Tag Archives: ETFs

ETNs Vs. ETFs

The media has been comparing exchange-traded notes and exchange-traded funds since the first ETN launched in 2006. By now, the outlines of the argument are clear.

ETNs claim to have three big advantages over ETFs: zero tracking error, access to difficult-to-reach markets and greater tax efficiency. Likewise, they come with one major drawback: They are credit instruments and, as such, subject to credit risk.

The reality is that, for most investors and in most situations, the question of which is the better product is moot. The majority of ETNs exist in markets where ETFs do not exist, and vice versa, so weighing issues like tracking error vs. credit risk is pointless. If you want to invest in certain commodities, countries or strategies, ETNs are the only choice.

That is slowly changing as both markets expand, however: ETFs are honing in on territory previously the sole domain of ETNs, while ETNs are intruding on territory formally occupied only by ETFs. And some of the biggest ETNs do compete in areas where ETFs exist. As a result, the question of which is better is becoming very real.

This is made all the more important by the fact that it is often easier and faster for companies to launch ETNs than ETFs. Some wonder if ETN issuers are rushing products into the space just to be the first one out of the box.

“Time to market is always a factor in decision making, so if you could track the same asset in a fund or a note, there could be a competitive advantage to getting it out more quickly with a note,” said Kevin Rich, managing director in Global Markets Investment Products at Deutsche Bank. “From the issuer’s perspective, notes can offer a more expedient process in the way you interact with the regulators on listing, and investors benefit by having [access] to the product sooner. At the end of the day, if a better product comes out, people will vote with their assets.”

“In general, the first-mover advantage is helpful,” said Philippe El-Asmar, managing director of Barclays Bank’s iPath family of ETFs. “But it doesn’t determine success. It matters whether investors want to take the tracking error vs. the credit risk.”

So which should they want?

This story was originally published in ETF Report. For the full article click here.

ETF/ETN Assets Drop 17.6% From Last October

U.S. listed exchange-traded fund and exchange-traded note (ETN) assets fell 17.6% year-over-year to $493 billion in October from $598 billion at the end of October 2007, according to the National Stock Exchange, or NSX. The NSX, the former Cincinnati Exchange moved to Jersey City, N.J. earlier this year. Net cash inflows were $6.8 billion, bringing the total net cash flow year-to-date through Oct. 31 to more than $109 billion.

The NSX said notional trading volume for ETFs/ETNs totaled a record $3.3 trillion during October, representing 38% of all U.S. equity trading volume. At the end of the month, the number of listed products totaled 806, up 28.5% from the 627 listed one year ago. The NSX monthly statistics include shares of open-end exchange-traded products, encompassing listed shares of investment companies, grantor trusts, ETNs and commodity pools. For the full report go to http://www.nsx.com/content/market-data

Alternext (Amex) to Lose All ETF Listings

It’s definitely going to happen.

NYSE Euronext will transfer to the NYSE Arca all the ETF listings from the former American Stock Exchange, renamed the NYSE Alternext US after its purchase by the NYSE. On Monday, the Arca began trading 74 PowerShares ETFs after the ETF sponsor transferred their primary listings to the NYSE’s electronic stock exchange. With the new PowerShares ETFs, the NYSE Arca has primary listings for 423 ETFs and 82 ETNs. According to the NYSE, the NYSE Arca holds 59% of the ETF and ETN assets under management in the U.S., or nearly $353 billion. When the transfer is done, the NYSE Alternext will only trade equities that had listed on the Amex.

XShares Sues Founders, CEOs and Managers

XShares Group, the ETF sponsor of the HealthShares family of ETFs, filed a lawsuit against its own founders, Jeffrey Feldman and Anthony Dudzinski, its former and current chief executive officers, and seven other company managers or officers, alleging actions that enriched the officers to the detriment of the company.

According to a filing with the Supreme Court of New York state Donald Aven, XShares executive vice president of national sales, and Samuel Aven, charged the 11 defendants with breach of fiduciary duty, breach of loyalty duty, theft of business opportunity, corporate mismanagement, misappropriation of corporate assets, self-dealing, and fraud.

The lawsuit lists a series of charges:

  • That former CEO William Henson and current interim CEO Joseph Schocken received bonuses and other compensation that represented a conflict of interest with XShares
  • That the defendants diverted a corporate opportunity by allowing investor Grail Partners to misappropriate XShares business model.
  • That the company failed to meet capital and regulatory requirements by not maintaining separate books and records for XShares and its subsidiaries.
  • That the directors failed to provide adequate or not misleading disclosures to investors.
  • That the defendants failed to secure proper legal opinions for corporate actions.
  • That the defendants allowed the payment of excessive compensation to the officers.
  • That the defendants provided liquidation and other preference to third party investors to the detriment of XShares.

Representatives for XShares declined to comment on the lawsuit.

It’s been a rough year for the small ETF sponsor. At the end of the first quarter, after just five months on the job, CEO Henson left the firm for an unexplained leave of absence. Then in July, Dudzinski unexpectedly left “to pursue some other opportunities.” He had served as president and board member of XShares Group, the parent company, and as chief executive officer of XShares Advisors, the ETF provider. Around the same time the firm cut a large part of its sales staff.

The turmoil in the executive suite was mirrored on the product line. The firm closed its AdelanteShares family of seven real estate ETFs in June. In their nine months of existence they accumulated only $17 million of assets under management. Then in August, the firm’s flagship ETF family, the HealthShares, underwent a major overhaul. XShares closed 15 of the 19 ETFs focuses on highly specialized areas of the health-care industry. At the time of the reorganization, the 19 HealthShares held a total of $100 million in assets under management, with about half of that in the four surviving funds.

