Tag Archives: BGI

Barclays Looking to Sell iShares

Barclays PLC shares is trying to sell its iShares exchange-traded-fund business in an effort to raise the necessary money to avoid being taken over by the British government. However, the list of possible buyers is very short.

More on this later.

Here are reports from The New York Times and The Wall Street Journal.

SPA ETF to Close All 6 of its Funds

Another one bites the dust.

SPA ETFs announced late Monday that it plans to close all six of its SPA MarketGrader ETFs. Their last day of trading on the NYSE Arca will be March 25 and they will be liquidated March 30. The six funds trade separately in the U.S., United Kingdom and Italy.

The six funds affected:
SPA MarketGrader 40 Fund (SFV)
SPA MarketGrader 100 Fund (SIH)
SPA MarketGrader 200 Fund (SNB)
SPA MarketGrader Small Cap 100 Fund (SSK)
SPA MarketGrader Mid Cap 100 Fund (SVD)
SPA MarketGrader Large Cap 100 Fund (SZG)

The funds’ board of trustees has been in consultations with SPA ETFs, the investment advisor to the funds, for the past few weeks, to discuss the future of the ETFs. Two weeks ago, the board came close to deciding to shut down the funds, but chose instead to seek further information, according to sources. While it’s unknown what new data forced this decision, SPA said in a written statement that the “board determined current market conditions are unsuitable for a long-only equity investment strategy, such as the one employed by the SPA MarketGrader ETFs.” They decided closing the funds would be in the best interest of the shareholders.

As of Friday, the six U.S. funds assets totaling $10.4 million, while the European funds held $7.5 million, reported IndexUniverse.

“In light of the current market environment keeping the SPA MarketGrader Funds open would compromise investors and increase costs,” said Daniel Freedman, managing director of SPA ETFs, in a written statement. However, the company plans to stay in the ETF market. “The SPA ETF Trust remains open and we plan to partner with other institutions to bring new ETFs to market in Europe and the U.S. in 2009. Additionally, when market conditions improve we may reintroduce the MarketGrader strategy.”

SPA is a sister company to 22-year-old British money manager London & Capital. The U.S. funds launched in October 2007, a month after the British funds, and made SPA the first foreign company to launch ETFs in the U.S. Barclays Global Investors, a unit of Barclays, a British bank, is headquartered in San Francisco. The SPA funds are based on indexes from MarketGrader which uses 24 fundamental factors to grade every stock in the U.S. market and pulls the ones that score best in four key areas — growth, value, profitability and cash flow. While the index uses fundamental criteria to pick stocks, the indexes are not fundamentally weighted, like the ETFs from WisdomTree and PowerShares’ FTSE RAFI series.

Ironically, from their inception until June 2008, the MarketGrader funds consistently outperformed the S&P 500 and often beat comparable funds from WisdomTree and PowerShares.

Qubes Celebrate 10th Birthday

The Qubes, one of the most famous ETFs in the world, celebrated its 10-year anniversary yesterday.

The PowerShares QQQ (QQQQ), formerly known as the Nasdaq 100 Index Tracking Stock, hit the market March 10, 1999, in what remains the biggest most successful launch of a single U.S. ETF. Today, it is one of the most actively traded securities in the world.

“It is the most traded security in shares and dollar volume over the last ten years,” says John Jacobs, executive vice president of NASDAQ OMX Global Index Group and the man who created the fund.

While it currently trades on the NASDAQ Stock Market, originally it launched on the American Stock Exchange with the ticker symbol QQQ. This gave the ETF, then called a tracking stock, the nicknames of the “QQQ”, the “Triple Q” and the “Qubes.”

Launched at the height of the Internet stock market bubble, the Qubes fed the investing public’s desire for an easy to trade instrument that held the fastest growing stocks in the world. The NASDAQ 100 index holds the 100 largest non-financial stocks listed on the NASDAQ. That’s a lot of technology, biotechnology and retail.

It’s first day, it traded 2.6 million shares, 53 percent more than the record set two years earlier by the DIAmond Trust (DIA), the first ETF to track the Dow Jones Industrial Average. After just two hours, the NASDAQ 100 ETF, blew away the DIAmond’s first-day total volume of 1.7 shares. Within two weeks, it had traded 30 million shares. At the end of 2000, the Qubes held more than $6 billion in assets. A little more than two months later, on its first anniversary, the Qubes held more than $12 billion.

For a while, it surpassed the assets and daily volume of the first ETF, the Standard & Poor’s Depositary Receipts, or SPDR Trust, (SPY). Yesterday, it held $10.26 billion in assets.

“The Qubes stellar rise signaled to Wall Street that exchange-traded funds were not just a one-hit wonder. It showed potential sponsors there was a market for these products if the index was right.” (For more on the birth of the Qubes, the history of the ETF industry, and why the NYSE refused to let this ETF use the single “Q” ticker symbol, grab a copy of ETFs for the Long Run.) A little more than a year later, Barclays Global Investors launched its iShares family of ETFs. By the end of 2000, there would be 55 iShares.

