KWT)tracks the Ardour Solar Energy Index.Both indexes favor pure-play solarcompanies, the KWT index more so.Both indexes also currently containabout 27 companies—holding 20 ofthem in common. First Solar is thecompany with the highest weightingin both indexes. The two indexes’country weightings are very similar.
Both charge 0.65 percent inexpenses.
New ETF Warms To Heating Oil
Victoria Bay rounded out itssuite of energy ETFs with the Aprillaunch of the United States HeatingOil Fund (AMEX: UHN). UHN trackschanges in the price of heating oilas measured by futures contractstraded on the New York MercantileExchange. It invests in near-monthcontracts, except when the nearmonthcontract is within two weeksof expiration, in which case it willinvest in the next month’s contract.
The fund’s early switch is designedto lessen the impact of contangoand related market forces.
Victoria Bay is registered as acommodity pool operator and had$1.1 billion in assets under managementas of December 31, 2007.Investors in UHN will benefit frominterest income as well.
The fund charges an expenseratio of 0.69 percent.
Direxion’s Triple Threat
covers 36 proposed ETFs offeringtriple-long and triple-short exposureto some major market indexes. Byconstruction, the “Bull” funds willseek to capture three times the performanceof the underlying index,while the “Bear” funds will offerthree times the inverse of the performanceof the underlying index.
The 18 indexes that will underliethe funds include the S&P 500, MSCIBroad Market Index, NASDAQ-100,Dow Jones Industrial Average, S&PMidCap 400 Index, Russell 2000Index, Nikkei 225 Index, MSCI EAFE,MSCI Emerging Markets Index, S&PBRIC 40 Index, FTSE/Xinhua China 25Index, Indus India Index, S&P LatinAmerica Index, MSCI Commodity-Related Equity Index, Energy SelectSector Index, Financial Select SectorIndex, Dow Jones U.S. Real EstateIndex and S&P U.S. HomebuildingSelect Industry Index.
The prospectus lists the managementfees for each ETF at 0.75percent.
The filing clearly looks to build onthe success of the ProShares familyof ETFs, designed to deliver 200 percentand -200 percent of the returnof their benchmark indexes. But willinvestors really want 3x returns?
PowerShares Files For Frontier ETF
Invesco PowerShares recentlysubmitted a prospectus to the Securities& Exchange Commission for afrontier markets ETF.
The PowerShares MENA FrontierCountries Portfolio will trackthe Middle East and Africa FrontierCountries Index, which covers50 stocks—five each from Nigeria,Lebanon, Egypt, Morocco, Oman,Jordan, Kuwait, Bahrain, Qatar andthe United Arab Emirates. Componentsmust have market capitalizationsof at least $500 million. Theindex is rebalanced quarterly andtakes into account foreign ownership restrictions at each review. Theindex provider was not identified.
Investors have begun to turnto frontier markets as they displaycontinued outperformance in comparisonto developed and emergingmarkets, and as emerging marketsbegin to correlate more closely withdeveloped markets in terms of performance.To date, however, investorshave relatively limited choicesin ETFs that access these markets.
U.S. Gets Its First Global TIPS ETF
The first U.S.-based global internationalTreasury inflation-protectedsecurities ETF launched on March19, opening exposure for investorsto TIPS in 18 different countries and15 different currencies.
The SPDR DB International GovernmentInflation-Protected BondETF (AMEX: WIP) includes TIPSissued in both developed and emergingforeign markets, with 70 percentdeveloped exposure and 30 percentemerging markets exposure.WIP has 47 different holdings,mostly A-rated and above in creditquality. The average life of thosebonds is listed at 9.06 years.The fund follows the DeutscheBank Global Government ex-U.S. InflationLinked Bond Capped Index. Inthe past 12 months, that benchmarkhas returned 20.9 percent. About 12percent of those gains were currencyrelated,another 5 percent were associatedwith inflation adjustments and2 percent came from coupon interestpayments. Less than 1 percent camefrom price appreciation.The real yield on WIP is around2.01 percent, reflecting a worldwideflight to quality as credit marketscontinue to struggle from theU.S.-led mortgage meltdown.Since the fund deals with governmentdebt and buys in foreign currencies,it should be relatively liquid. Someof the ETF’s currencies include theeuro, yen, pound, real and the krona.
