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ETFs Jump In It
Tuesday, March 22 2011 | 03:31 PM
Chief Investment Officer,
YOUR SOURCE FINANCIAL (RIA)
|If you didn't hear, Index IQ is coming out with a global small cap agribusiness ETF that will have ticker CROP. It is supposed to start trading today.
About all I could glean for now about the make up of the fund is that it will hold stocks from a lot of different countries, no stock will exceed 10% (subject to rebalancing) and 30% of the fund will be in crop production and farming. We'll see what that means perhaps as soon as later today but this could be about a close as we get to a farmland ETF.
There are all kinds of plantation stocks trading in Asian markets and a couple where the plantations are in Asia but the stocks list in London. These are not easy to trade and if the fund captures that then this stands to be meaningful and also have the potential to look much different than Market Vectors Agribusiness (MOO) that we own for clients.
Emerging Global filed last week to dramatically increase its India offerings with sector funds that correspond to the ten big SPX sectors. They already have India covered with infrastructure and small cap. India has become a tougher market to own, fundamentally. A few years ago it seemed like anything India went up, this was also the case with Chinese stocks. As is often the case the theme has evolved and success requires being more selective.
Long story short I want no part of financials or telecom in India. The other sectors are all at least maybes. Any broad large funds will have exposure to those two sectors, the EG Shares India Small Cap Fund (SCIN) doesn't seem to have any telecom but does have some financials in it. The consumer space is very promising from the top down but buying that fund would depend on what was in it. I think utilities is kind of a sector for the future as there are things like hydroelectricity but the electricity infrastructure seems fairly primitive for now. The industrial and materials sectors will obviously capture the infrastructure needed as well the actual infrastructure fund.
At some point I expect we'll add India across the board as we had it quite a few years ago and it would be nice to have choice at the sector level as individual stocks from India are a little tougher to access.
WisdomTree now has an Asian bond ETF and it avoids Japan which is a plus. I wrote about it for theStreet.com. WisdomTree has a Latin American bond ETF in the works which could also be very interesting unless it is 40% Mexico or something.
Yesterday I stumbled across a Brazilian hydroelectric company called AES Tiete (AESAY). I don't know much about it yet but where there is at least one in Brazil, India and a couple in China I'm thinking there are several others around the world--maybe enough for an ETF? Alternative energy is a volatile space but I think it makes more sense to consider when the alternative energy comes from the utility than when it is dependent on the end user retrofitting their home.
Maybe we can add this to the list of ETF ideas we've compiled over the years which includes toll road, air and sea ports, cement companies and publicly traded exchanges.
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January ETF Flows: Hot Start to 2011
Friday, February 04 2011 | 04:35 PM
|In 2010 the ETF industry stumbled coming out of the gate, as more than $17 billion flowed out of exchange-traded products in the first month of the year. This year’s January figures showed an opposite result, as the latest data released by the National Stock Exchange shows that U.S.-listed ETPs took in more than $10 billion last month. The industry finished the month with $1.02 trillion in assets, an increase of about 1% over the prior month.
Reversing the trend of recent years, money flowed into domestic equity funds (inflows of almost $10 billion) and out of international stock ETFs (outflows of $1.3 billion) in January. Commodity ETFs also bled assets as investors fled physically-backed gold products, while fixed income funds saw big inflows.
After taking in more than $40 billion in 2010, Vanguard picked up where it left off in 2011 by leading all issuers with $4.2 billion in inflows. Not far behind was PowerShares, which surged higher thanks to big inflows into its flagship QQQQ (the fund raked in $2.5 billion of the firm’s total $3.2 billion during the month). iShares saw its market share drop under 44% after monthly outflows totaled more than $3 billion. First Trust continued an impressive run with nearly $500 million in January inflows. The firm’s ETF assets are up nearly 200% since last January, and market share has doubled over that period.
