February 17, 2010

Palladium, Platinum ETFs Launch

ETF Securities launched new ETFs in early January, providing U.S. investors with easy access to physical platinum and palladium for the first time. The ETFS Platinum Trust (NYSE Arca: PPLT) and ETFS Palladium Trust (NYSE Arca: PALL) both hold physical bullion in a vault as their sole asset.

The funds quickly attracted attention from investors, gathering more than $100 million in new creations on their first day and trading in large volumes. In fact, the funds may be attracting too much attention: Both the platinum and palladium markets are notoriously tight, and there is some concern that the two ETFs will create a shortage in those markets. To mitigate those concerns, ETF Securities placed limits on how large the funds could grow: PPLT, for example, is limited to just 7 percent of net platinum demand each year.

Shortly after its launch, that translated into $750 million in assets, while PALL (which has similar limitations) had an asset cap of around $500 million.

Should the two funds hit their limits, they would likely trade to a premium above net asset value while regulators consider whether to allow them to expand. The two funds charge 0.60 percent in annual expenses.

Old Mutual Debuts Fee-Free ETF Teaser

Old Mutual followed Charles Schwab into the ETF market in early December with the launch of the GlobalShares FTSE Emerging Markets Fund (NYSE Arca: GSR).

The fund debuted with an expense ratio of zero. However, as of Jan. 31, 2010, GSR’s price tag was set to rise to 39 basis points. The firm also said the price tag could go up earlier if the assets hit $1 billion before that date. (They didn’t.)

GSR tracks the FTSE Emerging Index, which covers mid- and large-cap stocks in 22 emerging markets.

Old Mutual, an established player in the mutual fund market, has another four ETFs—all with an international flavor—currently in registration.

Vanguard Expands Fixed-Income Offerings

In late November, Vanguard launched seven new bond ETFs, nearly doubling its offerings in the ETF bond space, an area that saw significant inflows throughout 2009.

The funds include the following:

  • Vanguard Short-Term Government Bond Index Fund (Nasdaq: VGSH)
  • Vanguard Intermediate-Term Government Bond Index Fund (Nasdaq: VGIT)
  • Vanguard Long-Term Government Bond Index Fund (Nasdaq: VGLT)
  • Vanguard Short-Term Corporate Bond Index Fund (Nasdaq: VCSH)
  • Vanguard Intermediate-Term Corporate Bond Index Fund (Nasdaq: VCIT)
  • Vanguard Long-Term Corporate Bond Index Fund (Nasdaq: VCLT)
  • Vanguard Mortgage-Backed Securities Index Fund (Nasdaq: VMBS)

The ETFs each represent a separate share class of a traditional index mutual fund. Each ETF charges an expense ratio of 15 basis points.


BGI Launches Its First Active ETF

In mid-November, iShares launched the iShares Diversified Alternatives Trust (NYSE Arca: ALT), its first actively managed ETF and one of the first managed futures products to hit the market.

ALT’s portfolio comprises exchange-traded futures contracts on everything from commodities, currencies and interest rates to stock and bond indexes, as well as foreign currency forward contracts. The fund’s overall investment strategy looks at relative value; it capitalizes on the spread between assets and asset categories that deviate from the norm. To achieve this—and in an effort to minimize volatility—it takes both long and short positions in correlated assets.

Ultimately, ALT will use a combination of strategies to capitalize on various spread opportunities, including technical and fundamental strategies as well as yield and futures curve arbitrage.

Its portfolio targets an annualized return volatility of 6 to 8 percent.

ALT charges an annual expense ratio of 0.95 percent.

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