ETF Radar Magazine Issue July 2011 (North American Edition)

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Issue No. 11 ISSN 2150-9166 North American Edition

July 2011

Magazine Index Investor

S&P 500 Sector Map Tactical Portfolio Update ETF of the Month THE HOTSPOTS AT A GLANCE

Rankings The Global ETF Landscape At A Glance People James R. King Rydex|SGI ETF

Feature

Global Collateral Report What's Really Behind Your Product? www.etf-radar.com


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The ETF business has become quite exotic. Don’t get lost. Inverse and leveraged products, synthetic replicated funds and optimised indices are just a few features one should understand.

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Fast Lane

Contents Issue July 2011 Global Summary

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Industry Highlights Global Round-Up Top20 Global Index Provider Hot Product Debuts Upcoming Events Number Cruncher

Index Investor

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S&P 500 Sector Map Tactical Portfolio Update ETF of the Month

People

13

James R. King, Rydex|SGI ETF

Rankings

16

Assets under Management Change in ADV Change in AuM Best-Performer Worst-Performer

Dear Reader, Feature

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 Trust (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) Rydex|SGI ETF (pg. 13) Arne Scheehl (pg. 11) Stoxx (pg. 4) UBS (pg. 4) Van Eck (pg. 4) Vanguard (pg. 4, 6)

Get In Touch NORTH AMERICA americas@etf-radar.com Naples (FL) +1 239 384 6090

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.

Silvan Schelling Head of Relationship Management

EUROPE, MIDDLE EAST and ASIA-PACIFIC europe.asiapacific@etf-radar.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. Š 2009-2011 ETF Radar Global Investor Services. All rights reserved.

> connect@etf-radar.com

For all subscription enquiries, thoughts or general questions please contact us directly by email:

ETF Radar Magazine | Issue July 2011

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Global Summary Industry Highlights

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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.

S

► 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.

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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. ► US: ETFS EXPANDS ITS SALES TEAM

As part of its US business expansion plans and continued growth in the US physically backed ETP platform, ETF Securities, has appointed Dan Magnusson to the US Sales team. Dan

4 ETF Radar Magazine | Issue July 2011

will be based in San Francisco and will work with retail and institutional Advisors and Wealth Managers within the Western region. Prior to joining ETFS, Dan was Regional Vice President at Guggenheim Funds

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. ► AFRICA: VAN ECK PLANS

► EUROPE: VANGUARD

NIGERIA ETF

EXPANDS ETF LISTINGS

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.

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. ► EUROPE: STOXX600 WITH

CURRENCY HEDGED VERSION Index provider STOXX has introduced the all-new STOXX Europe 600 Hedged EUR Index, a currency hedged strategy


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%↑

Number Cruncher

LONDON European Cup of ETFs 19–20 September 2011 Great George Street Conference Hall

Hot Product Debuts

1'199

98%

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

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.

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

► NEW STYLE ETFS

Invesco PowerShares has launched a suite of nine fundamental style exchangetraded funds. The fundamental ETFs are based on the RAFI Fundamental U.S. Style Index Series. The products include the Fundamental Pure Large Value Portfolio and the Fundamental Pure Large Growth Portfolio. Seven of the new funds are already existing Powershares funds that are being renamed and will follow new indexes. Ticker/ISIN: PXLV, PXLG TER: 0.39% p.a. CCY: USD

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Index Investor S&P 500 Sector Map

Like A Red Carpet: Losses In All S&P500 Sectors by Sebastian Stahn In June the S&P 500 Index dropped -1.67% due to falling leading indicators and a weakening of the U.S. economy. All sectors ended in the red in June. Having a look at the sector performances, the S&P 500 Financials was the worst performing sector with a loss of -2.8% in June 2011. The financial sector continues to trend lower with the weak economy and lower real estate prices. If investors believe in a recovery of this sector, the contrarian pick with the Vanguard Financials ETF (VFH) would be the best choice. Best performing sector with a

The Action Plan

performance of -0.10% in June 2011 was the S&P 500 Utilities Index. Due to its defensive stocks, the sector performance nearly remained unchanged in June. If you believe in an ongoing trend, the Vanguard Utilities ETF (VPU) would be your best pick. n

