Tag Archives: Bruce Bond

Claymore Cashes Out

It looks like the rumors were true.

For about year, rumors swirled around that ETF firm Claymore Securities had put itself up for sale. Well, it finally found a buyer. Guggenheim Partner, a privately held institutional money manager, on Friday agreed to acquire the entire Claymore Group. The Lisle, Ill., company includes the ETF firm Claymore Securities, as well as Claymore Advisors and Claymore Investments in Canada. All will become wholly owned subsidiaries of Guggenheim Partners. Terms of the transaction were not disclosed. The deal is expected to close at the end of the third quarter.

The deal gives Guggenheim, an institutional financial services firm with more than $100 billion in assets, its first retail operation. According to the National Stock Exchange, as of June 30, Claymore was the 13th-largest U.S. ETF provider, with 35 ETFs and more than $1.6 billion in assets under management. With more than $740 million in assets, its largest fund is the Claymore/BNY BRIC ETF (EEB)

In 2001 Claymore began as a creator of unit investment trusts (UITs) and closed-end funds. It began selling ETFs in 2006. At the end of the second quarter, all the Claymore entities combined managed $12.9 billion in assets, with more than $2 billion in Canada.

For more than a year, rumors have abounded that Dave Hooten, the Claymore Group chairman and chief executive, was looking to cash out of the firm he created, in a fashion similar to his old friend and ETF rival, Bruce Bond, the founder of PowerShares. In 2006, mutual fund giant Invesco bought PowerShares for $100 million and the possibility of contingency payments.

Claymore created some of the most original ETFs in the industry, such as the Claymore/KLD Sudan Free Large-Cap Core, the Claymore/Clear Global Vaccine Index and the Claymore/NYSE Arca Airline ETF (FAA). But many funds had a hard time acquiring assets because of their niche appeal. Claymore became the first ETF firm to close funds when it shut the Sudan and Vaccine funds along with nine others in February 2008.

Most ETFs are index funds. And Claymore has struggled because of the indexes its funds track. Unable to link up with a major index provider and working in an industry that makes it difficult for two funds to track the same index, Claymore’s basic large-cap, small-cap, value and growth funds failed to attract a huge audience. Claymore’s biggest index providers are Zacks and BNY/Mellon Bank.

While the Claymore deal comes on the heels of Blackrock’s purchase of iShares, Barclays ETF company, the trend isn’t obvious. Barclays, a giant British bank, was forced to sell its market-leading ETF firm, a huge moneymaker, in order to avoid a British government takeover due to depleted cash reserves from the financial crisis. While Claymore didn’t give a reason, a few come to mind.

1) The current market environment has hurt all fund companies. Over the past year, many investors pulled out cash and remain fearful of putting money back in the market.

2) The ETF business has been a struggle for all small independent firms. Unable to latch onto a major index provider, all the independent firms, like Claymore, have needed to create niche products. And while some have been great ideas, they nonetheless have had to work harder to attract attention to these less than obvious portfolio ideas. In a market full of fear, investors don’t want to invest in offbeat ideas. They tend to gravitate to conservative and well-known indexes. Many small ETF firms have gone out of business over the past two years.

3) In light of the combination of the above reasons, I think the upper management of Claymore wanted to cash out while their firm still had a good reputation and a sizeable amount of assets.

What this all means for investors remains unclear.

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PowerShares to Close 19 ETFs

In another depressing development for the ETF industry, Invesco PowerShares Capital Management today announced plans to close 19 of its ETFs on May 18.

A random sampling of phone calls to industry insiders brought reactions ranging from “This is very bad news” to “It’s about time.”

“After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors,” said Bruce Bond, president and CEO of Invesco PowerShares, in a written statement.

In the wake of the huge run up of 2006-2007, many industry insiders and industry watchers predicted a consolidation of funds. In didn’t take long for the process to start. Just two months into 2008 Claymore Securities shut down 11 ETFs. Since, then many independent ETF firms have eliminated funds, with some firms closing shop completely. However, PowerShares is definitely the largest ETF company to shut down funds and it’s shocking to see it joining this crew.

With 135 ETFs holding $25.8 billion in assets under management as of March 31, PowerShares was one of the four main ETF companies, along with State Street Global Advisors, iShares and Vanguard Group. According to the company, the affected funds represent less than 1% of PowerShares’ total assets.

Obviously, the industry made a decision in 2006 and 2007 to throw a lot of portfolio ideas against the wall to see what stuck. Some were offbeat, but interesting concepts. Some were just stupid. But, when investors feel flush they are willing to take a chance on interesting ideas. Of course, most people now eye investment products with suspicion and aren’t willing to trust Wall Street further than they can throw it.

