Homebuilder ETFs Surging; Silver Could See Rally

Reading List – a sample of what’s going on in ETF Land:

Homebuilder ETFs Surging This Year

Homebuilder ETFs have surged this year and could get a boost from reports on the U.S. housing market this week. The iShares Dow Jones US Home Construction (ITB) is the best-performing sector ETF year-to-date, surging 50% as of Friday, according to ETF Trends. The SPDR S&P Homebuilders (XHB) is up 36%.

Demand for Gold ETFs Rises as Metal’s Price Declines

Even though the price of gold is down 12% from its $1,900 peak a year ago, demand for gold bullion ETFs has continues unabated.

Sunny Days Ahead for Silver ETF

Hoarding of physical silver should give the iShares Silver Trust (SLV) a boost. In addition, commodity guru Jim Rodgers says silver is a better play than gold.

SuperDividend ETF’s Assets Hit $100 Million

The Global X SuperDividend ETF (SDIV), a high income equity ETF, has acquired $100 million in assets since launching little more than a year ago. A big reason is the fund’s 12-month dividend yield of 7.92%, one of the highest among US-listed dividend ETFs.

You Can Do Better Than Your Pension Fund

Seeking Alpha contributor creates an ETF portfolio that can easily outperform the San Francisco Employees’ Retirement System (SFERS), a pension fund recently told by a court to change its strategy.

JPMorgan Caps Shares of Alerian MLP ETN

Obviously, the big news from JPMorgan Chase this week was Chief Executive Officer Jamie Dimon apologizing to the Senate Banking Committee for his firm’s recent multibillion-dollar trading loss. And while not nearly as momentous as the Dimon hearing, JPMorgan also released some highly unusual news to ETF Land.

The firm on Thursday put a limit on the number of shares it’s willing to create for its Alerian MLP Index ETN (AMJ), essentially making the exchange traded note act like a closed-end fund. JPMorgan capped maximum issuance of shares at 129 million exchange traded notes. As of June 13, JPMorgan Chase had issued 117.95 million ETNs with an aggregate market capitalization of $4.29 billion based on the $36.39 closing price.

Limiting the number of shares means that the ETN will not allow creation units once that number is met. This turns the ETN from an open-end investment vehicle into one that acts like a closed-end fund. This occurs because the arbitrage mechanism that allows market makers to create or sell shares to capture the difference between the indicative value and the price at which the share trades is no longer available. Unable to create shares, market makers are less likely to take on the risk of shorting the shares. Thus, the price of the ETN may trade at a premium or discount to its indicated value depending on the demand for the notes. Of course, if shares are redeemed, the ETN can later create more shares until the limit is hit again.

MLPs, or master limited partnerships, are limited partnerships that invest in natural resources, or companies that provide services such as pipeline companies that transport oil or natural gas. These companies offer large dividends and have been very popular since the fiscal crisis. Over the past 18 months assets in exchange traded products that hold MLPs has grown from nearly nothing to about $7.55 billion. Nearly all of that inflow sits in two products, AMJ, which has $4.2 billion in asset under management, and the ALPS Alerian MLP ETF (AMLP), with $3.25 billion.

“When AMJ reaches the maximum threshold, we will closely monitor the availability of AMJ notes available in stock loan as well as any premium in the funds pricing on the secondary market,” said Chris Hempstead, director of ETF execution services at Wallach Beth Capital. “This could bode well in the short term for existing holders of AMJ as the fund will likely trade at a premium once the creation facility is shut down. Early investors would not have expected this so it’s a win for them. That being said, once this happens I expect investors looking at MLP ETPs will be drawn away from the AMJ ETN and towards [other ETNS].”

Competing ETNs include the ALPS product as well as recent launches such as the Yorkville High Income MLP ETF (YMLP), with just $37 million in assets, and the Global X MLP ETF (MLPA), which has only $5 million.

Hempstead says because these ETNs will continue issue creation units, they will continue to trade close to their indicative values. This will make them more attractive investments as AMJ’s share price diverts from its indicative value.

ETF Companies Seek Vanity Plates for Tickers

Rachel Louise Ensign wrote a funny story in the Wall Street Journal on ETF sponsors searching for memorable ticker symbols to help market their funds. Laura Morrison of the New York Stock Exchange says they’re like vanity plates on cars. But with 1,350 symbols already in use on the NYSE Arca, the biggest exchange for ETFs, and another 2,446 reserved for future products, it’s getting hard to find something catchy.

