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PowerShares Puts A Twist On
Things With Three New Funds In early April, PowerShares launched three new exchange-traded funds that evaluate well-known markets in innovative ways. The PowerShares Global Nuclear Energy Portfolio (NYSE Arca: PKN) uses an underlying index with a hybrid weighting methodology combining equal weighting and marketcapitalization weighting to track the nuclear energy market. The index is provided by WNA Global Indexes, which was formed last year in partnership with the World Nuclear Association, an industry trade group. PKN charges 0.75 percent. PKN charges 0.75 percent. The PowerShares FTSE NASDAQ Small Cap Portfolio (NASDAQ: PQSC) invests in the smallest 10 percent of the broader FTSE NASDAQ Index. The index is capitalization-weighted and adjusted annually. As of March, it included some 1,159 companies. The PowerShares NASDAQ Next-Q Portfolio (NASDAQ: PNXQ) does just what its name implies: It buys the 50 securities next in line to replace stocks in the popular NASDAQ-100 Index (which forms the basis for the QQQ ETF, hence “Next-Q”). It is market-cap weighted. PQSC and PNXQ both charge 0.70 percent. BGI Launches New Funds On the same day it launched its all-world ETF, BGI launched a trio of single-country iShares: the iShares MSCI Israel Capped Investable Market Index Fund (NYSE Arca: EIS), iShares MSCI Turkey Investable Market Index Fund (NYSE Arca: TUR) and iShares MSCI Thailand Investable Market Index Fund (NYSE Arca: THD). Each charges 0.74 percent and tracks foreign markets not previously covered by U.S.-listed ETFs. Also included in the Barclays launch was the iShares MSCI ACWI ex-US Index Fund (NASDAQ: ACWX), which charges 0.45 percent and tracks the same index as the established SPDR MSCI ACWI Ex-US ETF (AMEX: CWI) from State Street Global Advisors. ProShares Launches First Inverse Bond ETF U.S.-based ProShare Advisors launched the world’s first inverse fixed-income ETFs on May 1. The ProShares UltraShort Lehman 7-10 Year Treasury ETF (AMEX: PST) and the ProShares UltraShort Lehman 20+ Year Treasury ETF (AMEX: TBT) are designed to deliver twice the inverse of the daily performance of their underlying index. The two funds each charge an expense ratio of 0.95 percent. Van Eck, Claymore Launch Solar-Powered ETFs The rainy month of April heralded the launch of two new global solar-focused ETFs. Skyrocketing oil prices, along with growing environmental concerns, are creating a growth area for solar products and services markets. Currently, solar power provides less than 1 percent of the world’s electricity. The Claymore ETF (TAN) tracks the MAC Global Solar Energy Index, while the Market Vectors ETF (KWT) tracks the Ardour Solar Energy Index. Both indexes favor pure-play solar companies, the KWT index more so. Both indexes also currently contain about 27 companies—holding 20 of them in common. First Solar is the company with the highest weighting in both indexes. The two indexes’ country weightings are very similar. Both charge 0.65 percent in expenses. New ETF Warms To Heating Oil Victoria Bay rounded out its suite of energy ETFs with the April launch of the United States Heating Oil Fund (AMEX: UHN). UHN tracks changes in the price of heating oil as measured by futures contracts traded on the New York Mercantile Exchange. It invests in near-month contracts, except when the nearmonth contract is within two weeks of expiration, in which case it will invest in the next month’s contract. The fund’s early switch is designed to lessen the impact of contango and related market forces. Victoria Bay is registered as a commodity pool operator and had $1.1 billion in assets under management as of December 31, 2007. Investors in UHN will benefit from interest income as well. The fund charges an expense ratio of 0.69 percent. Direxion’s Triple Threat covers 36 proposed ETFs offering triple-long and triple-short exposure to some major market indexes. By construction, the “Bull” funds will seek to capture three times the performance of the underlying index, while the “Bear” funds will offer three times the inverse of the performance of the underlying index. The 18 indexes that will underlie the funds include the S&P 500, MSCI Broad Market Index, NASDAQ-100, Dow Jones Industrial Average, S&P MidCap 400 Index, Russell 2000 Index, Nikkei 225 Index, MSCI EAFE, MSCI Emerging Markets Index, S&P BRIC 40 Index, FTSE/Xinhua China 25 Index, Indus India Index, S&P Latin America Index, MSCI Commodity- Related Equity Index, Energy Select Sector Index, Financial Select Sector Index, Dow Jones U.S. Real Estate Index and S&P U.S. Homebuilding Select Industry Index. The prospectus lists the management fees for each ETF at 0.75 percent. The filing clearly looks to build on the success of the ProShares family of ETFs, designed to deliver 200 percent and -200 percent of