Issue No. 11 ISSN 2150-9166 European Edition
Magazine Index Investor
Stoxx Europe 600 Sector Map Tactical Portfolio Update ETF of the Month THE HOTSPOTS AT A GLANCE
Rankings The Global ETF Landscape At A Glance People Ted Hood Source ETF
Global Collateral Report What's Really Behind Your Product? www.etf-radar.com
I N A SSOCIATION
Global Investor Intelligence
E UROPEAN CUP OF ETFs AND I NVESTMENT M ANAGEMENT 19-20 S EPTEMBER 2011 O NE GREAT GEORGE STREET • L ONDON , UK
Information Management Network is pleased to announce our partnership with the Association for Financial Markets in Europe (AFME) for the upcoming European Cup of ETFs and Investment Management. Being held in London on 19-20 September, Europe’s leading institutional investors, ﬁnancial advisors, consultants, academics, investment managers and industry experts in the European ETF, indexing, investment and risk management arenas will gather to discuss the impact of new regulations on the changing investment landscape and how providers and investors have responded to the uncertain macroeconomic environment.
Why attend? 5. The European Cup provides an up-to-date snapshot of the latest key industry trends to help investors make more informed decisions 4. 16 sessions discussing the most current and practical strategies and solutions for today’s investment professionals 3. The 2011 conference program has been developed with the support of select AFME committees and an industry-led event advisory board 2. Ample networking time has been built into the program 1. Hear from delegates representing leaders from the investment management, ETF & indexing industry
K EYNOTE A DDRESS :
Roger Bootle Managing Director CAPITAL ECONOMICS LTD
F EATURED SPEAKER :
Deborah Fuhr Managing Director, Global Head of ETF Research and Implementation Strategy BLACKROCK
For information on sponsorship, please contact Meredith Atkinson at +1 212.901.0585 or email@example.com For information on attending or speaking, please contact Jackie Rubbo at +1 212.901.1884 or firstname.lastname@example.org
twitter.com/imn_investment #IMNEvents linkd.in/imn_investment
ETF Radar Magazine | Issue July 2011
For more information or to register, please visit: http://www.imn.org Tel: 212-224-3428 | Email: email@example.com
Contents Issue July 2011 Global Summary
Industry Highlights Global Round-Up Top20 Global Index Provider Hot Product Debuts Upcoming Events Number Cruncher
Stoxx 600 Sector Map Tactical Portfolio Update ETF of the Month
Ted Hood, Source ETF
Assets under Management Change in ADV Change in AuM Best-Performer Worst-Performer
Dear Reader, 8
Despite the latest criticism raised by the FSB and IMF, ETFs are still very popular with investors. Blackrock research expects the global ETF industry to reach USD 2 trillion AUM by the end of 2012. Expecting such a big growth, it's time to take a closer look on different aspects of ETFs such as the transparency and security for investors.
Global Collateral Report
Index Companies and People Amundi ETF (pg. 10) Barclays (pg. 10, 11) BlackRock (pg. 2) BoA/Merrill Lynch (pg. 9) Citigroup (pg. 9) Commerzbank (pg. 11) Deutsche Bank (pg. 4) ETF Securities (pg. 4, 10) First Asset Capital (pg. 4) Ben Fulton (pg. 11, 12) IndexIQ (pg. 5) iShares (pg. 7) Ivesco PowerShares (pg. 5, 12)
Lyxor (pg. 11) Morgan Stanley (pg. 12) Natixis (pg. 10) Nomura (pg. 5) Ossiam (pg. 11) Rabobank (pg. 9) Rivermark Research (pg. 4) Arne Scheehl (pg. 11) Stoxx (pg. 4) UBS (pg. 4) Van Eck (pg. 4) Vanguard (pg. 4, 6)
In our cover story we are focussing on the often unattended collateralization. In our opinion the industry has to be more transparent as well as educate better about the involved risks. Regrettably for investors, some so called collaterals are not worth their name and should be rather classified as junk. There are big differences between the market participants. ETF Radar exclusively publishes the details in its Global Collateral Report 2011. The associated story you will find starting on page 8. But don't become flustered now. ETFs are definitely more secure than mutual funds. In our exclusive interview, Ted Hood CEO of Source amongst others talks about this topic. Enjoy reading and let us know your thoughts.
Get In Touch NORTH AMERICA firstname.lastname@example.org Naples (FL) +1 239 384 6090
Silvan Schelling Head of Relationship Management
EUROPE, MIDDLE EAST and ASIA-PACIFIC email@example.com London +44 203 519 1179 ETF RADAR IS A PRIVATE AND INDEPENDENT INFORMATION PROVIDER. NO STATEMENT IN THIS ISSUE IS TO BE CONSTRUED AS A RECOMMENDATION TO BUY OR SELL SECURITIES OR TO PROVIDE INVESTMENT ADVICE. PLEASE SEE OUR DISCLAIMER PAGE FOR FURTHER INFORMATION. ÂŠ 2009-2011 ETF Radar Global Investor Services. All rights reserved.
For all subscription enquiries, thoughts or general questions please contact us directly by email:
ETF Radar Magazine | Issue July 2011
Global Summary Industry Highlights
ted leec Fo
Additionally, there were 1,158 other ETPs with 1,794 listings and assets of USD 190.2 Bn from 58 providers on 23 exchanges. This compares to 792 ETPs with 1,122 listings and assets of USD 129.4 Bn from 45 providers on 18 exchanges, at the end of May 2010.
► OVERALL MARKET ETF/ETP
According to BlackRock‘s latest data report, the end of May 2011, the global ETF industry had 2,747 ETFs (+23%) with 6,079 listings (+38%) and assets of USD 1,446.6 Bn (+39%), from 142 providers (+8%) on 49 exchanges (+16%) around the world. This compares to 2,218 ETFs with 4,411 listings and assets of USD 1,044.1 Bn from 131 providers on 42 exchanges in May one year ago.
ts en Ev
nt ve e ll
i ls ta de
the isit v se lea
w on w tion c e nt s eve
BOSTON 3rd Annual FundForum USA 07–09 November 2011 Westin Boston Waterfront
► HEDGE FUNDS LOVE ETFS
Credit Suisse Quantitative Equity Research recently put out a research paper that identified the ETFs with the highest hedge fund ownership and those that are most heavily shorted. According to Credit Suisse, alternativ asset managers love the SPDR S&P OIL & Gas ETF (30%) and SPDR S&P Retail ETF (19%). Interestingly, these ETFs also have the greatest percentage of shorts. Rounding out the top holders list among hedge funds and the percentage of the shares held by hedge funds: GDX Market Vectors Gold Miners (14%); IShares DJ US Real Estate (13%); SPDR KBW Regional Banking ETF (12%); and SPDR S&P Homebuilders ETF (12%).
