All I Want For Christmas

December 24, 2007

In the spirit of the holidays, Jim, I'm not going to reply to your latest taunt. (Chicken Little? Have you looked at the real estate market lately?) Instead, I'm going to go with a more traditional approach: the Wish List.

What do I want to see under the ETF Christmas tree this year? What new product ideas are dancing in my head like sugar plum fairies?

The wish list is pretty long, so I'll focus on my top picks.

First, like any good Christmas, I already know some of the new toys I'll be getting next year, like:

  • AirShares EU Carbon Allowances ETF
  • Market Vectors Coal ETF
  • NETS DJ Wilshire Global Total Market Index ETF
  • NETS Hang Seng China Enterprises ETF
  • ProShares 130/30 ETF
  • PowerShares India ETF
  • SPDR Barclays Global TIPS ETF

I can't wait to get my hands on a number of these funds, as they fill obvious holes in the market. The full list is available here.

But there are still a lot of new toys that I'm dreaming about, such as:

  • A Cheaper Commodity Fund: Why do all the broad-based commodity futures ETFs charge exactly 0.75% in annual expenses? Let's get some price competition going here! I know it costs more to run futures-based funds than equity funds, but someone has to drive down the prices. Do I hear 0.60%? What about 0.50%?
  • A Smarter Commodity Fund: My personal indexing apostasy ... I'm increasingly convinced that straight indexing is not the best approach in the commodities marketplace. Indeed, studies show that active typically beats index on a risk-adjusted basis in commodities. I'm not convinced by the current crop of "avoid contango" ETFs, either; I think there's room for either a quantitative long/short fund that takes contango into account or even a straight active commodity futures ETF.
  • A VIX Fund: A VIX Volatility Index fund would have been the best-performing ETF on the market this year, as the VIX is up more than 100% year-to-date. No one has figured out how to make a tradable VIX product, but surely one of the big banks could package it within an ETN and find some way to hedge the risk internally. If you could have a VIX ETF with a fixed-income underlying (so that the fund earned interest income), it would be an incredible portfolio hedge—about 10X better than gold.
  • More Strategy Products: I know we're going to see this in 2008, and I think people are ready for more complex-strategy ETFs and ETNs. I'm talking about absolute-return ETFs, principal-protected ETFs or even hedge fund replication ETFs. I'm not sure that I want these products in my portfolio, but I do want investors to have access to them at relatively low costs.
  • Frontier Market ETFs: Interest in frontier markets is soaring; I get an increasing number of questions about how to invest in these markets. There are huge issues here in terms of liquidity, foreign ownership restrictions and more, but some accommodations could be made to provide exposure.

Come on, product developers: I've been a good boy this year...


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