Who's Winning The ETF Race?

January 05, 2010


$7.7 billion in AUM
No data on fees.
Largest ETF: Oil Services HOLDRS (NYSE Arca: OIH), $2.3 billion

The HOLDRS are a legacy of a different era. They operate almost as pre-ETFs, with no ability to adjust their portfolios and an individual-size creation/redemption basket.

But despite being difficult to trade in some circumstances and having unusual portfolios of securities, the HOLDRS are popular, and together hold $7.7 billion in assets. The Oil Services HOLDRS (NYSE Arca: OIH), Pharmaceutical HOLDRS (NYSE Arca: PPH) and Semiconductor HOLDRs (NYSE Arca: SMH) are among the largest and most liquid ETFs in their respective sectors.

No one is creating more HOLDRS at this time—the product structure has been eclipsed by the ETF format—but while the existing HOLDRS are out there, investors will continue to use them.

United States Commodity Funds
$6.3 billion in assets
$35 million in estimated annual fees
Largest ETF: U.S. Natural Gas ETF (NYSE Arca: UNG), $3.7 billion

United States Commodity Funds have become synonymous with two products: the $2.2 billion U.S. Oil Fund (NYSE Arca: USO) and the $3.7 billion U.S. Natural Gas ETF (NYSE Arca: UNG). Over the last two years, these two funds have vaulted into the vernacular: When investors and TV pundits talk about the daily price moves of oil and gas, they often cite USO and UNG as their proxies.

The popularity has been a double-edged sword for the company. USCF became the poster boy of alleged problems when U.S. regulators tried to blame the run-up in oil prices on commodity ETFs. The company’s CEO, John Hyland, was called to testify before Congress, where he laid out cold, hard data showing that ETFs couldn’t possibly be to blame, and were in fact net buyers during sell-offs, and net sellers during run-ups.

The regulatory uproar surrounding commodities seems to have dissipated. That’s left USCF with the comparatively simple job of just launching more products and building investor interest. Toward that end, it recently came out with the 12-Month Natural Gas ETF (NYSE Arca: UNL), designed as a way to outrun contango in the natural gas market.

Like Van Eck, USCF’s fortunes are inextricably tied to the commodity boom. In fact, its focus is even narrower, honing in so far only on the energy futures market. It remains to be seen if it will look outside that core area and expand into broader commodities as a new source of growth.

$6.1 billion in assets
$33 million in estimated fees
Largest ETF: WisdomTree India Earnings Fund (NYSE Arca: EPI), $671 million

As the sole publicly traded ETF-only company, we know a lot about WisdomTree. We know that it continues to build assets in its family of 51 ETFs, which focus alternately on fundamentally weighted equity exposure and currencies. We know that it now has $6.1 billion scattered amongst these funds, earning about $33 million per year in expense-driven fees. And we know that the company is still losing money: about $20 million annually on a GAAP basis, according to its most recent report.

With about $22 million in cash in the bank, WisdomTree is in a race to get profitable before it runs out of cash. With a complete lineup of equity funds, WisdomTree could be an attractive buyout candidate for a larger firm looking to make the leap into the ETF space.

One positive note for WisdomTree: Its largest ETF, the WisdomTree India Earnings Fund (EPI), is also its priciest, with an expense ratio of 0.88 percent. The fund generates $5.9 million per year in annual fees.


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