CONTRARIAN PICK

BEST-TREND PICK

Vanguard Financials ETF ISIN/Ticker: VFH US TER / AUM: 0.27% / 738 mn. 1 Year Return: +15.53% Last Price/High/Low 52-Weeks: USD 32.11 | 27.32 | 35.24 Replication: Full replication to sampling

Vanguard Utilities ETF ISIN/TIcker: VPU US TER / AUM: 0.24% / 747 mn. 1 Year Return: +24.90% Last Price/High/Low 52-Weeks: USD 71.99 | 59.13 | 73.59 Replication: Full replication to sampling

RISK-REWARD-ANALYSIS

RISK-REWARD-ANALYSIS

based on an investment horizon of one month

HIGH

VFH

based on an investment horizon of one month

LOW

HIGH

VPU

LOW

WORST PERFORMING SECTORS Financials –2.80%

Telecom Services –1.26%

Consumer Discretionary –0.18%

Health Care –1.12%

Utilities –0.10%

Mon thly P erfor man ce

. As o f Jun e 30,

Information Technology –2.60%

2011 .

BEST PERFORMING SECTORS

6 ETF Radar Magazine | Issue July 2011

Consumer Staples –2.43%

Industrials –0.63%

Energy –1.87%

Materials –0.23%


Index Investor Tactical Portfolio Update

Health Care And Consumer Discretionary Are Most Attractive by David Cohne QUICK FACTS ► Consumer Discretionary stocks remain attractive. ► Currently investors may overweight defensive stocks.

The ETF Radar Tactical portfolio is a model portfolio that invests in five ETFs based on a customized tactical ETF rankings system. The portfolio trades at the end of each month. The holdings for July include SPDR-Health Care (XLV) , SPDR-Consumer Discretionary (XLY), SPDRUtilities (XLU), iShares S&P MidCap 400 Growth (IJK) &

iShares MSCI Japan (EWJ). Aside from this past week, the markets in general were trading in lower territory. When stocks are in a lower trend, investors typically go for more defensive positions such as health care stocks which are usually not as affected as other sectors. In a d d i t i o n , t h e Co n s u m e r Discretionary sector has been led up by companies such as McDonald's and Amazon.

Health Care holdings of the S&P 500 index. It has an expense ratio of 0.20% and an average daily trading volume of 9 million shares. n

Based on the rankings SPDRHealth Care (XLV) is the ETF of the month. It tracks the

ETF of the Month SPDR Health Care ETF (XLV) 52-Week Range Market Cap Dividends TER Last Volume ETF Issuer Replication

$35.45 - $35.63 $4.2 bn. 0.17 0.20% p.a. 9'113'840 SPDR Full Replication

ETF Radar Tactical Portfolio TICKER XLV XLY XLU IJK EWJ

ETF NAME SPDR-Health Care SPDR-Consumer Discretionary SPDR-Utilities iShares S&P MidCap 400 Growth iShares MSCI Japan

TER 0.20% 0.20% 0.20% 0.25% 0.54%

AUM $4.2 billion $2.8 billion $4.7 billion $3.3 billion $7.2 billion

WEIGHT 20% 20% 20% 20% 20%

Source: Cohne Investment Group, exclusively for ETF Radar / July 1, 2011 Ranking

7 ETF Radar Magazine | Issue July 2011


Feature

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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.

HIG

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

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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. 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

A Practical Overview About Swap Defaults 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

Direct Download


People Expert Talk with

James R. King Portfolio Manager ETFs, Rydex|SGI ETF

“This volatility is an opportunity to enter the equity market on pullbacks.” by Silvan Schelling

VITA ► Born: 1972 ► Lives in: Maryland ► Career: James R. King is Portfolio Manager ETFs at Rydex|SGI. Jim rejoined Rydex|SGI in 2011 as a portfolio manager responsible for managing ETFs. He was with the firm from 1996 to 2008, in roles ranging from shareholder services representative to portfolio manager to director of portfolio management. He holds a bachelor's degree in finance from the University of Maryland and is CFA charterholder. Jim has been quoted in publications such as USAToday, Reuters and BusinessWeek. Jim is also a frequent speaker on various panel discussions and conferences. ► My first ETF, I bought was RSP. ► My favourite investments is real estate.

