AROUND THE WORLD OF ETFs

October 19, 2010

Van Eck, WisdomTree Launch Emerging Market Debt ETFs
Van Eck and WisdomTree both launched emerging market debt ETFs recently; importantly, both funds hold only bonds denominated in local currencies. Previously, the only emerging market debt ETFs available held dollar-denominated debt.

The Market Vectors Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC) tracks the J.P. Morgan Government Bond Index-Emerging Markets Global Core Index. As of July 1, the benchmark had 171 constituents with maturities ranging from one to 30 years. At the fund’s launch, the index covered 13 countries, each capped at a 10 percent weight. EMLC charges an expense ratio of 0.49 percent.

WisdomTree followed up in August with the WisdomTree Emerging Markets Local Debt Fund (NYSE Arca: ELD). Unlike EMLC, though, ELD is actively managed. Its allocation model divides 13 emerging markets into three tiers based on size and risk parameters. ELD charges an expense ratio of 0.55 percent.

Global X Debuts First Lithium ETF
Global X recently rolled out the first ETF to tap into the renewable energy theme through lithium companies.

Launched in July, the Global X Lithium ETF (NYSE Arca: LIT) invests both in lithium miners and lithium battery makers. By investing in battery manufacturers, the fund captures the “high-tech component” of the lithium story. The metal, which is widely used in batteries for cell phones and laptop computers, is also key for the electric car industry, which uses lithium-ion batteries in its vehicles. And because lithium is not traded on any commodities exchanges, investors previously have had no way to gain targeted exposure to the metal.

At launch, LIT’s basket was split nearly 50-50 between miners and producers in seven different countries. The fund, which tracks the Solactive Global Lithium Index, comes with an annual expense ratio of 0.75 percent.

iShares Unveils Nine Ex-US Sectors
Mid-July saw the launch of nine new iShares ETFs targeting sector subindexes of the MSCI All Country World ex USA Index.

The new funds are the first family of sector ETFs to cover developed and emerging markets, but exclude the United States. They include the following:

  • iShares MSCI ACWI ex US Consumer Discretionary Sector Index Fund (NYSE Arca: AXDI)
  • iShares MSCI ACWI ex US Consumer Staples Sector Index Fund (NYSE Arca: AXSL)
  • iShares MSCI ACWI ex US Energy Sector Index Fund (NYSE Arca: AXEN)
  • iShares MSCI ACWI ex US Health Care Sector Index Fund (NYSE Arca: AXHE)
  • iShares MSCI ACWI ex US Industrials Sector Index Fund (NYSE Arca: AXID)
  • iShares MSCI ACWI ex US Information Technology Sector Index Fund (NYSE Arca: AXIT)
  • iShares MSCI ACWI ex US Materials Sector Index Fund (NYSE Arca: AXMT)
  • iShares MSCI ACWI ex US Telecommunication Services Sector Index Fund (NYSE Arca: AXTE)
  • iShares MSCI ACWI ex US Utilities Sector Index Fund (NYSE Arca: AXUT)

The iShares MSCI ACWI ex US Financials Sector Index Fund (NYSE Arca: AXFN) launched separately back in January. Each fund charges an expense ratio of 0.48 percent. Holdings range from roughly 60 for the health care ETF, AXHE, to well over 260 for AXFN.

Schwab Enters Fixed-Income ETFs
Charles Schwab, which just entered the ETF market in November 2009, made its first foray into fixed income with the launch of three U.S. Treasury ETFs in early August.

The new funds include the Schwab U.S. TIPS ETF (NYSE Arca: SCHP), the Schwab Short-Term U.S. Treasury ETF (NYSE Arca: SCHO) and the Schwab Intermediate-Term U.S. Treasury ETF (NYSE Arca: SCHR). The TIPS fund has an annual expense ratio of 0.14 percent, while the other two funds both have expense ratios of 0.12 percent, according to the company’s Web site. As with other Schwab funds, Schwab clients aren’t charged trading commissions when they buy and sell the funds.

iPath Adds Eight Treasury ETNs
In August, the iPath ETN family added eight exchange-traded notes to its lineup. Each is linked to a U.S. Treasury futures index. The products are Barclays’ first foray into fixed-income-based ETNs.