After losing more than $16 billion in January 2010, SPY saw solid inflows of $1.5 billion last month to inch up to more than $93 billion in total. Meanwhile, the second largest ETF continued to bleed assets, as $2.3 billion flowed out of GLD. The physically-backed gold SPDR has now experienced four consecutive months of outflows. And GLD continued to lose ground to its iShares competitor: The COMEX Gold Trust (IAU) also saw outflows, but of only about $300 million. iShares cut the expense ratio on IAU to 25 basis points last summer, and the fund has been gaining ground on its much larger rival ever since.
VWO Tops EEM
In another closely-watched head-to-head battle, Vanguard finally gained the upper hand in the emerging markets ETF space. VWO surpassed iShares EEM in terms of total assets for the first time; both funds track the MSCI Emerging Markets Index but VWO has a clear edge in expenses (27 basis points compared to 69 bps for EEM). VWO, now the third largest U.S.-listed ETF, took in $1.7 billion while EEM bled nearly $7 billion.
In addition to GLD and EEM, other funds experiencing major outflows included the Russell 2000 Index Fund (IWM, $1.9 billion) and Vanguard’s MSCI Total Market ETF (VTI, $818 billion). Five ETFs took in at least $1 billion last month, including SPY, QQQQ, VWO, the iShares MSCI Brazil Index Fund (EWZ) and Dow Jones Industrial Average ETF (DIA).
Several of the newer additions to the ETF lineup appear to be gaining considerable traction. Vanguard’s S&P 500 ETF (VOO) took in about $360 million, or nearly 150% of December assets. Also posting a big relative gain was WisdomTree’s Commodity Currency ETF (CCX), which raked in $91 million to push total AUM to $116 million.
Though the ETF industry remains top-heavy, the smaller and more targeted products out there continue to gain ground. In aggregate, the 20 largest exchange-traded products account for about 47% of total assets, but these same 20 behemoths saw outflows of about $3 billion last month.
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It Turns Out It Would Be Really Easy to Issue Foreign Bond ETFs
Friday, February 04 2011 | 04:20 PM
Chief Investment Officer,
YOUR SOURCE FINANCIAL (RIA)
|For a while I've been writing about the importance of foreign fixed income exposure in a diversified portfolio, how we integrate this space into our client portfolios and how easy it would be for ETF providers to make real inroads here in offering exposure. What exits now are some broad based funds that are usually heavy in Japan because Japan has issued the most debt (kind of market cap weighted by total debt issued). There are a couple of emerging market bond ETFs that are better holds, IMO.
Well it turns out that iShares offers a lot of foreign bond ETFs in other markets. For example in Canada iShares offers seven ETFs that own Canadian bonds. iShares UK offers more funds than can be counted in GBP and euros in all sorts of fixed income categories. I am aware of one other iShares site, that being for Hong Kong but there are no bond ETFs available on that site.
It might be a case where the company may not want to commit the capital to seeding US versions of these funds which would be reasonable given that embracing truly new segments of the market can be difficult for many investors (there are many advisors who still use an OEF equivalent of SPY, IWM and EFA). The solution here might be some sort of blurring of the lines between exchanges such that anyone so inclined could buy the iShares DEX Universe Bond Index Fund which has ticker XBB in Toronto but apparently no pink sheet symbol for US trading.
This would of course be a big evolutionary step but not completely unprecedented, it is pretty easy to buy Canadian common stocks through Schwab and they are about the worst for accessing foreign stocks and of course Fidelity, Interactive Brokers and eTrade offer access. There are different rules for funds but it seems to me to be a legal solution that if implemented intelligently would be much less capital intensive than seeding a bunch of new funds.
In my opinion this is something that is going to evolve such that the access is made available one way or another. For now it may be a demand issue in that I think there is failure to recognize the need by too many people but the exposure is important even if people are slow to realize.
On a possibly related note, IndexUniverse reported that iShares had filed in the US for a foreign preferred stock ETF that is 73% Canadian issues.
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