Tag Archives: Barclays Global Investors

Six New Funds Track Emerging Markets

Updated 10 p.m.

In light of the huge inflows moving into emerging markets over the past two months, this past week saw the launch a total of six new ETFs to capture the trend. Typically, it takes three to six months for the Securities and Exchange Commission to approve a new ETF from a current ETF provider. So, these funds are a mixture of good foresight and the luck of good timing.

Two weeks ago, this blog reported that large-cap U.S. equity ETFs experienced heavy outflows last month, while emerging market ETF saw huge cash inflows.

Emerging markets go one step beyond with the first U.S. ETF to track the Peruvian markets. The iShares MSCI All Peru Capped Index Fund (EPU) began trading today on NYSE Arca. The fund tracks the index of the same name, which holds the top 25 Peruvian equity securities by free-float adjusted market cap. The index components are either in Peru, headquartered in Peru or have the majority of their operations based in Peru. Thirteen constituents are materials producers, providing significant exposure to commodities. Top three index constituent names as of March 31 are Buenaventura Minas, Southern Copper, and Credicorp. The expense ratio is 0.63%.

iShares quotes the IMF World Economic Outlook Database which this month said Peru has the fastest growing economy in Latin America and one of the lowest inflation rates in the region. The IMF also said Peru has the third lowest Emerging Market Bond Index spread in Latin America and an estimated economic growth rate of 3.5% in 2009. Peru’s Minister of Finance this month said Peruvian capital markets posted the best performance globally year to date in 2009. Can anyone verify this?

Friday saw the launch of the iShares S&P Emerging Markets Infrastructure Index Fund (EMIF) on the Nasdaq Stock Market. The eponymous index holds 30 of the largest publicly-listed companies in the infrastructure industries — energy, transportation and utilities — with the majority of their revenues derived from emerging market operations. Each constituents had a minimum market capitalization of $250 million. As of May 29, the index was comprised of companies from Argentina, Brazil, Chile, China, the Czech Republic, Egypt, Malaysia, Mexico, South Korea and the United Arab Emigrates. The annual expense ratio of 0.75%.

Meanwhile, if you think emerging market are due for a tumble, ProShares gave international investors a chance to short these markets with leveraged short ETFs that offer -200% returns. Thursday’s launches on the NYSE Arca doubled ProShares ultrashort international ETFs to eight:

  • ProShares UltraShort MSCI Europe (EPV)
  • ProShares UltraShort MSCI Pacific ex-Japan (JPX)
  • ProShares UltraShort MSCI Brazil (BZQ)
  • ProShares UltraShort MSCI Mexico Investable Market (SMK)

Earlier this month, ProShares launched the first of its 200% leveraged international ETF series with four similar funds. The new ETFs charge a managament fee of 0.95%.

For the four months ended April 30, iShares received 65% of all ETF and mutual fund emerging markets flows year-to-date, according to Strategic Insight. That shouldn’t have been difficult considering more than 70 of the more than 180 U.S. listed iShares ETFs have an international bent. This gives iShares the largest continent of international ETFs in the industry. Trading volumes in iShares emerging markets funds surged 119% for the five months ended May 30, compared with the same period last year to 16 billion shares.

According to iShares and Bloomberg, the ETFs with the hightest net inflows in May were

  • iShares MSCI Brazil Index Fund (EWZ) with $1.5 billion in net new assets under management.
  • iShares MSCI Emerging Markets Index Fund (EEM) with $1.08 billion new AUM.
  • iShares FTSE/Xinhua China 25 Index Fund (FXI) with $1.02 billion new AUM.

Here’s an interesting tidbit about the lack of info coming from ProShares. IndexUniverse reportes that “ProShares’ Web site only provides data of the underlying indexes. Besides the prospectus for each, that’s the most recent detailed information available. And the benchmark data is only through March 31. Daily holdings are listed in totals of swaps held in the underlying index and cash.”

IndexUniverse does a nice break down of the ProShares international shorts.

When Is an Index Fund Not an Index Fund?

The coming transformation of ETFs into mutual funds.

At first glance, it seems like an unlikely marriage. Mutual fund leader BlackRock announced last week that it was purchasing Barclays Global Investors, which holds 49 percent of the exchange-traded fund market, for $13.5 billion. These have long been the opposite poles of investing: Most mutual funds try to make money by picking stocks, while ETFs try to make money by simply mimicking the market.

Perhaps the new megagroup will preserve both strategies. But it seems just as likely that BlackRock wants in on the business’s quiet but growing trend called the actively managed ETF. If that sounds like a contradiction in terms, well, it is.

In simplest terms, ETFs are index funds—passive, diversified portfolios that trade like a stock. For the past decade, ETF providers like BGI have touted their products as the antidote to the overpriced, underperforming actively managed mutual fund. Over the past six years, investors invested fewer assets in mutual funds and more into ETFs. The trend accelerated during the financial crisis, as investors grew disgusted at the inability of their active mutual funds to protect their assets. Last year, equity mutual funds saw net cash outflows of $245 billion, according to TrimTabs Investment Research, while equity ETFs posted net cash inflows of $140 billion, even as asset values tanked. With all the negative feeling around actively managed mutual funds, why would the ETF industry step backward to make a big push for the actively managed ETFs?

For the money.

Index funds charge lower fees compared with active funds, which means less money in the manager’s pocket. ETFs charge even less than comparable index mutual funds and offer the additional benefits of greater tax efficiency and transparency because they’re structured differently. In addition, ETFs offer the ability to buy or sell shares during market hours. These reasons led ETFs to capture more than $500 million in assets and grab a significant market share from the $9 trillion mutual fund industry.

The first active ETF appeared early last year in an inauspicious start. Bear Stearns launched the ETF just weeks before the bank went belly up. The fund closed soon afterward. A short time later, Invesco PowerShares launched a family of five active ETFs. But they have found it difficult to gain wide acceptance and attract assets. The financial crisis effectively took these funds off most investors’ radar.

However, a thaw in the financial blizzard shows that the industry had been waiting for the right moment to revive what many consider the industry’s Holy Grail. Coincidentally, a new entrant in the field named Grail Advisors launched the first post-financial-crisis active ETF last month.

“We are operating the ETF just like a fundamental mutual fund,” said Grail Chief Executive Officer Bill Thomas in an interview. This ETF, he added, is “similar to traditional actively managed mutual funds … because it allows portfolio managers unrestricted trading.”

And in a little-reported move that BlackRock didn’t miss, iShares, the brand name for BGI’s ETF family, last month began the registration process to launch two active ETFs.

Is this a good thing for the ETF industry? Possibly. Is it a good thing for investors? Definitely not.

For the full story see The Big Money.

Blackrock Buys BGI for $13.5 Billion

In a deal sure to create major changes in the ETF industry, asset-management giant Blackrock agreed to buy Barclays Global Investors (BGI) from Barclays PLC for $13.5 billion late Thursday.

BGI, which coined the term exchange-traded fund, has been the industry’s market leader since the emergence of its iShares family of ETFs in 2000. It remains the industry leader with more funds than any other ETF sponsor and a little less than 50% market share.

With more than $2.7 trillion in assets under management, The Wall Street Journal says this creates a “money-management titan twice the size of its closest competitor,” such as State Street, another ETF provider, and mutual fund giant Fidelity Investments.

The most interesting tidbit comes out of The New York Times. The Times reports Barclays’ president Robert Diamond had first discussed a potential deal with BlackRock approximately seven years ago, but decided the timing was not right.

My favorite nugget, the boys at BGI won’t have to change the initials on their luggage. The firm will continue to be called BGI as the new company takes the name BlackRock Global Investors.