Jim, how would you describe your company Rydex|SGI in one sentence? Rydex|SGI manages $25 billion in assets, including nearly $9 billion in exchange traded product assets, and offers institutional investors and financial intermediaries a broad spectrum of traditional and non-traditional investment options. The options span four investment disciplines: fundamental alpha, alternative strategies, target beta strategies and ETFs. You offer several sophisticated strategies. Which strategy/portfolio model performed in the last 6 months best - which one worst? Rydex S&P Equal Weight Health Care (RYH) is the best performer among our ETF's over the last six months with a gain of nearly 12%. While sectors like Energy and Financials get all the press, traditionally defensive sectors like Health Care and Consumer Staples have quietly been

outpacing the rest of the market for several months now. Not counting the inverse S&P fund, which is down quite a bit, the worst performer is Rydex S&P Small Cap Value (RZV) with a loss of nearly 2.5%

The largest single ETF by far is our flagship Equal Weight S&P at around $3 billion. Currently, you have $8.9 billion in ETF/ETPs under Management. Which products have the largest contributions – and AuM? The largest single ETF product by far is our flagship Rydex Equal Weight S&P ETF (RSP) at around $3 billion in assets. Much of the recent asset growth has been in our CurrencyShares products. Our Canadian Dollar and Australian Dollar products have become very popular as ways to gain exposure to commodity-based economies while also picking up some yield. Our CurrencyShares Swiss Franc product has also 13

ETF Radar Magazine | Issue July 2011


People

seen large inflows as investors are flocking to this traditional "safe haven" in a time of uncertainty for the US dollar and the Euro. The suite of 9 CurrencyShares products contributes a total of $3.7 billion in assets. What are your product plans for the Exchange traded business? While we do not discuss products in registration, I can confirm that we have plans to expand our ETF product line-up this year.

We have plans to expand our ETF product line-up this year. Alright, and which kind of investors usually are your clients? The largest group of clients in our mutual fund lineup has always been RIA's. In the exchange-traded space, it's much tougher to pinpoint exactly where the activity is coming from. We know we have a large base of RIA clients and institutions that use our ETP's, but the products also seem to be catching on with retail brokerage customers, too. Let's talk about the visible costs. What is the average TER of your products? While there are a few outliers, almost all of the products are in the 35 to 40 bps range. You also offer a leveraged ETF and an inverse ETF on the S&P500. Both products saw large outflows during the last 2 years. What is your experience with these advanced investment instruments? 14 ETF Radar Magazine | Issue July 2011

Rydex invented the first leveraged and inverse mutual funds back in 1993 and 1994, and we currently manage over $3 billion in leveraged mutual funds and variable annuity products, so we've got plenty of experience in that space. That said, after a thorough assessment of the market, we decided to focus our ETF development efforts in other directions. What is your market view and outlook for the next 6 months? Where one should invest? Short-term forecasting is a dangerous game, especially during the summer months when volumes tend to be light and news events can have a major impact. Regardless of market direction, I think we can expect to see volatility pick up in light of the ongoing Greek debt crisis, and our own debt ceiling debate at home. I also think the possibility of a double-dip recession at home is remote, and would see this volatility as an opportunity to enter the equity market on pullbacks. What are the benefits of equal weight strategies? The main benefit of an equal weight methodology is diversification, although there are potential performance benefits, as well. Traditional cap-weighted strategies tend to be heavily concentrated in just a few stocks. By pushing some of the weight down into the smaller companies, a portfolio becomes more diversified, but also gains more exposure to stocks which may have greater opportunity for growth. I like to think we're buying

tomorrow's winners, while capweighting buys yesterday's winners. The Rydex|SGI Pure Style ETFs now have 5-year track records. Can you comment on style investing and specifically Purestyles? The construction of pure style indexes more clearly delineates the different style universes, with less overlap and potentially lower transaction costs. Also, the enhanced discipline of this approach is the potential impact on performance – it may help investors better capture the spread in performance across style factors – compared to traditional style approaches which can cloud the distinction between growth and value. The Pure Syle ETFs are benchmarked to the S&P Pure Style Indexes that focus on companies that exhibit either strong growth or value characteristics. Overall, the three main benefits: 1) performanceopportunity set of returns is proven; 2) purer play vs traditional style investing and 3) tactical trading-a more logical trading vehicle. Thank you! n Across the Atlantic:

People

Interview with Ted Hood, Source ETF in the Magazine’s European Edition. www.etf-radar.com


etfRadar Global Investor Intelligence

Even in wealth management it is better not to need certain numbers. Not only when exchange traded products come into play, ETF Radar offers independent risk assessments (cross-asset) for investors. Let’s avoid emergency calls caused by your portfolio or investment strategy.

PUT US ON YOUR RADAR. EXPLORE. UNDERSTAND. PROFIT.

www.etf-radar.com ETF Radar Magazine | Issue July 2011

SM


Rankings

In association with

Top 25 ETF providers around the world ranked by Assets under Management As at end May 2011

WORLDWIDE May 2011

YTD change

# ETFs

AUM (US$ Bn)

% total

ADV (US$ Bn)

iShares

470

$628.5

43.5%

$17.9

15

State Street Global Advisors

134

$203.4

14.1%

$27.8

39

Vanguard

69

$177.6

12.3%

$1.7

1

Lyxor Asset Management

163

$54.5

3.8%

$0.9

db x-trackers

187

$52.6

3.6%

PowerShares

134

$47.9

3.3%

Van Eck Associates Corp

34

$23.1

1.6%

ProShares

107

$22.6

Credit Suisse Asset Management

58

Nomura Asset Management

34

Provider

Zurich Cantonal Bank

# planned

% ETFs

AUM (US$ Bn)

