AROUND THE WORLD OF ETFs

December 15, 2010

Vanguard Debuts Russell-Based ETFs
Vanguard launched seven new funds based on Russell indexes in September as part of an ambitious expansion plan to have a broad lineup of Vanguard products that give different advisers who favor different indexes the tools they need. In keeping with Vanguard’s aggressive stance on expenses, the new funds carry annual expense ratios ranging from 0.12 percent to 0.20 percent—priced to undercut its main competitor, iShares.

The new Russell-based funds, their tickers and annual expense ratios are:

  • Vanguard Russell 1000 ETF (Nasdaq GM: VONE), 0.12 percent
  • Vanguard Russell 1000 Value ETF (Nasdaq GM: VONV), 0.15 percent
  • Vanguard Russell 1000 Growth ETF (Nasdaq GM: VONG), 0.15 percent
  • Vanguard Russell 2000 Index Fund (Nasdaq GM: VTWO), 0.15 percent
  • Vanguard Russell 2000 Value Index Fund (Nasdaq GM: VTWV), 0.20 percent
  • Vanguard Russell 2000 Growth Index Fund (Nasdaq GM: VTWG), 0.20 percent
  • Vanguard Russell 3000 Index Fund (Nasdaq GM: VTHR), 0.15 percent

Van Eck Debuts First-Ever Rare Earths ETF
In late October, Van Eck Global rolled out the Market Vectors Rare Earth/Strategic Metals ETF (NYSE Arca: REMX), which invests in companies engaged in the production, refining and recycling of rare-earth and strategic metals and minerals.

The new fund is the latest foray by a U.S. ETF sponsor into minor metals, amid surging global demand for materials like gallium, which is used to make a host of specialized high-tech equipment. Strategic metals are essential to many industries. However, these metals, often byproducts of other mining operations, are not only difficult to extract but are also likely to be in increasingly short supply in the next few years.

REMX tracks a an index of 24 companies engaged in the production, refining and recycling of up to 49 rare earth and strategic metals and minerals. REMX has a net expense ratio of 0.57 percent.

US ETF Assets Top $900 Billion
Assets in U.S. ETFs crossed the $900 billion threshold for the first time on Sept. 28, propelled by inflows into gold and other commodities and a strong move in the equity markets.

To be sure, the jitters coursing through the global economy have made the asset gathering anything but linear. Europe’s sovereign debt crisis caused a dip in assets in early spring. But since June, assets have been rising again. The more than 1,000 U.S ETFs had a total of $903.38 billion as of Sept. 28.

Globally, the ETF industry now has about $1.35 trillion in assets, including funds listed in Europe and Asia.

WisdomTree Launches Commodity Currency ETF
WisdomTree launched a new “commodity currency” fund in late September.

The WisdomTree Dreyfus Commodity Currency Fund (NYSE Arca: CCX) tracks a basket of eight currencies of emerging as well as developed commodity-producing economies: the Australian dollar, Canadian dollar, Norwegian krone, New Zealand dollar, Brazilian real, Chilean peso, Russian ruble and South African rand. The countries’ exports include everything from milk and mutton to gold, diamonds, silver and oil.

CCX aims to track the money market rates in each of the eight currencies as well as the changes in those rates relative to the U.S. dollar by combining a U.S. cash base with forward currency contracts. The new fund carries an expense ratio of 0.55 percent.

Pimco Launches BABs, Corporates ETFs
Pimco launched two new ETFs in September focused on investment-grade corporate bonds and Build America Bonds municipal debt.

The Pimco Investment Grade Corporate Bond Index Fund (NYSE Arca: CORP) is based on the BofA Merrill Lynch US Corporate Index, an unmanaged index comprising U.S. dollar-denominated, fixed-rate corporate debt with at least $250 million outstanding. Pimco’s fund will track the index using a proprietary representative sampling process. CORP carries total operating expenses of 0.32 percent.

The Pimco Build America Bonds Strategy Fund (NYSE Arca: BABZ) is an actively managed ETF that invests in investment-grade Build America Bonds listed in the Barclays Capital Build America Bonds Index with a par value of at least $250 million. BABZ carries an expense ratio of 0.45 percent. Build America Bonds are taxable municipal bonds.

Claymore Changes Name To Guggenheim
Claymore Securities Inc. changed its name to Guggenheim Funds Distributors Inc. in the latest developments following Claymore’s acquisition by Guggenheim last October. The company also changed the names of most of its ETFs to include the Guggenheim name.

The renamed Claymore business will continue to support the current product lineup of ETFs, unit investment trusts and closed-end funds, and their respective strategies and investment policies won’t change, Guggenheim said in a press release.

