AROUND THE WORLD OF ETFs

December 14, 2009

Guggenheim Completes Claymore Purchase

In mid-October, privately held institutional money manager Guggenheim Partners completed its acquisition of Claymore Group Inc. The deal covers all aspects of Claymore’s operations, including Claymore Securities Inc., Claymore Investments Inc. in Canada and Claymore Advisors, LLC.

The deal was originally announced in July. Claymore is the 13th-largest ETF provider in the United States, with 34 ETFs that have a combined total of $2.2 billion in assets under management.

SSgA Launches VRDO ETF

State Street Global Advisors launched the world’s second variable rate demand obligation ETF, the SPDR S&P VRDO Municipal Bond ETF (NYSE Arca: VRD), on Sept. 24. It tracks the performance of the S&P National AMT-Free Municipal VRDO Index, which holds VRDOs issued by U.S. states, local governments and agencies. The fund charges 0.20 percent in annual expenses.

VRD follows in the footsteps of the PowerShares VRDO Tax-Free Weekly Portfolio (NYSE Arca: PVI), an ETF that launched in November 2007 providing similar exposure to the VRDO market, which has accumulated nearly $1 billion in assets.

VRDOs are municipal bonds that can be “put back” to their issuers at full value on a weekly basis, and tend to hold very little risk.

At its launch, PVI was paying a tax-free 30-day SEC yield of 0.84 percent.

BGI Rolls Out Mega-Cap Funds

Barclays Global Investors added three new mega-cap ETFs to its lineup, with the debut of the iShares Russell Top 200 Index Fund (NYSE Arca: IWL), iShares Russell Top 200 Growth Index Fund (NYSE Arca: IWY) and the iShares Russell Top 200 Value Index Fund (NYSE Arca: IWX). Each charges 0.20 percent in annual expenses.

The Russell Top 200 Index measures the performance of the largest 200 U.S.-listed companies.

New iShares Covers Eastern Europe

The parade of new emerging markets ETFs continued in early October with the launch of the iShares MSCI Emerging Markets Eastern Europe Index Fund (NYSE Arca: ESR).

The fund tracks a free-float-adjusted market capitalization index measuring the equity performance of four countries: At launch, Russia dominated the lineup at 75 percent of the portfolio; followed by Poland, at 13 percent; Czech Republic at 6 percent; and Hungary, at 6 percent. Roughly half of the fund is invested in energy names, with Gazprom and Lukoil as its top two holdings (about one-third of the portfolio).

ESR is the second emerging market Europe ETF to hit the market, following the SPDR S&P Emerging Europe ETF (NYSE Arca: GUR). GUR is also heavily concentrated in Russia, albeit less so than ESR.

The new ETF has an annual expense ratio of 0.72 percent, compared with 0.60 percent for GUR.

BarCap Halts Share Creations For PGM

Barclays announced on Oct. 16 that it would temporarily stop creating more shares of the iPath Dow Jones-UBS Platinum Subindex Total Return ETN (NYSE Arca: PGM), effective immediately. PGM tracks the performance of front-month platinum futures contracts traded on the New York Mercantile Exchange.

At about $100 million in assets, PGM is a relatively small product. However, the platinum futures market is a very thin market, and the New York Mercantile Exchange has tight “accountability” limits in the platinum space, beyond which the exchange can force holders to reduce their positions. Currently that limit is 1,500 net futures positions, almost equal to PGM’s portfolio at the time of the announcement.

PGM was the fifth exchange-traded product to put a freeze on creations. At press time, it was trading at a 22 percent premium.

The Commodity Futures Trading Commission is expected to announce new federal position limits in the commodity futures space later this year.

 

Claymore Rolls Out China All-Cap ETF

Newly acquired Claymore Securities, Inc., launched its third China-focused ETF in mid-October. The Claymore/AlphaShares China All-Cap ETF (NYSE Arca: YAO) is designed to provide balanced exposure to investable small-, mid- and large-cap Chinese companies.

The ETF holds 99 securities, with a capitalization breakdown tilted slightly toward mid- and small-cap stocks.