Ensign likes the literal, such as SOIL, the ticker for the Global X Fertilizers/Potash ETF, the figurative, such as DUST for the Direxion Daily Gold Miners Bear 3X Shares and the alluring, such as GGGG for the Global X Pure Gold Miners ETF.

My all-time favorite is humor, with MOO, the symbol for Market Vectors Agribusiness ETF. For literal, it’s hard to beat EGPT for Market Vectors Egypt Index ETF or CORN for the Teucrium Corn Fund. For figurative I like GULF for WisdomTree’s Middle East Dividend Fund
.

The question on whether these vanity plates help a fund’s marketing efforts ends up with a big possibly considering the Global X Farming ETF, with the ticker BARN, gets ready to shut down this month.

Busy Week at Global X

It’s been a very busy week for Global X Funds. Over three consecutive days, the New York ETF sponsor launched three ETFs that track the global fishing industry, the food industry and Mexican small-cap stocks.

The Global X Food ETF (EATX) tracks the global food industry as a play on continued growth of gross domestic product in emerging market nations. With income growth giving citizens of the emerging market nations great purchasing power, this has changed the way these people procure, prepare and consume their food. In particular, they have increased their consumption of dairy goods, livestock and packaged foods.

The fund got a nice ticker, EAT with Global X’s signature consenant. And it has an interesting symbol on the Web site, a chocolate chip cookie. So basically this is a play on multinational corporations from the West being able to now sell all those skinny third-worlders the same junk food we eat.

The Global X Food ETF tracks the Solactive Global Food Index a specialty index to track the equities of global companies in the food industry. Chocolate chip maker Nestle is the biggest holding in the fund, with a 4.88% weighting. Hence, the cookie. According to Reuters, Nestle, one of the world’s largest food producers has 40% of its business in emerging markets with sales growing 12% in regions such as China, South Asia and Africa. Yogurt maker Danone is a close second with 4.85% weighting, followed by Brasil Foods, 4.81%; General Mills, 4.75%, and Kraft, 4.68%, as of April 21. More than 48% of the funds holding’s are companies in the U.S., followed by China, 8.4%; Switzerland, 8.1%; Japan, 6.7% and United Kingdom 5.4%. Not including China, emerging markets make up less than 10% of the country holdings.

“8 out of 10 people in the world live in emerging markets. We are starting to see how food companies stand to benefit as the population in emerging economies continues to increase their purchasing power,” said Bruno del Ama, Global X’s chief executive in a written statement.

The fund concept is a clever niche play on the emerging markets. However, there’s definitely a dodgy feel to profiting off of selling to the third world the food we’re discovering could be the cause of many of our health problems. It seems Global X had a similar feeling. Feeling some social responsibility, Global X Management, the fund adviser, will donate any profit it derives from EATX to Action Against Hunger | ACF International, a global humanitarian organization that works to save the lives of malnourished children while providing communities with sustainable access to safe water and long-term solutions to hunger.

Wednesday saw the launch of the Global X Fishing Industry ETF (FISN), the first ETF targeting the global fishing industry, which is comprised of two main components: commercial fishing and aquaculture. Commercial fishing companies are directly involved in the capture of fish from the wild, while aquaculture represents fish farming operations. In addition to more processed foods, citizens of the emerging markets are eating more protein, says Global X. According to the United Nations’ Food and Agriculture Organization China has seen its per-capita fish consumption grow at a dramatic rate of 5.7% per year since 1961. The FAO says an additional 27 million tons of production will be needed to maintain the present level of per-capita consumption in 2030.

The Global X Fishing Industry ETF tracks the Solactive Global Fishing Index, which holds global companies involved in the fishing industry. As of April 29, the three largest components were Cermaq, with 10.8% of the index; Marine Harvest at 10.7% and Toyo Suisan Kaisha at 9.8%. More than 35% of the index is in Norwegian companies, with 22.7% from Japan and 13% from China.

Then Thursday, the firm added to its suite of Latin American-based funds with the launch of the Global X Mexico Small-Cap ETF (MEXS), the first ETF to focus on Mexico’s small-cap companies. Many analysts think small-cap stocks are the best way to play the emerging markets because these comapanies receive the majority of their revenues from the local domestic economy. According to Morgan Stanley, in the fourth quarter of 2010, Mexico’s 4.6% economic growth rate was driven almost entirely by domestic demand. Mexican consumers have a per-capita income twice as large as Brazil’s, says Reuters, which means greater purchasing power and a strong domestic services sector. The country is expected to see economic growth of about 4% this year.

