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Exchange-Traded Funds Quarterly Report: Over $780 Billion in 911 ETFs
May 25, 2010--over $780 billion. While net cash inflows were a
relatively modest $8 Billion in the first quarter, new
issuance remains strong. On a year-to-date basis, fixed
income continues to generate the strongest flows,
particularly among ETFs focused on the shorter-end of
the curve.
This is our comprehensive quarterly report on
US-listed ETFs. It includes a summary of investment
applications, excerpts from our strategy reports, our
outlook for related markets, index data, and individual
profiles for the 287 ETFs in our coverage universe,
which represent over 95% of US ETF assets
Index-linked ETFs may serve as attractive investment alternatives. In our view, ETFs are compelling investments for exposure to many asset classes due to their broad diversification, low expense ratios, high tax efficiency, competitive long-term performance versus active managers, and trading flexibility. Index-linked ETFs are passively managed portfolios designed to provide exposure to specific indices, baskets of stocks, currencies or commodities. Some ETFs offer relatively low-risk, broadly diversified portfolios, which investors may find attractive as core holdings. Others offer less diversified investments in particular styles, sectors, industries, regions, countries, or commodities.
There are over 450 ETFs that provide exposure to US equity markets. The largest ETF managers include BlackRock (iShares), State Street Global Advisors (SPDRs), Vanguard, PowerShares, ProShares, Van Eck Associates, WisdomTree and Rydex. Several ETFs offer exposure to duplicate or similar indices; however, there are generally structural differences. We believe investors should favor ETFs that best meet their investment objectives with the lowest operating expenses and reasonable liquidity.
Vanguard Study Finds Investors Favoring Low-Cost Mutual Funds and ETFs
May 25, 2010--A new Vanguard study on mutual fund and exchange-traded fund (ETF) purchasing activity revealed that lower-cost products have attracted the predominant portion of investor dollars over the past decade.
In “Costs Matter: Are Fund Investors Voting With Their Feet?,” Vanguard found that in each of five categories, investors favored funds with lower expenses, directing between 55% and 93% of cumulative net cash flow to the lowest-expense quartile of funds.
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Low-Expense Funds Garner Lion's Share of Investor Dollars Cumulative Net Cash Flow 10-year period ended December 31, 2009 |
||||||||
| Fund Category |
Percentage of Cumulative Cash Flow
Invested in Lowest-Expense Quartile |
|||||||
| Equity* | 86% | |||||||
| Active equity | 55% | |||||||
| Index equity | 93% | |||||||
| ETF equity | 59% | |||||||
| Bond* | 78% | |||||||
|
*includes ETFs
|
Sources: Morningstar data, Vanguard calculations
|
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“It is clear from our analysis that investors are increasingly gravitating toward low-cost funds and ETFs,” said Francis Kinniry, Jr., Principal, Vanguard Investment Strategy Group. “The trend to low-expense funds is very encouraging. Low investment costs, along with time and savings rate, should be the focal points for investors as they seek to accumulate sufficient wealth for retirement. Costs are also important to the retired investor, as high costs can substantially reduce one’s income stream and principal balance over time.”
Mr. Kinniry noted that the growing popularity and availability of index funds and index-based ETFs likely fueled the flight to low-cost products. He also noted that a similar shift took place among actively managed funds, as lower-cost active equity funds attracted more assets relative to their higher-cost counterparts.
The paper also discussed several other reasons for the movement toward lower-cost funds, including:
•The large role that financial advisors and corporate retirement plan sponsors play in the fund distribution process. Some 80% of fund assets are held through these intermediaries, which are increasingly offering low-cost products to their clients and participants, respectively (Source: Investment Company Institute, 2009). In the advisor market, a move from a transaction-oriented, commissioned-based model to a fee-based model likely abetted the low-cost trend.
•A volatile financial market environment that led to greater recognition by investors that 1) costs matter and 2) costs are a controllable factor in the investing equation. By contrast, the historically generous stock and bond returns of the 1980s and 1990s resulted in investors focusing on high absolute returns and paying little attention to costs.
•Increased investor understanding of cost, which was aided substantially by improved disclosure, the greater availability of cost information online, heightened scrutiny of costs by the financial media, and the emergence of costs as a selling point in fund marketing efforts.
read Costs matter: Are fund investors voting with their feet?
