Everything that No One Can Talk About

September 06, 2005


ProFunds Are Coming … And Soon

People have been waiting on ProFunds for years.  The company filed papers with the SEC two years ago for the right to launch a suite of leveraged and inverse ETFs; they've been stuck in registration ever since.  Given the broad swath of traders and investors waiting for easy leveraged access to the markets, these could be a huge hit.

ProFunds plans to offer eight funds.  Four will offered leverage exposure to the market, returning 200 percent of any market move; the other will provide inverse exposure, moving up when the market moves down. The eight funds will track the following indexes.

  • S&P 500
  • S&P Mid-Cap 400
  •  Dow Jones Industrial Average
  • Nasdaq-100

The thinking in the industry is that ProFunds is getting close to approval.  On August 22, ProFunds hired formed State Street ETF boss Gus Fleites to lead its ETF operation, and there's little doubt that Fleites did his homework before jumping on-ship.   Moreover, on August 2, Amex filed with the SEC to change existing rules at the Amex to specifically allow for the leveraged ProFunds ETFs.  The Amex filing - little noticed in the press - suggests that "go day" is coming soon.  Watch this space.


PowerShares Goes Sector Crazy

PowerShares just launched eight new sector funds this past June, relying on the Intellidex sector indexes from the Amex. To date, investor pick-up has been modest: $30 million in assets for the software ETF, $60 million for semiconductors, $100 million for biotech.

But those numbers appear to be good enough to encourage PowerShares to diversify, because it has thirteen more Intellidex sector funds in the pipeline.

The new funds will cover the following sectors:

  • Aerospace
  • Brand Name Products
  • Building & Construction
  • Consumer Electronics
  • Energy Exploration & Production
  • Hardware
  • Insurance
  • Internet Software & Services
  • Oil Services
  • Retail
  • Telecommunications Services
  • Utilities
  • Wireless

Which of the myriad sectors catch on will ultimately depend on what's happening in the markets when the funds arrive.  Six months ago, the Building & Construction Portfolio would have been a knock-out; today, Oil Services would be king; tomorrow, who knows?  That may be one of the reasons PowerShares is looking to develop such a broad portfolio of sectors - you never know which one will be hot with investors.

--State Street Gets Serious--

Fed up with playing second fiddle to BGI (and feeling Vanguard nip at its heels), State Street Global Advisors laid down the gauntlet on August 15, filing for the right to launch nine new streetTracks ETFs.  The filings include five style funds, three sector products and one specialty fund.

Rounding Out the Styles

State Street's five style filings are for the:

  • Dow Jones Wilshire Large Cap ETF
  • Dow Jones Wilshire Mid Cap ETF
  • Dow Jones Wilshire Mid Cap Growth ETF
  • Dow Jones Wilshire Mid Cap Value ETF
  • Dow Jones Wilshire Small Cap ETF

The list looks odd - what's with the obsession with mid-caps? - until you realize that State Street already has existing streetTracks tracking the style components for small- and large caps.

These filings are way overdue. Combined with existing products, the new funds will allow State Street to offer a full suite of style products - mandatory for the execution of modern asset allocation strategies.   It's only strange that it took SSgA this long.

--Partnering with KBW--

State Street's three sector funds come courtesy of an emerging partnership with Keefe, Bruyette & Woods, an investment banking shop with a focus on the financial industry.  The funds are:

  • streetTracks KBW Bank ETF
  • streetTracks KBW Capital Markets ETF
  • streetTracks KBW Insurance ETF

Of the three, the bank fund is the big potential winner.  KBW's bank index has a huge reputation in the industry, and has served as the underlying index for popular options trading on the Philadelphia Stock Exchange (PHLX) for more than a decade.  KBW options are among the most often traded on the PHLX, and it wouldn't be surprising to see the ETF take off as well.

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