The Global X Mexico Small-Cap ETF tracks the Solactive Mexico Small-Cap Index. As of May 3, consumer discretionary was the largest sector in the index, at 29.4%. Industrials made up 22.6% and consumer staples was 20.5%.

Last month, the company launched the Global X Waste Management ETF (WSTE). The fund tracks the Solactive Global Waste Management Index, which is evenly divided among global companies that deal with the disposal of hazardous waste, non-hazardous waste and recycling.

While the entire Global X family of ETFs is extremely specialized, the funds have garnered a big enough audience to pull in $1.7 billion in assets as of March 31. And the company is getting noticed. In April, Global X tied to win America’s Most Innovative ETF Provider at the Global ETF Awards. It has also won awards from ETF Express, including Most Innovative North American ETF Provider,” “Best Emerging Markets Equity ETF Manager,” and “Best Global (ex-US) Equity ETF Manager.”

Palladium Shares Wins Most Innovative ETF Award

The ETFS Physical Palladium Shares (PALL) and ETF provider Global X Funds tied to win the award for the Americas’ Most Innovative ETF of 2010 at the 7th Annual Global ETF Awards banquet at New York’s Grand Hyatt Hotel recently.

Launched by ETF Securities in January 2010 with the ETFS Physical Platinum Shares (PPLT), the palladium and platinum funds were the first ETFs in the U.S. to provide investors with a cheap and convenient way to invest in these precious metals. The Palladium Shares track the price of palladium and are backed by palladium bullion plates and ingots and stored in vaults approved by the London Platinum Palladium Market. Because the Palladium ETF holds physical bullion it has minimal counterparty or credit risks and charges an expense ratio of 0.6%. Voters did not specify which Global X ETF deseved the award.

The Benchmark Hang Seng BeES was named the most innovative ETF in Asia. Europe’s most innovative ETFs came from db x-trackers and Source. The actual funds weren’t named.

Hosted and organized by exchangetradedfunds.com, the Global ETF Awards are like the Academy Awards for the ETF industry because only industry insiders are allowed to vote. Essentially, these industry insiders are asked grade their competitors to pick which denizens of ETF Land have done the best job over the past year.

The Most Innovative Exchange-Traded Product, not an ETF, in the Americas went to Barclays ETN + S&P Veqtor ETN (VQT). This exchange-traded note tracks the S&P 500 Dynamic Veqtor Total Return Index. It offers a strategy of “broad equity market exposure with an implied volatility hedge by dynamically allocating its notional investments among three components: equity, volatility and cash. The equity component is represented by the S&P 500 Total Return Index and the volatility component is represented by the S&P 500 VIX Short-Term Futures Index.” ETF Securities won in Europe for an unnamed product.

Once again, SPDRs was named the Most Recognized ETF Brand in the Americas beating out iShares, Vanguard and PowerShares. IShares shared the title with db x-trackers in Europe, while Asia’s best known brand is China 50 ETF.

“Every year this becomes more meaningful because the industry becomes more competitive every year,” said the SPDR representative.

S&P Indices won Most Innovative ETF Index Provider in the Americas, with STOXX the European winner and China Securities Index taking Asia’s prize.

IndexUniverse.com, where I am a contributing writer, was named the Americas Most Informative ETF Website, with etf.db.com and hkex.com.hk the winners in Europe and Asia, respectively.

Deborah Fuhr of BlackRock held onto her crown as the leading ETF analyst winning both Most Widely Utilized ETF Statistical Research and Most Widely Utilized Analytical Research in Europe. The latter award she was tied with Deutsche Bank, which also took both prizes in the Americas and Asia’s analytical award. Daiwa Asset Management won Asia’s statistical research award.

Other prize winners:

Best ETF Market Maker: Knight (Americas), FlowTraders (Europe), UBS Securities (Asia)

Most Proactive Exchange: NYSE Euronext (Americas), Deutsche Borse (Europe), Shanghai Stock Exchange (Asia).

Most Proactive Exchange for ETF Derivatives: International Securities Exchange (Americas), Eurex (Europe), Hong Kong Stock Exchange (Asia).

Best Service Provider: BNY Mellon (Americas), Bank of Ireland (Europe), SSgA (Asia).

