Around the World Of ETFs

February 20, 2009


ProShares Jumps Into Currencies & Commodities

ProShares added 12 inverse and leveraged commodities and currency ETFs to its lineup in late 2008. The new products are ProShares’ first forays into commodities and currency ETFs.

Six of the funds are “Ultra” funds, aimed at delivering 200 percent of the daily return of the underlying benchmarks. The other six funds are “UltraShort” and offer -200 percent of the daily return of those same benchmarks.

Each of the new funds charges an expense ratio of 0.95 percent.

The first batch of funds was launched Nov. 25 and included the following ETFs:

• ProShares Ultra DJ-AIG Commodity (NYSE Arca: UCD)

• ProShares UltraShort DJ-AIG Commodity (NYSE Arca: CMD)

• ProShares Ultra DJ-AIG Crude Oil (NYSE Arca: UCO)

• ProShares UltraShort DJ-AIG Crude Oil (NYSE Arca: SCO)

• ProShares Ultra Euro (NYSE Arca: ULE)

• ProShares UltraShort Euro (NYSE Arca: EUO)

• ProShares Ultra Yen (NYSE Arca: YCL)

• ProShares UltraShort Yen (NYSE Arca: YCS)

The second batch was launched Dec. 4:

• ProShares Ultra Gold (NYSE Arca: UGL)

• ProShares UltraShort Gold (NYSE Arca: GLL)

• ProShares Ultra Silver (NYSE Arca: AGQ)

• ProShares UltraShort Silver (NYSE Arca: ZSL)

VIX-Tracking ETNs On The Way

At long last, it looks like there will soon be exchange-traded products tied to the much-followed CBOE VIX Volatility Index, or VIX. Barclays Capital, the unit of London-based Barclays PLC and a sibling of Barclays Global Investors, has filed to launch a pair of exchange-traded notes that will track the futures based on the VIX.

There’s no word yet when the iPath S&P 500 VIX Short-Term Futures and the iPath S&P 500 VIX Mid-Term Futures ETNs will debut, but it could be within weeks rather than months, from the looks of the most recent filing.

According to the filings, the new VIX ETNs will charge net fees to investors of 0.89 percent per year and trade on the NYSE Arca exchange. Both ETNs will continuously roll over contracts.

The short-term iPath will trade one- and two-month VIX futures. The benchmark’s goal is to maintain a weighted average of one month, according to the prospectus. The midterm iPath will rotate among four-, five-, six- and seven-month contracts as they come due, shooting for a weighted average maturity of five months.

The VIX Index is calculated based on the prices of put and call options on the S&P 500. The filing noted that futures on the VIX Index provide investors the ability to invest in forward volatility based on their view of the future direction or movement of the VIX Index.

The ETNs’ underlying benchmarks were created by Standard & Poor’s and have limited backtested performance. Also, it notes that VIX futures have only traded freely since March 2004, “and not all futures of all relevant maturities have traded at all times since that data.”

During a two-year period ended in late December 2007, backtested performance graphs included in the documents show the short-term VIX benchmark would have doubled in value. In the same time frame, the S&P 500 Total Return Index actually lost value.

The question for investors—and it is a big one—is how well these rolling futures contracts will do in tracking the VIX itself. The spot VIX is hugely volatile, spiking on days of market crisis and then quickly receding back to quieter levels. Many believe that VIX futures do not adequately capture the near-term volatility revealed in the VIX itself. Still, these will be better than nothing.

Vanguard To Add International Small-Cap Fund

In December, Vanguard Group announced it had filed papers with the SEC to launch the Vanguard FTSE All-World ex-US Small-Cap Index Fund. The fund will come in Institutional, Investor and ETF share classes.

The absence of a small-cap international option among its funds has been an issue for investors in Vanguard’s funds for years. Vanguard executives reportedly have said they were focusing on picking the right index and making sure it provided access to the most investable areas of what can be a highly illiquid overseas marketplace.

The FTSE All-World ex-US Small-Cap ETF will come with an expense ratio of 0.38 percent.

Market Vectors Family Adds Indonesia ETF

The largest economy in Southeast Asia now has its first ETF, with the January launch of the Market Vectors Indonesia Index ETF (NYSE Arca: IDX).

The new fund’s expense ratio is expected to wind up at 0.71 percent. According to Van Eck, Indonesia has one of the lowest correlations to developed markets among emerging markets.

