PowerShares once again broke new ground in the exchange-traded fund industry with the launch of the first ETFs of ETFs, the PowerShares Autonomic Global Asset Portfolios. The three funds were launched May 20 and track indexes of ETFs designed by Boston-based advisory firm New Frontier Advisors (NFA).
The PowerShares Autonomic Growth NFA Global Asset Portfolio (AMEX: PTO), PowerShares Autonomic Balanced Growth NFA Global Asset Portfolio (AMEX: PAO) and PowerShares Autonomic Balanced NFA Global Asset Portfolio (AMEX: PCA) represent three different asset allocation strategies and risk levels, with differing amounts assigned to several different asset classes.
The equity allocation encompasses domestic stocks, foreign stocks and real estate, while the fixed-income bucket covers fixed income, commodities and currency.
The indexes are constructed to capture a certain risk level, and NFA uses its proprietary “Resampled Efficiency” optimization processes to construct an index of ETFs that will deliver maximum returns for the desired risk level. Each ETF has 27 holdings, and not surprisingly, many of those are PowerShares products.
PowerShares says that the ETF of ETFs structure has significant cost and tax advantages over the traditional “fund of funds” format.
All three funds charge an expense ratio of 0.25%.
Vanguard Launches Global Fund
Vanguard has added a fully global ETF to its lineup of funds with the launch of the Vanguard Total World Stock Index Fund, which comes in investor, institutional and ETF shares.
The new Vanguard fund tracks the FTSE All-World Index, which weights the United States at about 41%, and the rest of the world—both developed and emerging markets—at 59% of the index. In all, the index covers approximately 2,900 large- and mid-cap stocks domiciled in 47 different countries.
The ETF shares, which trade on the NYSEArca exchange under the symbol VT, charge an expense ratio of 0.25%.
First Exchange-Traded 130/30 Product Debuts
The KEYnotes First Trust Enhanced 130/30 Large Cap Index ETN (AMEX: JFT) is the first exchange-traded product to track a 130/30 strategy.
JPMorgan Chase is the ETN’s issuer, while First Trust Advisors developed its underlying benchmark. The portfolio is a modified equal-weighted total return index designed to offer 130% long and 30% short exposure to selected large-capitalization U.S. publicly traded equity securities. The 130/30 type of strategies are popular with hedge fund managers.
JFT charges an annual expense ratio of 0.95%.
WisdomTree And Dreyfus Launch Active Currency ETFs
In May and June, WisdomTree rolled out eight currency ETFs, seven of which are the result of its co-branding relationship with The Dreyfus Corporation.
Technically, the new funds are considered actively managed by the Securities & Exchange Commission, although the goal is to provide straight exposure to a money-market-style account in the relevant currencies.
The new funds include the following:
• WisdomTree Dreyfus Chinese Yuan Fund (NYSEArca: CYB)
• WisdomTree Dreyfus Indian Rupee Fund (NYSEArca: ICN)
• WisdomTree Dreyfus Brazilian Real Fund (NYSEArca: BZF)
• WisdomTree Dreyfus Euro Fund (NYSEArca: EU)
• WisdomTree Dreyfus Japanese Yen Fund (NYSEArca: JYF)
• WisdomTree Dreyfus South African Rand Fund (NYSEArca: SZR)
• WisdomTree Dreyfus New Zealand Dollar Fund (NYSEArca: BNZ)
• WisdomTree U.S. Current Income Fund (NYSEArca: USY)
USY is the first money-market-style ETF to trade in the U.S.
All of the funds invest primarily in short-term, investment-grade debt and seek to maintain an average portfolio maturity of 60 days.
USY charges an expense ratio of 0.25%. EU and JYF both charge 0.35%, while the other five funds charge 0.45%.
MacroShares Oil Up/Oil Down Reincarnated
The MacroShares Oil Up and Oil Down funds have been resurrected … sort of.
In early July, MacroMarkets LLC launched the MacroShares $100 Oil Up (AMEX: UOY) and the MacroShares $100 Oil Down (AMEX: DOY) funds. Like the recently closed MacroShares, these also track the price of oil, but with a key difference.
The whole MacroShares concept can be described as a simple teeter-totter. The funds don’t actually hold the underlying assets, but rather, Treasuries. The money invested in the two funds flows between them according to whether the underlying benchmark is going up or down.
