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ETF Specialist

ETF Wire: Slew of Commodities, Foreign Funds Launch

Plus, new filings for infrastructure, nuclear, and timber funds, and more.

Jeffrey Ptak

Following is a quick synopsis of goings-on in the exchange-traded fund industry, including our big-picture view of the ETF landscape, a rundown of recent ETF analyses, feature articles, and blog postings, as well as links to ETFs that recently launched.

New ETF Article
This week, we put out a piece entitled "ETF Picks to Put Our Market Outlook into Action" that marries our stock analysts' recently published sector outlooks to various ETF "picks." In that way, if you're looking for an ETF that taps into some of the profitable themes and opportunities that our stock analysts tick off, you'll have a worthwhile short list to work from.

New ETF Analyst Reports
As you might have heard, we recently launched our new-and-improved  ETF Analyst Reports on Morningstar.com. Those reports are available to Premium Members. If you're not a Premium Member yet, check out our recent piece, "Our Take on One of 2007's Hottest Emerging-Markets ETFs", in which you'll find a sample ETF Analyst Report. To see more ETF analyses, take a free, 14-day Premium Membership trial.

We continued to publish new Analyst Reports recently. Last Wednesday, for instance, my colleague Harry Milling added  SPDR S&P Metals & Mining (XME) to coverage. The fund is quirky--it owns a collection of domestic miners and metals-related producers, despite the fact that some of the biggest players can be found abroad. Nevertheless, metals and mining has been a subject of intense interest lately given the global commodities boom and attendant benefits to miners. But does that make this ETF a buy? Harry sets out to answer that question in his  write-up.

Last Friday, my colleague Emiko Kurotsu provided her take on  SPDR S&P Retail (XRT). Retailer stocks have gotten crushed in recent months as fears of a prolonged consumer malaise have set in. Nevertheless, our consumer stock analyst team thinks some of the selling looks overdone, creating bargains in the process. The question is whether the whole--this ETF--exceeds the sum of its parts. Emiko explores that issue, among others, in her  Analyst Report.

Also on Friday, Harry Milling brought  PowerShares Dynamic Oil & Gas Services (PXJ) under coverage. We're not sold on the fund's quantitative stock-selection approach, which hasn't reaped major dividends thus far when compared with ETFs that track traditional indexes. Nevertheless, Harry has drilled down into the portfolio, in a manner of speaking, to see whether the fund's holdings are attractive on a fundamental basis. The verdict? Check out Harry's  Analyst Report.

And yesterday Emiko Kurotsu put out a report on  iShares S&P Global Energy (IXC). It's a one-of-a-kind ETF in the sense that it's the only broad-based energy fund that dabbles in foreign stocks. But is it distinctive enough to justify its higher expense ratio? Emiko sets out to answer that question in her  Analyst Report.

New ETF Analyst Notes
In addition to new reports, we also put out several ETF Analyst Notes last week. Each week our analysts canvass the sectors they cover and prepare an overview of noteworthy recent developments. Following are links to Analyst Notes that we put out last week summarizing our analysts' take on the latest goings-on in the sectors they cover, and providing commentary on the impact these issues are likely to have on relevant ETFs.

Blog Roll
Here are some of the topics we've covered recently in our ETF-related blog, Basis Pointing.

  • "Flurry of New ETF Filings": A capsule summary of the slew of new ETF filings that crossed the transom in recent days, including new timber, nuclear energy, infrastructure, clean energy, Internet, and Eastern Europe funds.
  • "Claymore Registers ETF That Will Track Frontier Index; Kazakhstan Bulls, Rejoice!": So-called "frontier" indexes are being touted as the next, well, frontier in noncorrelated asset classes. Claymore/BNY Frontier Select DR would be the first ETF to track a frontier index, the BNY Frontier Select DR Index. The index's top holdings will hail from countries like Egypt, Pakistan, and Kazakhstan, most of which get bit (if any) weightings in broad emerging-markets benchmarks like MSCI Emerging Markets.
  • "Filing Hints at Future Manager Change": We step out of character as ETF nerd extraordinaire and play the part of mutual fund geek in this posting. Long story short: A filing for a forthcoming fund hints that the manager who's slated to run it is being lifted out of another, larger fund complex. Who's the manager? We take our best guess.
  • "Another ETF Dies on the Vine": X Exchange Traded Funds pulled its registration statement for Haverford Quality 250 Fund. The Haverford fund is the 21st ETF to die in the registration queue thus far in 2008. We offer some thoughts on why the ETF didn't launch and whether others are likely to meet the same fate.