The expense ratio on WIP islisted at 0.50 percent
UBS Enters ETN Market
Swiss-based financial services giantUBS has joined the growing field ofexchange-traded note providers withthe launch of eight commodities andenergy index-based ETNs this April.
The new UBS notes are listed onthe NYSE Arca exchange and aremarketed as E-TRACS. The ETNs aimto provide a blended approach tocommodities investing by trackingcontracts with different maturities,i.e., buying not just the July oil contract,but small positions in the Julycontract, the August contract, etc.Each ETN tracks the performance ofthe UBS Bloomberg Constant Maturity Commodity Index (CMCI)—whichUBS says is the first benchmark commodityindex to diversify across bothcommodities and maturities—orone of its subindexes. By spreadingits exposure across multiple maturities,the fund may mitigate theimpacts of contango and backwardationand more closely approximatemovements in the spot price of thetargeted commodities.
The UBS ETNs trade under thefollowing ticker symbols: CMCIIndex (UCI), CMCI Agriculture Index(UAG), CMCI Livestock Index (UBC),CMCI Industrial Metals Index (UBM),CMCI Food Index (FUD), CMCI EnergyIndex (UBN), CMCI Gold Index(UBZ) and CMCI Silver Index (USV).UBZ charges 0.30 percent, whileUSV charges 0.40 percent. The restof the ETNs charge 0.65 percent.
In May, the firm followed up withthe launch of the first exchangetradedproducts to cover the platinummarket: the E-TRACS UBS LongPlatinum ETN (NYSE Arca: PTM) andthe E-TRACKS UBS Short PlatinumETN (NYSE Arca: PTD).
Van Eck Enters ETN Market With Morgan Stanley
Morgan Stanley has teamed upwith Van Eck Global to launch currencyETNs. The initial productsoffer exposure to the Chinese renminbiand Indian rupee. The MarketVectors - Chinese Renminbi/USD ETN (NYSE Arca: CNY) andMarket Vectors - Indian Rupee/USDETN (NYSE Arca: INR) are the firstexchange-traded products to offerexposure to those two currencies.
The notes are designed to go upin value when the named currencyappreciates against the U.S. dollar,and down when the dollar strengthens.Both notes track an index tiedto currency futures, which allowsthem to get around local marketrestrictions on spot currency transactions.The ETNs are underwrittenby Morgan Stanley; Van Eck is themarketing agent. The notes charge0.55 percent in annual fees.
In a second venture in May, VanEck and Morgan Stanley joined thedouble-leveraged and double-shortETN market with the launch of theMarket Vectors Double Long EuroETN (NYSE Arca: URR) and the MarketVectors Double Short Euro ETN(NYSE Arca: DRR). URR’s underlyingindex doubles the daily performanceof the euro against the dollar, whileDRR’s index does more or less theopposite. URR and DRR charge 0.65percent in expenses.
Unlike most currency products,these four products earn interestbased on the U.S. Federal Funds interestrate, not local interest rates. Additionally, none of these ETNs pays outinterest income; interest is insteadadded to the share value of the note.Interest accrual presents tax complicationsfor investors, as IRS rulesrequire investors to pay annual taxeson this notional interest.
Deutsche Bank Adds Eight More ETNs
In April, Deutsche Bank addedeight new commodities ETNs offeringshort and long exposure—fourcovering the agriculture commoditiessector and four that track thebroad-based commodities indexes.Both product groups include long,double-long, short and double-shortversions. The long and double-longfunds aim to deliver 100 percent and200 percent of the monthly returnof the index, while the short anddouble-short funds aim to deliver-100 percent and -200 percent of theindex’s monthly return.