The renamed ETFs will retain their existing ticker symbols.

iShares Launches 3 Emerging Market ETFs
iShares, the world’s biggest ETF company, launched three targeted emerging markets funds to its lineup in September, adding competition to what has become the hottest asset class in the investment universe.

The funds include the following:

  • iShares MSCI Brazil Small Cap Index Fund (NYSE Arca: EWZS)
  • iShares MSCI China Small Cap Index Fund (NYSE Arca: ECNS)
  • iShares MSCI Philippines Investable Market Index Fund (NYSE Arca: EPHE)

Emerging markets have become increasingly popular among investors since the 2008-2009 global stock market crash. While the developed world is mired in sluggish growth, developing countries are growing.

iShares is charging annual expense ratios of 0.65 percent on all three funds.

Credit Suisse Debuts Merger Arb ETN
Credit Suisse, the Switzerland-based investment bank and asset manager, rolled out an ETN in early October that attempts to profit from merger activity.

The Credit Suisse Merger Arbitrage Liquid Index ETN (NYSE Arca: CSMA) aims to capture the spread between the price at which the stock of a target company trades after a proposed acquisition is announced, and the price which the acquiring company has proposed to pay for the target.

The ETN is based on an index that uses a quantitative methodology to track a dynamic basket of securities held as long or short positions and cash. Its holdings will be weighted in accordance with certain rules to include publicly announced merger and acquisition transactions that meet certain qualifying conditions.

The ETN has an annual expense ratio of 0.55 percent.

iShares Chip ETF Gets New Name And Index
iShares changed the index and name of its S&P North American Technology - Semiconductors Index Fund (NYSE Arca: IGW) and also shifted its primary listing to Nasdaq, effective Oct. 15.

The ETF’s new underlying benchmark is the PHLX Semiconductor Sector Index, known as “SOX”; it’s been renamed as the iShares PHLX SOX Semiconductor Sector Index Fund. Its new ticker is “SOXX,” and it has shifted to the Nasdaq from the New York Stock Exchange’s Arca platform.

iShares said in a press release that the changes are aimed at attracting more investors to the microchip fund, which had an industry-leading $243.6 million under management.

Although leveraged and inverse-leveraged ETFs that track the SOX index are available, iShares’ new SOXX fund will become the first single-exposure, long-only SOX-based ETF.

iShares said that investors who want to remain in its semiconductor sector fund needn’t take any action in connection with the changes.

iShares, JP Morgan In Race To Launch Copper ETF
In late October, two well-known firms filed for physical copper ETFs.

The first registered product was the J.P. Morgan Physical Copper Shares ETF. According to the filing, its investment objective “is for the shares to reflect the performance of the price of Physical Copper Grade A,” less expenses. The ETF is the only one that J.P. Morgan has in registration, and the firm has no listed ETFs.

A few days later, iShares filed for a similar product. The price of iShares Copper Trust shares will be based on settlement prices of the London Metals Exchange, the filing said. The copper will be stored in warehouses at locations in the United States or in other places if it has approval from the trustee and the sponsor, the paperwork said.

The only existing exchange-traded product similar to the proposed funds is the iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSE Arca: JJC), a debt instrument that tracks Comex copper futures.

Copper has been seeing increasing demand, and its usage is looked at as a bellwether for the global economy.

Neither filing specified a ticker symbol or an expense ratio.

New ETFS Product Has All That Glitters
ETF Securities launched during October the first-ever physical precious metals basket to list in the U.S.. The ETFS Physical Precious Metal Basket Shares (NYSE Arca: GLTR) is already available to investors in Europe, Australia and Japan, and is designed to streamline the process of achieving the portfolio diversification that precious metals afford.

Each share of GLTR holds 0.03 ounces of gold; 1.1 ounces of silver; 0.004 ounces of platinum; and 0.006 ounces of palladium. According to ETFS, the formula comes from using a screen that takes into account variables on each of the metals, including liquidity, new mining supply, total demand and industrial supply.

The fund charges an annual expense ratio of 0.60 percent.

Van Eck Debuts China A-Shares Fund
In mid-October, Van Eck launched an ETF that taps into the China A-shares market. The Market Vectors China ETF (NYSE Arca: PEK) gives investors front-row access to the performance of the China A-shares market through the use of swaps and derivative instruments while tracking the CSI 300 Index, which comprises solely China A-shares securities.

China A-shares are securities from mainland China-based companies, and have been mostly off limits to foreign investment and tightly regulated by the government. But ongoing financial reforms that aim to improve foreign investment in mainland companies are slowly making A-shares more accessible.

The fund, which in its initial stages will comprise swaps and derivatives, will eventually hold actual A-Shares securities after Van Eck receives qualified foreign institutional investor (QFII) status, according to Van Eck.

PEK comes with an expense ratio of 0.72 percent.

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