PowerShares Closes 19 Funds

Invesco PowerShares closed 19 of its ETFs, a dozen of which are based on fundamental indexes created by Rob Arnott’s Research Affiliates. Their last day of trading was May 18.

The 12 FTSE RAFI ETFs included nine U.S. sectors and three international portfolios. The group also included five of the firm’s “Dynamic”-branded ETFs, which are based on complex quantitative indexes calculated using fundamental, momentum and risk factors. The remaining two ETFs marked for termination cover high-dividend stocks and international private equity companies.

PowerShares says it arrived at its decision based on asset levels, the funds’ lengths of time on the market and the potential for future growth, among other factors.

Grail Enters ETF Arena With Active Fund

Grail Advisors launched its first ETF in early May. The new fund is the first to use a team of active managers implementing traditional qualitative stock-picking processes.

The Grail American Beacon Large Cap Value ETF (NYSE Arca: GVT) is managed by a trio of veteran mutual fund and institutional subadvisers: Brandywine Global Investment, Hotchkis and Wiley Capital Management, and Metropolitan West Capital Management.

Combined, the new ETF’s aim is to outperform the Russell 1000 Index. However, it won’t track any specific benchmark when selecting its names. GVT will publish its full portfolio on a daily basis, offering complete transparency into the fund holdings. Of course, because it uses multiple subadvisers, no single subadvisers will be giving away their full strategy; it will be mixed with the other positions.
The fund charges 0.79 percent in annual expenses.

Emerging Markets Currency ETF Debuts

In early May, WisdomTree added another ETF to its lineup of actively managed currency funds.

The WisdomTree Dreyfus Emerging Currency Fund (NYSE Arca: CEW) provides exposure to a wide range of emerging market currencies. Those include: the Brazilian real, Chinese yuan, Chilean peso, Indian rupee, Israeli shekel, Mexican peso, Polish zloty, South African rand, South Korean won, Taiwanese dollar and Turkish new lira.

The firm already has eight currency ETFs, all but one of them marketed under the “WisdomTree Dreyfus” brand. This is the first of its funds to include multiple currencies bundled together. It charges an expense ratio of 0.55 percent.

Van Eck Launches Brazilian Small-Cap ETF

Van Eck Global expanded its suite of Market Vectors ETFs in mid-May with the launch of the Brazil Small-Cap ETF (NYSE Arca: BRF), the first Brazilian small-cap ETF available in the world.

The fund invests in Brazil-listed companies with market capitalizations between $250 million and $3.8 billion. At launch, the BRF fund held 52 positions. On an industry basis, its heaviest weights were in household durables (15.6 percent), food products (9.2 percent), specialty retail (7.8 percent), and paper and forestry products (7 percent).

The fund charges 0.73 percent in expenses.

Direxion Rolls Out Treasuries Triple Plays

Late April saw the launch of four leveraged and inverse ETFs tied to Treasuries. The four new DirexionShares 3x ETFs are leveraged bull and bear index-based portfolios that try to either provide 300 percent of the daily performance or 300 percent of the inverse of the daily performance of the NYSE Current 10- and 30-Year U.S. Treasury indexes.

The new Direxion ETFs include the following:

• Direxion Daily 10-Year Treasury Bull 3x Shares (NYSE Arca: TYD)
• Direxion Daily 30-Year Treasury Bull 3x Shares (NYSE Arca: TMF)
• Direxion Daily 10-Year Treasury Bear 3x Shares (NYSE Arca: TYO)
• Direxion Daily 30-Year Treasury Bear 3x Shares (NYSE Arca: TMV)

Each charges 0.95 percent in annual expenses.

New SPDR Offers Twist On Mortgage Finance

At the end of April, SSgA launched the SPDR KBW Mortgage Finance ETF (NYSE Arca: KME), which holds banks focused on mortgage loans and related services. It also includes a healthy dose of title insurers and claims managers, as well as homebuilders.