NEW YORK CTIY ETF 360 October 12, 2011 The Metropolitan Club
Global Round-Up ► US: 80% VOTE AGAINST COMMODITY ETFS
A staggering number of Registered Investment Advisors will not recommend new commodity ETFs to their clients, according to a new study released by Rivermark Research. 80.6 % of advisors surveyed say new commodity ETFs are unnecessary, with most advisors listing “oversaturation” of the marketplace as the number one reason, followed by “product complexity” and “risk.” 25.2 % of advisors surveyed also believe new ETF products – outside of commodity funds – will not serve a purpose in their clients’ portfolios. ► EUROPE: HSBC ROLLS OUT FIRST RUSSIA PHYSICAL ETF
HSBC has unveiled a New Russian capped exchange-traded fund (ETF). The new HSBC MSCI Russia capped ETF is the first European fund that will physically track the Russian market.
4 ETF Radar Magazine | Issue July 2011
► EUROPE: VANGUARD EXPANDS ETF LISTINGS
► AFRICA: VAN ECK PLANS NIGERIA ETF
Vanguard, one of the world’s biggest mutual-fund company, confirmed plans that they will roll out its range of ETFs in the U.K. market in Q4/2011. Market participants expect a set of global equity ETFs and some strategy ETFs. Also one cross-listing on a Pan-European exchange could happen soon after the launch at the London Stock Exchange.
Van Eck’s ETF lineup already includes a number of products offering targeted exposure to frontier markets, like the Vietnam ETF or the recently proposed Mongolia ETF. The latest newcomer is the Market Vectors Nigeria ETF, which would focus on companies listed in or operating in one of Africa’s oil-rich economies. The proposed ETF would seek to replicate the Market Vectors Nigeria Index, a modified capitalization weighted, float adjusted index that includes companies that are domiciled and primarily listed on an exchange in Nigeria or that generate at least 50% of their revenues in Nigeria.
► EUROPE: STOXX600 WITH CURRENCY HEDGED VERSION
Index provider STOXX has introduced the all-new STOXX Europe 600 Hedged EUR Index, a currency hedged strategy benchmark aimed at investors seeking exposure to the well-known STOXX Europe 600 Index, while at the same time looking to reduce the risk of currency fluctuations.
Global Summary HONG KONG ETF Index Investment Summit 2011 31 Aug. - 1 Sept. 2011 JW Marriot Hotel
Top10 Global Index Provider (Ranked by AuM)
MSCI 25.5% →
JAKARTA Indonesia Investment Summit 2011 20 - 22 July 2011 Grand Hyatt Hotel
S&P 22.6% → Barclays Capital 8.5% ↑ STOXX 7.1% Russell 5.9% FTSE 4.2%
LONDON ETF & Indexing Investments Europe 17–19 October 2011 Guoman Tower Hotel
Dow Jones 3.9% ↑ Markit 3.4% ↑ NASDAQ OMX 2.5% →
FRANKFURT Commodities Deutschland 20-22 September 2011 Le Meriden Parkhotel
NYSE Euronext 1.2% → Other 15.1%↑
LONDON European Cup of ETFs 19–20 September 2011 Great George Street Conference Hall
Hot Product Debuts
Total listings of Exchange Traded Funds in Germany as of July 6, 2011.
Percent rate of Americans who wiew homeownership as important part of the „American Dream“.
Sources: Event organizers, Reuters, BusinessWire, BlackRock, ETF Radar Global Research
First Trust ► FIRST CLOUD ETF LAUNCHED
► NEW GAS STRATEGY ETN
► SMALL-CAP REIT ETF LAUNCHED
► NOMURA’S NEW VOLA STRATEGY
First Trust announced that the first ETF focused on the cloud computing industry is expected to launch on NASDAQ in early July 2011. The fund will be based on the ISE Cloud Computing Index. This index is a modified equaldollar weighted index designed to provide a benchmark for investors interested in tracking companies involved in the cloud computing industry. The Index is owned and was developed by the ISE.
UBS recently launched the ETRACS Natural Gas Futures Contango ETN on NYSE Arca. The unsecured note is designed to capitalize on natural gas markets in a state of contango, as evidenced by an upward sloping futures curve, while minimizing the exposure to absolute changes in futures prices. The ETN is linked to the ISE Natural Gas Futures Spread Index. An ETF wrapper would be an interesting option to sell this alpha strategy in Europe.
IndexIQ released a new ETF dedicated to providing access to the small-cap US real estate sector. The fund will include exposure to a variety of small-cap Real Estate Investment Trusts (REITs). “Performance among all REITs took a big hit during the financial crisis, but since 2009, REITs have seen a rebound, with small-cap offerings far outpacing the performance of their large-cap counterparts,” said Adam Patti, CEO of IndexIQ.
Source ETF and well-regarded investment bank Nomura partnered up to offer Europe’s first volatility strategy ETF. The fund tracks the rulebased Nomura Voltage Strategy Mid-Term 30-day USD TR index. The allocation can be between 0% and 100%, depending on the volatility of the index. The ETF is being marketed to European investors and is listed on the London Stock Exchange. It is available in US dollars.
Ticker/ISIN: SKYY TER: 0.60% p.a. CCY: USD
Ticker/ISIN: GASZ TER: 0.85% p.a. CCY: USD
Ticker/ISIN: ROOF TER: 0.69% p.a. CCY: USD
Ticker/ISIN: IE00B3LK4075 TER: 0.30% p.a. CCY: USD
5 ETF Radar Magazine | Issue July 2011
Index Investor Stoxx 600 Sector Map
Like A Red Carpet: Losses In Many European Sectors by Sebastian Stahn with the iShares STOXX Europe 600 Retail (DE000A0H08P6) would be the best choice. Best performing sector with a performance of +8.33% in June 2011 was the STOXX 600 Automobiles and Parts Index. Here speculations about the Chinese regulators to soften the import restrictions on Automobiles in China – one of the most important markets - positively influenced the sector. If you believe in an ongoing trend, the Comstage ETF STOXX 600 Automobiles and Parts (LU0378435043) would be your best pick. n
In June the STOXX 600 Index dropped -1.98% due to the uncertainness about the handling with the Greeks and falling leading indicators. The last days of the month smoothed the negative performance a little bit as an agreement about the Greek sovereign debt emerged. Having a look at the sector performances, the Retail Sector was the worst performing with a loss of -5.85% in June 2011. Retailers were under pressure due to a grim consumer spending outlook. If investors believe in a recovery of this sector, the contrarian pick
The Action Plan
iShares STOXX Europe 600 Retail
Comstage ETF STOXX 600 Automobiles and Parts ISIN/TIcker: LU0378435043 TER / AUM: 0.25% / 23.3 mn. 1 Year Return: +54.01% Last Price/High/Low 52-Weeks: EUR 55.40 | 34.60 | 55.40 Replication: Synthetic (swap)
ISIN/Ticker: DE000A0H08P6 TER / AUM: 0.47% / 13.8 mn. 1 Year Return: +3.39% Last Price/High/Low 52-Weeks: EUR 25.59 | 24.05 | 28.05 Replication: Full replication
based on an investment horizon of one month
WORST PERFORMING SECTORS
Retail –5.85% Food & Beverage –2.93%
Health Care –2.92%
Financial Services –4.86%
Personal & Household Goods –1.63%
Oil & Gas –1.74%
Travel & Leisure
based on an investment horizon of one month
Construction & Materials –2.61%
Industrial Goods & Services –1.81%
Real Estate –1.60%
Basic Resources –0.41%
Mon thly P e
Automobiles & Parts +8.33%
. As o f Jun e 30,
6 ETF Radar Magazine | Issue July 2011
BEST PERFORMING SECTORS
Index Investor Tactical Portfolio Update
Consumer Discretionary and Germany are the Places to Be by David Cohne QUICK FACTS ► Consumer Discretionary stocks are attractive. ► Germany’s DAX is outperforming other European blue chip indices.