PowerShares files with the SEC
May 25, 2010-PowerShares has filed a post-effective, registration statement with the SEC for
PowerShares Fundamental High Yield Corporate Bond Portfolio
(formerly, PowerShares High Yield Corporate Bond Portfolio) (NYSE Arca, Inc. — PHB)
read more
Emerging Global Advisors Celebrates One-Year Anniversary
Leading Emerging Markets Sector ETF Provider Sees Asset Growth and Trading Volume Driven by Investors Seeking Exposure to Developing Markets
May 25, 2010--Emerging Global Advisors (EG Advisors), the first dedicated emerging markets sector exchange-traded fund provider, is celebrating its one-year anniversary this week. The firm has grown to more than $100 million in assets and currently manages six ETFs, with others scheduled for launch later this year. Established May 22, 2009, EG Advisors provides ETFs tied to stock indices of developing economies around the world.
“There’s been so much change in the emerging market investment landscape in such a short time that an asset class that was once an afterthought is now the foremost consideration in many investment portfolios, institutional and retail alike,” said Robert Holderith, president and CEO of Emerging Global Shares. “We believe market dislocations in the US and other developed countries have led investors to the inescapable conclusion that alpha generation has to come from emerging nations, many of whom are spending hundreds of billions of dollars on their infrastructure build-outs.1 These are the markets in which we invest and we think this puts us on the front lines of what has shaped up to be tremendously exciting investment opportunities.”
In addition to their ETF lineup, EG Advisors also remains committed to providing investors with cutting-edge proprietary research and analysis. The company follows a focused, hands-on research approach, enabling it to gain intelligence into newer, less-researched emerging markets. The research from EG Advisors helps provide investors with an investment rationale for allocating emerging market exposures to their portfolios, and also offers market-by-market analysis on risk, and political and economic perspectives, among others. EG Advisors’ research has also helped lead the company’s product development initiatives to new areas like its recently-launched country-specific infrastructure ETFs.
“EG Advisors’ goal has always been to convert our knowledge and analytical expertise into actionable opportunities for investors,” said Richard Kang, CIO and head of research at EG Advisors. “If there’s one thing investors have learned over the last 18 months it’s that too much exposure to domestic markets may pose a greater risk than previously assumed. We believe emerging markets, such as Brazil, China and India, are witnessing rates of economic growth that investors simply can’t find in the developed world. We expect these economies, along with their peers, to be the locomotive powering the global economy for many years to come.”
EG Shares launched in 2009 with two global sector-specific funds based on the Dow Jones Emerging Markets Sector Titans Indexes. The firm now manages six funds, including the Emerging Global Shares China Infrastructure Fund (CHXX), Emerging Global Shares Brazil Infrastructure Fund (BRXX), Emerging Global Shares Emerging Markets Metals & Mining Fund (EMT), Emerging Global Shares Emerging Markets Energy Fund (EEO), Emerging Global Shares Emerging Markets Financials Fund (EFN) and the Emerging Global Shares Emerging Markets Titans Composite Index Fund (EEG). All are listed on the NYSE Arca exchange.
Regional Economic Outlook: Western Hemisphere
May 25, 2010-Taking Advantage of Tailwinds
A multispeed global recovery is under way, with some emerging markets in the lead and the major advanced economies growing more slowly. This macroeconomic setting has brought a return to easy global financial conditions and high commodity prices—a situation likely to be sustained for some time but unlikely to be permanent. Against that external backdrop, the recovery in the Latin America and Caribbean region overall is advancing faster than anticipated, but moving at different speeds across countries.
The report discusses the varying policy challenges that different countries face as the global recovery proceeds. Chapter 1 analyzes the global setting and the outlook for the United States and Canada in particular, while Chapter 2 focuses on the outlook for Latin America and the Caribbean. Chapter 3 looks in depth at the challenges arising from the return of easy external financial conditions. Together with high commodity prices, such conditions represent favorable "tailwinds" for many countries of the region, but also carry risks for policymakers to address.
ETF Weekly Update-Morgan Stanley
May 24, 2010--Highlights
-
Weekly Flows: $8.4 Billion Net Outflows
Largest Weekly Net Outflow This Year
Launches: 3 New ETFs; 1 New Provider
Vanguard Reduces Expenses on 19 ETFs
US-Listed ETFs: Estimated Flows by Market Segment
Amid weak equity markets, ETFs had net cash outflows of $8.4 bln last week
Largest weekly net outflow of 2010. Total ETF assets shrink by $36 bln.
