Industry Leaders Address Credit Crisis

Some of the biggest names in the ETF industry came together this week to discuss how the current credit crisis and stock market crash has affected the exchange-traded fund industry for better or worse. All these industry leaders sit on the editorial board of the Journal of Indexes, which held its first public meeting Tuesday at the Nasdaq Stock Market in front of a group of financial journalists.

Because most of the major trends in the indexing industry are directly related to ETFs, the Journal offers in depth coverage of the ETF industy. With ETFs now comprising between 35% and 40% of all the daily trading volume on the equity markets, the major conclusions of the meeting were that the ETFs are tackling a lot of these issues affecting funds because they are so transparent. But soon, investors will be asking the managers of their active funds, what exactly they’re doing to earn the high fees they’re charging.

The other main conclusion came from Lee Kranefuss, the head of Barclays Global Investors, which produces the iShares ETFs. He said that every time there was a problem in the markets, it tended to help ETFs. The technology bubble, the mutual fund timing scandal, the accounting scandal, have all inadvertantly extolled the virtues of the transparency of ETFs.

A big way the credit crisis has affect the indexing and ETF industries is by reducing the seed capital to start new ETFs, said Steven Schoenfeld, the head of Northern Trust, with produces the NETS family of ETFs. He added it’s also reduced the ability to facilitate large trades.

NETS Complete Move to NYSE Arca, Claymore Shifts 21

Since the New York Stock Exchange bought the American Stock Exchange it has been steadily moving ETFs off of the Amex, now renamed the NYSE Alternext US, to its chief ETF exchange the NYSE Arca. The move continues as Claymore Securities transferred the primary listing of 21 of its ETFs and Northern Exchange Traded Shares (NETS) transferred the primary listing of six of its ETFs to the NYSE Arca from the NYSE Alternext. With the recent moves off the Alternext, one wonders whether any ETFs will trade on it when the NYSE is through.

Founded in 1889, Northern Trust currently offers 16 ETFs that track foreign-based indexes. With today’s move, all now trade on the NYSE Arca. As of September 30, Northern Trust had $3.5 trillion assets under custody and $652.4 billion in assets under investment management.

Claymore offers 33 stock and bond ETFs. Claymore also sells unit investment trusts (UITs) and closed-end funds (CEFs). As of September 30, Claymore supervised approximately $13.8 billion in assets.

Including all 16 NETS listings and 30 of the Claymore ETFs, NYSE Arca has 318 primary ETF listings, 79 exchange-traded notes. According to NYSE Arca the exchange-traded products listed represent nearly $353 billion, or 59%, of ETF and ETN assets under management in the U.S., the most of any exchange.

The six NETS ETFs that moved:

· NETS FTSE 100 Index Fund (LDN), which tracks the benchmark index of the London Stock Exchange.
· NETS DAX Index Fund (DAX), which tracks the German market’s benchmark index.
· NETS FTSE/JSE Top 40 Index (JNB), which follows South Africa’s benchmark.
· NETS FTSE Singapore Straits Times Index Fund (SGT)
· NETS S&P/MIB Index Fund (ITL) follows the Italian market.
· NETS S&P/ASX 200 Index Fund (AUS) covers the Australian stock market.

The 21 Claymore ETFs that moved.