New Listings
Following is a tally of ETFs and ETNs that began trading in the last week or so (we've linked to the relevant prospectus whenever possible).  

  • PowerShares NASDAQ NextQ PNXQ: The fund will track the NASDAQ Q-50 Index, which consists of the 50 NASDAQ-listed firms that are next in line to be added to the NASDAQ 100 Index. Here is a holdings list as of April 3, 2008. The fund costs 0.70%.
  • PowerShares FTSE NASDAQ Small Cap PQSC: This fund will track the FTSE NASDAQ Small Cap Index, which represents the smallest 10% (by market cap) of the NASDAQ Composite Index. The fund levies a 0.70% expense ratio.
  • E-Tracs ETN Family:  UBS (UBS) launched its own family of ETNs, which will trade under the "E-Tracs" banner. The new ETNs include a diversified commodities strategy, and various components thereof, including energy, gold, industrial metals, silver, agriculture, livestock, and food. With the exception of gold (0.30%) and silver (0.40%), all of these ETNs will cost 0.65%. UBS--yes, the same UBS that's seeking a CHF 15 billion capital infusion for its ailing balance sheet--is the issuer behind these notes.
  • PowerShares Global Nuclear Energy PKN: This ETF joins Market Vectors Global Nuclear Energy as the only two of their kind. Per the prospectus, this fund will invest in 100 or so names, nearly three quarters of which are based abroad.
  • Elements MLCX Livestock ETN LSO: This note will track an index that "comprises rolling futures contracts...on two physical commodities: live cattle and lean hogs." That brings to three the number of livestock ETNs that have launched in the past five months. It'll cost 0.75% per annum. Credit Suisse is the issuer.
  • Elements MLCX Precious Metals ETN PMY: This note will track an index pegged to four precious metals--gold, silver, platinum, and palladium. What does chrome have to do to get some love, we wonder? The note will levy a 0.75% expense ratio. Credit Suisse is the issuer.
  • Elements MLCX Gold ETN GOE: The note will track an index pegged to gold. It'll cost 0.65% per annum. Credit Suisse is the issuer.
  • Elements Credit Suisse Global Warming ETN GWO: This note will track an index that provides exposure to "stocks of companies that have an increased focus on products or services related to minimizing global warming." The portfolio is invested equally in 50 stocks. The note will cost only 0.375% per annum, which is roughly one half that of most other stock-index-linked ETNs. Credit Suisse is the issuer.
  • IShares MSCI Israel Capped Investable Market EIS, IShares MSCI Turkey Investable Market TUR, IShares MSCI Thailand Investable Market THD: The first three ETFs devoted exclusively to these markets. The funds cost 0.68% apiece.
  • IShares MSCI All Country World ACWI: This fund puts the whole world--the portfolio spans 40-plus developed and emerging countries and nearly 3,000 stocks--in your hand. It levies a 0.35% expense ratio.
  • IShares MSCI All Country ex-U.S. ACWX: Similar to its sibling, this fund excludes domestic stocks. It also costs 0.35% per annum.
  • IPath Optimized Currency Carry ETN ICI: This ETN is pegged to the returns of an index that essentially employs a leveraged currency trading strategy. In a nutshell, the index borrows in currencies that are yielding less and invests in those that are yielding more--aka the "carry trade." The index is limited to a basket of 10 currencies, utilizes forward currency contracts, and rebalances monthly using a "constrained mean variance optimization technique."
  • Ultra Telecommunications ProShares LTL and UltraShort Telecommunications ProShares TLL: Aggressive bulls and bears might take a shine to these new ETFs, which provide leveraged long and short exposure, respectively, to a basket of telecom stocks. Suffice it to say, they're not for the faint of heart.

By our count, 56 ETFs have launched thus far in 2008, with commodity (20) and currency (10) funds being most common. ETNs have accounted for roughly one in every two launches this year.

ETF Pipeline
After a lull, the pipeline sprung to life again. ETF providers filed for the following products in the past week or so. For a capsule summary of each of these funds, see this post in our Basis Pointing blog.

Also, as mentioned above, the registration statement for one ETF--Haverford Quality 250--was withdrawn this week.

Taking Stock
Want to know how some of the most popular ETFs have fared? This performance summary should whet your appetite.

If it's the leaders and laggards that interest you, then give our best/worst performers list a look.

Finally, looking beyond ETFs to the benchmarks and industries themselves, you can find a wealth of performance data on Morningstar.com, including performance stats by indexes, sectors, and industries. Also, be sure to check out our quote reports for the Dow, S&P 500, Russell 2000, and Nasdaq Composite indexes.

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