the return of their benchmark indexes. But will investors really want 3x returns? PowerShares Files For Frontier ETF Invesco PowerShares recently submitted a prospectus to the Securities & Exchange Commission for a frontier markets ETF. The PowerShares MENA Frontier Countries Portfolio will track the Middle East and Africa Frontier Countries Index, which covers 50 stocks—five each from Nigeria, Lebanon, Egypt, Morocco, Oman, Jordan, Kuwait, Bahrain, Qatar and the United Arab Emirates. Components must have market capitalizations of at least $500 million. The index is rebalanced quarterly and takes into account foreign ownership restrictions at each review. The index provider was not identified. Investors have begun to turn to frontier markets as they display continued outperformance in comparison to developed and emerging markets, and as emerging markets begin to correlate more closely with developed markets in terms of performance. To date, however, investors have relatively limited choices in ETFs that access these markets. U.S. Gets Its First Global TIPS ETF The first U.S.-based global international Treasury inflation-protected securities ETF launched on March 19, opening exposure for investors to TIPS in 18 different countries and 15 different currencies. The SPDR DB International Government Inflation-Protected Bond ETF (AMEX: WIP) includes TIPS issued in both developed and emerging foreign markets, with 70 percent developed exposure and 30 percent emerging markets exposure. WIP has 47 different holdings, mostly A-rated and above in credit quality. The average life of those bonds is listed at 9.06 years. The fund follows the Deutsche Bank Global Government ex-U.S. Inflation Linked Bond Capped Index. In the past 12 months, that benchmark has returned 20.9 percent. About 12 percent of those gains were currencyrelated, another 5 percent were associated with inflation adjustments and 2 percent came from coupon interest payments. Less than 1 percent came from price appreciation. The real yield on WIP is around 2.01 percent, reflecting a worldwide flight to quality as credit markets continue to struggle from the U.S.-led mortgage meltdown. Since the fund deals with government debt and buys in foreign currencies, it should be relatively liquid. Some of the ETF’s currencies include the euro, yen, pound, real and the krona. The expense ratio on WIP is listed at 0.50 percent UBS Enters ETN Market Swiss-based financial services giant UBS has joined the growing field of exchange-traded note providers with the launch of eight commodities and energy index-based ETNs this April. The new UBS notes are listed on the NYSE Arca exchange and are marketed as E-TRACS. The ETNs aim to provide a blended approach to commodities investing by tracking contracts with different maturities, i.e., buying not just the July oil contract, but small positions in the July contract, the August contract, etc. Each ETN tracks the performance of the UBS Bloomberg Constant Maturity Commodity Index (CMCI)—which UBS says is the first benchmark commodity index to diversify across both commodities and maturities—or one of its subindexes. By spreading its exposure across multiple maturities, the fund may mitigate the impacts of contango and backwardation and more closely approximate movements in the spot price of the targeted commodities. The UBS ETNs trade under the following ticker symbols: CMCI Index (UCI), CMCI Agriculture Index (UAG), CMCI Livestock Index (UBC), CMCI Industrial Metals Index (UBM), CMCI Food Index (FUD), CMCI Energy Index (UBN), CMCI Gold Index (UBZ) and CMCI Silver Index (USV). UBZ charges 0.30 percent, while USV charges 0.40 percent. The rest of the ETNs charge 0.65 percent. In May, the firm followed up with the launch of the first exchangetraded products to cover the platinum market: the E-TRACS UBS Long Platinum ETN (NYSE Arca: PTM) and the E-TRACKS UBS Short Platinum ETN (NYSE Arca: PTD). Van Eck Enters ETN Market With Morgan Stanley Morgan Stanley has teamed up with Van Eck Global to launch currency ETNs. The initial products offer exposure to the Chinese renminbi and Indian rupee. The Market Vectors - Chinese Renminbi/ USD ETN (NYSE Arca: CNY) and Market Vectors - Indian Rupee/USD ETN (NYSE Arca: INR) are the first exchange-traded products to offer exposure to those two currencies. The notes are designed to go up in value when the named currency appreciates against the U.S. dollar, and down when the dollar strengthens. Both notes track an index tied to currency futures, which allows them to get around local market restrictions on spot currency transactions. The ETNs are underwritten by Morgan Stanley; Van Eck is the marketing agent. The notes charge 0.55 percent in annual fees. In a second venture in May, Van Eck and Morgan Stanley joined the double-leveraged and double-short ETN market with the launch of the Market Vectors Double Long