SPDR Jumps 32.3% in 2013

Last year was a banner year for U.S. stocks and the ETFs that tracked them.

• Large caps in the S&P500 SPDR (SPY) soared 32.3%, their best performance since 1997, topping the index’s 29.6% rally.
• Small caps in the iShares Russell 2000 (IWM) surged 38.7%.
• All U.S. sectors posted gains:
• Consumer Discretionary Select Sector SPDR (XLY) rocketed 42.7%.
• Health Care Select Sector SPDR (XLV) surged 41.4%.
• Industrials Select Sector SPDR (XLI) soared 40.5%.
• Financials Select Sector SPDR (XLF) jumped 35.5%.
• Consumer Staples Select Sector SPDR (XLP) rose 2.63%.
• Energy Select Sector SPDR (XLE) leapt gained 26.3.%.
• Materials Select Sector SPDR (XLB) advanced 26.0%.
• Technology Select Sector SPDR (XLK) climbed 26.3%.
• Safe haven Utilities Select Sector SPDR (XLU) did the worst, but still gained 13.0%.
• Outside the U.S., developed markets tracked by the iShares MSCI EAFE ETF (EFA) gained 21.4% as investors noticed Europe’s bargain valuations and Abenomics fueled a rally in Japan.
• However, the iShares MSCI Emerging Markets (EEM) lost 3.7% as the resource-dependent economies of Brazil and South Africa saw sizeable declines.

All results are total returns, with dividends factored in

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Vanguard Takes 4 of 5 Best for 2011

Steven Goldberg at Kiplinger.com writes a lot about ETFs. He starts out his article on the 5 best ETFs for 2011, telling you the worst ones to buy.

He doesn’t like tiny ETFs that invest in a single industry or a single country. I don’t like tiny ETFs, too much risk with an unproven idea. But single industry ETFs can be quite useful. Do you think the oil industry is going to rally this year? Buy the Energy Select Sector SPDR Fund (XLE).He doesn’t like exchange-traded notes, which are essentially debt instruments backed only by the company that issues them. These can be risky too, as in the case of Lehman ETNs. However, I think for most firms, credit risk is not an issue.

Goldberg thinks the majority of ETFs are little more than high-priced gimmicks. Definitely true for some. However, he doesn’t like the WisdomTree family of ETFs, which weights holdings based on dividends or earnings rather than on the more-traditional basis of market capitalization. I think dividend-weighted indexes have less volatility and don’t fall as much in market crashes. I do agree that actively managed ETFs aren’t ready for prime time, either.

Goldberg likes:

• Vanguard Mega Cap 300 Growth (MGK), he says put 40% of your portfolio in this.
• iShares MSCI EAFE Growth Index (EFG)
• Vanguard Total Stock Market ETF (VTI)
• Vanguard Europe Pacific (VEA)
• Vanguard Emerging Markets Stock (VWO)

Select Sector SPDRs Sue Over Shadow Symbols

The Select Sector SPDR Trust sued INVESCO PowerShares Capital Management over ticker symbols. Filed Thursday in U.S. District Court in Houston, the suit charges PowerShares with trademark infringement and misappropriation.

Select Sector SPDRs offers a family of ETFs that divides the S&P 500 into nine individual sector funds. In April, PowerShares launched a family of nine sector ETFS for the small-cap market based on the S&P 600, a small-cap index. (Blog Postings: Small-Cap Investors Get Sector Funds and Sector ETFs Help You Avoid Single-Stock Risk)

The PowerShares funds, which trade on the Nasdaq Stock Market, use four-letter ticker symbols that add an “S” to the end of the ticker for the Select Sector SPDR funds covering the same industry. Those trade on the NYSE Arca.

“This is a deliberate and unconscionable act on the part of PowerShares to confuse both institutional and retail investors,” said Dan Dolan, director of wealth management strategies for the Select Sector SPDR Trust in a written statement. “PowerShares has succeeded in casting an unfortunate shadow on Wall Street’s efforts to eliminate financial opacity.”