The ETF Radar Tactical portfolio is a model portfolio that invests in five Exchange Traded Funds based on a customized, tactical ETF rankings system. The portfolio trades at the end of each month. The holdings for July 2011 include SPDR MSCI Europe Consumer Discretionary ETF (FR0000001752), iShares DAX (DE0005933931), ComStage ATX ETF (LU0392496690), Lyxor ETF M S C I Eu ro p e Re a l E s t a te (FR0010833558) and the Amundi ETF CAC40 (FR0007080973) .
European Consumer discretionary stocks are benefiting from increasing demand from emerging markets countries. In addition, German stocks are in an uptrend and are outperforming stocks from other European countries. Based on the rankings SPDR MSCI Europe Consumer Discretionary ETF (FR0000001752) is the ETF of the month. It tracks the price of consumer discretionary stocks in the MSCI Europe Index. It has an expense ratio of 0.30% annually and EUR 14 million under management. One of the largest fund holdings are German premium carmaker Daimler AG (9.97%), luxurybrand holding LVMH S.A. (6.29%) and Vivendi Universal S.A. (5.52%). n
ETF of the Month SPDR MSCI Europe Consumer Discretionary ETF (FR0000001752) 52-Week Range Market Cap Dividends TER Last Volume ETF Issuer Replication
EUR 51.54-EUR59.58 EUR 14.0 million 0.30% p.a. n/a SPDRs Europe Full Replication
ETF Radar Tactical Portfolio TICKER FR0000001752 DE0005933931 LU0392496690 FR0010833558 FR0007080973
ETF NAME SPDR MSCI Europe Consumer Disc. ETF iShares DAX (DE) ETF ComStage ATX ETF Lyxor ETF MSCI Europe Real Estate ETF Amundi CAC 40 ETF
TER 0.30% 0.15% 0.25% 0.40% 0.25%
AUM WEIGHT $13.8 million 20% $6.0 billion 20% $31.5 million 20% $31.0 million 20% $796.3 million 20%
Source: Cohne Investment Group, exclusively for ETF Radar / July 1, 2011 Ranking
7 ETF Radar Magazine | Issue July 2011
Global Collateral Report Many investors may be strongly surprised if they get familiar with the potential risks associated with the constituents of their collateral baskets. Probably the ETF industry would be well advised to set new quality rules for collaterals – beyond UCITS. by Sebastian Stahn and David Cohne QUICK FACTS ► There are big differences between the issuers’ collateral management. ► A collateral with a volatility of 47% is questionable. ► Investors should realize that also ETFs could be associated with some hidden risks.
As years go by more and more ETF providers are “born” trying to get on the gravy train. For example the latest newcomer in the European business is Ossiam ETF, a subsidiary of Natixis, which is affiliated to BPCE, France's second largest banking group. As the number of ETF issuers increase, each of them tries to minimize costs and maximize the performance of their products. As ETF provider you have the choice between physical replication and synthetic replication. Let's consider an issuer will launch a new ETF. The fund should track an index covering the World's five largest publicly listed stock companies. The ETF issuer could put 8 ETF Radar Magazine | Issue July 2011
the clients money into the five stocks by buying them on the exchange or over-the-counter from a market participant. Hence the ETF's value behaves like the performance of the five stocks. If an ETF wants to track the performance of 20 or 200 stocks it may quickly become difficult and costly. Hence – especially in Europe – the majority of ETF issuers prefer swapbased (or synthetic) replication methods for their products. What will happen if one goes bust? A synthetic ETF doesn't hold the exact underlying index constituents. Instead, it holds a (randomly filled) basket of securities. These securities may be completely different to the index it is tracking – which is an important fact some investors often do not catch correctly. The ETF asset manager typically will enter into a total return swap (TRS) contract in which he gives away the performance of the collateral basket in
Feature return for the performance of the fund's reference index. Eventually, investors have the risk that the swap counterpart fails to fulfill its obligations. As illustrated above, the performance of the five stocks would no longer be provided by the initial swap partner. So what will happen, if the swap counterpart goes bust? Under UCITS, Europe's regulatory framework for the fund industry, the collateral is used as security in such a case. The collateral basket is made up from stocks and bonds from OECD countries. A collateral shall cover 90% of the net asset value (NAV) of the ETF, so the counterparty risk is 10% of the ETF's NAV. It is prevalent that ETF issuers use their parent bank as swap counterparty. Full replication contains similar risks Counterparty risk appears in both replication methods – full and synthetic. Using full / physical replication counterparty exposure arises when securities are lent out by the ETF. This is quite common in the fund industry no matter even if it is an ETF wrapper or a classic mutual fund. Securities lending generates an extra portion of income. Usually the lending fee contributes up to 40 basis points to a blue chip ETF like the iShares EuroStoxx50. Each security lending transaction is secured by a so-called collateral. Usually, these securities are sent to a separate entity – mainly a bank with a custody business – which take care of the position and separate the relevant securities by posting it into a special account. In both replication methods, collaterals are generally 102% of the value of domestic shares and 105% of the value of foreign shares. The North American peers still favour on full replication. Full replicated ETFs in the U.S. are regulated under the Investment Company Act of 1940. This act forbids certain transactions and limits the use of derivatives. Also the SEC has stopped approving synthetic ETFs in March of 2010 to study their affects. Quality of collateral – a turning point But do investors really know, what's behind their ETF? Is it even collateralised? What kind of securities are in the collateral basket? A few years ago it was very difficult to find out, how the collateral basket looked like and by how much – if at all – it was properly (over-)collateralised. As today's investors desire full transparency, more and
more ETF providers made their collateral baskets visible on their websites. The recent call of the Financial Stability Board to give more details about assets held in collateral baskets to improve transparency for investors strengthened this claim. As above already mentioned, all synthetic (swap based) ETFs show differences between the underlying ETF and the collateral basket portfolio. One issuer for example collateralises all of its ETFs with a portfolio consisting of stocks out of the German blue-chip index DAX. If investors buy an European bond ETF it is in fact collateralised with a portfolio of German stocks. Other issuers use a broadly diversified portfolio of stocks based on a quantitative optimisation method. Due to the lower correlation of Japanese stocks with other developed countries the outcome of the optimisation will contain a big part of Japanese companies. Examples of collaterals by issuers: A look behind the curtain – ETF Securities As a reaction on the call of the Financial Stability Board to give more details about assets held in collateral baskets to improve transparency for investors, ETF Securities (ETFS) publishes since May 2011 a list of all collateral held as security for investors on its website. The issuer holds currently USD 28.2 billion AuM. First of all the process of collateralisation at ETFS has to be described. We just highlight the collateralisation of ETFs, which are UCITS compliant and don't focus on the ETPs. Regarding to ETFS' website they currently have four swap providers. Swaps with the partners Citigroup and Bank of America Merrill Lynch are unfunded. Agreements with Barclays and Rabobank are fully-funded.
