Around The World Of ETFs

October 21, 2008

Pioneering Active Bond ETF Shuttered

One of the first active bond ETFs, the Bear Stearns Current Yield Fund (AMEX: YYY), has thrown in the towel after an unsuccessful launch. The Board of Trustees of Bear Stearns' Active ETF Trust voted unanimously to liquidate the fund.

YYY may have suffered from a unique set of timing issues more than from lacking a decent investment idea. Bear Stearns as a company was auctioned to J.P. Morgan after it desperately needed to be bailed out as part of the credit meltdown. In addition, the fund lacked a good fund category to track-it was neither a money market nor true short-term bond fund. Most analysts considered the fund an ultrashort-term bond fund, a category that Morningstar recently axed. What's more, it faced competitive pressure from PowerShares, which received considerably more press for its active bond fund than Bear Stearns. And by the time the Invesco PowerShares Active Low Duration Portfolio (NYSEArca: PLK) began trading in mid-April, Bear Stearns was well into the process of being swallowed by J.P. Morgan.

While the closing of the pioneering active bond fund is notable, the closing of ETFs has become a more common event as the industry becomes saturated with product; YYY was the 38th closing of an ETF to be announced so far in 2008.

New International SPDR Sectors Exclude U.S.

State Street Global Advisors took sector ETFs in a new direction in late July with the launch of 10 international sector ETFs on the American Stock Exchange.

Although global sector ETFs have been around for years, SSgA's are the first market-cap-weighted sector ETFs to exclude the U.S. This gives investors more flexibility since most U.S. investors already have a domestic allocation and may not want to duplicate those holdings with sector funds.

The new SSgA funds cover the 10 sectors of the S&P World ex-U.S. Broad Market indexes and include the following:

  • SPDR S&P International Consumer Discretionary Sector ETF (AMEX: IPD)
  • SPDR S&P International Consumer Staples Sector ETF (AMEX: IPS)
  • SPDR S&P International Energy Sector ETF (AMEX: IPW)
  • SPDR S&P International Financial Sector ETF (AMEX: IPF)
  • SPDR S&P International Health Care Sector ETF (AMEX: IRY)
  • SPDR S&P International Industrial Sector ETF (AMEX: IPN)
  • SPDR S&P International Materials Sector ETF (AMEX: IRV)
  • SPDR S&P International Technology Sector ETF (AMEX: IPK)
  • SPDR S&P International Telecommunications Sector ETF (AMEX: IST)
  • SPDR S&P International Utilities Sector ETF (AMEX: IPU)

Each fund charges an expense ratio of 0.50 percent.

XShares To Close 15 HealthShares

In late August, XShares Advisors LLC confirmed that it was planning to close 15 of its HealthShares ETFs and make significant changes to four others that will remain open. The last day of trading for the group was set for September 19.

The moves come after the niche ETF provider said in late June it would shutter its seven real-estate-focused ETFs under the Adelante Shares brand name.

The HealthShares series had done much better in terms of gross assets under management. Since launching in March 2007, they had gathered roughly $100 million in combined assets. According to XShares, about half of that was held in the 15 ETFs that are closing, leaving the remaining four funds with an average of some $12.5 million each.

Van Eck Launches First Global Hard Assets ETF

Van Eck Global and commodities guru Jim Rogers have teamed up to launch a new broad-based commodity equities ETF, the Market Vectors - RVE Hard Assets Producers ETF (AMEX: HAP), the first of its kind in the market. HAP is being positioned as a direct alternative to the iShares S&P North American Natural Resources Sector Index ETF (NYSEArca: IGE). Van Eck also sees it as a timely alternative to the commodity futures ETFs that have become so popular over the past year. The firm said there is more than $30 billion invested in funds linked to futures-based commodity indexes, most notably funds like the PowerShares DB Commodity Index Tracking Fund (AMEX: DBC).

The Van Eck Hard Assets Producers Fund covers 321 companies in 40 countries and across six sectors. Forty-four percent of the fund is invested in stocks outside of the U.S. and Canada, and 60 percent is invested in non-energy companies. That compares with an 80 percent Energy weight in IGE, which is 100 percent allocated to North America. HAP has an expense ratio of 0.65 percent.

PowerShares Debuts Six Global ETFs

Invesco PowerShares has launched six new sector ETFs. Two offer a twist on existing ETF sector strategies: the Global Progressive Transportation Portfolio (NasdaqGM: PTRP) and the Global Biotech Portfolio (NasdaqGM: PBTQ).

