WisdomTree Wins Capital Link’s Top ETF Award

It’s award season again in ETF Land.

Capital Link held its 11th annual Closed-End Funds and Global ETFs Forum yesterday at its traditional home New York’s Metropolitan Club. During the conference Capital Link delivers awards to both the closed-end fund and ETF industries. However, I’m just listing the ETF awards. The awards are based on nominations by a committee of analysts and industry specialists who actively follow the products. Capital Link isn’t part of the nominating committee nor can members of the committee be candidates for the awards.

Capital Link’s award for Most Innovative ETF in 2011 went to the WisdomTree Managed Futures Strategy Fund (WDTI).

iShares won two awards: Best Shareholder Relations for best financial disclosure and proactive shareholder communications and Best Investor Relations ETF Website for most informative and user friendly financial Website.

The Most Innovative Index went to the Russell-Axioma IS Large Cap Low Volatility Index (LVOL).

Jan Van Eck, the president of Market Vectors ETFs, won the award for biggest contribution to the ETF sector in 2011. No explanation of the contribution was given, but audience members suggested it was for killing the Holdrs products.

In the category of awards to ETF analysts, Morgan Stanley Smith Barney won for best research team in both the ETF and closed-end fund industries. The team consists of Michael Jabara, David Perlman and Stephen Minar. Mariana Bush of Wells Fargo Advisors won the award for the analyst who made the biggest contribution to the ETF sector last year. She also tied for contribution to the closed-end fund sector with Jon Maier of Bank of America Securities – Merrill Lynch.

Down 50% in 2 Days, TVIX Could Fall More Monday

After the VelocityShares Daily 2x Long VIX Short-Term ETN (TVIX) plunged 30% in Thursday, Credit Suisse, the sponsor of the controversial fund, reopened share issuance on a “limited basis.” The ETF proceed to fall again Friday for a 50% drop over two days.

The Swiss banking giant was blamed for the two-day decline, by Benzinga, because it had temporarily halting new issuance of TVIX shares last month.

“Beginning March 23, 2012, Credit Suisse may from time to time issue the ETNs into inventory of its affiliates to make the ETNs available for lending at or about rates that prevailed prior to the temporary suspension of issuances of the ETNs. Also, beginning as soon as March 28, 2012, Credit Suisse may issue additional ETNs from time to time to be sold solely to authorized market makers,” according to a written statement issued by the bank after Thursday’s close.

Benzinga says “the halt in TVIX share creations may have caused a massive spike in the ETN’s net asset value. The elevated NAV and ensuing plunge in TVIX indicates that, simply put, traders discovered said premium and exploited it.”

TVIX’s slide continued in after-hours trading where the ETN lost almost another 12% and was found at $9 at 8:30PM Eastern Time. That’s by far the the lowest price TVIX has ever traded at.

On Friday, the shares fell 30% to $7.16 on volume of 29.3 million shares, more than twice its daily average volume. That’s 62% of the 46.7 million shares outstanding. And with the shares still 7% above their indicative value of $6.70, according to VelocityShares, the ETN could see another decline on Monday.

ETF Reading List:

China’s PMI Data Could Hinder, Help These ETFs (HAO, FXI, MCHI) (Benzinga)

Happy Water Day? Maybe For Water ETFs (PIO, PHO, CGW) (Benzinga)

Yorkville High Income MLP ETF’s Yield 8.5% On Average (Investors.com)

Seriously? Credit Suisse to Allow New TVIX Creations (TVIX, CS) (Benzinga)

Avoid These ETFs For Now (FXI, TVIX, GDXJ) (Benzinga)

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.

The Dangers of Buying on Disasters

Charles Wallace wrote an intersting story for Daily Finance about the risks of buying ETFs on disaster news. He specifically looked at ETFs that focused on the Japanese and Egyptian equity markets.

Wallace quotes me in the article saying you shouldn’t put a lot of money into these kinds of ETFs and to make sure you’re diversified. However, a lot of my insights from our interview didn’t make it into the article, especially about the iShares MSCI Japan Index Fund (EWJ) and the main Egypt ETF, the Market Vectors Egypt Index (EGPT). Shares of Egyptian stocks, and hence the Egypt ETF were driven down by protests against President Hosni Mubarak.

