Tag Archives: NETS

Muslims No Longer Locked Out of ETFs

You must say this for the Muslims. They’ve known for hundreds of years not to trust the bankers. By not holding financial stocks, mutual funds based on Muslim principles have done quite well the past two years as the financial-services sector dragged down the rest of the economy.

So, it shouldn’t be surprising to see the first U.S.-listed ETF focused on Muslim principles. The real question is what took so long? The provider, Javelin Exchange Traded Funds, a brand-new independent ETF firm, started building the firm from scratch about 18 months ago. It’s nice to see amid the ETF industry’s consolidation new firms entering the market.

Just two days before July 4 — was there any symbolism in that date? — Javelin entered the market with the launch of its first ETF, the Dow Jones Islamic Market International Index Fund (JVS). The fund trades on the NYSE Arca and tracks the Dow Jones Islamic Market Titans 100 Index a float-adjusted, market capitalization-weighted index consisting of 100 large foreign companies. The companies represent 23 countries and 18 currencies. Among country allocations, at the end of May, the United Kingdom posted the largest at 21.04% of the index, followed by Canada (10.71%), Japan (9.83%) and France (9.82%). The ETF charges a management fee of 0.68%.

In terms of portfolio creation, religious-based funds draw a significant amount of money from people who realize the need to invest in stocks, but don’t want their investment assets to fund activities outside their religious beliefs. Investors can find funds for Presbyterians and Catholics as well as Muslims. The beauty of these funds is that the fund providers vet their portfolio holdings for strict adherence to religious law so you don’t have to. Hence, if you’re a believer, you can still go to Heaven holding these portfolios. Not surprising then, most seem to follow a socially responsible investing strategy.

So, what kind of industries fall off the Muslim buy list? Anything forbidden by the Koran is screened out of the fund, such as alcohol, gambling, pornography and pork products. In addition, Shariah law objects to the borrowing or lending of money with interest. This knocks most, if not all, financial stocks, off the portfolio screen. According to Javelin, the index’s largest sector weighting as of May 29 was oil & gas, followed by basic materials, health care, technology and telecommunications.

“With over seven million Muslims in the U.S, we were surprised to discover that the investment needs of this vital population were not being met,” said Javelin President and Founder Brent Firth in a written statement.

Well, that’s not entirely true.

Amana Mutual Funds and Azzed Asset Management currently run funds according to Sharia law. Because of the Koran’s prohibition on moneylenders, Islamic-based mutual funds have significantly outperformed the broader market. The Amana Trust Income (AMANX), at $691 million the largest mutual fund that follows the Koran, has consistently beaten the S&P 500 for six out of the last seven years, with the other year falling below the index by just 0.1%. In 2007, when the bubble popped, Amana posted a gain of 14.1% compared with the 5.5% return from the S&P 500. And while Amana couldn’t avoid a loss last year — it’s a stock fund after all — it’s 2008 loss of 23.5% outperformed the S&P 500 by 13.5 percentage points, according to Morningstar.

There’s even a Halal index fund, the Iman K (IMANX), which follows the Dow Jones Islamic Index. That, however, posted a 40% plunge last year, compared to the 37% loss on the S&P 500.

But there hasn’t been an ETF muslims could feel confident investing in. With an expense ratio nearly 50% lower than the Halal mutual funds, muslims can now take advantage of the ETF’s benefits.

This, however, may be the year Islamic-based funds fall behind the broader market. During a recession, people do what makes them feel good and that means drinking, smoking, porn, gambling and overeating many pork-based products. In addition, with the financial stocks beaten down so badly they have a lot of upside. I must add, that so far this year, the Muslim mutual funds are still beating the S&P 500.

In addition, the new Islamic ETF doesn’t hold any U.S. stocks, so it won’t be able to directly benefit from any recovery in the U.S. economy.

“We went for an international fund because the mutual funds held domestic stocks and this was a unique market which didn’t have a fund tracking it,” says Javelin spokesman Charles Tennes. He adds Javelin may do an Islamic fund with domestic stocks in the future, but that’s not in the firm’s immediate plans.

Side Note: Ever since the Standard & Poor’s Depositary Receipts (SPY) received the nickname Spyder for its initials, SPDR, ETF firms have loved to give themselves clever, cutesy names. The first ETFs to track international markets were called the World Equity Benchmark shares, or WEBS. Get it? SPDRs and WEBs? So, Javelin Exchange Traded Funds wants its funds to be called the JETS. Here’s to hoping Javelin President Brint Frith likes the nickname “Benny”; that his firm is not confused with the NETS, the failed ETF series out of Northern Trust, that no one makes the joke NETS JETS, or that anyone associates them with the New York Jets football team.

All I Wanna Do Is Have Some Fun

Is Sheryl Crow to blame for the NETS’ demise?

In the first major ETF consolidation of the year, last week, Northern Trust officially liquidated all 17 members of its ETF family, the Northern Exchange-Traded Shares, or NETS. Simultaneously, the bank spent millions of dollars to sponsor a PGA tournament, the Northern Trust Open at the Riviera Country Club, and throw lavish star-studded parties around Los Angeles.

The Chicago bank paid to fly hundreds of clients and employees to the tournament, paid for their rooms at some of the city’s priciest hotels — the Beverly Wilshire, the Ritz Carlton and the Casa Del Mar — and shuttled its guests to the tournament in Mercedes.

According to L.A. gossip site TMZ.com, Wednesday, Northern Trust hosted a dinner with entertainment from the band Chicago. Thursday, dinner was held at a private hangar at the Santa Monica Airport followed by a concert from Earth Wind & Fire. Friday, the NETS were officially shut down. Saturday, Northern Trust took over the House of Blues, served salmon and filet mignon, and had Sheryl Crow serenade its guests. Female guests left with gift bags from Tiffany’s.

