SSGA Launches Intermediate Bond Fund

State Street Global Advisors launched the SPDR Barclays Capital Intermediate Term Credit Bond ETF (ITR) Thursday on the NYSE Arca. It was SSGA’s third bond ETF this month. The fund’s will track an index that tracks the intermediate term (1-10 years) sector of the U.S. investment bond market.

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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.

Airline ETF Takes Flight

Claymore Securities launched the the first airline ETF on the NYSE Arca Monday. The Claymore/NYSE Arca Airline ETF (FAA) offers investors a way to bet on the global airline industry. I would say the coolest thing about this ETF is the ticker symbol: FAA.

The ETF tracks the newly created NYSE Arca Global Airline Index (AXGAL). The index is comprised of approximately 70% U.S. passenger airline companies, with the remaining 30% international passenger airlines. Companies must derive at least 50% of their revenue from passenger operations, have a market capitalization of at least $100 million and a 100-day average daily trading volume of at least $1 million. As of Dec. 31, 2008, the top five index constituents were AMR (AMR), Continental Airlines (CAL), Southwest Airlines (LUV), JetBlue Airways (JBLU) and Delta Airlines (DAL).

ETFs See Cash Inflows Even as Asset Values Fall

ETFs and ETNs continue to see net cash inflows even as total assets under management fall. The conclusion is this is a function of just falling asset values.

According to the National Stock Exchange (NSX), at the end of November, total U.S. listed ETF and ETN assets fell 16.8% to $487.6 billion from $585.8 billion in November 2007. However, net cash inflows for the month were $26.4 billion, bringing the total net cash flow for the 11 months through Nov. 30 to $136.8 billion. In November, 315 ETFs saw net cash inflows, while 179 saw outflows. ETNs split at 16 each.

Notional trading volume in both ETFs and ETNs fell 33% in November from October to $2.2 trillion. Surprisingly, this represents a record 43% of all U.S. equity trading volume, up from 38% in October. That just shows how much total equity volume must have fallen off. At the end of November 2008, the number of listed products totaled 843, compared with 650 listed products one year ago and 806 in October.
According to the NSX, the only ETF firms that saw assets grow are State Street Global Advisers, ProShares, Van Eck and

Ameristock/Victoria Bay. All those firms saw net cash inflows for the year through Nov. 30 increase compared with the first 11 months of 2007. Vanguard did as well. ProShares’s assets under management rocketed 112% to $20.9 billion. SSGA’s assets grew 8.3% to $142.9 billion. This really shouldn’t be a surprise. ProShares sponsors the inverse and leveraged ETFs that have proved hugely popular in the market turmoil. SSGA sells the largest, most liquid ETF, the SPDR (SPY), which tracks the S&P 500. Many investors making a flight to safety or seeking a place to hold cash on a temporary basis will move to the S&P 500. Even as the S&P 500 sinks, the SPDR’s 2008 net cash inflows have surged 86% year-over-year through Nov. 30 to $18.23 billion.

Meanwhile, BGI’s iShares saw assets tumbled 29% to $229.3 billion.

Firms with net cash outflows in November included PowerShares, $309 million, and Merrill Lynch’s HOLDRs, which saw redemptions of $889 million. Surprisingly, the HOLDRs saw net cash outflows of $3.6 billion in 2007, but are up $1.2 billion so far this year. Other firms that experienced outflows in November were WisdomTree, FirstTrust, and SPA-ETF. Firms with net outflows year-to-date include Bank of New York, Rydex, X-Shares, Ziegler, FocusShares and BearStearns. The last two have gone out of business this year. Rydex is suffering as the strengthening dollar hurts its CurrencyShares.

As for ETNs, Barclay’s iPath family saw assets plunge 36% to $2.6 billion. In November, iPath saw outflows of $39 million. Morgan Stanley/Van Eck ETNs recorded outflows of $16 million in November. Meanwhile, Goldman Sach’s ETNs net cash outflows grew to $97 million year-to-date. Comparisons are not relevant for many of the other ETN firms as they had few funds, if any, last year.