Flows driven largely by US Equity ETFs. Two large-caps, one small-cap.
Over 13-week period, Fixed Income ETFs exhibit strongest net inflows
$32.7 bln net inflows into US-listed ETFs over past 13 weeks with almost all categories exhibiting net inflows.
US-Listed ETFs: New Listings For the Week
SPDR Barclays Capital International Corporate Bond ETF
Symbol:IBND
Launch Date:05/19/100.
Expense Ratio:055%
Tracks developed ex-US investment grade corporate bond market
ESG Shares North America Sustainability Index ETF
Symbol:NASI
Launch Date:05/19/100
Expense Ratio:0.50%
Tracks N. America equities that meet environmental, social, governance criteria
IQ Taiwan Small Cap ETF
Symbol: TWON
Launch Date:05/19/100
Expense Ratio:0.79%
Tracks Taiwan small-cap equity market
Wisdom Tree files with the SEC
May 24, 2010--Wisdom Tree has filed a post-effective, registration statement with the SEC for
WisdomTree Emerging Markets Local Debt Fund (ELD).
view filing
Statement, "And One More Thing", Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues
May 24, 2010--The market events of May 6th were serious and significant, and I'm pleased that this Advisory Committee has been established.
As I listen to staff describe equity and derivative markets and what was going on that day, it makes me think of Lieutenant Columbo from the television series. He would receive responses to his queries, say "good bye," and then often pause and ask yet another question with the preface, "And one more thing I'm trying to understand . . . ." And that "one more thing" was usually the kicker.
Well, there are many unanswered questions about May 6th. In fact, I still have many questions about the economic fiasco and why some of the specific market actions took place. Yes, Congress deregulated the banking industry and that cue led to free markets than ran so rampant that we saw wild hybrids being created. There were exotic mortgages and bets upon bets that bundled loans would fail. There were hundreds of trillions in dark trading that took place off the regulators' radar, and there were new speculators with novel trading strategies. All of these keep us asking "and one more thing," trying to figure out how the economic mess was created, and--more importantly--how we make sure it doesn't happen again.
Opening Statement of Chairman Gary Gensler Meeting of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues
May 24, 2010-Good morning. I would like to start by thanking Chairman Schapiro for all of her efforts on behalf of the investing public as well as the staff of the SEC for hosting this first meeting of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues.
I also want to recognize and thank my fellow CFTC Commissioners, Mike Dunn, Jill Sommers, Bart Chilton and Scott O’Malia. I thank them for their support in establishing this joint committee and for all of their work on behalf of the American public. I know that each of us looks forward to receiving the advice of this expert panel.
During the Presidential transition, when Chairman Schapiro and I first discussed possibly setting up a joint advisory committee, little did we think it would take a year and a half, a joint harmonization report, an act of Congress and a 1,000-point drop in the Dow before getting it done. I am so pleased to have our first meeting of the committee today.
An advisory committee designed to review emerging risks in our financial markets is long overdue. While I am not suggesting that had this committee been set up five or 10 years ago we would not have had a financial crisis, I do believe that there were emerging risks that demanded thoughtful analysis. There was the use of new products like credit default swaps and new developments in the securitization marketplace. We also have now seen rapid advancements in technology and significant changes in market structure. We can be certain that we will continue to see innovations in the market that will require thorough review.
CFTC Joint Presentation for Meeting of the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues
May 24, 2010--The presentation of todays meeting is available for viewing.
view presentation
Semi-Annual Changes to the NASDAQ OMX CRD Global Sustainability 50 Index
May 24, 2010 -- The NASDAQ OMX Group, Inc. (Nasdaq:NDAQ) and CRD Analytics announced today the results of the semi-annual re-ranking of the NASDAQ OMX CRD Global Sustainability 50 Index (Nasdaq:QCRD), which will become effective prior to market open on Monday, May 24, 2010.
The following twelve securities will be added to the Index: Agilent Technologies Inc. (NYSE:A), Banco Bradesco S.A. (NYSE:BBD), Banco Bilbao Vizcaya Argentaria, S.A. (NYSE:BBVA), Bank Of Montreal (NYSE:BMO), Bristol-Myers Squibb Company (NYSE:BMY), The Dow Chemical Company (NYSE:DOW), Infosys Technologies Limited (Nasdaq:INFY), Eli Lilly & Company (NYSE:LLY), Motorola, Inc. (NYSE:MOT), Novo Nordisk A/S (NYSE:NVO), Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR), UBS AG (NYSE:UBS).