Part of the problem is the overall economy and market conditions. Most investors are still shell shocked from seeing how the market’s crash decimated their nest eggs. They’re currently debating whether to pull their money out of the market completely or leave what’s left alone and hope for some bounceback. That’s assuming they still have a job. As more people lose their jobs, or worry about such, they are more likely to liquidate their investments than make new deposits. And the few that are willing to make new deposits are looking for the safest, most stable funds. Some of these ETFs probably could have survived in a more accepting market environment. But today investors sure don’t have any desire or patience to experiment with an offbeat portfolio idea like the PowerShares Dynamic Hardware & Consumer Electronics Portfolio (PHW), one of the funds due to close.

Here is the list of funds to close

* PowerShares Dynamic Aggressive Growth Portfolio (PGZ)
* PowerShares Dynamic Asia Pacific Portfolio (PUA)
*PowerShares Dynamic Deep Value Portfolio (PVM)
* PowerShares Dynamic Europe Portfolio (PEH)
* PowerShares FTSE RAFI Asia Pacific ex-Japan Small-Mid Portfolio (PDQ)
* PowerShares FTSE RAFI Basic Materials Sector Portfolio (PRFM)
* PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG)
* PowerShares FTSE RAFI Consumer Services Sector Portfolio (PRFS)
* PowerShares FTSE RAFI Energy Sector Portfolio (PRFE)
* PowerShares FTSE RAFI Europe Small-Mid Portfolio (PWD)
* PowerShares FTSE RAFI Financials Sector Portfolio (PRFF)
* PowerShares FTSE RAFI Health Care Sector Portfolio (PRFH)
* PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN)
* PowerShares FTSE RAFI International Real Estate Portfolio (PRY)
* PowerShares FTSE RAFI Telecommunications & Technology Sector Portfolio (PRFQ)
* PowerShares FTSE RAFI Utilities Sector Portfolio (PRFU)
* PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ)
* PowerShares International Listed Private Equity Portfolio (PFP)

Personally, I’ll be sad to see the retirement of the ticker symbols PDQ, which I always thought of as Pretty Damn Quick, and PUA, the abbreviation for Pick-Up Artist.

Next week, the funds will begin the process of liquidating their respective portfolios. According to the press release, this process will cause each fund’s holdings to deviate from the securities included in its underlying index and each fund to increase its cash holdings, which may lead to increased tracking error. Shareholders may sell their holdings prior to May 19. Shareholders of record on the close of business May 18 will receive cash equal to the amount of the net asset value of their shares as of May 22, which will include any capital gains and dividends, in the cash portion of their brokerage accounts.

Study: Self-Directed Investors Use ETFs 20% More than Advised Investors

Cogent Research, a research firm I’ve never heard of, agrees with the assessment Bruce Bond, the CEO of PowerShares, made on this blog last week.

“We think that what is happening in the broader market has truncated the adoption of the ETF among the investment professional community,” said Bond.

Cogent says self-directed investors are playing an increasingly significant role in defining the ETF product landscape. In ETF Investor Brandscape, a recently published national study of 4,000 affluent Americans, the firm says “interest, usage and commitment to ETFs is significantly higher among self-directed investors who manage their own portfolios.”

According to Cogent, these are the study’s major findings:

* Self-directed investors’ awareness of several top ETF providers is almost twice that of advised investors.

* Equal proportions of self-directed and advised investors use ETFs, however, self-directed investors allocate 20% more of their portfolio to ETFs (The actual numbers were 17% average allocation to ETFs among self-directed vs. 14.1% average allocation to ETFs among advised).

* Among current ETF owners, self-directed investors are far more loyal to their primary ETF provider than are investors who purchase and own their investments through an advisor.

* Usage of ETFs is expected to increase significantly in 2009 among current owners and non-owners alike. On average, one out of every four (25%) current ETF owners plans to increase their ETF holdings. Among self-directed investors, the proportion of likely increased use rises to 35%, representing a 40% higher increased adoption rate.

* iShares and Vanguard are fighting for the number one spot in overall customer experience, which will payoff in loyalty and increased investments. Meanwhile, PowerShares, State Street Global Advisors, and ProShares must work harder to inspire existing clients to increase investments. Furthermore, challenger brands like WisdomTree and Rydex need to focus on the basics–increasing investor awareness of their offerings.

“Everything we see in the data suggests that there is real ‘home-grown’ passion among investors–both advised and self-directed–for ETFs,” says Christy White, founder and principal of Cogent Research in a written statement. “Providers that are committed to promoting and supporting a dual distribution strategy will prevail in this growing marketplace.”

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.