Where Are They Now?

May 24, 2006

A look back at some of the biggest ETF product launches of the past two years. How did all those hot hot funds pan out?

When you cover the exchange-traded fund (ETF) industry, every new product seems like it is going to be a winner.  The developers are excited, financial advisors are eager, and those punchy bell-ringing ceremonies just gets your heart racing. Gold? It's going to be huge.  Oil? The world runs on it. BioAlternativeNanotechnolgy?  Back up the truck, baby! Even the quasi-active funds sound attractive.  After all, who wouldn't want to crush the S&P 500 by following the ValueLine strategy, or beat out small caps using the insights of Zacks Investment Research?

But do these funds pan out?  Do they gain a critical mass of investors, attract real assets and live up to their performance promises? I thought I would take a look back some of the most high-profile U.S. ETF launches of the past year, and see if the reality lived up to the hype.

All That Glitters…   ($8 billion AUM)

The gold bullion ETFs have been around for longer than a year in the U.S. - the streetTRACKS Gold Fund (GLD) launched in November 2004 -  but I'm including them in this review because they have done so stunningly well.

GLD busted out of the gate in 2004, attracting more than $1.4 billion in assets in its first month on the market. I thought that was pretty good at the time, but it turns out that it was just the warm-up: As of May 22, GLD had $7.1 billion in assets, making it one of the larger ETFs on the market. ($7.1 billion equals 341 tonnes of gold!  That gold vault in London must be getting mighty full.)

The second gold ETF to hit the market hasn't faired nearly as well. The iShares COMEX Gold Trust (IAU), which launched just two months after GLD, holds only $870 million in assets.

Think about that for a second: Because GLD had a two-month head start on IAU, it has attracted 89 percent of the assets! This is why we write about the importance of "first mover advantage" in the ETF space: The early bird really does get the worm.

Hi-Ho Silver, Away! ($890 Million AUM)

BGI learned from its mistake on the gold ETF, and it was determined not to play second fiddle to anyone on the next hot metal: silver. And it hasn't: BGI launched its breakthrough iShares Silver Trust ETF (SLV) on April 21, and it is already reaping the rewards. Through May 22, the fund had attracted nearly $890 million in assets, meaning that it already has more assets than BGI's gold ETF.

Because silver is so much less expensive than gold ($13/ounce vs. $700/ounce), SLV owns an enormous amount of silver - 2,270 tonnes and counting.  There were concerns during the run-up to the launch of SLV that bullion hoarding by the ETF would create a shortage of physical silver, driving up the price of the metal. So far, that hasn't happened - SLV actually traded at its lowest levels since launch yesterday, hitting $121/share (with each share representing 10 ounces of silver).

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