· Claymore/AlphaShares China Small Cap Index ETF (HAO)
· Claymore/S&P Global Dividend Opportunities Index ETF (LVL)
· Claymore/BNY BRIC ETF (EEB), which tracks Brazil, Russia, India and China.
· Claymore/Clear Spin-Off ETF (CSD)
· Claymore/Clear Global Timber Index ETF (CUT)
· Claymore/Clear Global Exchanges, Brokers & Asset Managers Index ETF (EXB)
· Claymore/Great Companies Large-Cap Growth Index ETF (XGC)
· Claymore/Ocean Tomo Patent ETF (OTP)
· Claymore/Ocean Tomo Growth Index ETF (OTR)
· Claymore/Robeco Developed International Equity ETF (OTR)
· Claymore S&P Global Water Index ETF (CGW)
· Claymore/Sabrient Defender ETF (DEF)
· Claymore/Sabrient Insider ETF (NFO)
· Claymore/Sabrient Stealth ETF (STH)
· Claymore/SWM Canadian Energy Income Index ETF (ENY)
· Claymore/Zacks Yield Hog ETF (CVY)
· Claymore/Zacks Mid-Cap Core ETF (CZA)
· Claymore/Zacks Dividend Rotation ETF (IRO)
· Claymore/Zacks Sector Rotation ETF (XRO)
· Claymore/Zacks Country Rotation ETF (CRO)
· Claymore/Zacks International Yield Hog Index ETF (HGI)

Talking About ProShares on The Radio

I will be speaking about ProShares ETFs on The Vince Rowe Show, the Online Trading Academy, at noon eastern time, today, Friday. Here is the radio schedule, or you can listen live at Vince Rowe.com or BizRadio Network.com.

BizRadio Network 1110AM Dallas: 11:00 am – 12:00 pm Monday – Friday
BizRadio Network 1110AM Houston: 11:00 am – 12:00 pm Monday – Friday
CNN Radio 1190 Dallas: 12:00 pm – 1:00 pm Monday – Friday

Lehman’s Opta ETNs Officially Delisted

Well, they’re gone.

Lehman Brothers exchange-traded notes, the first ETNs to close, officially delisted from the NYSE Alternext U.S., the former American Stock Exchange, on Wednesday. Lehman’s Opta Exchange-Traded Notes tracked the Lehman Brothers Commodity Index Pure Beta Agricultural Total Return; while Lehman’s Opta Exchange-Traded Notes was linked to the Lehman Brothers Commodity Index Pure Beta Total Return. The Opta S&P Listed Private Equity Index Net Return ETN, which tracked 30 companies whose primary business is private equity investing, traded on the NYSE Arca.

While ETNs and ETFs are often lumped together, they aren’t the same animal. ETNs and ETFs are both exchange-traded products that track an index, but ETFs hold the underlying assets of the index they track, while ETNs don’t. ETNs are senior subordinated debt issued by a bank. It’s a promise to pay the indexes return. But when a firm goes bankrupt, like Lehman Brothers did, that promise isn’t worth the paper it’s written on. Investors in the Opta notes will join the long list of creditors in bankruptcy court making a claim on Lehman’s assets.

Barclays, which bought many of Lehman’s assets after the firm went under, will not be taking on the obligations of the ETNs. Barclays created the ETN concept and currently sells them under the brand name iPath. While taking on the Lehman ETNs would have made sense for Barclays, the bank didn’t want to take on any of Lehman’s other debt obligations. In addition, acquiring the Opta’s would have opened Barclays up to the risk of litigation. Considering the three funds together had less than $15 million in assets, it wasn’t worth it.

Face to Face with PowerShares’ Bruce Bond

Recently, I had the chance to speak with Bruce Bond, the president and chief executive officer of Invesco PowerShares Capital Management, to get his thoughts on major issues in the ETF market today. Since starting out with just two ETFs in 2003, PowerShares has become the ETF industry’s second-largest sponsor in terms of number of funds. Currently, PowerShares is the only ETF provider to offer and actively-managed ETF.

Q: What do you think of the consolidation going on in the ETF industry?

Bond: Consolidation is a natural process of a rapidly growing industry. I’m not surprised by that. It’s actually a healthy thing. Investors are savvy about what they want to participate in. It shows it’s a difficult business to attract assets in and it’s not just as if you can bring anything out and it will sell. You need distribution, marketing and the underlying investment plan to be a sustainable idea.

It’s a natural cleansing of the industry. Investors vote with their dollars and non-feasible concepts just won’t work. It’s a serious and very challenging business.