It won't be fun to liquidate this volatile portfolio in falling markets. Who looks at the available Excel-files on ETFS' website, which list the stocks used as collateral, will find some interesting stocks. The majority consists of small and mid caps. Furthermore there are a lot of illiquid Japanese stocks used as collateral. Also interesting is the statement regarding the valuation of the collateral on ETF Securities' website, which says that the “collateral is highly diversified and/or of high quality”. Sure, Markowitz says that diversification is important, 9
ETF Radar Magazine | Issue July 2011
Feature but if the world stock markets tumble, the correlation between the equity markets approximates one. Keep the last paragraph in mind while you read the following example: The collateral with the highest weighting for the “ETFX DAX 2x Long” is the Spanish media company Promotora de Informacions S.A. (ES0171743117). Sure, it belongs to the EuroStoxx Consumer Services Index, but is it a good stock as collateral? Its price is EUR 1.38 with a market capitalisation of round about EUR 700 Mio. and a 52 week high of EUR 2.52 and a low of EUR 1.27. Thus the (nearly penny-) stock had a volatility of 47% over the last year (as of 24th June 2011). Some other collaterals used are small and more or less illiquid stocks from all over the world.
collaterals should have been better banned from a money-market ETF since the expression “PIIGS” has become a common negative shortcut for the troubled Eurozone states. Second, in some ETFs appears a major collateral position called “UK Equity Holdings”. Obviously, this is a Lyxor AM associated fund vehicle. Hence it could be fairly risky for an investor to accept a security as collateral issued and managed by the ETF firm itself.
A positive aspect is that all of the ETFs are up to ten percent over-collateralised. In the example of the “ETFX DAX 2x Long” the fund is 9.14% overcollateralised. But imagine the above mentioned case of a default of the swap partner in falling equity markets and no other counterparty can be found to enter into the swap. The first possibility to switch to physical replication is hardly possible because of the highly differing collateral basket components. Furthermore physical replication is not possible in short or leveraged ETFs. Thus the last possibility is to terminate the fund and liquidate the collateral basket. But what kind of securities are in my portfolio? Right, mostly small and mid caps with a high beta and lower liquidity. It won't be fun to liquidate this volatile portfolio in falling equity markets. So it is questionable if cushions of approximately 9% will be enough to sleep carefree. French Connection – Lyxor, Amundi & Ossiam The French ETF issuer Lyxor (Current AuM USD 55 bn.), uses its parent Societe Generale as swap partner. Other than ETF Securities, its ETFs are not that much over-collateralised. The very positive aspect comparing to Lyxor's competitor is that the securities in the collateral baskets are mostly large caps with a high market capitalisation. Furthermore Lyxor is very transparent regarding the collateralisation. Sometimes the transparency may lead to surprises. Investors should keep an eye on two things: First, the Lyxor ETF Euro Cash. Here one could clearly see the dominance of Spanish and Italian Government bonds. Perhaps, those 10 ETF Radar Magazine | Issue July 2011
It could be fairly risky for an investor to accept a security as collateral issued and managed by the ETF firm itself. The cost-cutting approach of Amundi ETF (AuM USD 9.9 bn) seems to be what investors like. “We decided to implement a competitive pricing strategy. Cost is a key criteria when selecting an ETF; our TER is on average 25% lower than that of our competitors.” said Valérie Baudson, Managing Director of Amundi ETF in an interview with ETF Radar. The issuer is a joint-venture between Societe Generale and Credit Agricole. Regarding transparency and quality of collaterals the newcomer makes a good shape. Detailed information about the underlying baskets is daily updated available via Amundi's website – and no obscure securities (or strong overweight of French equities) appeared in three randomly selected samples. Amundi's custodian is CACEIS Bank. Ossiam, a brand new ETF issuer and affiliate of French banking-group Natixis, provides detailed and easy to find facts about the effective ETF holdings. Accordingly, one could quickly find detailed information about the specific securities. Obviously, Natixis wired some positions of their French equities portfolio to Ossiam because there is a clear dominance of major French stocks used as collateral. The French start-up uses State Street Bank Luxembourg S.A. as custodian. Commendable Germans – Deutsche Bank and... Another issuer to highlight is db x-trackers, who offers currently 187 products and manages USD 52.6 billion. It uses its parents Deutsche Bank as swap partner. A very commendable aspect of db x-trackers ETFs is the transparency regarding its collaterals. For
Feature each ETF you can see detailed information of the collateral basket like the allocation of the asset class, country, sector, currency, rating, etc. Of course you can also download the list of the whole securities used as collateral on a daily basis. The ETFs are UCITS compliant and the collateral exists of high quality securities. The used stocks are in most instances blue chips. Unfortunately the ETFs are just – if at all – little over-collateralised. Sometimes they are even under-collateralised. Let's assume the case that the counterparty in the swap agreement (Deutsche Bank) defaults on the example of the DAX ETF (LU0274211480) . This ETF is backed by a collateral value of 99.46% as of June 21, 2011. Thus the fund is under-collateralised. When looking into its country and currency weightings, the US clearly dominates with nearly 29% of the holdings, followed by Japan (22%) and Germany (20%). About 38% of the collateral are denominated in Euro, 28% in USD and another 22% in JPY. 13% account in CHF. So in the (more or less) unlikely case of a default of the counterparty Deutsche Bank AG, investors may receive the value of the stocks that are used as collateral rather than the value of the index. Although they invested in the German Stock Exchange Index the collateral portfolio would consist of only 38% Euro investments. This situation appears not just at db x-trackers. Many ETF providers use this method of portfolio optimisation in their collateral basket. ...Commerzbank A similar picture at comstage, one of the emerging ETF brands in Europe. Commerzbank 's subsidiary has 94 products available which account totally to an AuM of USD 9.5 billion. According to Arne Scheehl, Sales Institutional Clients, the Frankfurt-based ETF issuer uses the swap desk of Commerzbank for all their products. The swap is overcollateralised at a minimum of 105%. The collateral baskets contain strictly German government bonds which are in custody of Clearstream Banking Frankfurt. “Both the carrier basket and the collateral are published on our website.” he explained. One of the largest NAV difference has the comstage ShortDAX ETF (LU0603940916). Its basket NAV is 92.53% in favour of the fund – or in other words, roughly 7.5%
are at risk vs. the swap counterparty. This means if the swap counterpart (here: Commerzbank) would come into serious trouble, the swap collateral should be 107.5% or more in order to prevent a potenial loss. „Investors don‘t have to worry. We adjust all collaterals on a daily basis.“ adds Arne Scheehl. „Tricky Brits“ – Barclays and its ETNs A prominent player in the global ETN business is Barclays Bank with its iPath subsidiary. Its main rivals in the ETN business are Morgan Stanley and UBS. Unlike ETFs, ETNs are senior, unsecured, unsubordinated debt securities. In case of iPath ETNs, these securities are issued by Barclays Bank Plc. One of their best-known products is the iPath VIX ETN series – linked to selected S&P500 VIX Futures. Investors buying these ETNs are more or less entering into a kind of simple bet: Barclays will promise to pay the specific performance (i.e. index return of the S&P500 VIX Futures) and will promise to pay back the individual market value when investors are selling the ETN. An important detail: The investor's money is not posted into a pledge account or a separated collateralized securities account. Barclays main concern is delivering the benchmark performance. They do this either through swaps or investing directly in futures. It depends on which asset classes they are investing in. Unlike the leveraged ETFs, these ETNs are not covered by the Investment Act of 1940. Instead they are covered by the Investment Act of 1933 so they are free to use derivatives. According to Barclays, they only do their swaps „with investment banks and other financial institutions with very high ratings“. In addition, their obligations come from their bank itself, which has a double AA rating, not from a sub-entity.
