NETS and iShares and Exchange Competition

March 31, 2008

The latest iShares launch is interesting on many levels ... all of them good news for investors.

There are three different core angles to the iShares launch that are extremely interesting to me, and a number of peripheral issues of intrigue that will have most of the ETF business casting a glance toward this launch.

Most directly concerned with the iShares launch is ex-BGI alum Steven Schoenfeld, who is spearheading the upcoming Northern Trust NETS launch (among other things) at NTGI (I've always found it humorous that Northern Trust Global Investments has a strikingly similar name to Barclays Global Investments, by the way). In any event, Northern Trust has been preparing to step into the rather gaping void of a lack of a REAL global markets ETF ... one covering not just megacaps, but the broad range of equities across the globe.

Here's the story on the NETS launch, together with my commentary on that.

In my commentary, I actually focus on the very interesting decision of NT to land all of the big exchange "brand" indexes, which flies a bit in the face of the very asset allocation-focused DJ Wilshire and all of its smoothly fitting subindexes.

In any case, there goes BGI again. Almost without fail, BGI has managed to front-run competition to the starting gate on products, including FITRs on fixed income, EAFE and Emerging Markets and a whole lot of others. The only areas they have NOT been first in have been few and far between - like gold and commodities and leverage (which are not historically their core competencies), and a wider range of international size and style (which I assume is coming - look out DFA and Wisdom Tree).

But here, as so many times before, not only have they beaten NT to the gate, but they've done it with a more widely recognized index - MSCI's ACWI vs. Dow Jones Wilshire's global entry. Bids are out now on Russell and FTSE multicap globals presumably...

And despite the fact that Murray sort of dismisses them, I think the country offerings are extremely interesting (I guess this is core area No. 2) in that I really thought BGI might be done launching those - the old WEBS - but here we have some interesting new entrants. What else could be on the horizon? India? (They do have the iPath.) Russia? (Van Eck landed there first.) More in China? Argentina? Israel? There are a bunch of interesting candidates still out there in the international sphere - and at the front of my list, anyway, is more international size and style.

ACWI I'm not sure gets big assets out of the gate, but it's GREAT (as is the price competition) as an option for long-term buy-and-holders. The irony is that the country funds can actually get the big assets and trading volumes on hot money chasing a hot market.

Of course the final aspect of this deal IS the exchange part, with BGI allotting the two plum funds (for us old-school indexers anyway) to the NASDAQ. I assume BGI happens to think that competition is a good thing & w/ the AMEX being snapped up by the NYSE - now NYX I guess - which had already merged in Arca, Euronext and a few other playthings, SOMEONE'S got to be the competition. So it seems like it all comes down to the NASDAQ and the NYSE, at least in the ETF business, after lots of circling around.

There's a great roundtable feature in the upcoming JoI that poses like questions to Lisa Dallmer from the NYSE, John Jacobs from the NASDAQ and Cliff Weber from the Amex. It is extremely interesting ... and everything tells us that this business will continue to be the same for the foreseeable future. You'll have to wait for late April to get your copy (free if you're a financial professional).

Ah - I forgot one other tangential item in the iShares launch. iShares is now using (ex VANGUARD rep) Noel Archard as their key spokesman for all product-related matters. That is a smart call, because he's about as good as they come in the business in terms of relationships and actually knowing what he's talking about (AND apparently, with product development, which it seems iShares by no stretch of the imagination is yet finished with).


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