Wallace wrote “Trading in the EGPT was brisk in the U.S., and the ETF moved consistently higher even though the stock market in Egypt was closed for more than a month. When the Egyptian Exchange reopened on Tuesday, stocks dropped 10% and EGPT opened at $15.86, a decline of 17% from its March 9 high.”

Anytime an ETF tracks a foreign country, especially one whose market is closed during U.S. trading hours, it can move on news that occurs after the foreign market closes. This typically puts the ETF’s price at a premium or discount to the underlying stocks in the portfolio. However, nearly every time, the movement of the ETF correctly predicts the movement of the local market when it finally opens the next day. So, these premiums or discounts last less than 24 hours. While there is some risk in these kinds of trades, the ETFs usually seem to be doing the price discovery for the closed local market.

However, when a market is closed like the Egyptian market was for a month, then the ETF begins to trade like a closed-end fund. That’s because the arbitrage mechanism that balances out the creation and redemption of the ETF’s shares is unable to work. At that point, the price discovery mechanism is dismantled and the ETF shares can trade dramatically far from the actual value of the underlying stocks in the portfolio. Without the arbs there to keep the share price closely linked to the underlying portfolio, it ceases to trade on fundamentals and becomes pure speculation.

Conclusion, if the ETF can no longer buy the underlying shares of the market it tracks, stay away. You are playing with fire and bound to get burned.

Quake Shakes Japan, Nuclear ETFs

Fears over the impact Friday’s earthquake and tsunami will have on Japan’s economy sent the benchmark Nikkei 225 stock average plunging 6.2% in its first day of trading since the 9.0-magnitude quake struck. This led U.S. investors to sell stocks. At Monday’s close, the Dow Jones Industrial Average recovered from its lows, to post a decline of 0.43% to 11993 and the S&P 500 slid 0.54% to 1296.

Here’s a brief look at how ETFs affected by the crisis reacted on Monday The iShares MSCI Japan Index Fund (EWJ) sank 7% to $10.05. The WisdomTree Japan Total Dividend ETF (DXJ) tumbled 7% to $35.620. The Rydex CurrencyShares Japanese Yen Trust (FXY) advanced 0.26% to $120.92.

Meanwhile, the trouble at Japan’s Fukushima Daiichi nuclear complex sent fears rippling through the U.S. nuclear industry. Officials said an explosion occured at the site’s Unit 3 reactor, while the fuel rods at the Unit 2 were fully exposed, causing fears of a nuclear meltdown at the reactor. PowerShares Global Nuclear Energy Portfolio (PKN) plunged 11% to $18.97 and the Market Vectors Uranium + Nuclear Energy ETF (NLR) plummeted 12% to $22.46.

UPDATE: Tuesday 12:09 am. The New York Times has reported the Nikkei index has plunged 13% on worries about the radiation fallout from a potential nuclear disaster. It looks like Tuesday will be a clustercuss.

Egyptian Protests Sink Frontier ETFs.

Frontier market ETFs, some of the hottest instruments in ETF Land, have taken a big hit on the violence in Tunisia and Egypt. Frontier markets are the markets too small to be considered emerging markets. They’re still tiny economies with markets that are highly risky and not very transparent. One of the biggest risks is political risk. Of course, most of these are in Africa.

On the heels of the overthrow of the Tunisian government last week, Egypt is now in turmoil. The Egyptian military have been ordered into the streets to help the police after a day of violent protest against President, and accused dictator, Hosni Mubarak. Fighting continues on the streets of Cairo, despite a nationwide curfew. The New York Times reports “the ruling party’s building was in flames at nightfall.” The tensions moved around the Arab world as protestors took to the streets of Yemen.

Egypt’s stock market fell 10% on Thursday and was closed Friday for the sabbath day, according to Jon Ogg at 24/7 Wall Street. The pure play Market Vectors Egypt Index ETF (EGPT) tumbled 14% this week. Of course, it’s a tiny fund, with just $8.5 million in assets under management. Liquidity might be a problem in this fund as Friday’s volume was 938,000 shares trading hands vs. average daily volume of 28,211. Meanwhile, with 21% of its portfolio in Egypt as of September 30, the Market Vectors Africa Index ETF (AFK), is down 8.5% this week to $32.27.

