AROUND THE WORLD OF ETFs

April 21, 2011

Vanguard Cuts Fees On 6 ETFs
Vanguard Group announced in late February that it had cut the price of the Vanguard MSCI Emerging Markets ETF (NYSE Arca: VWO) by 18 percent. It also slashed expense ratios on five other ETFs, saying the cuts reflect greater efficiencies in the way it runs the funds.

VWO now costs 0.22 percent—compared with 0.27 percent previously—making it the cheapest broad-market emerging markets ETF.

The other Vanguard ETFs that saw their expense ratios lowered include:

  • Vanguard MSCI Pacific ETF (NYSE Arca: VPL) to 0.14 percent from 0.16 percent
  • Vanguard MSCI European ETF (NYSE Arca: VGK) to 0.14 percent from 0.16 percent
  • Vanguard Total World Stock ETF (NYSE Arca: VT) to 0.25 percent from 0.30 percent
  • Vanguard FTSE All-World ex-U.S. ETF (NYSE Arca: VEU) to 0.22 percent from 0.25 percent
  • Vanguard FTSE All-World ex-U.S. Small Cap ETF (NYSE Arca: VSS) to 0.33 percent from 0.40 percent

First Trust Debuts Smart Phone ETF
First Trust rolled out in mid-February its so-called smart phone ETF that’s focused on technology companies specializing in devices like iPhones or BlackBerrys.

The First Trust Nasdaq CEA Smartphone Index Fund (Nasdaq GM: FONE) tracks the Nasdaq OMX CEA Smartphone Index, a benchmark focused on information technology and telecommunications. FONE comes with a 0.70 percent annual expense ratio.

The benchmark includes companies involved in everything from hardware manufacturing to operating systems, to software and service names associated with the development, sales and use of smart phones. The index is a modified equal-dollar-weighted index comprising some 80 securities, according to its recent filing with the Securities and Exchange Commission. About 45 percent of the portfolio is allocated to “handset” companies that manufacture the equipment; 45 percent to “software applications/hardware components” and the final 10 percent to wireless network “providers,” the filing said.

ProShares Launches ‘UltraShort’ TIPS ETF
ProShares recently rolled out the ProShares UltraShort TIPS ETF (NYSE Arca: TPS), describing it as the first geared ETF focused on the Treasury inflation-protected securities market. The new product provides investors double the inverse of the daily returns on an index of TIPs.

The launch comes at a time when investors are again worried that the U.S. Treasurys market will move downward amid renewed signs of U.S. economic recovery. The aftermath of the market crash of 2008-2009 has been characterized by fits and starts of recovery, and many investors generally consider TIPs to be better tools ahead of, instead of during, a spike in inflationary pressures.

The new short TIPs fund has an expense ratio of 0.95 percent, according to information on the company’s website. The ETF is tied to the Barclays Capital U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L).

DB Suspends DAG Creations
As of Feb. 15, Deutsche Bank suspended “further issuance” of the PowerShares DB Agriculture Double Long Exchange Traded Note (NYSE Arca: DAG), but noted that redemptions of the notes won’t be affected by its decision.

Deutsche Bank didn’t provide a reason for its decision in a press release, and an official at the bank in New York declined to comment beyond that statement. However, industry sources believe exposure the ETN held to corn, wheat, soybeans and sugar futures approached limits that might attract the attention of regulators at the Commodity Futures Trading Commission. Halting creations was a way for Deutsche Bank to avoid any regulatory problems.

The move may cause the leveraged ETN and its $148.8 million in assets as of Feb. 14 to trade like a closed-end fund, as it will now have a finite number of outstanding shares.

Global X Unveils ASEAN ETF
In mid-February, Global X launched the first-ever U.S.-listed ASEAN ETF, which provides exposure to the rapidly growing economies of Southeast Asia.

In 1967, Indonesia, Malaysia, the Philippines, Singapore and Thailand formed the Association of Southeast Asian Nations, or ASEAN, to foster economic and cultural cooperation among Southeast Asian countries. Today the organization also includes Brunei, Cambodia, Laos, Myanmar and Vietnam.