An important detail: The investor's money is not posted into a pledge account or a separated collateralized securities account. „American Idol“ – Invesco PowerShares There are also some risks luring across the Atlantic ocean. The synthetic issues that are of some concern in the U.S. are leveraged ETFs and Exchange Traded Notes (ETNs). There are a few issuers in the U.S. that do offer synthetic ETFs. ProShares, Direxion, Rydex & PowerShares offer leveraged and/or inverse ETFs. 11
ETF Radar Magazine | Issue July 2011
Feature PowerShares also offers commodity ETFs of which many use 3-month U.S. treasuries as collateral. “Regarding the use of swap based or collateralized ETFs, our preference has always been to fully replicate a portfolio where possible,” said Ben Fulton, Invesco PowerShares managing director of global ETFs in an recent interview with ETF Radar. „In the U.S. market, PowerShares ETFs are either fully replicated or use a representative sampling methodology.“ he added. The PowerShares DB currency & commodity suite of 11 ETFs managed by Deutsche Bank, hold futures contracts as opposed to swaps. They also markets the PowerShares DB line of 28 ETNs which are unsecured debt obligations of Deutsche Bank AG, London Branch. In Europe, PowerShares ETFs are all UCITS compliant and we use specific replication investment methodology for 15 of the 19 funds, and one fund uses representative sampling.
A Practical Overview About Swap Defaults
Investors should ask the right questions One issue that regulators are concerned with is that securities lending has the ability to cause more counterparty risk and more collateral risk for the investor. The counterparty risk appears if the borrower cannot give it back. The collateral risk comes into play if the collateral that the borrower used is worth less than the security. In the U.S., investors are partially protected by the Investment Company Act of 1940 which only allows one third of the fund to be lent. One firm of note is iShares which posted securities lending income on their recent annual report.
Even with ETFs and ETPs – Don't let yourself be fooled. All in all, investors – in North America, Europe and elsewhere in the world – should realize that also ETFs could be associated with some hidden risks. But nevertheless an ETF is nowadays one of the most transparent, liquid and cost-efficient vehicle one could have in its portfolio. So we recommend every investor to have a closer look at the collateralisation of swap-based ETFs due to big differences between the competing providers. Probably the simple conclusion one should bear in mind is: Even with ETFs and ETPs – Don't let yourself be fooled. n 12 ETF Radar Magazine | Issue July 2011
The main question is: Why do we analyse the collateral and the processes behind collateralisation? Everything will be alright…and nobody cares about the details. But what happens if markets tumble for example caused by another financial crisis and banks default or go bankrupt and one of these banks served as swap partner in an ETF you owned?
There are three options to ETF providers if their swap partner defaults: A) The first is to look for another swap partner who enters into your swap agreement as counterparty. It is questionable if banks will do so in times of a crisis. B) The second option is to switch the replication method and go ahead with physical replication. This could be very challenging and costly, because as mentioned the collateral baskets differ highly from the underlying index components. C) If both methods don't work the ETF provider has to terminate the ETF and liquidate the collateral portfolio. Due to the default of the counterparty the loss of the swap agreements will be up to 10%. Further losses can arise from the liquidation of the collateral basket. Thus there are two aspects essential - the quality of the used collateral and the level of over-collateralisation. It appears in many collateral agreements that there is either lower-quality or less liquid collateral. Also many ETFs are not overcollateralised. The rule you should keep in mind is: The less liquid and the lower the quality of the collateral basket, the higher the overcollateralisation should be. Hopefully some issuers keep this rule of thumb also in mind.
ETF Radar Global Collateral Report Download the full data-set directly: www.etf-radar.com/collateralreport.pdf
People Expert Talk with
Ted Hood CEO, Source ETF
“Investors need to do more homework.” by Silvan Schelling
VITA ► Born: 1963, Pelhm (NY) ► Lives in: Kent (England) ► Career: Ted is CEO and responsible for ensuring that Source – through its employees, partners and service providers – protects the assets of our clients, delivers asset performance and provides the honesty, transparency and service that investors deserve. Before joining Source, Ted Hood was a Managing Director and cohead of Morgan Stanley's multi-asset structuring team which creates and distributes derivative investment products to EMEA investors. Prior to this, he worked within Morgan Stanley's equity product group with responsibility for the development, marketing and execution of structured product and alternative fund platforms. Previously Ted was a lawyer at the London and NewYork offices of Cleary, Gottlieb, Steen & Hamilton specialising in cross-border financial transactions, before joining Morgan Stanley's tax department as a Vice President in 1999. He holds a Juris Doctor from the Cornell Law School, where he graduated magna cum laude and served as editor of the Cornell Law Review. ► My first ETF, I bought QQQ ► My favourite investments: RDX Source ETF (Russia)
Recently some concerns regarding the associated risks with ETF's/ETP's have been raised, how about your thoughts on this topic? I think it is extremely important that this discussion be put in context. The vast majority of ETFs constitute efficient and effective tools for obtaining market exposure. Like any investment vehicle, ETFs are not risk free, but the risks – which are relatively small – are fully regulated and monitored in the same manner as any other public investment fund. That said, Source welcomes rigorous due diligence by regulators and investors alike, and we think it is helpful to discuss these issues in an open and transparent manner. To start, both the FSB and BIS have raised concerns about product liquidity, and what would happen if investors rushed to sell their ETFs in a market crash. As a general rule, an ETF is as liquid as the underlying market to which it provides access. A product offering exposure to mid cap stocks in an emerging market is going to be far less liquid than a EURO STOXX 50 product. It
doesn't matter whether an ETF derives its underlying exposure through direct investment or via a derivative: ultimately, both derive their liquidity from the shares that constitute the underlying index. ETF investors typically benefit from intraday trading and a high level of transparency. Investors in conventional mutual funds – a far larger component of the market – perhaps have greater cause for concern since they can typically trade only once a day and may suffer gating re s t r i c t i o n s a n d l a c k o f transparency.
Investors in conventional mutual funds perhaps have greater cause for concern. What about counterparty risk? Counterparty risk has also attracted attention. Since its launch in 2009, Source has been heavily focused on this issue, developing an innovative and highly robust approach to counterparty risk management that is not matched by our 13
ETF Radar Magazine | Issue July 2011
competitors. Our ETF structure combines full investment in listed equities with the use of swap transactions to ensure precise tracking. Swaps can be transacted with multiple counterparties (6 major investment banks), thus diversifying the risk. Moreover, the swaps are reset frequently as the funds expand or contract, so that the absolute amount of risk is small – typically less than 0.10% of the fund's assets. This approach has resonated well with the European ETF investor community.
