Around The World Of ETFs

April 20, 2009

 

PowerShares To Launch MBS ETFs

PowerShares filed papers for two new ETFs that would provide exposure to nonagency mortgage-backed securities (MBS). The new PowerShares Prime Non-Agency RMBS Opportunity Fund and the PowerShares Alt-A Non-Agency RMBS Opportunity Fund will offer actively managed exposure to prime and Alt-A residential MBS, respectively. Alt-A mortgages are somewhere between prime and subprime mortgages in terms of their associated risk.

The “nonagency” designation means that these loans do not necessarily fall within the standards set by the Office of Federal Housing Enterprise Oversight and that they have not been issued by a government-sponsored enterprise such as Freddie Mac or Fannie Mae. As a result, they contain far more risk than agency MBS, which are already tracked by a handful of ETFs. The funds, however, will only invest in the most senior and most liquid of the securities.

The new ETFs will be actively managed. That could be a real benefit for the funds, as they access illiquid markets where pricing is not reliable, and where active managers could have a leg up.

VIX-Based ETNs Begin Trading

ETNs designed to provide exposure to futures on the CBOE Volatility Index, or VIX, officially launched at the end of January.

The iPath S&P 500 VIX Short-Term Futures ETN (NYSE Arca: VXX) and the iPath S&P 500 VIX Mid-Term Futures ETN (NYSE Arca: VXZ) are the first exchange-traded products tied to the VIX futures. VXZ’s underlying index tracks a daily rolling long position in the fourth-, fifth-, sixth- and seventh-month VIX futures contracts. VXX’s underlying index tracks a daily rolling long position in the first- and second-month VIX futures contracts. Both come with an expense ratio of 0.89 percent.

There is some debate about how closely the ETNs will track to the spot VIX index.

 

NETS Get Nixed

Chicago-based Northern Trust announced in January that it would close all 17 of its ETFs on Feb. 20.

The decision to shutter the Northern Exchange Traded Shares, or NETS, with about $33 million in assets, was made in consultation with trustees of the funds, the firm said. It noted market conditions, the funds’ failure to attract market interest and the funds’ future growth prospects as key factors in the decision.

Northern Trust had filed with regulators to launch about 27 different ETFs. Several were designed to create access for individual investors and their advisers to markets that hadn’t been available in the past. According to its filings, Northern Trust had 20 specific-country NETS in the works, along with four international REIT funds and three global funds. In all, 17 of those funds were actually launched, and ultimately, it seems, they simply had too few assets to survive.

 

SPA Shuts MarketGrader ETFs Worldwide

Like Northern Trust, SPA ETFs Inc. has pulled all of its products off the market—or rather three different markets.

SPA had six ETFs, of which separate versions existed in three different markets worldwide. The funds were not cross-listed but were offered separately in the U.S., the U.K. and Italy. They were scheduled to be shut down on March 25.

The funds were designed to track quantitative indexes designed by the Fla.-based research shop, MarketGrader. SPA stated that a long-only equity investment strategy was unsuitable for the current market conditions.

All told, the funds had accumulated a little more than $10 million in the U.S. and another $7.5 million abroad at the time of the announcement. The six funds listed in the U.S. included the following:

  • SPA MarketGrader 100 Fund (NYSE Arca: SIH)
  • SPA MarketGrader 200 Fund (NYSE Arca: SNB)
  • SPA MarketGrader Small Cap 100 Fund (NYSE Arca: SSK)
  • SPA MarketGrader Mid Cap 100 Fund (NYSE Arca: SVD)
  • SPA MarketGrader Large Cap 100 Fund (NYSE Arca: SZG)

Despite closing of all its current funds, SPA says that it is not leaving the ETF market.

 

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