Global X Launches 1st Brazilian Mid-Cap Fund

For those of you looking for extreme asset allocation in emerging markets, Global X says its new ETF is the first in the world to offer targeted access to medium-sized Brazilian companies.

The Global X Brazil Mid Cap ETF (BRAZ) tracks the Solactive Brazil Mid Cap Index, which holds 40 companies with market capitalizations between $2 billion to $10 billion. The fund, which launched Tuesday on the NYSE Arca, charges a 0.69% expense ratio. These are the top holdings: cosmetics company Natura Cosmeticos, aeronautics company Embraer, real estate firm Cyrela Brazil Realty, mobile tech company Tele Norte Leste, food distributor Hypermarcas, and materials firm Metalurgica Gerdau.

The Brazilian market sector breakdown:

• Utilities 20%
• Non-cyclical consumer 17%
• Industrial 16%
• Financials 15%
• Basic Materials 14%
• Cyclical Consumer 9%
• Communications 9%

“Medium sized Brazilian enterprises offer access to on-the-ground, established businesses that reflect the Brazilian growth story, while staying above a minimum size to avoid excessive risk,” says Bruno del Ama, CEO of Global X Funds, in a written statement. “Such companies are currently sparsely represented in existing exchange traded fund options, yet are poised to benefit the most from the country’s solid macro fundamentals. The Brazil Mid Cap ETF provides efficient and diversified access to these localized growth themes.” He added, “in contrast, currently existing Brazil ETFs may overweight exposure to mega-cap companies, particularly those in natural resources and with global rather than Brazil-based operations.”

With Brazil Mid Cap as the first member, the New York-based ETF provider plans to launch a family of ETFs tracking Brazilian industry sectors such as consumer goods, financial services, industrials, basic materials, and utilities.

Comparatively, the iShares MSCI Brazil (EWZ) gives exposure to large commodity producers exporting products world-wide, while the Market Vectors Brazil Small-Cap (BRF), follows the small-caps, obviously.

According to ETF Trends, “Brazil’s economy grew 9% in the first quarter, and for the 14th consecutive week, analysts have raised their forecast for yearly economic growth in the country. As a result, the country’s central bank is expected to raise interest rates accordingly. The country’s growth is forecast to slow next year, however, to 4.5%.”

New ETFs Track Global Silver, Copper Stocks

Global X launched two new commodity ETFs on the NYSE Arca today.

The Global X Silver Miners ETF (SIL) is the first ETF to focus on silver mining companies. The iShares Silver Trust (SLV), which launched in 2006, holds the actual physical commodity silver in its fund. The new Global X ETF tracks the Solactive Global Silver Miners Index, a market capitalization-weighted index holding the equities of the largest and most liquid silver mining companies in the world.

“At the beginning of a bull market, it is well documented that mining shares typically rise, and often outperform bullion,” said Nick Barisheff, President of Bullion Management Group Inc., in a written statement. It is true that both gold and silver stocks provide leverage over the price of the actual metal, and hence, more profit potential. Of course, leverage can cut both ways. It increases losses too.

The majority of the ETF’s holdings are Canadian-based companies, but companies in the U.S., Mexico, Peru, and Russia are also represented. As of March 31, the largest index components were Fresnillo, Industrias Penoles, Silver Wheaton, and Pan American Silver. Unlike gold, silver is both an investment asset and offers industrial and consumer applications. According to BMO Capital Markets, 54% of silver demand is industrial and that demand is expected to rise 19% this year. Global X quotes commodities analysts saying silver demand should remain strong as a result of both investment interest and increased use in the consumer and industrial sectors.

The Global X Copper Miners ETF (COPX) follows the Solactive Global Copper Miners Index, a market capitalization-weighted index containing stocks from the largest and most liquid copper mining companies in the world. Most of the companies in the fund are based in Canada, Australia, the United Kingdom, U.S. Mexico, China, Poland, Switzerland, and South Africa. As of March 31, the largest index components were Freeport-McMoran, Xstrata, Grupo Mexico, and Southern Copper. According to a 2009 study by CIBC World Markets governments are expected to spend approximately $30 trillion on infrastructure projects over the next 20 years, with copper being a large component of the materials used in infrastructure. China is currently the world’s largest consumer of copper. Barclays Equity Research predicts China will use 15.6 billion pounds of copper each year by 2015. Both funds have an expense ratio of 0.65%.