Our investors have not been shy about poking under the hood. So ETFs are still an attractive wrapper? Yes, but a separate and important question is the distinction between ETFs and other exchange traded products. These products are not subject to the same robust regulatory framework as funds and therefore warrant a higher degree of scrutiny. This is not to say the products are bad – indeed, in many respects Source's exchange traded commodity products are even more robust than many ETFs – but in the absence of strict governmental oversight investors need to do more homework. We also agree that the industry could do a better job of educating investors that not all exchange traded products are funds. In sum, we welcome the scrutiny: we think ETFs are generally well constructed and well managed and will stand up to rigorous evaluation. Indeed, we have some of the most sophisticated financial institutions in the world as our investors, and they have not been shy about poking under the hood. In the latest reply of EFAMA towards the concerns raised by the 12 ETF Radar Magazine | Issue July 2011
FSB, one of the key problems is that a significant number of exchange-traded investment products are not ETF's. How can the industry improve the understanding among investors? I do think the industry could be more pro-active in educating investors that not all exchange traded products are regulated funds. At an institutional level this is well understood, but as we see more retail participation it will become increasingly important to make the distinction clear. How is your approach at Source in educating investors? At Source, we approach this from two angles: first, we are extremely clear in our marketing materials about product structure (going so far as to employ different colour schemes for non-fund products!). Second, although our commodity products are certificates rather than funds, we provide a focus on liquidity, transparenc y and minimising counterparty risk that is no different to our other products. Our ETCs are fully b a c ke d b y t h e u n d e r l y i n g commodity or – where this is not feasible – with US Treasury bills, which are by far the world's most liquid security. In our opinion, it would make sense for the European regulators to step in here and allow commodity products to be delivered in a regulated format (as is the case in the US). In the absence of such a framework, we have constructed our products in a manner that is otherwise as consistent as possible with the UCITS rules. Have some ETF's and ETP's meanwhile become too complex for an ordinary investor? I don't think that ETP structures have become too complex for investors to make sensible decisions and most product sponsors provide high levels of
transparency and disclosure to facilitate this process. However, complexity can also come from the underlying investment objective of the product – in this respect, ETPs are no different from conventional mutual funds. Although most ETPs aim to track well-known benchmark indices, there are also more complex products on offer: e.g., products linked to emerging markets, volatility and hedge fund replication strategies. These are likely to appeal only to more sophisticated investors. It's down to investors to decide what kind of underlying assets they wish to take exposure to and to ensure that they understand the risks. What are your thoughts about an European ETF Association – and perhaps a Global ETF Association? There is currently an ETF working group within the European Fund and Asset Management Association that includes most of the major ETF sponsors. As ETFs are regulated investment funds, this is an obvious and effective way for us to address industry concerns. There may be some merit to a separate European organization to look at non-fund related issues (e.g. trade reporting). A global organization, however, would seem to have limited value given the differences in regulatory regimes and investor preferences.
A global organization would seem to have limited value. Some investors have raised the question of whether ETF short selling can have a negative impact on the performance of a fund – particularly for investors who have nothing to do with the shorting?
Source has put considerable effort into analysing the mechanics of the ETF short selling process, with respect to both its own products and those of competitors. Our view is that not only does short selling not jeopardize the performance of an ETF, but it can enhance overall performance by attracting liquidity to the product and thereby reducing trading spreads. There is one significant caveat: clearly short selling can have an impact on the price of the underlying shares. Our only comment here is that investors can short major benchmarks in a number of different ways (e.g., futures and swaps) so if investors want to short, they will find a way to do so and the market will receive that downward pressure regardless of whether ETFs are involved.
likely to have tighter trading spreads and therefore the cost of putting on and taking off my own position may well be lower. All of your T-ETC products use US treasury bills and cash as collateral.
Some of our fixed income ETFs may hold Greek or Portuguese government bonds – in accordance with their guidelines.
The fact that short positions may exceed the size of the assets held by an ETF is not relevant to a fund's performance. The fund will hold and manage assets commensurate with its outstanding shares at all times. The investor taking the short position may need to find ETF units to close out its position, usually by investing in the fund and creating more units. This process for unwinding short positions has been functioning for more than 15 years without notable incident.
How and where can investors see the exact collaterals and its weightings? Are there any plans to publish the current holdings of your ETCs and ETFs on your website ? We already publish full constituents for our physically invested products, which include all of our equity funds, our range of PIMCO Source fixed income funds and our physicallysecured precious metal products. Because the portfolio composition of our T-ETCs is formulaic and relatively static (i.e., US Treasury bills with a predefined maturity profile), there has been very limited investor interest and so we currently provide this information on request.
So, should investors stay away from ETF with an extremely short interest ratio like the SPDR Regional Banking ETF or the iShares Russel 2000 ETF? I think an intelligent investor would want to understand why others had formed the view that these benchmarks were likely to decline in value! But if the investor nevertheless wants exposure to regional banks or US small caps, I would not be concerned that a large short interest ratio might have a negative impact on the performance of these funds. To the contrary, I would assume these products were
Does Source hold or accept such “PIIGS” bonds as collateral for its products? Source's swap-enhanced equity ETFs are typically fully invested in listed equities. These are owned by the fund rather than held as collateral. No bonds of any sort are held in these funds. Some of our fixed income ETFs are actively managed and may hold Greek or Portuguese government bonds in accordance with their stated investment objectives and guidelines. Full constituents for the funds are published on the Source website daily.
How about your ETCs? Source's commodity T-ETCs are fully invested in US Treasury bills. Commodity swaps are reset weekly and marked-to-market at the end of each trading day and counterparties are required to provide margin where the swaps are in-the-money. To date, we have only received cash margin, though technically US treasury bills and other G7 government bonds are permitted as well. Which new product ideas you have for the next time ahead? With interest rates still low and many investors seeking more than benchmark returns, Source is also partnering with selected active managers, including PIMCO and Man GLG, to deliver exclusive opportunities for enhanced returns. A good example is our PIMCO Enhanced Short Maturity ETFs. These aim to deliver an enhanced yield compared to money market funds, while maintaining high levels of security and liquidity, and allow investors to benefit from PIMCO's world class expertise in fixed income. Thank you! n
Across the Atlantic:
Interview with Jim King, Rydex ETF in the Magazine’s North American Edition. www.etf-radar.com 13
ETF Radar Magazine | Issue July 2011
In association with
Top 25 ETF providers around the world ranked by Assets under Management As at end May 2011
WORLDWIDE May 2011
AUM (US$ Bn)
ADV (US$ Bn)
State Street Global Advisors
Lyxor Asset Management
Van Eck Associates Corp
Credit Suisse Asset Management
Nomura Asset Management
Zurich Cantonal Bank
AUM (US$ Bn)
% market share
UBS Global Asset Management
First Trust Advisors
Nikko Asset Management
WisdomTree Investments Bank of New York
Daiwa Asset Management
Source: BlackRock Global ETF Research and Implementation Strategy Team
Hh Harriman House
Thereâ€™s Never Been A Better Time To Learn More About The ETF Industry. Harriman House is one of the UK's leading independent publishers of finance, trading and investment books.