Dolan noted that 101 out of 102 ETFs previously launched by PowerShares have tickers that start with “P.” The sector funds in question are the only products in PowerShares ETF family that begin with an “X.”

Below is a list of the funds side-by-side:

Sector SPDR Consumer Discretionary (XLY)
PowerShares S&P SmallCap Consumer Discretionary Portfolio (XLYS)

Sector SPDR Consumer Staples (XLP)
PowerShares S&P SmallCap Consumer Staples Portfolio (XLPS)

Sector SPDR Energy (XLE)
PowerShares S&P SmallCap Energy Portfolio (XLES)

Sector SPDR Financials (XLF)
PowerShares S&P SmallCap Financials Portfolio (XLFS)

Sector SPDR Health Care (XLV)
PowerShares S&P SmallCap Health Care Portfolio (XLVS)

Sector SPDR Industrials (XLI)
PowerShares S&P SmallCap Industrials Portfolio (XLIS)

Sector SPDR Materials (XLB)
PowerShares S&P SmallCap Materials Portfolio (XLBS)

Sector SPDR Technology (XLK)
PowerShares S&P SmallCap Information Technology Portfolio (XLKS)

Sector SPDR Utilities (XLU)
PowerShares S&P SmallCap Utilities Portfolio (XLUS)

Calling the PowerShares symbols “astoundingly similar,” Dolan told the Wall Street Journal: “I don’t think there’s any other way of looking at it than they’re trying to jump on our back.”

He’s right, of course. If PowerShares planned to latch onto this already understood product, it was a brilliant marketing strategy. The Select Sector SPDRs are probably the most recognizable ETFs in the world. Their marketing campaign of spiders making webs in the shapes of industry icons, such as an oil rig for its energy ETF or a stethoscope for the health care ETF, has been a huge success, both in explaining that ETFs are financial products and what a select sector is. Traders, large and small, call stocks by their tickers not their company names. So, if you wanted the small-cap fund for energy, instead of XLE, you would simply remember the “S” for small.

The question becomes who owns a ticker symbol and can you trademark the first two or three letters of a ticker symbol? Currently, the Intermarket Symbols Reservation Authority, run by the Options Clearing Corp., or OCC, assigns ticker symbols to companies and ETFs. “The ISRA operates a uniform, transparent system for the selection, reservation, assignment and transfer of securities trading symbols by NMS Plan participants.”

Since there are only so many possibilities for three- and four-letter combinations, aren’t there always going to be tickers similar to yours? For instance, most people assume INTL is the ticker for Intel, but it’s not; it’s INTC. Surprisingly, among the many media outlets that reported this story, no one seems to have called the OCC for its opinion.

I did, but the OCC hasn’t gotten back to me.

Meanwhile, I would say the amount of market confusion is minimal. The Journal says the nine Select Sector SPDRS have $31 billion in assets under management. Meanwhile, the nine PowerShares funds in question hold only $50 million. Most hold less than $6 million, and have an average daily trading volume of less than 10,000 shares a day. The Select Sector SPDRS see average daily volumes in the tens of millions.

PowerShares/Van Eck Tie for Most Innovative U.S. ETF

Invesco PowerShares and Van Eck’s Market Vectors shared the 2008 award for the Most Innovative ETF the Americas at the 5th annual Global ETF Awards recently. Daiwa FTSE Sharia Japan 100 won Most Innovative ETF in Asia, while db x-trackers and Lyxor Asset Management tied in Europe.

The actual ETFs weren’t listed, as voters aren’t required to mention the fund’s name, just the firm’s. It’s probably just as well. I surmise that PowerShares won for producing the first family of active ETFs in the U.S. rather than any particular fund. PowerShares’ Active Alpha Multi Cap Fund (PQZ), Active AlphaQ Fund (PQY), Active Low Duration Fund (PLK) and the Active Mega-Cap Fund (PMA) were all launched on April 11, 2008. Does any one fund stand out as more innovative than the others? I don’t think so. I suggest they won more for bringing the active concept to the U.S. market.