Q: How do you think ETFs will fare after this bear market?

Bond: I think the ETF will come out of the current environment doing exceptionally well. I believe they have proved to be a very effective investing tool for investors during this market cycle. Investor’s s use of ETFs in this market is establishing the ETF going forward as a mainline investment tool.

Q: What does the near future hold for actively managed funds?

Bond: They tell the same story as Index-based ETFs about flexibility, liquidity, and transparency. And market conditions like this will make them shine ever brighter. Just like it took the SPDR a long time to get traction, it will take the actively-managed ETF a while to get traction.

Talking to Radio’s Gabe Wisdom

Catch me tonight at 7 pm talking to Gabe Wisdom of the Business Talk Radio Network.

ETFs Transform Into Closed-End Funds

It appears some large, liquid ETFs are trading more like closed-end funds than ETFs. More to the point, the shares prices of bond ETFs are separating from their net asset values, which is the true value of the underlying assets.

“Almost anywhere you look, bond exchange-traded funds are trading at fire-sale prices,” says Murray Coleman in IndexUniverse. “In some cases, the distorations are shattering historic levels.”

Coleman is following up on a trend I noticed in the equity ETFs after the market’s Sept. 29 plunge. AT the time I saw equity ETFs were trading at a premium to their NAVs, and seeing larger tracking error than typically associated with the more liquid funds. IndexUniverse blames the disruption in the credit markets

CNBC Must be Hurting

Have you seen these new ads running on CNBC that totally cut down Jim Cramer, the host of Mad Money?

Cramer, whom I used to work for at TheStreet.com, is a stock picker and one of CNBC’s biggest stars. So,  I find it unusual to see CNBC run an ad totally ripping Cramer a new hole in his butt.  What is the spot advertising? CNBC’s chief  competition, the Fox Business Channel. I find it hysterical, but also very sad, that CNBC is doing so poorly, especially amidst this market crisis when viewership should be soaring, that they have to run ads promoting Fox.

Barclays Says It’s Well Capitalized

As the world-wide liquidity crisis deepened, rumors floated around that Barclays, the creator of the iShares ETFs and iPath ETNs was planning on asking the British government for capital.  On Oct. 7, Barclays CEO John Varney denied it.

Today, Barclays released an Oct. 8 statement from the British government about discussions between the bank and the U.K. Financial Services Authority (FSA) and British Treasury.

Barclays says it is well capitalized, profitable and has access to the liquidity required to support its business. The bank said given the strength of its well-diversified business and the existing capital base, the regulators expect that Barclays can raise additional capital from investors and not need help from the government funding offered to other U.K. Banks.

Barclays seems pretty stable amidst the turmoil at other banks. So, investors in iPath ETNs should be safe. However, other financial institutions did say things were just hunky dory just before they went belly up, so let’s see how the market takes this.

My Presentation at the Nasdaq Gets Write Up

My presentation at the Nasdaq on Oct. 8 was the highlight of this story in the Financial News.

Executives remain optimistic about ETFs

Cardiff de Alejo Garcia in New York

Executives who oversee exchange traded funds at asset management firms and others in the industry said they’re optimistic about the future of exchange traded funds and believe their prevalence has mitigated some of the damage from the recent market turmoil.

Speaking at a panel hosted by exchange operator Nasdaq OMX, Lawrence Carrel, author of a recent book about ETFs, said that the instruments were the direct result of the 1987 stock market crash when the Securities and Exchange Commission began searching for a basket product that could absorb some of the extreme volatility and uncertainty in the US stock market.

Carrel pointed out that in recent months, as the stock market has become increasingly volatile, ETFs have hovered at between 30% to 40% of the dollar-weighted trading volume in the US equity market.

Carrel said: “Did ETFs achieve what the SEC wanted: to absorb some of the market shock? Yes, they have lessened volatility because the baskets are being traded rather than the individual shares.”

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