ETF Radar Magazine | Issue July 2011
On Sale Now: www.harriman-house.com/etfradar Get 30% off the regular price!
Rankings Top 10/Top 5 ETFs by Assets under Management As at end May 2011
UNITED STATES ETF SPDR S&P 500 Vanguard MSCI Emerging Markets ETF iShares MSCI EAFE Index Fund iShares MSCI Emerging Markets Index Fund iShares S&P 500 Index Fund PowerShares QQQ Trust iShares Barclays TIPS Bond Fund Vanguard Total Stock Market ETF iShares Russell 2000 Index Fund iShares Russell 1000 Growth Index Fund
Bloomberg ticker SPY US VWO US EFA US EEM US IVV US QQQ US TIP US VTI US IWM US IWF US
AUM (US$ Mn) $89,227.2 $48,702.2 $40,810.7 $40,204.7 $28,279.8 $24,368.2 $20,509.1 $20,338.2 $16,683.8 $13,981.6
ADV ('000 shares) 148,564 19,791 17,529 58,105 2,715 45,740 746 1,297 59,529 1,867
ADV (US$ Mn) $19,913.5 $954.6 $1,075.8 $2,777.4 $365.0 $2,666.9 $82.6 $90.5 $4,976.4 $115.2
Bloomberg ticker DAXEX GY IUSA LN ZGLD SW IEEM LN MSE FP XDAX GY ISF LN XMEM GY SX5EEX GY IBCS GY
AUM (US$ Mn) $10,719.7 $9,573.8 $8,445.9 $7,060.0 $6,723.6 $6,269.3 $6,003.2 $5,568.2 $5,560.1 $4,614.0
ADV ('000 shares) 3,503 7,530 12 1,187 3,301 686 10,024 900 1,246 116
ADV (US$ Mn) $343.0 $100.5 $31.1 $55.5 $140.5 $72.2 $98.3 $41.5 $53.0 $19.9
Bloomberg ticker STX40 SJ STANSX SJ STXDIV SJ STXFIN SJ BIPINF SJ
AUM (US$ Mn) $1,016.4 $348.8 $156.7 $124.6 $123.9
ADV ('000 shares) 1,136 1 730 85 51
ADV (US$ Mn) $4.9 $0.0 $0.2 $0.1 $0.1
Bloomberg ticker 2823 HK 2800 HK 2833 HK 510050 CH 2828 HK 159901 CH 2821 HK STW AU 0050 TT 069500 KS
AUM (US$ Mn) $7,849.4 $7,532.7 $4,097.9 $3,141.8 $2,840.8 $2,708.8 $2,450.1 $2,412.1 $2,292.5 $2,267.7
ADV ('000 shares) 65,926 19,653 62 263,678 1,432 480,861 2 199 15,936 1,445
ADV (US$ Mn) $111.4 $60.8 $1.9 $81.3 $24.6 $56.0 $0.3 $9.5 $34.5 $38.2
Bloomberg ticker 1321 JP 1306 JP 1330 JP 1308 JP 1320 JP
AUM (US$ Mn) $6,883.5 $6,874.9 $3,130.7 $3,095.8 $2,691.1
ADV ('000 shares) 368 2,636 271 249 72
ADV (US$ Mn) $44.7 $28.0 $33.0 $2.6 $8.8
EUROPE ETF iShares DAX (DE) iShares S&P 500 ZKB Gold ETF (CHF) iShares MSCI Emerging Markets Lyxor ETF Euro STOXX 50 db x-trackers DAX ETF iShares FTSE 100 db x-trackers MSCI Emerging Market TRN Index ETF iShares EURO STOXX 50 (DE) iShares Markit iBoxx Euro Corporate Bond
MIDDLE-EAST/AFRICA ETF SATRIX40 STANLIB SWIX 40 Fund Satrix Dividend Plus SATRIX Financials Bips Government Inflation Linked Bond Fund
ASIA-PACIFIC ETF iShares FTSE A50 China Index ETF* Tracker Fund of Hong Kong (TraHK) Hang Seng Index ETF China AMC SSE 50 Hang Seng H-Share Index ETF E Fund SZSE 100 ABF Pan Asia Bond Index Fund SPDR S&P/ASX 200 Fund Polaris Taiwan Top 50 Tracker Samsung Kodex200 ETF
JAPAN ETF NIKKEI 225 ETF TOPIX ETF Listed Index Fund 225 Listed Index Fund TOPIX Daiwa ETF NIKKEI 225 Source: BlackRock Global ETF Research and Implementation Strategy Team
ETF Radar Magazine | Issue July 2011
Rankings Top 10 ETFs by Change in Average Daily Volume As at end May 2011
WORLDWIDE ETF SPDR S&P 500 iShares Russell 2000 Index Fund iShares MSCI Emerging Markets Index Fund PowerShares QQQ Trust Energy Select Sector SPDR Fund iShares MSCI EAFE Index Fund iShares MSCI Brazil Index Fund Vanguard MSCI Emerging Markets ETF SPDR Dow Jones Industrial Average ETF Financial Select Sector SPDR Fund
Bloomberg ticker SPY US IWM US EEM US QQQ US XLE US EFA US EWZ US VWO US DIA US XLF US
ADV (US$ Mn) $19,913.5 $4,976.4 $2,777.4 $2,666.9 $1,830.3 $1,075.8 $1,004.8 $954.6 $873.3 $850.8
ADV ('000 shares) 148,564 59,529 58,105 45,740 24,335 17,529 13,588 19,791 6,946 53,481
AUM (US$ Mn) $89,227.2 $16,683.8 $40,204.7 $24,368.2 $9,775.5 $40,810.7 $12,919.0 $48,702.2 $9,919.9 $7,356.0
AUM (US$ Mn) May-11 $40,204.7 $10,719.7 $48,702.2 $40,810.7 $5,254.0 $6,269.3 $11,848.3 $28,279.8 $7,252.7 $24,368.2
AUM (US$ Mn) Dec-10 $47,551.5 $5,917.7 $44,569.8 $36,923.1 $2,631.5 $3,693.1 $9,332.0 $25,799.2 $4,883.3 $22,069.9
Change (US$ Mn) -$7,346.8 $4,802.0 $4,132.5 $3,887.5 $2,622.5 $2,576.3 $2,516.3 $2,480.6 $2,369.4 $2,298.3
Top 10 ETFs by Change in Assets under Management As at end May 2011
ETF iShares MSCI Emerging Markets Index Fund iShares DAX (DE) Vanguard MSCI Emerging Markets ETF iShares MSCI EAFE Index Fund Market Vectors Agribusiness ETF db x-trackers DAX ETF iShares S&P MidCap 400 Index Fund iShares S&P 500 Index Fund iShares MSCI Japan Index Fund PowerShares QQQ Trust
Bloomberg ticker EEM US DAXEX GY VWO US EFA US MOO US XDAX GY IJH US IVV US EWJ US QQQ US
Source: BlackRock Global ETF Research and Implementation Strategy Team
► NO GAME CHANGER
► DAX AND AGRIBIZ
With in the ADV rankings no real remarkable change happend. QQQ lost a bit on daily volume, EEM took over rank two. XLF keeps the red lantern in the table.