% AUM

% market share

-3

-0.6%

$49.9

8.6%

-0.7%

21

18.6%

$12.7

6.7%

-0.5%

4

6.2%

$29.1

19.6%

1.0%

1

7

4.5%

$1.2

2.3%

-0.3%

$0.5

16

8

4.5%

$3.5

7.2%

-0.1%

$2.8

49

4

3.1%

$5.1

11.8%

0.0%

$1.2

37

5

17.2%

$3.1

15.6%

0.1%

1.6%

$2.9

93

7

7.0%

$1.1

4.9%

-0.1%

$18.2

1.3%

$0.1

0

4

7.4%

$2.5

16.2%

0.1%

$15.2

1.1%

$0.1

0

2

6.3%

-$1.2

-7.3%

-0.2% 0.0%

# ETFs

7

$13.2

0.9%

$0.1

0

0

0.0%

$1.4

12.2%

46

$12.3

0.9%

$0.2

71

2

4.5%

$2.4

24.1%

0.1%

1

$11.3

0.8%

$0.4

0

0

0.0%

-$1.0

-7.9%

-0.2%

UBS Global Asset Management

45

$10.3

0.7%

$0.0

0

16

55.2%

$3.7

56.9%

0.2%

Amundi ETF

99

$9.9

0.7%

$0.1

0

7

7.6%

$2.7

38.3%

0.1%

Commerzbank

94

$9.5

0.7%

$0.0

0

4

4.4%

$0.9

10.8%

0.0%

HSBC/Hang Seng

31

$8.5

0.6%

$0.1

4

14

82.4%

$1.1

15.0%

0.0%

First Trust Advisors

59

$8.2

0.6%

$0.1

3

16

37.2%

$2.8

51.0%

0.2%

Source Markets

62

$7.1

0.5%

$0.5

15

6

10.7%

$2.1

42.9%

0.1%

Nikko Asset Management

20

$6.7

0.5%

$0.0

0

3

17.6%

$0.1

2.3%

0.0%

Direxion Shares

46

$6.5

0.5%

$2.5

180

7

17.9%

-$0.1

-0.9%

-0.1%

WisdomTree Investments Bank of New York

Claymore Investments

30

$6.5

0.4%

$0.0

5

1

3.4%

$1.0

17.5%

0.0%

EasyETF

48

$6.2

0.4%

$0.0

1

-1

-2.0%

$0.6

11.3%

0.0%

Rydex SGI

25

$5.7

0.4%

$0.1

97

1

4.2%

$0.8

15.3%

0.0%

Daiwa Asset Management

23

$5.7

0.4%

$0.0

1

0

0.0%

-$1.2

-17.7%

-0.1%

Source: BlackRock Global ETF Research and Implementation Strategy Team

16

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ETF Radar Magazine | Issue July 2011

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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

17 10


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

WORLDWIDE

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. Newcomer is MOO, an ETF from VanEck focussed on tracking Argibuisness stocks.

18 ETF Radar Magazine | Issue July 2011


Rankings Top 30 Best Performing ETPs As at end of June 2011

WORLDWIDE Inception

Net assets (USD)

208.14%

1.34%

8,849,032

160.34%

33.80%

6,103,443

20.58%

-88.19%

-80.93%

-

North America

20.57%

-40.95%

22.10%

-

Europe

20.44%

-24.81%

13.03%

8,186,638

ETFS Short Wheat (DE) ETC

Europe

19.43%

-36.47%

7.87%

5,646,570

Source S&P GSCI Sugar TR T-ETC

Europe

18.32%

95.72%

38.05%

4,168,473

ETFS Sugar ETC

Europe

18.31%

95.73%

9.82%

62,472,778

Horizons BetaPro NYMEX Crude Oil Bear

North America

18.11%

-46.89%

-15.20%

127,750,283

Direxion Daily Semicondct Bear 3X Shares

North America

17.94%

-65.01%

-56.98%

-

Horizons BetaPro COMEX Silver Bear

North America

17.50%

-80.17%

-71.63%

31,511,187

ProShares UltraShort DJ-UBS Crude Oil

North America

17.41%

-45.00%

-34.96%

-

ETFS Sugar (DE) ETC

Europe

17.31%

65.36%

6.98%

43,089,349

iPath Short Extended Russell 2000 TR ETN

North America

15.96%

-

-45.03%

-

iPath Pure Beta Sugar ETN

North America

13.20%

-

11.19%

6,883,206

NEXT FUNDS TOPIX-17 Electric Power & Gas

Asia-Pacific

13.07%

-39.54%

-16.99%

-

Daiwa ETF TOPIX-17 Electric Power & Gas

Asia-Pacific

12.96%

-39.57%

-18.19%

-

ETFS Leveraged Lead ETC

Europe

12.33%

105.82%

-32.47%

4,147,102

ETFS Short Grains DJ-UBSCI ETC

Europe

12.29%

-35.80%

-2.04%

1,132,639

Hyundai Hi Shares Insurance ETF Equity

Asia-Pacific

12.11%

16.98%

11.06%

1,961,555,136

Direxion Daily Energy Bear 3X Shares

North America

11.78%

-76.51%

-71.59%

-

ETFS Short Cotton ETC

Europe

11.77%

-59.05%

-21.24%

20,812,617

EasyETF Dow Jones Luxury EUR

Europe

11.64%

58.83%

16.40%

10,132,985

Lyxor ETF Daily Double Short SMI A

Europe

11.56%

-13.35%

3.34%

-

SPGS Silver ETN

Europe

11.45%

-

107.49%

-

ETFS Leveraged Lead (DE) ETC

Europe

11.38%

73.89%

-11.07%

2,860,381

ETFS Short Grains DJ-UBSCI (DE) ETC

Europe

11.34%

-45.76%

-1.68%

781.215

Direxion Daily Gold Miners Bear 2X Shrs

North America

11.10%

-

9.01%

-

ETFS Short Cotton (DE) ETC

Europe

10.83%

-65.41%

-25.65%

14,355,086

iPath Short Extended Russell 1000 TR ETN

North America

10.60%

-

-40.27%

-

ETF/ETP

Listing Region

1 Mth

12 Mth

ETFS Leveraged Sugar ETC

Europe

38.46%

ETFS Leveraged Sugar (DE) ETC

Europe

37.29%

ProShares UltraShort Silver

North America

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.