IDX’s underlying index had 25 stocks, entering 2009, each of which was based in Indonesia or had at least 50 percent of its revenues generated within that country’s borders. Banks made up 31 percent of its constituents; Energy 15.7 percent; Telecom 12.7 percent and Materials 11.4 percent.


Direxion Launches Continue

A little more than a month after launching the most highly leveraged ETFs yet, Direxion Shares expanded its lineup in December with six funds covering the international and U.S. technology markets. It followed up in January with another pair of funds covering the domestic mid-cap segment.

So far, the Direxion ETFs have been launched in pairs, with the “Bull” fund of each pair seeking to capture 300 percent of the daily returns of the underlying index and the “Bear” fund offering the inverse.

The funds launched in December are tied to the MSCI EAFE Index, the MSCI Emerging Markets Index and the Russell 1000 Technology Index, while the pair of funds launched in January is tied to the Russell MidCap Index.

The launches bring the total number of DirexionShares on the market to 18.

The new funds include the following:

• Direxion Developed Markets Bull 3x Shares (NYSE Arca: DZK)

• Direxion Developed Markets Bear 3x Shares (NYSE Arca: DPK)

• Direxion Emerging Markets Bull 3x Shares (NYSE Arca: EDC)

• Direxion Emerging Markets Bear 3x Shares (NYSE Arca: EDZ)

• Direxion Technology Bull 3x Shares (NYSE Arca: TYH)

• Direxion Technology Bear 3x Shares (NYSE Arca: TYP)

• Direxion MidCap Bull 3x Shares (NYSE Arca: MWJ)

• Direxion MidCap Bear 3x Shares (NYSE Arca: MWN)

Each carries a net expense ratio of 0.95 percent.

WisdomTree Turns To Large-Cap Growth

WisdomTree Investments expanded its offerings into a new area by launching an ETF focused squarely on large-cap growth stocks on Dec. 4.

The WisdomTree LargeCap Growth ETF (NYSE Arca: ROI) differs from the large-cap growth pack mainly through its use of earnings to weight stocks in its portfolio. ROI’s index selects and weights around 300 stocks based on four growth factors: earnings per share, sales per share, book value per share and stock price per share. By contrast, the Russell 1000 Growth Index uses a combination of price-to-book values and projected earnings estimates to select stocks for its index.

ROI charges an expense ratio of 0.38 percent.

RevenueShares Rolls Out ADR Fund

RevenueShares launched the RevenueShares ADR Fund ETF (NYSE Arca: RTR) on Nov. 21.

RTR tracks the RevenueShares ADR Index, a custom benchmark designed by the ETF company to take a revenues-based slant on market-cap-weighted methodologies. The rules-driven process of RTR reweights the constituent securities of the S&P ADR Index according to the revenue earned by the companies in that index, subject to certain tax diversification requirements.

The resulting RevenueShares ADR Index is designed to contain the same securities as the S&P ADR Index, but in different proportions. In addition to the EAFE countries, it also covers Canada, Mexico and South America.

RTR comes with an expense ratio of 0.60 percent.

AirShares ETF Launches

The second exchange-traded product listed in the U.S. providing access to the global carbon emissions markets launched Dec. 15.

The AirShares EU Carbon Allowances Fund (NYSE Arca: ASO) is actually a commodity pool that tracks a basket of exchange-traded futures contracts for European Union Allowances (EUAs). Each contract provides for delivery of 1,000 EUAs at a specified price. Each EUA permits the holder to emit 1 tonne of carbon dioxide.

The new “ETF-like” product holds contracts that expire each December, beginning in 2009 and extending through 2012. As contracts approach their December expiration, the fund sells expiring contracts and replaces them with contracts of later expirations, according to XShares Advisors, which is sponsoring the shares.

ASO started with $5 million in seed money and charges an expense ratio of 0.85 percent annually.

ETF Securities To Enter U.S. Market

ETF Securities, a leading provider of commodity-based exchange-traded products in Europe, is entering the U.S. market.

The London-based company has more than $6.5 billion in assets under management and more than 100 different products trading in Europe. On Dec. 19, the company filed papers with the SEC for the right to launch a silver bullion ETF in the U.S.

The fund itself appears to be similar to existing precious metals ETFs. It will hold silver bullion as its sole asset, in much the same way as the iShares Silver Trust (NYSE Arca: SLV). There is no word yet on how much the fund will charge in expenses or when the fund will list.


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