Ironically, on the Qubes’ first anniversary, March 10, 2000, the NASDAQ Composite Index, which tracks every stock on the NASDAQ, hit its all-time high of 5048.62. The Qubes posted a 12-month return of 125%. The next trading session, the Internet bubble popped, sending the entire stock market into a two-year decline.

On the tenth anniversary, the Nasdaq soared 89.64 points, or 7.1%, to 1358.28, and the ETF jumped $1.59, or 6.2% to $27.33 on volume of 175 million shares. Did the excitement over the Qubes anniversary spark a huge rally in the market? Don’t laugh so quickly. Currently, the NASDAQ-100 Index is the basis for more than 900 products in 34 countries with about $490 billion dollars in notional value tied to it. To date, the index has traded more than 600 million futures contracts with a notional value of more than $25 trillion. Options experts SchaeffersResearch.com says the Qubes saw call buying activity early yesterday.

Of course, Citigroup (C), one of the country’s largest banks, did raise its head from its deathbed to say it was doing very well the first two months of the year, sparking a huge rally in the financial sector. The Dow Jones Industrial Averaged surged 5.8% to 6926 and the S&P 500 leapt 6.4% to 720.

Invesco PowerShares bought the NASDAQ’s ETF business in 2006. It changed the name of the ETF to the PowerShares QQQ in honor of what most people called the fund. However, the ticker has changed to QQQQ because it trades on the NASDAQ Stock Market, which uses four letters in its tickers. The NASDAQ says its market share of U.S. ETFs is more than any other U.S. exchange. In January 2009, volume grew 22% year-over-year to 655 million shares.

The NASDAQ OMX Global Index Group, a unit of the NASDAQ’s parent company, the NASDAQ OMX Group, remains a global leader in creating and licensing strategy indexes. Its most recent being the Government Relief Index and the European Government Relief Index, which include companies currently being bailed out by their governments.

Amid Turmoil, ETF Firms Bring Out New Funds

Well it seems that even amid the turmoil in the broader market and the closing of funds in the ETF industry, new funds are launched every week. Over the previous two weeks, we’ve seen a new airline ETF from Claymore Securities, State Street Global Advisors and BGI both launching two new bond ETFs and Barclays Bank launching two new exchange-traded notes.

This week, Van Eck Global’s ETF family, the Market Vectors, launched two funds. The Market Vectors High-Yield Municipal Index ETF (HYD) launched today on the NYSE Arca, following on the heels of Tuesday’s launched, the Market Vectors Pre-Refunded Municipal Index ETF (PRB) with an expense ratio of 0.24%

HYD will track the Barclays Capital Municipal Custom High Yield Composite Index. This high yield index is a market-size weighted index comprised of publicly traded municipal bonds covering the high-yield long-term tax-exempt bond market.

Van Eck says PRB is the nation’s first ETF to focus on the pre-refunded segment of the municipal bond market and will track the Barclays Capital Municipal Pre-Refunded—Treasury-Escrowed Index. This market-size weighted index holds publicly traded tax-exempt municipal bonds. The unique part about it is the index is comprised of “pre-refunded and/or escrowed-to-maturity bonds.” Heather Bell of Index Universe describes the bonds this way: “Say a city issues $100 million worth of bonds to fund a water facilities project. A few years ago, the deal came to market with interest payments to investors of 6%. But now, with interest rates for 30-year triple-A munis hovering around 5%, the city decides to cut its costs. So it reissues more bonds at the lower rates covering the exact same project. The municipality then takes the proceeds from that second issue and buys similar-termed Treasuries. Since most munis have call features prior to maturity, the Treasuries are put in an escrow account to fully fund the interest and principal of the munis on their first call dates.”

I will address the new ETNs in a later posting.

Walking a Very Thin Line

They say it’s a fine line between brilliant and stupid. State Street Global Investors stepped out onto that tightwire with the launch of two new bond ETFs on Tuesday.

The SPDR Barclays Capital Mortgage Backed Bond ETF (MBG) and the SPDR Barclays Capital Short Term International Treasury Bond ETF (BWZ) both launched on the NYSE Arca on Tuesday. The SPDR Barclays Capital Mortgage Backed Bond tracks the mortgage pass-through sector of the U.S. investment grade bond market. SPDR Barclays Capital Short Term International Treasury Bond ETF seeks to provide the return of an index that measures the short-term (1-3 year) fixed rate, investment grade debt issued by foreign governments of investment grade countries.

The most interesting facet of these ETFs is that they carry the name of its prime competitor, Barclays. Late last year, Barclays bought the Lehman Brothers Bond Indexes division after that investment bank declared bankruptcy in September. This blog wondered if SSGA would actually put the name of its competitor into its ETFs when it tracked a former Lehman index. Well, the answer is yes.

Even funnier, is the fact that they are going head-to-head with similar bond funds out of Barclays Global Investors iShares division. Just last week, BGI launched the iShares S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG) on the Nasdaq. Heather Bell of Index Universe breaks down the minor differences between the two. The iShares Barclays MBS Bond Fund (MBB) launched in 2007. The big difference here is the SPDR fund charges only 0.2% vs. the MBB’s 0.36%.