For the last pair of MacroShares, which also tracked the price of oil, the “fulcrum” for the teeter-totter was set at $60/barrel for oil, forcing it to liquidate when the price of oil neared $120/barrel (and all the assets flowed into the “Up” fund, emptying the “Down” fund). The fulcrum for the new shares though, as their name implies, is set at $100/barrel, and if the price of light sweet crude remains above $185 for three consecutive business days, the funds will terminate.
UOY and DOY both charge expense ratios of 0.95%.
MacroMarkets Targets Housing
MacroMarkets LLC has filed papers with the Securities and Exchange Commission for the right to launch Up and Down Macros tied to the S&P/Case-Shiller Composite 10 Home Price Index, the leading index for home prices across the nation. Its value, reported monthly, is tied to the average price of a home in 10 major metropolitan markets.
The new Macros will allow investors to bet on the direction of the home price index and could be a useful hedging tool. The funds will have a teeter-totter structure similar to the MacroShares Oil Up/Oil Down funds, with assets flowing between the paired funds according to the movements of the underlying index.
The MacroShares Major Metro Housing Up (NYSEArca: UMM) ETF will deliver two times the return of the benchmark index, while the MacroShares Major Metro Housing Down (NYSEArca: DMM) will deliver two times the inverse return of the index.
New ETNs Are First Under DB, PowerShares Co-Branding Deal
Deutsche Bank once again expanded its lineup of leveraged and inverse exchange-traded notes covering portions of the commodities markets with the launch of two product suites for base metals and crude oil.
However, now it is co-branding the products with PowerShares, as it has done with its commodity and currency ETFs. Existing Deutsche Bank ETNs have also been re-branded under the “PowerShares DB” label.
The new funds include the following:
• PowerShares DB Base Metals Double Short ETN: (NYSEArca: BOM)
• PowerShares DB Base Metals Double Long ETN: (NYSEArca: BDD)
• PowerShares DB Base Metals Short ETN: (NYSEArca: BOS)
• PowerShares DB Base Metals Long ETN: (NYSEArca: BDG)
• PowerShares DB Crude Oil Double Short ETN: (NYSEArca: DTO)
• PowerShares DB Crude Oil Short ETN: (NYSEArca: SZO)
• PowerShares DB Crude Oil Double Long ETN: (NYSEArca: DXO)
• PowerShares DB Crude Oil Long ETN: (NYSEArca: OLO)
The long and double-long ETNs seek to capture 100% and 200% of their underlying indexes’ monthly performance, while the short and double-short ETNs promise -100% and -200% of their underlying indexes’ monthly performance.
The base metals ETNs are linked to the Deutsche Bank Liquid Commodity Index – Optimum Yield Industrial Metals, which tracks aluminum, copper and zinc futures contracts. The oil contracts, however, are linked to two different indexes. SZO and DTO, the short notes, are tied to the Deutsche Bank Liquid Commodity Index - Light Crude; while OLO and DXO, the long notes, are tied to the Deutsche Bank Liquid Commodity Index - Optimum Yield Crude Oil.
The “Optimum Yield” indexes use a different roll methodology that optimizes returns when a commodities market is in backwardation and minimizes losses when the market is in contango.
The other ETNs now marketed under the PowerShares DB brand are tied to versions of the broad Deutsche Bank Liquid Commodity Index or its gold and agriculture subindexes.
All of the new ETNs charge an expense ratio of 0.75%.
ALPS Debuts With Global Real Estate ETF
ALPS Holdings Inc.—known mainly as a service provider to the investment management industry—rolled out its first ETF, the Cohen & Steers Global Realty Majors ETF (AMEX: GRI), in early May. GRI has an underlying index that covers 75 real estate companies from developed markets in North America, the Asia-Pacific region and Europe.
Components are chosen from a global universe that includes real estate investment trusts (REITs) and REIT-like companies. Eligible companies are evaluated regarding a number of qualitative and quantitative criteria, including their ownership of real estate, management track record, market position, real estate portfolio quality, corporate governance and capital structure. The index also takes into consideration each country’s percentage of global GDP and representation in the global real estate market when selecting stocks for the index. It is weighted by modified market capitalization.
GRI charges an annual expense ratio of 0.55%.