With regards to change in AuM, two well-known DAX ETFs (DAXEX and XDAX) saw strong gains. This month‘s newcomer is MOO, an ETF from VanEck focussed on tracking Argibuisness stocks.
16 ETF Radar Magazine | Issue July 2011
Rankings Top 30 Best Performing ETPs As at end of June 2011
Net assets (USD)
ETFS Short Wheat (DE) ETC
Source S&P GSCI Sugar TR T-ETC
ETFS Sugar ETC
Horizons BetaPro NYMEX Crude Oil Bear
Direxion Daily Semicondct Bear 3X Shares
Horizons BetaPro COMEX Silver Bear
ProShares UltraShort DJ-UBS Crude Oil
ETFS Sugar (DE) ETC
iPath Short Extended Russell 2000 TR ETN
iPath Pure Beta Sugar ETN
NEXT FUNDS TOPIX-17 Electric Power & Gas
Daiwa ETF TOPIX-17 Electric Power & Gas
ETFS Leveraged Lead ETC
ETFS Short Grains DJ-UBSCI ETC
Hyundai Hi Shares Insurance ETF Equity
Direxion Daily Energy Bear 3X Shares
ETFS Short Cotton ETC
EasyETF Dow Jones Luxury EUR
Lyxor ETF Daily Double Short SMI A
SPGS Silver ETN
ETFS Leveraged Lead (DE) ETC
ETFS Short Grains DJ-UBSCI (DE) ETC
Direxion Daily Gold Miners Bear 2X Shrs
ETFS Short Cotton (DE) ETC
iPath Short Extended Russell 1000 TR ETN
ETFS Leveraged Sugar ETC
ETFS Leveraged Sugar (DE) ETC
ProShares UltraShort Silver
PowerShares DB Crude Oil Dble Short ETN ETFS Short Wheat ETC
Source: GlobalFundData/Morningstar as of July 5, 2011
► AGROS: SWEET PERFOMER The last 20 trading days, investors in Sugar and Wheat enjoyed soaring prices. The relevant ETPs show impressive gains. Bearish motivated investors got most rewarded in Short Silver and Short Crude ETPs – maybe this trend will end shortly.
17 ETF Radar Magazine | Issue July 2011
Rankings Top 30 Worst Performing ETPs As at end of June 2011
ETFS Short Sugar (DE) ETC ETFS Leveraged Agri DJ-UBSCI (DE) ETC
Net assets (USD)
ETFS Cotton (DE) ETC
ETFS Short Sugar ETC
ETFS Leveraged Agri DJ-UBSCI ETC
ETFS Leveraged Crude Oil (DE) ETC
ETFS Cotton ETC
Source S&P GSCI Cotton TR T-ETC
UBS E-TRACS CMCI Silver TR ETN
ETFS Leveraged Crude Oil ETC
ETFS Leveraged Natural Gas (DE) ETC
Market Vectors Solar Energy ETF
iPath S&P GSCI Grains Index TR (DE) ETN
Source S&P GSCI Grains TR T-ETC
iPath Pure Beta Cotton ETN
ETFS Leveraged Tin (DE) ETC
ETFS Leveraged Natural Gas ETC
ETFS Leveraged Tin ETC
Direxion Daily Energy Bull 3X Shares
Kodex Securities ETF
ETFS Leveraged Energy DJ-UBSCI (DE) ETC
EasyETF BNP Par Global Rnwble Energy USD
ETFS Leveraged Petrolm DJ-UBSCI (DE) ETC
ETFS Leveraged Corn (DE) ETC
ETFS Leveraged Soybean Oil (DE) ETC
iPath DJ-UBS Tin TR Sub-Idx ETN
ETFS Leveraged Energy DJ-UBSCI ETC
ETFS Leveraged Petrolm DJ-UBSCI ETC
ETFS Leveraged Platinum (DE) ETC
Source: GlobalFundData/Morningstar as of July 5, 2011
â–ş THE B-SIDE: COTTON AND GAS The biggest loser in the last month have been (long) cotton, (short) sugar and (long) gas ETPs with losses up to 17%. Remarkable: Even if solar and alternative energy have become very trendy investment targets the Guggenheim Solar ETF declined nearly 15%.
18 ETF Radar Magazine | Issue July 2011
Disclaimer Important notice to our readers General Information The views and expectations presented in the analyses, data and product presentations in this publication should not be viewed as investment recommendations of and by the ETF Radar Magazine or any of affiliates or associates. Investors should seek independent professional advice. Contributors of this publication and/or its affiliates may invest in or act as a market maker for the securities or indices or other products referred to in this publication for own account or the account of a third party. Editorial contributors may also have a business relationship with issuers of such securities or providers of such indices or products and may represent members of such issuers' or providers' decision-making bodies. While the information in this publication has been obtained from sources believed to be reliable, neither the ETF Radar Magazine nor any contributor makes any representation as to accuracy or completeness. The ETF Radar Magazine does not act as an registered investment advisor or fiduciary for anyone unless otherwise agreed. Any evaluations in this publication reflect only the author's opinion at the time of the analysis. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. This publication is general and for information only and does not constitute any form of recommendation, an offer to sell or a solicitation to buy any security or other financial instrument. Prospective investors should understand the risks associated with the products mentioned in this publication and should reach an investment decision on the basis of the information in the relevant offering circulars. Neither the staff of the ETF Radar Magazine nor any other person shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary loss or damages, including without limitation lost profits arising in any way from the information contained in the material. All designated trademarks and brands are the property of their respective owners. Additional Information All figures are subject to market fluctuation and change. Investments that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than investments that are more diversified. An index is not managed and is unavailable for direct investment. Total returns assume reinvestment of all distributions, including dividends and capital gains. Reinvestment does not assure a profit or protect against a loss in declining markets. Total returns do not include commissions, fees, other transaction variables or the effects of taxation. Past performance does not guarantee or predict future results. The investment discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. This communication is not an offer to sell or solicitation of offers to buy any securities mentioned herein. This report is not a complete analysis of every material fact in respect to any fund or fund type. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable but its accuracy is not guaranteed. The ETF Radar Magazine does not render legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. The performance provided is past performance, which does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value will fluctuate when sold and may be worth more or less than the original cost. EXCHANGE TRADED FUNDS ARE SOLD BY PROSPECTUS. PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISK, CHARGES AND THE PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CAN BE OBTAINED FROM THE ETF SPONSOR OR YOUR FINANCIAL ADVISOR. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY. EXPENSES CAREFULLY BEFORE INVESTING.
www.etf-radar.com ETF Radar Magazine | Issue July 2011
etfRadar Global Investor Intelligence
The ETF business has become quite exotic. Donâ€™t get lost. Inverse and leveraged products, synthetic replicated funds and optimised indices are just a few features one should understand.
PUT US ON YOUR RADAR. EXPLORE. UNDERSTAND. PROFIT.