Euro ETN (NYSE Arca: URR) and the Market Vectors Double Short Euro ETN (NYSE Arca: DRR). URR’s underlying index doubles the daily performance of the euro against the dollar, while DRR’s index does more or less the opposite. URR and DRR charge 0.65 percent in expenses. Unlike most currency products, these four products earn interest based on the U.S. Federal Funds interest rate, not local interest rates. Additionally, none of these ETNs pays out interest income; interest is instead added to the share value of the note. Interest accrual presents tax complications for investors, as IRS rules require investors to pay annual taxes on this notional interest. Deutsche Bank Adds Eight More ETNs In April, Deutsche Bank added eight new commodities ETNs offering short and long exposure—four covering the agriculture commodities sector and four that track the broad-based commodities indexes. Both product groups include long, double-long, short and double-short versions. The long and double-long funds aim to deliver 100 percent and 200 percent of the monthly return of the index, while the short and double-short funds aim to deliver -100 percent and -200 percent of the index’s monthly return. The ag ETNs were launched first, on April 15, and include the DB Agriculture Double Short ETN (NYSE Arca: AGA), the DB Agriculture Double Long ETN (NYSE Arca: DAG), the DB Agriculture Short ETN (NYSE Arca: ADZ) and the DB Agriculture Long ETN (NYSE Arca: AGF). The broad-based commodities notes were launched April 29 and are the DB Commodity Double Short ETN (NYSE Arca: DEE), the DB Commodity Double Long ETN (NYSE Arca: DYY), the DB Commodity Short ETN (NYSE Arca: DDP) and the DB Commodity Long ETN (NYSE Arca: DPU). The long ETNs track the Optimum Yield version of the DBLCI, while the short funds track the standard version. All of the agriculture and broadbased commodities ETNs carry an expense ratio of 0.75 percent. ELEMENT-ary Additions Within the first two weeks of April, the ELEMENTS platform saw the launch of four new ETNs, all issued by Credit Suisse (rated AA-/Aa1). Three of the new notes cover sections of the commodities market, while the fourth offers exposure to the industry emerging around the reduction of global warming. The three new commodities ETNs track subindexes of the MLCX (Merrill Lynch Commodity index eXtra) that cover livestock, precious metals and gold. The MLCX Precious Metals ELEMENTS ETN (NYSE Arca: PMY) covers gold (52 percent), silver (32 percent), platinum (8 percent) and palladium (8 percent). The MLCX Livestock ELEMENTS ETN (AMEX: LSO) tracks futures contracts in lean hogs (30 percent) and live cattle (70 percent). The MLCX Gold ELEMENTS ETN (AMEX: GOE) invests only in gold futures contracts. Although PMY and LSO both charge annual expense ratios of 0.75 percent, GOE charges just 0.375 percent. The Global Warming ELEMENTS ETN (NYSE Arca: GWO) is a unique product that tracks the Credit Suisse Global Warming Index, which covers 50 companies with business activities focused on reducing global warming, such as the production of alternative energy and energy efficiency solutions. It charges 0.75 percent. New Commodities ETFs Launch In London In mid-March, ETF Securities (ETFS) rolled out 33 leveraged commodity ETFs (designed to deliver 200 percent of the daily performance of the benchmark index) and four short ETFs (designed to deliver -100 percent of the daily performance of the benchmark index). The new products trade on the London Stock Exchange, and all of them track the Dow Jones-AIG Commodity Index and its subindexes. The four short ETFs are linked to the DJ-AIGCI’s cocoa, lead, platinum and tin subindexes. The leveraged funds cover those four commodities plus aluminum, coffee, copper, corn, cotton, crude oil, gasoline, gold, heating oil, lean hogs, live cattle, natural gas, nickel, silver, soybean oil, soybeans, sugar, wheat, and zinc. There are also 10 leveraged funds that track the broad DJ-AIGCI and nine of its subsectors. The funds charge an annual fee of 0.98 percent. Canada Scoops U.S. With Grain Commodities ETFs In March, Canadian firm BetaPro Management Inc. continued the rollout of its leveraged and short commodities ETFs with the launch of two funds tied to the Dow Jones-AIG Grains Sub-Index on the Toronto Stock Exchange. The Horizons BetaPro DJ-AIG Agricultural Grains Bull Plus ETF (HAU) aims to produce 200 percent of the daily returns of the underlying index, while the Horizons BetaPro DJ-AIG Agricultural Bear Plus ETF (HAD) is designed to capture 200 percent of the inverse of the daily returns of the index. The funds each carry a management fee of 1.15 percent. The DJ-AIG Grains sector includes corn, soybeans and wheat. The U.S. does not have any exchange-traded products that offer short or leveraged exposure to the grains sector specifically. |
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