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By Jeremy Glaser | 12-20-2010 03:38 PM

Burns: Our Favorite New ETFs and ETNs of 2010

Morningstar's director of ETF research says some of 2010's best new launches offer investors easy access to precious metal alternatives, targeted-maturity bonds, and emerging-markets debt.

Jeremy Glaser: Our favorite exchange-traded products of 2010.

I am Jeremy Glaser for I'm here today with Scott Burns. He's director of ETF research for Morningstar, to take a look at his favorite new exchange-traded products.

Scott, thanks for taking the time today.

Scott Burns: Jeremy, thanks for having me.

Glaser: So, I think you mentioned there were 218 new products that were launched this year, but I think some of them are probably more worthwhile than others. Can you give us some of your favorite launches of the year?

Burns: I think on that "more worthwhile than others" topic, a question we get a lot is, are there too many or too many launches, or how many it's enough. I think when you're in an industry that's growing, or a segment of an industry that's growing as fast as ETF market is, there's going to be a certain natural creative-destructive process that's going to happen. So, we're going to see a lot of new launches. Some may work, some may not.

But, in general, as you ask me to come here, let's talk about some of our favorites, I think, one area that was of huge interest though has been the physical commodity space this year. ETF Securities launched Physical Platinum and Physical Palladium. I believe my stats, as I checked them just before I got here, they are the two fastest-growing and largest asset gatherers of the year. So, not only do we think they were pretty good launches, but the investment community obviously agrees as well.

What's interesting about these products is they've really provided an alternative – precious metals, physical precious metals – alternative to gold and silver that we see out there. So, they have very different characteristics. I want to make sure investors realize that Platinum and Palladium are used quite a bit more in industrial usage than gold is. So things like catalytic converters and not just jewelry and whatnot. So, one thing before investing in that as a substitute for gold is to make sure that you understand those industrial applications and how that will change things.

From the fixed-income side, we actually have a couple of unique launches that came out, one, from an exposure basis. We launched emerging-market bonds this year. WisdomTree launched fund, ELD is the ticker, and Van Eck launched EMLC. Those two funds really give exposure to the emerging market countries that are out there. So, Brazil, China, Russia--maybe or maybe not you want Russia--but it's there to a certain degree. So, what we really like about this is, it gets away from some of the issues that have been plaguing developed markets, especially fixed-income in the U.S., fixed-income in Europe.

So, what we find when we look at the credit quality across developed markets and compare it to emerging markets is something we probably haven't ever seen in the past 50 years of investing, and that is that the credit quality of places like Brazil and China and South Korea is better than what we're looking at in broad-based Europe, and perhaps even the U.S. I think it's less about the credit quality in U.S. and more about the returns. So, we found those very interesting.

Another way ... it's something that's always amazed us that we slice and dice the equity portion of our portfolio across value and growth, and international, and emerging markets, and yet, a lot of people just own one fixed-income fund or ETF, etc., or maybe TIPS in a broad-basket. So, we do think the evolution is coming where we'll start slicing and dicing our fixed-income portion.

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