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ETF Specialist

ETF Weekly: Highlights from Inside ETFs Conference

Best- and worst-performing ETFs this week, and some high dividend ideas.

Last week, IndexUniverse.com held its third annual Inside ETFs conference in Boca Raton, Florida, which attracted more than 800 financial advisors and ETF industry players. On Morningstar.com, we have shared some of our takeaways from the conference. Paul Justice provides an overview of the conference and highlights some of the industry's recent achievements in his article "State of ETFs Going Into 2010." In "Time for More ETF-Based Variable Annuities," Scott Burns proposes that increased usage of ETFs within variable annuities is inevitable and could ultimately result in cheaper VA products, which traditionally have been relatively expensive investment vehicles. Patricia Oey's article "ETF and Taxes: The Issues and Opportunities" shares some thoughts on municipal bonds and tax-loss harvesting strategies.

The Best- and Worst-Performing ETFs Last Week
The Best: Japan ETFs dominated the list of top-performing ETFs this week. Shares of Japanese technology and consumer electronic companies rallied along with other global tech names on expectations of a spending recovery for technology in 2010. Japanese equity markets also saw $7.8 billion in net purchases last week from foreign investors, the highest level since March 2004. Investors are likely rebalancing their portfolios, following the Japan benchmark TOPIX's relative weak performance of 5.6% in 2009.

 Claymore/Delta Global Shipping  was the top performer this week and is one of the best-performing ETFs for the year to date. Shipping rates have been improving on expectations of a global recovery, and this sector enjoyed an additional boost this week when China reported a growth in exports for the month of December, after 13 months of declines.

  1-Wk NAV Return Category AUM ($Mil) Avg Daily Vol (3 Mo) ($Mil) Claymore/Delta Global Shipping  11.4 Industrials 143.0 0.2 iPath Global Carbon ETN  10.3 Materials 3.7 0.0 PowerShares FTSE RAFI Japan  10.2 Japan 7.9 0.0 iShares S&P/TOPIX 150 Index  8.9 Japan 109.6 0.0 iShares MSCI Japan Index  8.9 Japan 5,416.1 27.5 iPath DJ AIG Tin TR Sub-Idx ETN  8.6 Materials 2.2 0.0 WisdomTree Japan Total Div  8.5 Japan 94.8 0.0 SPDR Rus/Nomura PRIME Japan  8.5 Japan 15.8 0.0 SPDR Rus/Nomura SmCap Japan  8.4 Japan 76.8 0.0 WisdomTree Japan SmCap Div  8.2 Japan 103.2 0.0 Data as of 01-14-10

The Worst: Chinese financial ETFs, such as Global X China Financials  and Claymore/AlphaShares China Real Estate  fell sharply last week after the Chinese government said it will raise banks' reserve requirements, a move that came earlier than expected.

On Tuesday, the U.S. Department of Agriculture increased its forecast for a record harvest for corn and soybeans for 2009, despite unseasonably cold weather last fall. Following this announcement, corn and soybean futures tumbled, which dragged down the performance of many agricultural commodity exchange-traded products. 

Volatility fund  iPath S&P 500 VIX Short-Term Futures ETN  continued its steady eight-month decline. While the S&P 500 Volatility Index, or VIX, is now trading near its normal historical average of around 20, this fund has a large negative roll yield, which will weigh on performance, even if the VIX remains steady.

  1-Wk NAV Return Category AUM ($Mil) Avg Daily Vol (3 Mo) ($Mil) Global X China Financials ETF  -6.8 Asia ex-Jp 30.7 N/A ELEMENTS MLCX Grains Ind ETN  -6.4 Ag Com 12.1 0.0 iPath DJ AIG Gr Sub-Idx ETN  -6.1 Ag Com 92.3 0.1 iPath S&P 500 VIX ST Fut ETN  -5.4 S&P 500 Track 869.5 2.0 Claymore/AS China Real Est  -5.3 Asia ex-Jp 83.7 0.1 Market Vectors Solar Energy  -5.2 Energy 35.1 0.0 United States Heating Oil  -5.0 Energy Com 16.4 0.0 ELEMENTS MLCX Biofuels Ind ETN  -4.9 Energy Com 2.1 0.0 Global X China Energy  -4.8 Asia ex-Jp 3.0 N/A UBS E-TRACS CMCI Ag TR ETN  -4.8 Ag Com 6.3 0.0 Data as of 01-14-10

News
According to a recently released report by BlackRock, the largest ETF sponsor and provider of the iShares ETF family, global ETFs' assets grew 45% in 2009 to reach $1 trillion. About 70% of these assets are U.S.-listed ETFs, 22% are European-listed ETFs, and the remainder are attributed to Asia-listed ETFs. A copy of the report can be found here.

Launches
Schwab launched its seventh and eighth ETFs on Thursday: Schwab Emerging Markets Equity ETF  and Schwab International Small-Cap Equity ETF . Both of these funds will carry an expense ratio of 0.35%, which is comparable to similar ETFs such as  Vanguard Emerging Markets Stock ETF , which charges 0.27%, and  iShares MSCI EAFE Small Cap Index , which charges 0.40%. Like Schwab's first six funds, SCHE and SCHC can be bought and sold commission-free online in Schwab accounts. Schwab's entry into the ETF market has been very successful; since launching four ETFs in early November and two ETFs in December, Schwab now has $419 million assets under management in its ETF products.