PTRP enters as a direct competitor to the iShares Dow Jones Transportation Average Index (NYSEArca: IYT). It will also no doubt grab some attention from investors interested in the recently opened Claymore Securities Claymore/Delta Global Shipping ETF (NYSEArca: SEA). PTRP is based on the Nasdaq OMX Wilder Global Efficient Transportation Index and targets (among other emerging technologies) the makers of lithium batteries and fuel cell technology. A notable difference between IYT and PTRP is the new ETF's global orientation: PTRP holds only 42 percent of its assets in U.S. stocks.

Biotech play PBTQ targets the largest and most liquid biotech stocks. Some big biotech funds already are available in the market, most notably the $1.78 billion iShares NASDAQ Biotech Index (AMEX: IBB). But PBTQ's global twist is the differentiating factor—although there are global health care ETFs, there are no global ETFs covering biotechnology specifically.

PowerShares is also introducing four global commodities sector plays that take aim at an ETF space pioneered by Van Eck Global's Market Vectors family. PowerShares launched the Global Agriculture Portfolio (NasdaqGM: PAGG); Global Coal Portfolio (NasdaqGM: PKOL); Global Steel Portfolio (NasdaqGM: PSTL); Global Gold and Precious Metals Portfolio (NasdaqGM: PSAU), all of which cover sectors already offered as Market Vectors ETFs.

All of the funds charge an expense ratio of 0.75 percent.

Van Eck Taps Mid East Riches With New ETF

Van Eck Global launched The Gulf States Index ETF (NYSEArca: MES), the third ETF to target Middle Eastern countries. It tracks a Dow Jones index of public companies headquartered or doing most of their business in Gulf Cooperation Council countries. The GCC, set up in 1981, is an economic alliance among six member nations.

As of July 10, the ETF's benchmark included five GCC countries: Kuwait (52.3 percent); United Arab Emirates (25.8 percent); Qatar (14.9 percent); Oman (4.4 percent) and Bahrain (2.6 percent). Saudi Arabia, a driving force behind formation of the GCC, was not included in the index because Dow Jones does not consider its markets to be investable. MES's underlying index tracks 40 companies in the GCC using a modified market-cap size weighting methodology.

However, MES was not the first ETF to cover the Middle East exclusively. It actually launched on the heels of the first frontier markets ETF to come from WisdomTree: The dividend-weighted WisdomTree Middle East Dividend Fund (NasdaqGM: GULF) currently covers seven major Middle Eastern markets—Kuwait, United Arab Emirates, Egypt, Qatar, Morocco, Jordan and Oman (although Bahrain is also eligible). The underlying index currently has about 70 components.

The third ETF in the space is the Invesco PowerShares MENA Frontier Countries Portfolio (NasdaqGM: PMNA).

None of the three funds is cheap: MES charges an expense ratio of 0.98 percent, PMNA charges 0.95 percent and GULF charges 0.88 percent.

First Japanese REIT Fund Opens

The Northern Trust ETF family marketed as NETS has brought the industry's first Japanese real estate investment trust fund to market. The NETS Tokyo Stock Exchange REIT Index Fund (NYSEArca: JRE) launched on September 8.

The launch marks the 16th NETS on the market so far. The REITs fund adds a new dimension to Northern's push into the ETF market. Its core ETF focus has been on single-country equity funds; funds, for example, tracking equity indexes in Japan, Hong Kong and many European countries.

The fund charges an expense ratio of 0.47 percent.

BGI Debuts Second Emerging Asia ETF

Barclays Global Investors has launched the iShares MSCI All Country Asia ex-Japan Index ETF (NasdaqGM: AAXJ), on the surface, a direct competitor to the SPDR S&P Emerging Asia Pacific ETF (AMEX: GMF). Both provide exposure to seven markets: China, Taiwan, Hong Kong, India, Thailand, Indonesia and Malaysia. AAXJ adds South Korea and Singapore into its mix, while GMF includes a small exposure to Pakistan. The additions of Singapore and South Korea are notable, as the two countries account for nearly 28 percent of the underlying MSCI benchmark's constituents. Each fund is well-diversified in terms of numbers of stocks, as AAXJ has 218 different names in its portfolio and GMF holds 177.

The new iShares also charges more in terms of expense ratios: 0.74 percent versus 0.60 percent for GMF. Since coming out last March, the SPDR fund run by SSgA has attracted $121.8 million in assets. AAXJ is based on the MSCI All-Country Asia ex-Japan Index, which actually has about 559 constituents, meaning BGI's taking a sampling of that list to create the fund's portfolio. Through June, the index had average annualized returns of 11.71 percent versus the MSCI EAFE Index's 5.83 percent, according to BGI and MSCI.

