BGI Cuts Into Timber, Alternative Energy Markets

June 25, 2008

Barclays comes to market with lower-costing ETFs in three areas, along with a broader China fund.

Barclays Global Investors is hoping to pick up the heat in alternative energy markets by launching three new exchange-traded funds focusing on timber, clean energy and nuclear power.

The trio began trading on Wednesday, along with a broader-based version of its popular iShares FTSE/Xinhua China 25 Index (NYSE: FXI).

The four new BGI ETFs are:

• The iShares S&P Global Clean Energy Index Fund (NASDAQ: ICLN). It faces already established rivals PowerShares Cleantech Portfolio (AMEX: PZD) and Market Vectors Global Alternative Energy ETF (NYSE: GEX).

ICLN, like the two other alternative energy iShares coming out on Wednesday, has an expense ratio of 0.48%. That's lower than either PZD (0.75%) or GEX (0.65%).

The S&P Global Clean Energy index includes some 30 companies, each with a majority of its revenue coming from alternative energy sources. The benchmark includes subsectors such as biofuels, ethanol, geothermal, solar, wind and hydroelectric. It opened with solar at 37%; wind at 20%; biofuels at 19%; hydroelectric at 14% and 10% into diversified companies with a mix of subsectors.

The index has a 5% cap on any individual name and is market-cap weighted. It rebalances every quarter and includes both emerging and developed markets.

The country breakdown is: U.S. (41%); Spain (16%); Germany (12%); Brazil (9%); Denmark (7%); China (6%); France (5%), Norway (3%) and Australia (1%).

• The iShares S&P Global Nuclear Energy Index Fund (NASDAQ: NUCL). It has 24 constituents from around the world. It also will rebalance quarterly and groups names into two different subsectors. Each subsector has a dozen different stocks and those subsectors are capped at 50% apiece. One subsector is materials, equipment and services. The other is nuclear production. Within the subsectors, companies are weighted by market-cap size. Each individual stock will be subject to an 8% cap of the overall index.

NUCL has 31% of its holdings in the U.S. Another 16% goes into France. The rest of the geographic breakdown is: Canada (15%); Australia (10%); Japan (9%); Germany (8%), Finland (6%); Korea (3%); U.K. (2%) and Hong Kong (2%).

Two other nuclear ETFs are already on the market. Those are the PowerShares Global Nuclear Energy Portfolio (NYSE Arca: PKN) and the Market Vectors Nuclear Energy ETF (AMEX: NLR). Again, BGI is separating itself out by costs and use of a well-known S&P index.

• The iShares S&P Global Timber & Forestry Index Fund (NASDAQ: WOOD). The timber ETF comes into the market on the heels of the Claymore/Clear Global Timber Index (AMEX: CUT), which is approaching $60 million in assets after launching in December 2007.

WOOD has around 25 different constituents, similar to CUT. And like CUT, the new timber ETF tracks companies that either own timberland or produce paper-related products.

"If you just focus on timber producers, then the investable universe is very small," said Dina Ting, a BGI portfolio manager. "The S&P index includes both companies that own and manage timberland as well as those less-directly involved in the industry such as through paper packaging or other paper products."

Firms with less-direct ties are only added to the index if fewer than 25 timber manufacturers are available for inclusion, she added.

Both WOOD and CUT own real estate investment trusts, or REITs, and are global in construction. In the case of WOOD, it debuted with about 22% of its holdings in REITs. By country, the new ETF holds: U.S. (42%); Canada (17%); Sweden (9%); Brazil (8%); Finland (7%); Australia (5%); Japan (4%); South Africa (4%); Spain (2%) and Hong Kong (2%).

• The iShares FTSE China Index Fund (NASDAQ: FCHI). It has 90 constituents, making it broader than the iShares FTSE/Xinhua China 25 Index (NYSE: FXI). The older sibling has some 25 different names.

FCHI will follow a subset of the FTSE All-World Universe Index which is tracked by FXI. The difference is that the new ETF will include mid-caps as well as large-caps.

FCHI also has more Hong Kong-based companies doing business in China. FCHI has about 38% of its constituents in these so-called red chip firms. That compares to FXI's 27% in red-chips. Conversely, that means FCHI will have fewer H-shares, which are mainland Chinese companies. FCHI has 62% of its index in H-shares, while FXI has about 73% in those types of companies.


The new FCHI will carry the same 0.74% expense ratio as FXI.

"We want to give investors more avenues to gain broader exposure to China at affordable prices," Ting said.


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