The four remaining ETFs:

  • HealthShares Cancer Exchange Traded Fund (HHK)
  • HealthShares European Drugs ETF (HRJ)
  • HealthShares Diagnostics ETF (HHD)
  • HealthShares Enabling Technologies ETF (HHV), which will be renamed HealthShares Drug Discovery Tools ETF.

In October, the benchmark indexes for all four were redesigned to hold between 28 and 35 stocks, up from the 22 with which they originally launched. All four also lowered their expense ratios to 0.60%, except for European Drugs, which charges 0.72%. The TDAX series of lifecycle ETFs that XShares launched in partnership with TD Ameritrade continue to trade.

 

Industry Leaders Address Credit Crisis

Some of the biggest names in the ETF industry came together this week to discuss how the current credit crisis and stock market crash has affected the exchange-traded fund industry for better or worse. All these industry leaders sit on the editorial board of the Journal of Indexes, which held its first public meeting Tuesday at the Nasdaq Stock Market in front of a group of financial journalists.

Because most of the major trends in the indexing industry are directly related to ETFs, the Journal offers in depth coverage of the ETF industy. With ETFs now comprising between 35% and 40% of all the daily trading volume on the equity markets, the major conclusions of the meeting were that the ETFs are tackling a lot of these issues affecting funds because they are so transparent. But soon, investors will be asking the managers of their active funds, what exactly they’re doing to earn the high fees they’re charging.

The other main conclusion came from Lee Kranefuss, the head of Barclays Global Investors, which produces the iShares ETFs. He said that every time there was a problem in the markets, it tended to help ETFs. The technology bubble, the mutual fund timing scandal, the accounting scandal, have all inadvertantly extolled the virtues of the transparency of ETFs.

A big way the credit crisis has affect the indexing and ETF industries is by reducing the seed capital to start new ETFs, said Steven Schoenfeld, the head of Northern Trust, with produces the NETS family of ETFs. He added it’s also reduced the ability to facilitate large trades.

NETS Complete Move to NYSE Arca, Claymore Shifts 21

Since the New York Stock Exchange bought the American Stock Exchange it has been steadily moving ETFs off of the Amex, now renamed the NYSE Alternext US, to its chief ETF exchange the NYSE Arca. The move continues as Claymore Securities transferred the primary listing of 21 of its ETFs and Northern Exchange Traded Shares (NETS) transferred the primary listing of six of its ETFs to the NYSE Arca from the NYSE Alternext. With the recent moves off the Alternext, one wonders whether any ETFs will trade on it when the NYSE is through.

Founded in 1889, Northern Trust currently offers 16 ETFs that track foreign-based indexes. With today’s move, all now trade on the NYSE Arca. As of September 30, Northern Trust had $3.5 trillion assets under custody and $652.4 billion in assets under investment management.

Claymore offers 33 stock and bond ETFs. Claymore also sells unit investment trusts (UITs) and closed-end funds (CEFs). As of September 30, Claymore supervised approximately $13.8 billion in assets.

Including all 16 NETS listings and 30 of the Claymore ETFs, NYSE Arca has 318 primary ETF listings, 79 exchange-traded notes. According to NYSE Arca the exchange-traded products listed represent nearly $353 billion, or 59%, of ETF and ETN assets under management in the U.S., the most of any exchange.

The six NETS ETFs that moved:

· NETS FTSE 100 Index Fund (LDN), which tracks the benchmark index of the London Stock Exchange.
· NETS DAX Index Fund (DAX), which tracks the German market’s benchmark index.
· NETS FTSE/JSE Top 40 Index (JNB), which follows South Africa’s benchmark.
· NETS FTSE Singapore Straits Times Index Fund (SGT)
· NETS S&P/MIB Index Fund (ITL) follows the Italian market.
· NETS S&P/ASX 200 Index Fund (AUS) covers the Australian stock market.

The 21 Claymore ETFs that moved.

· Claymore/AlphaShares China Small Cap Index ETF (HAO)
· Claymore/S&P Global Dividend Opportunities Index ETF (LVL)
· Claymore/BNY BRIC ETF (EEB), which tracks Brazil, Russia, India and China.
· Claymore/Clear Spin-Off ETF (CSD)
· Claymore/Clear Global Timber Index ETF (CUT)
· Claymore/Clear Global Exchanges, Brokers & Asset Managers Index ETF (EXB)
· Claymore/Great Companies Large-Cap Growth Index ETF (XGC)
· Claymore/Ocean Tomo Patent ETF (OTP)
· Claymore/Ocean Tomo Growth Index ETF (OTR)
· Claymore/Robeco Developed International Equity ETF (OTR)
· Claymore S&P Global Water Index ETF (CGW)
· Claymore/Sabrient Defender ETF (DEF)
· Claymore/Sabrient Insider ETF (NFO)
· Claymore/Sabrient Stealth ETF (STH)
· Claymore/SWM Canadian Energy Income Index ETF (ENY)
· Claymore/Zacks Yield Hog ETF (CVY)
· Claymore/Zacks Mid-Cap Core ETF (CZA)
· Claymore/Zacks Dividend Rotation ETF (IRO)
· Claymore/Zacks Sector Rotation ETF (XRO)
· Claymore/Zacks Country Rotation ETF (CRO)
· Claymore/Zacks International Yield Hog Index ETF (HGI)

Talking About ProShares on The Radio

I will be speaking about ProShares ETFs on The Vince Rowe Show, the Online Trading Academy, at noon eastern time, today, Friday. Here is the radio schedule, or you can listen live at Vince Rowe.com or BizRadio Network.com.

BizRadio Network 1110AM Dallas: 11:00 am – 12:00 pm Monday – Friday
BizRadio Network 1110AM Houston: 11:00 am – 12:00 pm Monday – Friday
CNN Radio 1190 Dallas: 12:00 pm – 1:00 pm Monday – Friday