iPath’s new crop of ETNs includes three bull-and-bear pairs:

  • iPath US Treasury 10-year Bull ETN (NYSE Arca: DTYL)
  • iPath US Treasury 10-year Bear ETN (NYSE Arca: DTYL)
  • iPath US Treasury 2-year Bull ETN (NYSE Arca: DTUL)
  • iPath US Treasury 2-year Bear ETN (NYSE Arca: DTUS)
  • iPath US Treasury Long Bond Bull ETN (NYSE Arca: DLBL)
  • iPath US Treasury Long Bond Bear ETN (NYSE Arca: DLBS)

In addition, iPath launched a pair of ETNs designed to give investors the ability to take a view on whether the yield curve will steepen or flatten:

  • iPath US Treasury Steepener (NYSE Arca: STPP)
  • iPath US Treasury Flattener (NYSE Arca: FLAT)

Each ETN comes with an expense ratio of 0.75 percent.

Barclays Launches New Volatility-Linked ETN
Barclays Capital launched a new ETN based on the S&P 500 Dynamic Veqtor Index, the fourth volatility-linked exchange-traded product for the global banking giant.

The Barclays ETN+ S&P Veqtor Exchange Traded Note (NYSE Arca: VQT) began trading Sept. 1. It carries an annual expense ratio of 0.95 percent.

VQT tracks the S&P 500 Veqtor Index, which combines broad equity market exposure with a built-in volatility hedge by allocating assets among the S&P 500 Index, the S&P 500 Short-Term VIX Futures Index and cash. VIX, a product of the Chicago Board Options Exchange, reflects the prices of S&P 500 options and is a benchmark for measuring near-term volatility.

Claymore Closes Four Funds
Claymore Securities, which was acquired by Guggenheim Partners in October, closed four of its ETFs on Sept. 10. The company said in a statement issued in August that the funds had been lightly traded, and were being closed so it can turn its attention to “areas of greater investor interest.”

The list of funds included the following: the Claymore/Zacks Dividend Rotation ETF (NYSE Arca: IRO), which had $12.5 million in assets at the time of the announcement; the Claymore/Zacks Country Rotation ETF (NYSE Arca: CRO), with $3 million in assets; the Claymore/Beacon Global Exchanges, Brokers & Asset Managers Index ETF (NYSE Arca: EXB), with $2.8 million; and the Claymore/Robb Report Global Luxury Index ETF (NYSE Arca: ROB), with $16.2 million.

All shareholders remaining on Sept. 17 received a cash distribution into their brokerage account representing the value of their shares as of that date, including any capital gains and dividends.

 

Vanguard Trumps iShares In Adviser Loyalty
Vanguard is increasingly popular among investment advisers, outranking iShares for the first time to become the most popular ETF provider in terms of adviser loyalty, a study from Cambridge, Mass.-based Cogent Research showed. The firm surveyed 1,560 investment advisers.

According to the 2010 Advisor Brandscape report compiled by the market research firm, advisers who use Vanguard ETFs are more committed to the brand than those using iShares products. John Meunier, a Cogent principal, noted that Vanguard is the only top-five ETF provider to grow its market share over the past year.

iShares still outperforms Vanguard in the range of products it offers, Meunier said, but Vanguard outperformed its competitor in just about every other category Cogent measures, especially in “aspects of service and client experience.”

State Street and Pimco ranked third and fourth place among advisers, respectively.

Alerian Debuts First-Ever MLP ETF
In late August, MLP research firm Alerian launched the first ETF to tap into the MLP space. Previously, investors seeking access to the asset class could only do so through various ETNs offered by JP Morgan, UBS and Credit Suisse.

The Alerian MLP ETF (NYSE Arca: AMLP) tracks the Alerian MLP Infrastructure Index, and charges an annual expense ratio of 0.85 percent.

Alerian also says that the ETF will retain the tax benefits of MLP distributions. MLPs are typically a nightmare to hold in a fund setting since funds are typically taxed as registered investment companies, which may only invest 25 percent of their assets in MLPs before becoming subject to various tax penalties. AMLP has elected to be taxed as a corporation, which helps it get around this restriction.

ALPS Advisors is AMLP’s distributor, with Arrow Investment Advisors serving as its subadviser.

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