19 ETF Radar Magazine | Issue July 2011


Rankings Top 30 Worst Performing ETPs As at end of June 2011

WORLDWIDE ETF/ETP

Listing Region

ETFS Short Sugar (DE) ETC ETFS Leveraged Agri DJ-UBSCI (DE) ETC

Net assets (USD)

1 Mth

12 Mth

Inception

Europe

-17.30%

-65.73%

-34.03%

9,247,651

Europe

-16.98%

71.58%

-6.32%

11,078,136

ETFS Cotton (DE) ETC

Europe

-16.70%

65.55%

5.52%

24,685,925

ETFS Short Sugar ETC

Europe

-16.60%

-59.43%

-25.06%

13,407,639

ETFS Leveraged Agri DJ-UBSCI ETC

Europe

-16.27%

103.08%

-16.75%

16,061,555

ETFS Leveraged Crude Oil (DE) ETC

Europe

-16.18%

-7.56%

-57.89%

89,734,401

ETFS Cotton ETC

Europe

-15.99%

95.95%

8.29%

35,790,708

Source S&P GSCI Cotton TR T-ETC

North America

-15.99%

96.52%

55.94%

13,708,445

UBS E-TRACS CMCI Silver TR ETN

North America

-15.67%

105.92%

27.80%

-

ETFS Leveraged Crude Oil ETC

Europe

-15.46%

9.42%

-52.17%

130,100,766

ETFS Leveraged Natural Gas (DE) ETC

Europe

-14.86%

-63.44%

-81.79%

249,645,820

Market Vectors Solar Energy ETF

North America

-14.77%

11.25%

-33.95%

-

iPath S&P GSCI Grains Index TR (DE) ETN

North America

-14.77%

36.24%

17.97%

335.117

Guggenheim Solar

North America

-14.73%

11.94%

-32.61%

-

Source S&P GSCI Grains TR T-ETC

Europe

-14.68%

36.15%

5.48%

5,260,902

iPath Pure Beta Cotton ETN

North America

-14.67%

-

-10.32%

5,836,250

ETFS Leveraged Tin (DE) ETC

Europe

-14.64%

70.79%

2.96%

828.151

ETFS Leveraged Natural Gas ETC

Europe

-14.13%

-56.73%

-77.88%

361,947,168

ETFS Leveraged Tin ETC

Europe

-13.91%

102.16%

5.14%

1,200,689

Direxion Daily Energy Bull 3X Shares

North America

-13.91%

168.91%

27.08%

-

Kodex Securities ETF

Asia-Pacific

-13.84%

9.56%

-6.97%

4,294,967,295

ETFS Leveraged Energy DJ-UBSCI (DE) ETC

Europe

-13.76%

-18.31%

-59.11%

907.694

EasyETF BNP Par Global Rnwble Energy USD

Europe

-13.66%

-25.85%

-18.15%

14,910,655

ETFS Leveraged Petrolm DJ-UBSCI (DE) ETC

Europe

-13.65%

8.07%

-51.12%

658.597

ETFS Leveraged Corn (DE) ETC

Europe

-13.34%

131.39%

-27.36%

3,594,656

ETFS Leveraged Soybean Oil (DE) ETC

Europe

-13.17%

58.63%

-25.38%

667.162

iPath DJ-UBS Tin TR Sub-Idx ETN

North America

-13.12%

55.73%

9.57%

-

ETFS Leveraged Energy DJ-UBSCI ETC

Europe

-13.02%

-3.31%

-52.78%

1,316,013

ETFS Leveraged Petrolm DJ-UBSCI ETC

Europe

-12.92%

27.91%

-44.21%

954.862

ETFS Leveraged Platinum (DE) ETC

Europe

-12.89%

-0.97%

-19.35%

7,812,621

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%.

20 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.

21 ETF Radar Magazine | Issue July 2011


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