Just prior to launch, the Global X FTSE ASEAN 40 ETF (NYSE Arca: ASEA) was most heavily weighted toward Singapore (41.19 percent), followed by Malaysia (32.82 percent), Indonesia (14.77 percent), Thailand (10.58 percent) and the Philippines (0.61 percent).

Financials is ASEA’s largest sector, with 43.55 percent of assets under management; followed by telecommunications, with 15.62 percent; and industrials, at 14.97 percent.

High-Yield BulletShares Debut
In late January, Guggenheim Funds rolled out four target-maturity fixed-income ETFs focused on the high-yield corporate bond markets, adding to its preexisting lineup of investment-grade corporate bond target-date bond ETFs.

The new funds have maturity dates ranging from the end of 2012 and extending through to the end of 2016. Each will close upon maturity at the end of each respective year, with investors receiving the net asset value of all the bonds in the portfolio. That effectively offers investors something similar, though not identical, to holding an individual bond to maturity. The four ETFs have annual expense ratios of 0.42 percent and include:

  • The Guggenheim BulletShares 2012 High Yield Corporate Bond ETF (NYSE Arca: BSJC)
  • The Guggenheim BulletShares 2013 High Yield Corporate Bond ETF (NYSE Arca: BSJD)
  • The Guggenheim BulletShares 2014 High Yield Corporate Bond ETF (NYSE Arca: BSJE)
  • The Guggenheim BulletShares 2015 High Yield Corporate Bond ETF (NYSE Arca: BSJF)

Van Eck Suspends EGPT Creations Temporarily
Van Eck Global, the exchange-traded fund sponsor behind the Market Vectors Egypt Index ETF (NYSE Arca: EGPT), halted creations in the fund as of Jan. 31 due to the political upheaval in Egypt that shut down Egypt’s stock exchange a few days before. The fund had lost more than 18 percent of its value during the month, but bounced almost 9 percent higher the day the creations were suspended.

Van Eck said in a press release that it is the firm’s policy to halt creations when a fund’s underlying market is closed for an unusually long time; it added that the suspension will continue for an “undetermined” period.

The firm resumed creations of EGPT on March 23, with the reopening of the Egyptian stock exchange.

New PowerShares ETF Tracks Senior Loans
Invesco PowerShares kicked off March with the launch of the market’s first senior loan ETF to hold below-investment-grade, floating-rate loans.

The PowerShares Senior Loan Portfolio (NYSE Arca: BKLN), which comes with a price tag of 0.83 percent that includes acquired fund fees, is a floating-rate income portfolio that invests primarily in senior loans, defined for the purposes of the fund as leveraged, bank or floating-rate loans.

BKLN tracks through representative sampling the S&P/LSTA U.S. Leveraged Loan 100 Index. The benchmark measures the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments. The rules-based index, which has 100 loans, is a subset of a larger benchmark, the S&P/LSTA Leveraged Loan Index.

BKLN may also allocate part of the portfolio to closed-end funds that invest in senior loans and in junk bonds. While the portfolio is global in scope, all loans must be dollar-denominated.

Vanguard Rolls Out Lowest-Cost Int’l ETF
In late January, Vanguard launched the market’s least expensive international, non-U.S. equity ETF. The fund is almost identical to another ETF the firm already offers.

The launch of the Vanguard Total International Stock ETF (NYSE Arca: VXUS) also brings Vanguard into direct competition with iShares, which offers an identical product to VXUS that uses the same index, the MSCI All Country World Index ex USA.

Vanguard’s VXUS has an annual expense ratio of 0.20 percent, less than both the 0.35 percent BlackRock charges on its iShares MSCI ACWI ex US Index Fund (Nasdaq GM: ACWX) and the 0.25 percent cost of the Vanguard FTSE All World ex-U.S. ETF (NYSE Arca: VEU).

The new ETF is designed to be a separate share class of Vanguard’s Total International Stock Index Fund, the company’s second-largest international index fund, with $51.4 billion in net assets.

 

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