TMZ said Northern Trust paid Chicago $100,000 and the House of Blues $50,000. The other two bands declined to disclose their fees. Northern Trust also footed the bill for the entire tournament and part of the $6.3 million purse.

In light of the fact that Northern Trust took $1.6 billion from the government’s Troubled Asset Relief Program, or TARP, there’s plenty of outrage over this egregious display of wasteful spending, especially since Northern Trust laid off 4% of its workforce in December. But putting that aside, couldn’t this money have been used to save the NETS?

It takes between $250,000 and $650,000 to bring an ETF to the market. Let’s say $500,000 each, or $8.5 million, to launch 17 funds. Then assume another $500,000 in annual expenses to run the funds, or another $8.5 million a year to keep the NETS operation afloat. While we don’t have a total cost for the party, from the TMZ data, it’s not hard to imagine the whole thing costing around $8.5 million, essentially what it costs to keep the ETFs afloat for another year.

Is the death of an ETF or an ETF company worth mourning? In the grand scheme of things, probably not. Definitely not by its competitors, but the ETF industry is still small, with just about 25 companies. So, less competition and fewer good ideas are bad for investors and the industry in general.

Of course, the ETF industry did go through a huge growth spurt from 2006 to 2008 as companies in a gold-rush-type spirit pushed out funds based on any idea that came into their heads. There were some great ideas, such as the commodity- and currency-based exchange-traded vehicles, and some incredibly stupid ones. Amidst a falling stock market and declining economy, investors are less willing to take a risk on an offbeat idea. So, consolidation of the industry was not unexpected. In some cases, that’s a good thing.

Among the stupid ideas we’re well rid off, let me point you to the Focus Shares. As the housing bubble popped these geniuses came out with the ISE Homebuilders Index Fund. Their other brilliant ideas were the ISE-CCM Homeland Security Index Fund, which tracked companies that did work for the Department of Homeland Security, and the ISE-REVERE Wal-Mart Supplier Index, which followed companies that derive a large portion of their revenues from sales to Wal-Mart.

Others like the HealthShares or the Claymore/KLD Sudan Free Large-Cap Core Fund were clever portfolio ideas, but much too narrowly focused to attract a large audience, especially in times such as these.

But the NETS were different. They offered investors the first way to invest in the world’s main global stock indexes. Instead of investing in a little known MSCI index of a foreign market, the NETS gave investors the opportunity to invest in a country’s actual benchmark. The NETS tracked London’s FTSE-100, Germany’s DAX Index and France’s CAC-40 Index, among others. The NETS were also the first to offer U.S. investors exposure to the Irish, Israeli and Portuguese markets. Also, they were run by Steven Schoenfeld, the man who wrote the book on indexing. In addition to being an indexing expert, Schoenfeld helped build the iShares business in its early days.

The NETS were reported to have $33 million in assets under management and charged an expense ratio of 0.47%, bringing in $155,100 a year. So, they weren’t paying their way, but it doesn’t cost that much to keep them going. These were young funds that needed to find an audience. So, it seems shocking that after all the time and effort to bring an ETF to market, a firm would give up on them so fast? In a down market, investors aren’t in the mood to invest, but you want to have products ready and available the moment investors come back.

While the ETF industry experienced a record number of fund closings in 2008, most of those came out of independent ETF shops. However, Northern Trust is a huge Chicago-based investment bank. According to Barron’s Dimitra Defotis, while the nation’s prominent banks are suffering and asking for money from the U.S. government, Northern Trust has a far more promising outlook.

“Unless you think the world is going to disappear in the next five years, our position as the leading wealth manager in the United States should serve us well as the U.S. market recovers,” CEO Frederick H. Waddell told Barron’s “On the institutional side, we continue to win significant asset-management and servicing mandates around the world.”

Barron’s says Northern Trust’s balance sheet is better than most other banks, because it avoided housing finance. In addition, it’s gaining customers from overseas institutions. Finally, it’s fee income, which accounts for more than half its revenue, came in at $4.2 billion last year.

So, with about $8 billion in revenues and $1.6 billion of TARP money, it seems incredibly short sighted for Northern Trust to have closed down the ETFs. And after spending about $8.5 million for a golf tournament and parties, it really wasn’t a lot to keep them open. In fact, this wasteful spending of government money for bonuses and parties shows how this isn’t just obnoxious, but actually detrimental to these banks and their customers. It is truly taking cash out of the funds necessary to run these banks’ operations. Businesses are being shut down so top managers can party. It’s nauseating.

I think the NETS were good products and I’m sorry to see them go. Since these ETFs were based on a good idea, I’m sure some other company will create similar products. Still, while the Northern Trust head honchos sang, “All I Wanna Do is Have Some Fun”, the ETF industry and investors are singing another Sheryl Crow hit: “The First Cut is the Deepest.”

Northern Trust Launches 17th Fund

Northern Trust launched its 17th addition to its ETF family, the Northern Exchange Trades Shares, or NETS, last week with the NETS FTSE CNBC Global 300 Index Fund ETF (MYG). The ETF seeks to return the price and yield of publicly traded securities in the aggregate global market as represented by the FTSE CNBC Global 300 Index. The index comprises the largest 15 stocks by market capitalization from each of the FTSE”s 18 industry classification benchmark supersectors. It also takes the 30 largest emerging makret stocks from the FTSE Emerging All Cap Index.

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)