Benjamin Graham In An ETN?

Deutsche Bank added three new ETNs to its ELEMENTS platform. The new ETNs track the Benjamin Graham Intelligent Value indexes. The indexes, according to a press release from Deutsche Bank, are based on the investment philosophy of Benjamin Graham, which seeks to identify businesses with strong, liquid balance sheets that trade at a discount to their implied intrinsic value."

Benjamin Graham is considered to be the originator of the value investing concept, and a major influence on investors like Warren Buffett. The indexes are designed by HydePark Group, which is owned by Nuveen Investments.

The three value-oriented funds cover the total market and the large-cap and small-cap segments. They include the following: Benjamin Graham Large Cap Value ELEMENTS (NYSEArca: BVL); Benjamin Graham Small Cap Value ELEMENTS (NYSEArca: BSC); Benjamin Graham Total Market Value ELEMENTS (NYSEArca: BVT). Each fund charges an expense ratio of 0.75 percent.

Barclays Offers Investors Asian Currency Income Play

Barclays has launched a series of exchange-traded notes that provide investors with access to emerging Asian currencies. Maybe most interesting about the new ETNs, however, is their monthly interest income payout. The Barclays GEMS Asia 8 ETN (NYSEArca: AYT) is actually the third such dividend-paying currency exchange-traded product on the market, following the Barclays GEMS Index ETN (NYSEArca: JEM) and the Barclays Asian and Gulf Currency Revaluation ETN (NYSEArca: PGD).

Interest payments for AYT will be treated as ordinary income, meaning investors won't get any tax breaks if held in a taxable account.

The idea for AYT came from institutional clients, Barclays said. Currently, of the 34 other ETNs or ETFs on the market providing access to currencies, the closest to AYT is JEM. Like AYT, it holds a basket of currencies through exposure to short-term notes and securities in local markets. But while the newest member of the group represents eight emerging Asian markets, JEM holds 15 different international currencies. AYT charges 0.89 percent.

Claymore Shipping Out With New ETF

Claymore Securities launched the first-ever ETF to cover the global shipping industry. The Claymore/Delta Global Shipping Index (NYSEArca: SEA) covers companies engaged in maritime transportation of goods or in the leasing or operation of ships that transport goods.

It tracks the Delta Global Shipping Index, which covers 30 stocks from around the world. The index provides pure-play coverage, requiring that components derive at least 80 percent of their revenues from maritime shipping.

SEA charges an expense ratio of 0.65 percent.

BGI, Deutsche Bank Ramp Up In European ETF Market

BGI and Deutsche Bank recently rolled out one of the biggest launches of new ETFs on the London Stock Exchange, with the introduction of 19 new portfolios, most of them coming from Deutsche Bank.

BGI added a duo of fixed-income ETFs—the iShares € Covered Bond ETF and the iShares Global Inflation-Linked Bond ETF—to its already-dominant iShares brand. The iShares € Covered Bond ETF is designed to provide investors with liquid exposure to a range of European covered bonds based on the Markit iBoxx € Covered index. The iShares global fixed-income ETF will track the Barclays Capital World Government Inflation-Linked Bond Index. It represents the global universe of inflation-linked bonds issued by the sovereign governments of the major investment-grade-rated economies.

Deutsche Bank's db x-trackers series added 17 offerings to its lineup through the LSE, 15 of which are tied to Dow Jones STOXX 600 sector indexes. Another two ETFs track indexes from MSCI covering Europe's mid-cap and small-cap markets.

First Portugal ETF Launches

SPA ETF Europe Ltd. has teamed up with NYSE Euronext and Portuguese bank Caixa - Banco de Investimento (CaixaBI) to bring out the first-ever ETF in Portugal. The SPA ETF PSI-20 listed in mid-September on the NYSE Euronext in Portugal. It tracks the PSI-20, which is made up of the largest 20 stocks in Portugal based on market-cap size. Shares are being traded on the PSI Geral, the main stock market of the Lisbon Exchange. In addition, the deal is the first continental European distribution deal through which SPA ETF will offer a country-specific fund.

The ETF provider is based in London, and its existing ETFs are based on a series of indexes created by independent research house MarketGrader. The only other European market in which SPA ETF has a foothold is Italy, where it has offered versions of its existing MarketGrader funds.


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