More Nets Arrive On The Scene
Now that Northern Trust has begun launching its long-awaited “NETS” (Northern Trust Exchange-Traded Shares), new ones have been making regular appearances. Six funds have been added to the firm’s lineup during the last couple of months:
• NETS BEL 20 Index Fund (NYSEArca: BRU)
• NETS AEX-Index Fund (NYSEArca: AEX)
• NETS TA-25 Index Fund (NYSEArca: TAV)
• NETS PSI-20 Index Fund (NYSEArca: LIS)
• NETS Hang Seng China Enterprises Index Fund (NYSEArca: SNO)
• NETS ISEQ 20 Index Fund (NYSEArca: IQE)
The NETS generally track the markets of foreign countries using their local indexes. This pits them against the only other family of country-specific indexes—Barclays Global Investors’ iShares MSCI ETFs. However, LIS and IQE are the first U.S.-listed ETFs to track those particular markets (Portugal and Ireland, respectively).
In most cases, the NETS are cheaper than the corresponding iShares. SNO and TAV charge 51 and 70 basis points, respectively, while the other ETFs charge expense ratios of 0.47%.
SSgA Launches Three International ETFs
In May, State Street Global Advisors rolled out a trio of international ETFs.
One, the SPDR DJ Wilshire Global Real Estate ETF (AMEX: RWO), is the third global real estate ETF to hit the market. At 50 basis points, it is cheaper than its two competitors. RWO’s index includes more than 240 commercial and residential real estate companies domiciled in 23 countries across the globe, including the U.S.
SSgA also launched the SPDR S&P International Mid Cap ETF (AMEX: MDD). It’s built to track an index with more than 850 companies with market caps between $2 billion and $5 billion from 25 developed markets outside the U.S. It carries an annual expense ratio of 0.45% and provides U.S. investors with another tool to fine-tune their international allocations.
Finally, the firm rolled out the U.S. market’s first capitalization-weighted, small-cap emerging markets exchange-traded fund. The SPDR S&P Emerging Markets Small Cap ETF (AMEX: EWX) tracks the S&P/Citigroup Emerging Market Small Cap Index. EWX charges an expense ratio of 0.65%.
Claymore Hopes To Turn CEF Into ETF
Pending shareholder and SEC approval, Claymore Advisors plans to convert the Claymore/Raymond James SB-1 Equity Fund (NYSE: RYJ), which is a closed-end fund, into an exchange-traded fund. RYJ’s board of trustees has already given preliminary approval to the idea.
The fund has a clause that says that after 18 months of trading, if it should trade at a discount of 10% or more for more than 75 consecutive days, it will convert from a CEF to an ETF. The fund was trading at a significant discount, but it would sporadically dip slightly below the 10% threshold, resetting the count for the 75-day period.
RYJ’s stated goal is capital appreciation, which it seeks to achieve by investing in equities rated SB-1, or “Strong Buy 1,” by equity analyst firm Raymond James & Associates.
A filing to create an ETF tracking an index similar to RYJ’s current holdings is currently with the SEC, and the matter will also be put to a shareholder vote during the fund’s annual shareholder meeting on or before August 29.
New ELEMENTS Takes Different Approach To Commodities
Launched in June, the ELEMENTS Linked to the S&P Commodity Trends Indicator - Total Return (NYSEArca: LSC) covers 16 commodity futures in six different sectors, but rather than simply using long positions in each commodity, LSC takes a long/short approach based on momentum trends in each commodity sector.
The S&P CTI’s sectors include Energy, Grains, Softs, Livestock, Precious Metals and Industrial Metals.
The ETN is the first to be issued by HSBC USA Inc.; it charges an expense ratio of 0.75%.
New iShares Cover Alternative Energy, China
Barclays Global Investors launched four funds in June. Two cover alternative energy markets, while the other two cover the timber industry and China.
The iShares S&P Global Clean Energy Index Fund (NASDAQ: ICLN) tracks the S&P Global Clean Energy Index, which covers 30 companies operating in such areas as biofuels, ethanol and geothermal, solar, wind and hydroelectric energy.
The iShares S&P Global Nuclear Energy Index Fund (NASDAQ: NUCL) tracks an index with 24 constituents from around the world that fall into two subcategories: nuclear production and materials, and equipment and services.
The iShares S&P Global Timber & Forestry Index Fund (NASDAQ: WOOD) tracks a 25-stock index of companies that either own timberland or produce paper-related products.
The iShares FTSE China (HK Listed) Index Fund (NASDAQ: FCHI) follows a subset of the FTSE All-World Universe Index that covers 90 mid-cap and large-cap stocks, including both “red chip” firms and H-shares.