The question now is, is this a stupid or brilliant move? On the one hand, why would anyone give free publicity to a competitor if they didn’t have to? There are plenty of ETFs that don’t have the name of the index in the name of the corresponding ETF. However, I’m leaning toward brilliant.

As the creator of the first ETF, the Standard & Poor’s Depositary Receipts, which has been renamed the SPDR (Spider or Spyder, which is a play on its ticker symbol, SPY), SSGA has a well-respected reputation in the ETF space. Recently SSGA renamed its entire ETF family the SPDRs.

However, BGI became the market leader when it launched its iShares brand in 2000, and hasn’t let go since. SSGA is currently the second largest ETF firm in terms of assets. By launching ETFs with the SPDR Barclays name, there is bound to be confusion among investors. I’m sure there will be a sizeable number of people who buy the new SPDR bond funds assuming they were created by Barclays Global Investors. While SSGA has done a good job branding the SPDRs with the recent campaign for the Select Sector SPDRs, I’m sure there are still many people who don’t realize SPDRs and Barclays are two different companies and will by the SPDR funds with the assumption they are getting a Barclays product.

This becomes more than just inside baseball. In November, this blog reported that in the third quarter, BGI’s market share had fallen to 47.3% of the market from 50.9% in the second quarter, while SSGA’s market share grew to 26.5% from 23%. In addition, SSGA’s third-quarter cash inflows were the largest in the industry, at $41.8 billion, with $28.6 billion going solely into the SPDR (SPY) vs. iShares’ cash inflows of $23.9 billion.

Obviously, State Street is nowhere near grabbing the market leader position, still, this should get very interesting.

BGI Launches International Bond Funds; RevenueShares Tries Navellier Strategy

Three new ETFs launched on Friday, two international bond ETFs from Barclays Global Investors (BGI) and an RevenueShares fund based on a strategy from mutual fund maven Louis Navellier.

RevenueShares Investor Services launched the RevenueShares Navellier Overall A-100 Fund (RWV) on the New York Stock Exchange ARCA. Less than a year old, RevenueShares is the most recent entrant in the ETF space for Fundamental Indexing. Proponents of the concept of fundamental indexing believe indexes based on fundamental metrics produce better returns than indexes based on market capitalization, such as the S&P 500. In a dig at WisdomTree, the fundamental house that builds indexes based on dividends, Sean O’Hara, president of RevenueShares, tells ETF Trends, while dividends can be adjusted, revenues are the one variable that can’t be fudged. Well, they can’t be fudged unless the company decides to do a little technique called stuffing the channel. In channel stuffing a company books sales from the future in the current quarter. But, that’s highly frowned upon, so it doesn’t happen much, so I won’t dwell on it.

Anyway, they take that revenues-based index and mix it with a quantitative methodology from Navellier’s firm Navellier & Associates. The strategy seeks to beat the benchmark indexes with what they call alpha generating growth strategies. Alpha is that bit of return that a manager’s skill adds to the fund’s returns. ETF Trends says “The fund is constructed using an 8-factor model to give stocks a letter grade. From there, the top 100 A-rated stocks are included and ranked by revenue annually on Sept. 1, and rebalanced on the first day of each calendar quarter.”

Also on Friday, BGI launched two new ETFs on the Nasdaq Stock Market.

iShares S&P/Citigroup International Treasury Fund (IGOV)
iShares S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG)

They both charge and expense ratio of 0.35%. These are the first two iShares ETFs to list on NASDAQ in 2009, compared to eight listings in 2008 and five in 2007. Nasdaq says it’s the most liquid U.S. market for ETFs, capturing 34.8% of all U.S. ETF volume in December.

ETFguide says with only four broadly diversified international bond ETFs (including these two) and one emerging markets bond ETF these are the least populated areas in the U.S. ETF market. With 8.22 years as the average weighted maturity for the bonds, IGOV is the long-term option. ETFguide breaks down IGOV three largest country allocations: Japan (24.95%), Germany (9.28%), and Italy (8.74%). The bonds in the short-term ISHG have an average weighted maturity of 1.87 years and with the largest country allocations in Japan (24.95%), Germany (10.95%), and Italy (7.99%).

Stepping on the brakes

Much like other structured products that came of age during the past decade, the market crash of 2008 was the first serious test of how exchange-traded funds would react in a bear market. But while the surge in issuance has continued in Europe and Asia, growth rates in the US have slowed.

The exchange-traded funds (ETFs) industry outside the US has surged this year, with 253 funds launched by the end of September, a 69% increase on the same period last year and a figure that is already 27% bigger than all ETF issuance in 2007. During the two months to September 30 – one of the worst periods in recent stock market history – 83 ETFs were launched bringing the total to 1,499 funds on 43 exchanges worldwide, while assets under management hit $764.08 billion. Barclays Global Investors expects this figure …

This was originally published in Structured Products. For the full article click here.