Also on Thursday, Global X launched Global X China Materials , the sixth in its family of China sector ETFs. All of these Global X China sector ETFs (including Consumer , Industrials , Tech , Financials , and Energy ) charge an expense fee of 0.65%, which is comparable to most Chinese ETFs. Global X launched its first five China sector funds over the first two weeks of December 2009, and as of 2009 year-end, had accumulated about $74 million in assets under management.

The ETF Screener
One way to pick up some return in this current low-interest environment is to search for yield. This week, we used the ETF screener to find the 10 highest yielding exchange-traded products.

  12-Mo Yield (%) Category AUM ($Mil) Avg Daily Vol (3 Mo) ($Mil) SPDR Barclays Capital HY Bond  12.2 High-Yield Bond 3,539.9 1.1 Claymore CEF GS Connect ETN  9.8 Mod Allocation 3.3 0 iShares iBoxx $ HY Corp Bd  9.6 High-Yield Bond 4,684.7 0.6 WisdomTree Intl Real Estate  9.4 For Real Estate 86.3 0.0 PowerShares Financial Pref  8.8 World Financial 1,478.7 0.7 PowerShares HY Corp Bond  8.8 High-Yield Bond 200.8 0.1 iShares FTSE NAREIT Mortg  8.2 Dom Real Estate 44.8 0.0 PowerShares Preferred  8.1 World Financial 866.1 0.4 iShares S&P U.S. Pref Stock Ind  7.9 Large Core 3,183.6 0.9 iShares FTSE EPRA/NAREIT Dev RE 7.1 For Real Estate 312.9 0.0 ex-US  Data as of 01-14-10

For readers who are not familiar with the Morningstar.com ETF Screener, please start by clicking here to open the ETF Screener. The default setting for the screener includes expense ratio, market return YTD, and market return 1-year. To remove these criteria, click on the 'x' box on the right side of the screen. To search for highest-yielding ETFs, click on "Add Criteria" which is located in the central right portion of the screen, and place the cursor over the word Quote in the far left column, which will autofill the second most left column. Then click Yield % (TTM), and then click on the button that says Add Criteria off to the lower right. Close the criteria box by clicking Close Criteria, which is a blue box on the right-hand side of the screen. A list should appear toward the bottom of your screen. You can sort the list by clicking on the Yield (%) column heading.

Keep in mind that many of the highest-yielding ETFs on this list are the riskier high-yield and global real estate funds. If you run the screen yourself, you can see that further down the list include a mid-cap value fund, Claymore/Zacks Multi-Asset Income , and some utilities funds such as PowerShares Dynamic Utilities  and WisdomTree International Utilities .

Buy and Sell Ideas
This first table lists the ETFs with the lowest price/fair value ratios, which suggests that these ETFs are attractively priced.

  P/FV Category AUM ($Mil) Avg Daily Vol (3 Mo) ($Mil) ELEMENTS Mstar Wd Mt Foc ETN  0.7 Large Core 5.5 0.0 iShares S&P Gl Clean Energy Ind  0.8 Utilities 87.0 0.0 Market Vectors Glb Alt Energy ETF  0.8 Materials 219.6 0.1 SPDR KBW Regional Banking  0.8 Dom Financial 532.2 4.2 SPDR KBW Bank  0.8 Dom Financial 813.8 7.0 iShares DJ US Home Const  0.8 Cons Discret 327.2 0.5 Telecom HOLDRs  0.8 Communications 148.9 0.0 iShares Morningstar Lg Val Index  0.8 Giant Value 195.2 0.0 iShares S&P Global Cons Staples  0.8 Cons Staples 318.3 0.0 Regional Bank HOLDRs  0.8 Dom Financial 346.8 0.9 Data as of 01-14-10

This second table lists the ETFs with the highest price/fair value ratios, which suggests that these ETFs are overpriced.

  P/FV Category AUM ($Mil) Avg Daily Vol (3 Mo) ($Mil) First Trust ISE Chindia  1.3 Asia ex-Japan 137.3 0.1 Internet HOLDRs  1.3 Technology 375.6 0.1 First Trust Technology AlphaDEX (FXL) 1.2 Technology 26.3 0.0 First Trust DJ Internet Index (FDN) 1.2 Technology 97.1 0.1 PowerShares Dynamic Net (PXQ) 1.2 Technology 29.1 0.0 PowerShares NXQ  1.2 Lge Val-Sens Gr 2.5 0.0 Claymore/BNY Intl SmCap LDRs  1.2 Lge Val-Sens Gr 8.5 0.0 iShares DJ US Oil Equip Index (IEZ) 1.2 Dom Energy 418.8 0.2 SPDR S&P Oil & Gas Equip & Serv (XES) 1.2 Dom Energy 351 0.3 First Trust Value Line 100 ETF  1.1 Mid Core Growth 61.7 0.0 Data as of 01-14-10

 

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Disclosure: Morningstar licenses its indexes to certain ETF and ETN providers, including Barclays Global Investors (BGI), Claymore Securities, First Trust, and ELEMENTS, for use in exchange-traded funds and notes. These ETFs and ETNs are not sponsored, issued, or sold by Morningstar. Morningstar does not make any representation regarding the advisability of investing in ETFs or ETNs that are based on Morningstar indexes.

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