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By Paul Justice, CFA | 06-16-2010 11:46 AM

ETFs Bringing Institutional Investing to Individuals

The merger of money managers like Guggenheim Partners with ETF providers like Claymore could lead to more individual products that were formerly only available to institutional investors.

Paul Justice: Old names in the ETF Industry are making new faces. I'm Paul Justice with Morningstar. I'm joined by Steve Baffico over at Claymore. There has been some significant changes here. Two partners now in the ETF industry, and Claymore and Rydex have joined up with Guggenheim. And I was interested in finding out from you, how that's going to change the face of these two well known brands in the ETF industry?

Steven Baffico: Sure. Well, Paul thanks for having me, first of all. What I would say – I will speak to the Claymore side of things as I have recently joined the firm to head up U.S. retail distribution. Claymore was purchased by Guggenheim Partners, a transaction that close in October of [2009].

And I think the rationale for the transaction was one simply, as it related to Guggenheim's investment management objectives longer term and that is that, Guggenheim has been traditionally a very successful yet institutional asset management firm within the larger context. Primarily, it has been manufacturing only per se, available to institutions, insurance companies, ultra-high net worth.

The Guggenheim asset management capabilities have never broadly been accessible to individual investors. Claymore was a logical partner in that regard, innovative in their thought leadership and their delivery of world-class products, but less so on the kind of organic manufacturing side.

So, the partnership between Claymore and Guggenheim is one, which on paper creates world-class manufacturing and world-class delivery of investment solutions to clients.

Justice: So, I always view positively in the ETF lines, the democratization of asset classes and strategies. So, you're not bringing more institutional approach to ETFs. Could you give us an example of some of the ideas that Guggenheim will be bringing over to Claymore. I know you recently launched BulletShares, something similar to that?

Baffico: Sure. We think one of the chief benefits to clients will ultimately be a more efficient delivery of Guggenheim's core capabilities. The things that we do very well as an asset manager, but have not traditionally, been available to individual investors. I think coupled with that is, the delivery of Guggenheim's intellectual capital and respected market intelligence.

So, I think what we are aspiring to do is take the themes that we believe strongly and coupled with the capabilities where we have world-class ability, and then create products that make sense for investors. So, really delivering the institutional investment management experience to the individual investor across product, intellectual capital, and market intel.

Justice: Now one of the challenges when you go through an integration is that there's unintended consequences, so one of your more successful ETFs, the Claymore Shipping ETF actually had to close down. Could you talk a little bit about the process to what happened and what you're doing about that?

Baffico: Sure. Yes, it's actually kind of an interesting anomaly, an unfortunate consequence, but we hopefully remedied that. As we talked about and as your viewers maybe familiar with, Guggenheim's acquisition of Claymore Securities last year triggered a change of control provision, wherein Claymore being the advisor to the Claymore Shipping ETF, ticker symbol SEA, was required by prospectus to go back to shareholders in a change of control situation to reapprove the advisory assignment.

All of our ETFs had to go through a similar type of proxy processes and successfully so. Unfortunately with SEA or the Shipping ETF, we found that in the proxy solicitation process, we had a fairly large constituency of offshore shareholders who could not be reached.

So, unfortunately, we were unable to reach a quorum on this particular fund. Now the investors that we did reach and who did vote their proxies, did so with overwhelming approval north of 90%. However, unfortunately, not being able to reach that critical mass caused us by SEC proviso to liquidate the fund.

Justice: So for investors that were in that fund, what are you doing now to make sure that they can regain that exposure?

Baffico: Sure. It's really a story of good news, bad news as we've outlined. The bad news is unfortunately the fund had to liquidate. However, the good news is a new version of the fund identical in process in structure to the first Claymore Shipping ETF has been launched, effective and listed last week on the New York Stock Exchange.

Justice: Great. So people are having opportunity to pick that up again if they so chose?

Baffico: That's right. And there has been a fair degree of publicity around it being and given it's, the popularity of its predecessor.

Justice: Well, Steve, thanks for walking us through that and joining us today.

Baffico: Thank you.

Justice: I am Paul Justice with Morningstar. For this and more ETF information, please visit our ETF Solution Center on Morningstar.com or the ETF Investor news site.

 

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