PowerShares actually didn’t launch the first active ETF. It had been in a race to come out with the first active ETF, but lost to Bear Stearns by just a matter of weeks. However, when Bear Stearns died, so did its active fund, leaving PowerShares with the first viable active ETFs in the U.S.

Meanwhile, Market Vectors launched five ETFs last year. If I had to guess, I would say they won for their funds covering frontier markets, Africa Index ETF (AFK) and Gulf States Index ETF (MES).

The SPDRs brand of ETFs from State Street Global Advisors again won Most Recognized ETF Brand in the Americas. This is probably due to the fact that the SPDR (SPY) was the first ETF and is the largest and most liquid ETF on the U.S. market. But I’m sure a lot of this has to do with the ad campaign for Select Sector SPDRs.

These commercials, which run often on CNBC, show spiders building webs in the industry-signifying shapes such as an oil derrick for the Energy Select Sector SPDR (XLE), a hard hat for the Materials Select Sector SPDR (XLB) or light bulb for Utilities Select Sector SPDR (XLU). The ad makes a really good connection between the name SPDR and that fact that these are funds to invest in. SPDR also surprised many people by winning Most Informative Website, SPDRS.com. The site is a big advancement over the previous incarnation and much easier to use.

The Global ETF Awards are like the Oscars of the ETF industry. They are unique on Wall Street, because as far as I know these are the only awards in which an industry is invited to vote on itself. This makes winning extremely special because it’s your competitors who say you’ve done a good job, rather than a few individuals.

Some people who read my previous note about the awards seemed to think the conference and awards deal only with the international market. That’s not right. As I clearly stated previously, it’s the only conference that deals with BOTH U.S. AND INTERNATIONAL issues. Nearly every company in the U.S. ETF industry attended and many had representatives speaking on panels. However, unlike other ETF conference I’ve attended, which are completely focused on the U.S., this conference also addresses issues affecting ETF providers outside the U.S.

It was a great opportunity to network with not just State Street, Bank of New York Mellon, ProShares, PowerShares and Barclays, to name a few, but also representatives from the Bank of Ireland, France’s Lyxor, the London Stock Exchange and China Asset Management.

The conference and awards dinner are presented by ExchangeTradedFunds.com and were held at the Grand Hyatt Hotel in New York City.

For the complete list of winners go to ExchangeTradedFunds.com.

Select Sector SPDRs Lowers Fee by 8.7%

The Select Sector SPDRs family of ETFs reported on Tuesday it lowered the expense ratio on all nine ETFs by two basis points, or 8.7%,, to 0.21% from 0.23%. The change is effective Jan. 31.
Launched in 1998, the Select Sector SPDRs were the first ETFs to track market sectors and originally charged an expense ratio of 0.65%. The family divides the S&P 500 index into nine sector index funds

· Consumer Discretionary SPDR (XLY), which equals 7.85% of the estimate weight of the S&P 500 as of Feb. 9.
· Consumer Staples SPDR (XLP) – 12.34% estimate weight of S&P 500
· Energy SPDR (XLE) – 14.26% of S&P 500
· Financials SPDR (XLF) – 10.97% of S&P 500
· Health Care SPDR (XLV) – 15.69% of S&P 500
· Industrials SPDR (XLI) – 10.65% of S&P 500
· Materials SPDR (XLB) – 3.11% of S&P 500
· Technology SPDR (XLK) – 20.68% of S&P 500
· Utilities SPDR (XLU) – 4.45% of S&P 500
As of Feb. 6, together the nine held more than $19.8 billion in assets. In 2008, they traded an average of 260 million shares per day.

For more on Select Sector SPDRS see ETFs for the Long Run, page 35.