Among the top ten ETFs and ETNs, the SPDR (SPY), iShares MSCI EAFE Index Fund (EFA), SPDR Equity Gold (GLD), iShares S&P 500 Index Fund (IVV), iShares Russell 1000 Growth Index Fund (IWF) and iShares Russell 2000 Index Fund (IWM) all saw net cash inflows in November, according the NSX. Of the 10 largest funds, these saw outflows last month: iShares MSCI Emerging Markets Index Fund (EEM), PowerShares QQQ (QQQQ), iShares Barclays Aggregate Bond Fund (AGG) and the Dow Diamonds (DIA).

The NYSE Group also releases volume data for its exchanges. Average daily matched volume for ETFs, or the total number of shares of ETFs executed on the entire NYSE Group’s exchanges surged 93.5% to 672 million shares from 347 million shares in November 2007. Total matched volume for the month totaled 12,765 million shares, a 75.1% increase. Total volume year-to-date through Nov. 30 jumped 74.7% from the same period last year to 102,583 million shares.

Handled volume, which represents the total number of shares of equity securities and ETFs internally matched on the NYSE Group’s exchanges or routed to and executed at an external market center, totaled 14,813 million shares last month, a 77.6% surge over the year-ago month. Average daily handled volume rocketed 96.3% to 780 million shares from 397 million shares a year ago. Year-to-date total volume climbed 78.1% to 117,629 million shares.

The NYSE also reported total ETF consolidated volume for the month leapt 92.1% to 45,151 million shares, while total average daily volume soared 112.3% to 2,376 million shares. Year-to-date, total consolidated ETF volume surged 119.4% over the first 11 months of 2007 to 355,133 million shares. I think those refer just to the NYSE Group.

Not Nyet, Barney Ruble

ETF firms have had a rough time over the past year. Launching new products during a major market meltdown is problematic. Investors watching their investments plunge in value are hardly looking for new products to invest in. Innovative products all around have been smeared with the scandal and dirt coming off of derivatives such as credit default swaps. And if investors are looking at ETFs, they are moving toward more conservative investments. They aren’t necessarily willing to take a risk on some new index of an obscure sector or other out-of-the-box ideas.

So, it’s into this atmosphere that Rydex Investments launched the latest in its CurrencyShares family of exchange-traded products, or ETPs. On Thursday, Rydex’s CurrencyShares SM Russian Ruble Trust (XRU) began trading on the NYSE Arca. This new ETP is the first to offer time currency exposure to the Russian economy by tracking the daily price movement of Russia’s currency, the ruble, in U.S. dollars.

It couldn’t have come at a worse time. The ruble has been in a sharp decline as the Russian stock market and economy enter a freefall coinciding with the plunge in oil prices. The day before the ETP launched, Russia’s central bank spent $2 billion to defend the currency. According to the Wall Street Journal, on Tuesday, the Russian central bank “widened its target band for the currency’s rate against a dollar/euro basket by about 1% in each direction. Investors quickly pushed the ruble to the lower limit.” This move reversed “weeks of rigid defense that fueled a $112 billion decline in reserves since the summer.” Then on Thursday, Russia’s two chief stock exchanges were shut down after stock prices plummeted.
WSJ quoted Renaissance Capital economist Alexei Moiseyev saying, “Today’s move achieves nothing.” The modest decline in the ruble “has only served to raise market expectations of a further devaluation.” While industry leaders want to let the ruble weaken further to lower the cost of Russian exports, while increasing the prices of imports, government officials rule out a sharp devaluation. Such a move could send the nation into a panic.
The eight CurrencyShares ETPs track the euro, Australian dollar, British pound, Canadian dollar, Japanese yen, Mexican peso, Swedish krona and Swiss franc. They are pure plays against one currency, and they trade like a regular ETF, with shares on a stock exchange. This is a big improvement over investing in the forex market. That popularity can be seen in the approximately $2.2 billion in assets under management they have acquired. This is 45% of the industry’s total currency ETP assets, according to Citigroup Global Markets’ Oct. 31 ETF Flow Report.

Over the past three years, the CurrencyShares have been a very popular way for investors to profit on the falling U.S. dollar. But with the dollar’s recent rise, suddenly, it’s not such an easy trade. Of course, Rydex couldn’t have predicted oil prices would plunge when it filed to register this ETP with the SEC more than six months ago. Still, the mantra among ETF companies is that there is a demand for these products because investors are requesting these funds. It might be time to stop listening to these investors.

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)