World Cup Win Boosts Russia ETFs

Four ETFs that track the Russian market receive a boost after the country received notice it will host the 2018 World Cup, one of the world’s largest sporting events.

In order to make the country presentable for the World Cup, Russia is expected to inject a lot of money in the economy and build infrastructure. This lifted the prices of the Market Vectors Russia ETF (RSX), the SPDR S&P Russia ETF (RBL), the iShares MSCI Russia Capped Index Fund (ERUS), and the SPDR S&P BRIC 40 ETF (BIK).

Minyanville gives a nice rundown of the funds.

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%.”

ETFs See $635 Million in Outflows

Has the stock market peaked? According to Morgan Stanley’s ETF Weekly Update for April 5, ETFs saw outflows of $635 million last week.

U.S. large-cap ETFs posted the largest net outflows on both a one-week and 13-week basis. The SPDR S&P 500 ETF (SPY) was the primary driver of the move, posting the largest outflows for all U.S. listed ETFs on both the one-week, $1.8 billion, and 13-week basis, $7.3 billion. Going against the trend, the PowerShares QQQ (QQQQ) surprisingly had the largest one-week net inflow for an ETF holding U.S. assets, at $307 million.

Meanwhile, the two areas with the strongest net inflows are fixed income and international equity. With a 14% share, fixed income is now the third largest segment of the U.S. ETF market. The Vanguard Emerging Markets Stock ETF (VWO) posted the strongest net inflows for all U.S.-listed ETFs over the 13-week period, $2.6 billion.

On the short interest front, the iShares Russell 2000 ETF (IWM) saw the largest increase in short positions, up 6%, or 12.5 million shares, from 211 million shares on Feb. 26. The Financials Select Sector SPDR (XLF) saw the largest decline in short interest, falling 14%, or 22.8 million shares, from 158 million shares short as of Feb. 26.

Morgan Stanley says “first-to-market continues to be a big driver of success for new ETFs, and with the exception of ETFS Physical Swiss Gold Shares (SGOL), each of the most successful recent launches was the first ETF to market within a specific segment.” Four different asset classes are represented in the top 10 launches, with equity, fixed income and commodity each having three.

The report lists the most successful recent launches by assets.

• Market Vectors Junior Gold Miners ETF (GDXJ), with a market cap of $908 million.
• Market Vectors Brazil Small-Cap ETF (BRF), $693 million.
• ETFS Physical Platinum Shares (PPLT), $495 million.
• Vanguard FTSE All World ex-US Small-Cap ETF (VSS), $459 million.
• PIMCO 1-5 Year U.S. TIPS Index Fund (STPZ), $429 million.
• ProShares Short 20+ Year Treasury (TBF), $404 million.
• WisdomTree Dreyfus Emerging Currency Fund (CEW), $400 million.
• ETFS Gold Trust (SGOL), $360 million.
• SPDR Barclays Capital Convertible Bond ETF (CWB), $290 million.
• ETFS Physical Palladium Share (PALL), $251 million.

Over the last week, only four saw net inflows: ETFS Physical Platinum Shares ($16 million); PIMCO 1-5 Year U.S. TIPS Index Fund ($10 million); ProShares Short 20+ Year Treasury ($22 million); and WisdomTree Dreyfus Emerging Currency Fund ($2 million).

Van Eck Launches Vietnam ETF

No doubt about it, the war with Vietnam is officially over.

Van Eck launched the Market Vectors Vietnam ETF (VNM) on the NYSE Arca Friday. The fund tracks the Market Vectors Vietnam Index (MNVNM), a rules-based, modified capitalization weighted, float-adjusted index. The index comprises “a broad representation” of Vietnam’s equity market with 28 companies in eight sectors. The top sectors include Financials (37% of the index), Energy (19%) and Materials (12%).

Van Eck says currently 70% of the Vietnam Index’ market capitalization is comprised of companies domiciled and primarily listed on an exchange in Vietnam. In addition, they must generate at least 50% of their revenues from Vietnam.. This percentage is expected to increase in the future. Currently, about 30% of the index is comprised of non-Vietnamese companies that generate, or are expected to generate, at least 50% of their revenues from Vietnam, or that demonstrate a significant position in the Vietnamese market.