Tag Archives: Matt Hougan

WisdomTree Wins ETF of Year at ETF.com Awards As ProShares Walks Away With 4 Statues

It’s award time again.

Much like Spring follows Winter, although reports of more snow this weekend are leading some to question that, the ETF industry starts its period of self-congratulations on the heels of the Oscars, Grammys and Golden Globes.

ETF.com, the self-proclaimed world’s leading authority on exchange-traded funds, started the season off with their second annual awards banquet.

“Our awards try to recognize the products that make a difference to investors,” said Matt Hougan, president of ETF.com. “The ones finding new areas to put money to work.” The awards are determined by a panel of experts chosen by ETF.com.

Held at The Lighthouse restaurant at New York’s Chelsea Piers March 19, ETF.com wins the prize for best party location. With picture windows overlooking the Hudson River, guests of the cocktail hour took in the sunset over New Jersey before the ceremony started.

The WisdomTree Europe Hedged Equity (HEDJ) was the big winner, grabbing the prize for ETF of the Year, while the Market Vectors ChinaAMC China Bond (CBON) won Best New ETF. Not quite sure what the difference is between those two awards, but obviously both funds stand out from the crowd of 117 ETFs issued in 2014.

However, ProShares swept the evening, as the single provider that won the most awards. The twin funds ProShares CDS North American HY Credit (TYTE) and CDS Short North American HY Credit (WYDE) claimed the awards for both Most Innovative New ETF and Best New Fixed-Income ETF.

“We designed these ETFs for investors who want high yield credit exposure that is isolated from interest rate risk,” said Steve Cohen, ProShares managing director.

The fund was also nominated for Best Ticker of the Year with its homophones for “tight” and “wide”. However, the awards announcer had a chuckle by claiming they really were pronounced “tighty whitey”, a reference to his jockey shorts. Best Ticker was awarded to HACK, the PureFunds ISE Cyber Security ETF.

ProShares also won Best New Alternative ETF for the ProShares Morningstar Alternative Solution (ALTS) and Most Innovative ETF Issuer of the Year.

“We are always striving to deliver new and innovative products to allow investors to build better portfolios,” said ProShares Chief Executive Michael Sapir.

Lee Kranefuss, the man who created the iShares brand of ETFs and built them into the largest ETF issuer in the world won the 2014 Lifetime Achievement Award.

In the only speech of the night — thank goodness — Kranefuss said, “ETFs allow people to take control.” He likened ETFs to iTunes, saying “no longer are you limited to what the record company puts out.” He said he’s often been asked if he thought the ETF industry would take off like it has in the 15 years since iShares launched.

“Not really,” said Kranefuss, “we just put out the best products we could put out.”

The other award winners:

Best New U.S. Equity ETF – iShares Core Dividend Growth (DGRO)
Best New International/Global Equity ETF – Deutsche X-trackers Harvest MSCI All China Equity (CN)
Best New Commodity ETF – AdvisorShares Gartman Gold/Euro (GEUR) and AdvisorShares Gartman Gold/Yen (GYEN).
Best New Asset Allocation ETF – Global X /JPMorgan Efficiente (EFFE)
ETF Issuer of the Year – First Trust
New ETF Issuer of the Year – Reality Shares
Index Provider of the Year – MSCI
Index of the Year – Bloomberg Dollar Index
Best Online Broker for ETF-Focused Investors – TD Ameritrade
Best ETF Offering for RIAs – Charles Schwab
Best ETF Issuer Website – BlackRock

Webinar to Teach How to Evaluate Corporate Bond ETFs

Matt Hougan, IndexUniverse’s President of ETF Analytics, and Jason Bloom of Guggenheim Partners will lead a webinar on how to evaluate corporate bond ETFs and what special risks and opportunities should you be aware of? It will teach tactical approaches to corporate bonds such as managing the yield curve to enhance yield and evaluating credit spreads, duration and other key fixed-income metrics.

It will be held at 2 pm EST on Thursday, February 23.

Hougan Calls Out Vanguard on Transparency

Matt Hougan of IndexUniverse.com recently wrote that ETFs Are Not Really Transparent. He calls out ProShares and Vanguard as the worst offenders, although the accusations against Vanguard are much worse. ProShares lack of transparency is more a matter of degrees, while Vanguard pretty much gives investors a poke in the eye.

In fact, Hougan says ETF firms are lying when they say they’re “fully transparent.” It’s a pretty scandalous statement to make about the ETF industry. Transparency is part of the mantra ETF providers chant when trying to convince investors to abandon mutual funds for their products. For those who haven’t heard the mantra it goes something like this: “ETFs are better than mutual funds because they’re cheaper, more tax-efficient, more flexible and more transparent.”

This famed transparency is a direct result of the creation unit process in which the Authorized Participants receive ETF shares directly from the firm. The creation process is what’s known as an in-kind trade. The AP buys a basket of all the securities in the ETF portfolio and trades them for an equal number of ETF shares, which it then sells on the stock exchange. For instance, trading all 500 stocks in the S&P 500 Index for shares of the SPDR (SPY). In order for the AP to buy the correct basket, the ETF needs to publish its portfolio every night. This compares to the mutual fund, which only needs to publish its portfolio every three months.

Hougan says there’s “actually no rule requiring index-based ETFs to disclose their portfolios any more frequently than traditional mutual funds. And for many ETFs, portfolio disclosure is either incomplete or significantly delayed. And the problem is getting worse.”

ETF firms do say if you can’t find the portfolio listings then look at the index. But many ETFs optimize their portfolios, because some securities are so illiquid or small that if the ETF purchased them it would significantly affect the market. So they don’t hold the exact same holdings as the index. This can create a disparity between the index return and the ETF’s return, a situation called tracking error. He adds that some portfolios and creation units differ too, though I lost him on this part.

Still, it’s a bit of a head fake, because as Hougan admits, almost all ETF families do provide the entire portfolios of their ETFs on a daily basis on their Web sites. He also acknowledges that almost all ETF creation units can be found on Bloomberg or if you directly contact the ETF sponsor. However, that’s not great for retail investors without an expensive Bloomberg machine.

However a few firms are taking advantage of the right to not disclose. Hougan calls ProShares a worse case scenario. For most of its short and leveraged funds, ProShares uses equity swaps to achieve their daily return. The swaps and their amounts are listed, but not the counter parties who hold the swaps. This becomes an issue if the counter party can’t fulfill its obligation, which happened in 2008. Lehman Brothers held some swaps for ProShares on the day it went bankrupt, causing problems with the portfolio. However, transparency is a big issue within the entire swaps market, so this might not necessarily be ProShares fault. Rydex SGI and Direxion (click on direct holdings), which also sell short and leveraged funds, list the swaps but not the counter parties.

Most surprising is Vanguard, which Hougan calls the worst offender even as it promotes transparency of holdings on its sites, but only gives them out every three months, like their mutual funds. The latest being Dec. 31, 2009. I’m surprised by this because Vanguard is definitely the ethical standard by which to measure mutual funds. So I figured they would be on the forefront with ETFs.

Ironically, Hougan points out the actively managed ETFs must be totally transparent every day, sort of beating the index ETFs at their own game.

While the few exceptions are troubling, overall I think the window on transparency remains pretty clear, especially considering the alternatives, mutual and especially hedge funds, where you hardly ever know what you own.