FCHI carries a 0.74% expense ratio, while the other funds charge 0.48%.
Ameristock Closing Five Bond ETFs
On June 19, Ameristock Corp. closed its five Treasury bond ETFs that launched last year. Ameristock was the funds’ advisor and worked with Ryan ALM Inc., a well-known fixed-income asset manager that provided the underlying indexes.
The bond portfolios had roughly $13 million in combined assets when the liquidation was announced.
The closed funds included the following:
Ameristock/Ryan 1-Year Treasury (AMEX: GKA)
Ameristock/Ryan 2-Year Treasury (AMEX: GKB)
Ameristock/Ryan 5-Year Treasury (AMEX: GKC)
Ameristock/Ryan 10-Year Treasury (AMEX: GKD)
Ameristock/Ryan 20-Year Treasury (AMEX: GKE)
A New Wind Blows In Two ETFs
First Trust Advisors launched the first wind energy exchange-traded fund in June. The First Trust ISE Global Wind Energy Index Fund (NYSEArca: FAN) was followed a couple weeks later by the PowerShares Global Wind Energy Portfolio (NASDAQ: PWND).
FAN’s underlying index, the ISE Global Wind Energy Index, was developed by the International Securities Exchange and has 67 components. PWND’s underlying index, developed by alternative energy researcher Clean Edge Inc. and the NASDAQ’s indexing arm, contains 31 companies. Both funds are global in focus.
The Global Wind Energy Council (GWEC) projects that the global wind market will grow 155% by 2012 and account for 3% of global electricity production.
FAN charges a net expense ratio of 0.60%; PWND charges 0.75%.
Barclays Rolls Out Carbon And Commodity ETNs
In late June, Barclays launched 11 new exchange-traded notes through its iPaths lineup, including one tracking carbon emissions.
Linked to the Barclays Capital Global Carbon Index Total Return, the iPath Global Carbon ETN (NYSEArca: GRN) is the first exchange-traded product designed to provide investors with exposure to the global price of carbon.
The 10 other ETNs introduced track subindexes of the Dow Jones-AIG Commodity Index Total Return:
• iPath Dow Jones-AIG Tin Total Return Sub-Index ETN (NYSEArca: JJT)
• iPath Dow Jones-AIG Sugar Total Return Sub-Index ETN (NYSEArca: SGG)
• iPath Dow Jones-AIG Softs Total Return Sub-Index ETN (NYSEArca: JJS)
• iPath Dow Jones-AIG Precious Metals Total Return Sub-Index ETN (NYSEArca: JJP)
• iPath Dow Jones-AIG Platinum Total Return Sub-Index ETN (NYSEArca: PG)
• iPath Dow Jones-AIG Lead Total Return Sub-Index ETN (NYSEArca: LD)
• iPath Dow Jones-AIG Cotton Total Return Sub-Index ETN (NYSEArca: BAL)
• iPath Dow Jones-AIG Coffee Total Return Sub-Index ETN (NYSEArca: JO)
• iPath Dow Jones-AIG Cocoa Total Return Sub-Index ETN (NYSEArca: NIB)
• iPath Dow Jones-AIG Aluminum Total Return Sub-Index ETN (NYSEArca: JJU)
Each ETN charges an expense ratio of 0.75%.
Adelante Shares To Liquidate
XShares Advisors LLC is liquidating one of the fund families it manages, the Adelante Shares, which cover various slices of the real estate market.
At the time of the announcement, the family of seven ETFs had accumulated assets totaling roughly $17 million since its initial launch at the end of September 2007.
The family includes the following funds:
• Adelante Shares RE Growth ETF (NYSEArca: AGV)
• Adelante Shares RE Value ETF (NYSEArca: AVU)
• Adelante Shares RE Classics ETF (NYSEArca: ACK)
• Adelante Shares RE Kings ETF (NYSEArca: AKB)
• Adelante Shares RE Yield Plus ETF (NYSEArca: ATY)
• Adelante Shares RE Shelter ETF (NYSEArca: AQS)
• Adelante Shares RE Composite ETF (NYSEArca: ACB)
Realty Funds Inc., the investment company in charge of the funds, said that market conditions, combined with the small size of the funds and their inability to attract market interest, were the main reasons behind the decision.
July 24 was scheduled to be the last day of trading, with the actual liquidation finalizing on July 31.