The ag ETNs were launched first,on April 15, and include the DBAgriculture Double Short ETN (NYSEArca: AGA), the DB Agriculture DoubleLong ETN (NYSE Arca: DAG), theDB Agriculture Short ETN (NYSEArca: ADZ) and the DB AgricultureLong ETN (NYSE Arca: AGF).
The broad-based commoditiesnotes were launched April 29 andare the DB Commodity DoubleShort ETN (NYSE Arca: DEE), theDB Commodity Double Long ETN(NYSE Arca: DYY), the DB CommodityShort ETN (NYSE Arca: DDP) andthe DB Commodity Long ETN (NYSEArca: DPU). The long ETNs trackthe Optimum Yield version of theDBLCI, while the short funds trackthe standard version.
All of the agriculture and broadbasedcommodities ETNs carry anexpense ratio of 0.75 percent.
Within the first two weeks of April,the ELEMENTS platform saw thelaunch of four new ETNs, all issuedby Credit Suisse (rated AA-/Aa1).Three of the new notes cover sectionsof the commodities market,while the fourth offers exposure tothe industry emerging around thereduction of global warming.
The three new commodities ETNstrack subindexes of the MLCX (MerrillLynch Commodity index eXtra)that cover livestock, precious metalsand gold. The MLCX Precious MetalsELEMENTS ETN (NYSE Arca: PMY)covers gold (52 percent), silver (32percent), platinum (8 percent) andpalladium (8 percent). The MLCXLivestock ELEMENTS ETN (AMEX:LSO) tracks futures contracts in leanhogs (30 percent) and live cattle (70percent). The MLCX Gold ELEMENTSETN (AMEX: GOE) invests only in goldfutures contracts. Although PMY andLSO both charge annual expenseratios of 0.75 percent, GOE chargesjust 0.375 percent.
The Global Warming ELEMENTSETN (NYSE Arca: GWO) is a uniqueproduct that tracks the Credit SuisseGlobal Warming Index, which covers50 companies with business activitiesfocused on reducing global warming,such as the production of alternativeenergy and energy efficiency solutions.It charges 0.75 percent.
New Commodities ETFs Launch In London
In mid-March, ETF Securities(ETFS) rolled out 33 leveraged commodityETFs (designed to deliver200 percent of the daily performanceof the benchmark index) andfour short ETFs (designed to deliver-100 percent of the daily performanceof the benchmark index).The new products trade on the LondonStock Exchange, and all of themtrack the Dow Jones-AIG CommodityIndex and its subindexes.
The four short ETFs are linked to theDJ-AIGCI’s cocoa, lead, platinum and tinsubindexes. The leveraged funds coverthose four commodities plus aluminum,coffee, copper, corn, cotton, crude oil,gasoline, gold, heating oil, lean hogs,live cattle, natural gas, nickel, silver,soybean oil, soybeans, sugar, wheat,and zinc. There are also 10 leveragedfunds that track the broad DJ-AIGCI andnine of its subsectors.
The funds charge an annual feeof 0.98 percent.
Canada Scoops U.S. With Grain Commodities ETFs
In March, Canadian firm BetaProManagement Inc. continued the rolloutof its leveraged and short commoditiesETFs with the launch of two funds tiedto the Dow Jones-AIG Grains Sub-Indexon the Toronto Stock Exchange.
The Horizons BetaPro DJ-AIG AgriculturalGrains Bull Plus ETF (HAU)aims to produce 200 percent of thedaily returns of the underlying index,while the Horizons BetaPro DJ-AIGAgricultural Bear Plus ETF (HAD) isdesigned to capture 200 percent ofthe inverse of the daily returns of theindex. The funds each carry a managementfee of 1.15 percent.
The DJ-AIG Grains sector includescorn, soybeans and wheat. The U.S.does not have any exchange-tradedproducts that offer short or leveragedexposure to the grains sectorspecifically.