The ETF, which comes with an expense ratio of 0.35 percent, uses a benchmark created by investment banker and asset manager Keefe, Bruyette & Woods. The new ETF joins four other SPDRs using KBW indexes to slice financials into different subsectors. There are several MBS-focused ETFs on the market, but they all hold fixed-income securities rather than the stocks of mortgage lenders.

First Convertible Bond ETF Debuts

On April 16, State Street Global Advisors launched the SPDR Barclays Capital Convertible Bond ETF (NYSE Arca: CWB). According to SSgA, it’s the first ETF to focus solely on convertible bonds available to U.S. investors. Convertible bonds have been gaining attention lately, in part due to their impressive year-to-date performance.

Convertible bonds can be ex­­changed—at the option of the holder—for a specific number of shares of the issuer’s preferred or common stock. For investors, that means convertibles provide the safety of a bond with the upside potential of equities; the trade-off is that they typically pay lower yields than standard corporate bonds.

Although the ETF’s underlying index included about 160 issues, the fund holds only 36 names.
CWB comes with an expense ratio of 0.40 percent.

Direxion Plans Monthly ETFs
Direxion Funds has filed to offer 40 new inverse and leveraged funds.

In the February-dated request, Direxion proposed launching the first ETFs to provide leveraged and inverse returns on a monthly basis. The company already has a lineup of successful ETFs offering 300 percent and -300 percent exposure to the daily movements of a variety of indexes.

Direxion’s filing covers 10 indexes, including the likes of the MSCI EAFE Index and the Russell 2000, among others. Four different funds are planned for each index—two offering 200 percent exposure (one leveraged, the other inverse), and two offering 300 percent exposure.

The monthly return focus would change the performance of the funds dramatically. When funds rebalance daily, compounding causes the long-term returns of the funds to deviate from a simple long-term multiple of the benchmark performance. Because they rebalance less often, the monthly funds would be less exposed to this problem. However, investors who bought in the middle of the month would achieve a different kind of return from investors who bought on the first of the month.

Vanguard Launches Ex-U.S. Int’l Small-Cap ETF

Vanguard launched an international small-cap ETF on April 6. The Vanguard FTSE All-World ex-US Small-Cap ETF (NYSE Arca: VSS) is the ETF share class of the Vanguard FTSE All-World ex-US Small-Cap Index Fund, which launched in March.

The ETF comes with an expense ratio of 0.38 percent, the cheapest in its field. It holds a massive 2,100 different names, and is the only broad-based small-cap ETF to cover developed as well as emerging markets in a single fund.

ProShares Looks To Triple Leverage

ProShares has requested that the Securities & Exchange Commission allow it to provide up to 300 percent leverage and 300 percent inverse exposure to more than 35 different indexes covering the domestic stock market, international stocks and fixed income.

Currently, Direxion is the only firm offering ETFs providing 300 percent exposure. ProShares’ offerings currently provide no more than 200 percent exposure. Its chief rival, Rydex, is also awaiting approval from the SEC of its own proposed triple-exposure ETFs.

Note that the filing does not say what the exact exposure of the funds eventually launched based on the filing will be—just that it will be up to 300 percent; meaning, for example, that 250 percent exposure would be another possible option for the company.

No portfolio details were provided by ProShares about the focus of any future 3 times leveraged or inverse fund.

ETFS Files For Platinum, Palladium Bullion ETFs In U.S.

April filings by London-based ETF Securities (ETFS) indicate that U.S. investors may soon be able to access two precious metals via products structured in a way similar to the SPDR Gold Shares ETF (NYSE Arca: GLD). The ETFS Palladium Trust and the ETFS Platinum Trust each will hold physical bullion of its respective metal.

ETF Securities already offers platinum and palladium bullion ETFs in Europe. The most recent filings bring the number of ETFS products in registration in the U.S. to four—all of them trusts that will hold precious metals (silver, gold, palladium and platinum). Although the silver and gold trusts will compete directly with offerings from SSgA and BGI, the palladium and platinum products will likely be the first ETFs to cover their respective metals.