The Sad End Of The Luxury ETF ‘ROB’

September 21, 2010

I know Matt loves fund closures, but poor old ROB will be missed.

I’ll admit, I don’t pay much attention to things like fashion week—that every-so-often festival of clothing nobody actually wears that seems to happen at irregular intervals in fancy cities around the globe. But I find it ironic that the only ETF dedicated to celebrating consumer excess closed last week, precisely as overly skinny models were strutting on runways in
New York
.

The Claymore/Robb Report Global Luxury ETF (NYSEArca: ROB) had a good run. It launched in 2007, before it looked like the world was going to end, and managed to garner enough assets to keep it off Matt’s Zombie ETF list a few weeks ago.

Now I may not pay any attention to these things, but my assistant assures me that yes, people are interested in fashion. That’s why it may be worth noting that ROB, the one and only luxury ETF on the market, closed out this week during the height of the fall fashion event. Furthermore, like I said, ROB didn’t even make Matt’s list of zombie ETFs two weeks ago. And honestly, it shouldn’t have. While a small niche fund, ROB had been steadily gaining assets, right up until the day it closed:

ROB Performance: Sept. 2009 - Sept. 2010

It even performed reasonably well over the past year:

Rob - AUM - 9/23/09 - 8/23/10

 

And yet, as part of the Guggenheim housecleaning going on over at Claymore, ROB didn’t make the cut. With low trading volume—regularly under 10,000 shares a day—it’s understandable why it might not have been top of mind for Claymore’s new owners.

But ultimately, it’s the investors who are losing here. It’s easy to laugh at the idea of an ETF whose top holdings were Hermes and BMW and Wynn Resorts. But the theme was valid, and it provided a pattern of returns unique in an increasingly correlated retailing sector. ROB’s trailing daily correlations to the big retail ETFs like SPDR S&P Retail (NYSEArca: XRT) or the big consumer sector funds were under 0.65, a nontrivial feat these days. That low correlation was the result of its thematic focus—chasing the wealth brands, be they financials (7.5 percent of the fund), industrials (7 percent) or more traditional retail companies.

ROB’s mandate—to go after only companies I’d cringe at seeing on my credit card statement—actually acted as an interesting hedge. Only 23 percent of the fund was invested in the U.S., spreading the rest of the fund through the industrialized world—Japan, the U.K., France,
Germany
, etc. Those foreign holdings made the 32-stock ROB portfolio a bit tricky to replicate in the average brokerage account.

In other words, it was the perfect use of the ETF structure. One of the best parts of ETFs is that they let investors into markets, sectors and themes they might otherwise miss due to complexity.

I don’t expect charity from issuers. At $17 million in assets, ROB was only kicking out $120,000 a year for the company. Maybe that’s not enough to run the portfolio in Claymore’s system. I honestly don’t know. But I do know it’s a sad day when a growing fund that provided a real alternative closes its doors.

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