The fund faces competition from three established ETFs covering China’s market. Its biggest rival is the $9.4 billion iShares FTSE/Xinhua China 25 ETF (NYSE Arca: FXI), which holds a focused portfolio of 25 mega-cap stocks. Meanwhile, the PowerShares Golden Dragon Halter USX China Portfolio (NYSE Arca: PGJ) and SPDR S&P China ETF (NYSE Arca: GXC) each have about $450 million in assets.

YAO carries an expense ratio of 0.70 percent, slightly below FXI’s 0.74 percent expense ratio, on par with PGJ’s 0.70 percent and above GXC’s 0.59 percent.

USCF Debuts Short Oil ETF

In September, United States Commod­ity Funds LLC rolled out a new ETF designed to provide short exposure to the crude oil market. The United States Short Oil Fund (NYSE Arca: DNO) aims to capture the inverse of the daily return of the front-month West Texas Intermediate crude oil futures contract, as traded on the New York Mercantile Exchange.

On a one-day basis, the fund should mirror the returns of the popular United States Crude Oil Fund (NYSE Arca: USO). Over longer time frames, the returns may diverge due to compounding.

Unlike most leveraged and inverse products, DNO does not use swaps to achieve its exposure. Instead, it takes short positions in the actual underlying futures contracts.

DNO charges 0.60 percent in annual expenses.

IndexIQ Debuts Two More ETFs

ETF provider IndexIQ rolled out two more ETFs in October. The IQ ARB Global Resources ETF (NYSE Arca: GRES) and the IQ CPI Inflation Hedged ETF (NYSE Arca: CPI) charge expense ratios of 0.75 and 0.65 percent, respectively.

GRES invests in commodity-related equities using a sector rotation strategy. It covers eight distinct commodity sectors: energy, industrial metals, precious metals, food and fiber, livestock, timber, water and coal. Sectors are underweighted or overweighted based on valuation and price momentum.

CPI is an ETF of ETFs that seeks to outperform the return of the Consumer Price Index by 2-3 percent per year. Component ETFs are chosen by a rules-based strategy that considers the historical performance of various asset classes during inflationary environments.

ALPS Debuts Jefferies Funds

ALPS is sponsoring three new funds from Jefferies Asset Management that track the Thomson Reuters/Jefferies In-The-Ground CRB Global Commodity Equity Index and two of its subindexes.

The underlying index of the Jefferies TR/J CRB Global Commodity Equity Index Fund (NYSE Arca: CRBQ) covers 145 companies that produce energy, agricultural products, raw metals and precious metals.

CRBQ, however, was just the first fund in the family; it debuted in September. October saw the launch of the Jefferies TR/J CRB Global Agriculture Equity Index Fund (NYSE Arca: CRBA) and Jefferies TR/J CRB Global Industrial Metals Equity Index Fund (NYSE Arca: CRBI). CRBQ and CRBA compete directly with existing ETFs, but CRBI is the first global, broad-based mining ETF to focus strictly on industrial and base metals.

All three funds charge annual expense ratios of 0.65 percent.

UBS Launches DJP Competitor

Near the end of October, UBS launched its first new ETN in more than a year. The firm had rolled out its E-Tracs family of ETNs in the first half of 2008 and then saw them languish—no doubt in part because of the credit disaster that followed in the second half of the year. But the firm’s partial ownership of the popular Dow Jones-UBS Commodity Index (formerly the DJ-AIG Commodity Index) may come with some serious upside.

The E-TRACS Dow Jones-UBS Commodity Index Total Return ETN (NYSE Arca: DJCI) tracks the popular Dow Jones-UBS Commodity Index, a broadly diversified index of 19 commodity futures. It charges investors just 0.50 percent in annual expenses. That’s in marked contrast to the market-dominating iPath DJ-UBS Commodity Index Total Return ETN (NYSE Arca: DJP), which charges 75 basis points. DJP is the largest ETN on the market in terms of assets, at $1.9 billion, but it looks like it could face serious competition from DJCI.

Pimco Launches FIVZ, ZROZ

Pimco’s newest bond ETFs began trading in early November, with the launch of the Pimco 3-7 Year U.S. Treasury Index Fund (NYSE Arca: FIVZ) and the Pimco 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSE Arca: ZROZ).

FIVZ tracks the Merrill Lynch 3-7 Year U.S. Treasury Index, while ZROZ reflects the performance of the BofA Merrill Lynch Long Treasury Principal STRIPS Index. Both come with a price tag of 15 basis points.

 

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