The NASDAQ OMX CRD Global Sustainability 50 Index is an equally weighted equity index that serves as a benchmark for stocks of companies that are taking a leadership role in sustainability performance reporting and are traded on a major U.S. stock exchange. The Index is made up of companies that have taken a leadership role in disclosing their carbon footprint, energy usage, water consumption, hazardous and non-hazardous waste, employee safety, workforce diversity, management composition and community investing. These are companies that are voluntarily disclosing their current environmental, social and governance risks as well as their revenue opportunities and how it will affect future performance. The securities must also meet other eligibility criteria which include minimum requirements for market value, average daily share volume, and price. The Index is evaluated on a semi-annual basis in May and November. For more information about the NASDAQ OMX CRD Global Sustainability 50 Index, including detailed eligibility criteria, visit https://indexes.nasdaqomx.com/.
"More and more companies and investors are recognizing that sustainability as a business and investment strategy will define success in the Twenty-First Century," said Michael Muyot, President and Founder of CRD Analytics. "The NASDAQ OMX CRD Global Sustainability 50 Index, based on our SmartView analytics platform, is a key tool for tracking the performance of sustainability leaders. Hats off to those companies added to the index -- as they have raised the bar."
"The re-ranking of the NASDAQ OMX CRD Global Sustainability 50 Index ensures its relevance as the most widely followed benchmark for companies that are on the leading edge of self-reporting sustainability activities," said NASDAQ OMX Executive Vice President John Jacobs. "This index is a powerful tool for those who want to capture the investment opportunities created by the economic shift toward global sustainability."
As a result of the re-ranking, the following twelve securities will be removed from the Index: ABB Ltd (NYSE:ABB), Barrick Gold Corporation (NYSE:ABX), BP p.l.c. (NYSE:BP), BT Group plc (NYSE:BT), Reed Elsevier PLC (NYSE:ENL), Pfizer Inc. (NYSE:PFE), Royal Dutch Shell plc (NYSE:RDS-A), Royal Bank Of Canada (NYSE:RY), Siemens Aktiengesellschaft (NYSE:SI), Statoil ASA (NYSE:STO), Vodafone Group PLC (Nasdaq:VOD), Westpac Banking Corporation (NYSE:WBK).
CFTC official admits data still collected by fax
May 21, 2010--Trades may be carried out faster than the blink of an eye but the watchdog charged with overseeing the US futures markets has admitted that it still receives market-related data by fax that is then entered in to its systems by hand.
Scott O’Malia, a commissioner at the Commodity Futures Trading Commission, admitted that the agency had been in a “perpetual game of technological catch-up” when it came to keeping track of derivatives markets.
His comments came the same day that CFTC chairman Gary Gensler told a Senate banking committee hearing into the May 6 “flash crash” on Wall Street that the CFTC was investigating the role of algorithmic trading in futures markets – one of the biggest technology developments of recent times.
The CFTC said it would re-instate a special technology committee to help it stay abreast of new technologies to help it better oversee the markets. The flash crash has shone a spotlight on the ability of regulators and market venues to keep track of markets increasingly driven by high-speed trading.
U.S. Department of the Treasury Economic Statistics - Monthly Data Update
May 21, 2010--U.S. Department of the Treasury Economic Statistics - Monthly Data Update is now available.
Exchange-Traded Funds International Equity: EM Allocation Update
May 21, 2010--May 21, 2010--Morgan Stanley's Global Emerging Market (EM) Strategy team, led by Jonathan Garner, maintains an EM-based country allocation model. The model is adjusted monthly and seeks to outperform the MSCI EM Index on a 6- to 12-month time horizon.
The team made three relative rating changes to the model this month. Relative to the MSCI EM Index, Turkey moves to an equal-weight recommendation from an underweight while Malaysia and Thailand are both downgraded from overweight to equal-weight recommendations. Additionally, because of MSCI's decision to transition Israel from emerging to developed market status, effective May 27, 2010, Garner has initiated coverage of Colombia with an equal-weight rating and moved Israel to the "Other" bucket in his model.
ETFs are available for most countries in Garner's model. Currently, US-listed ETFs are available for approximately 99% of the market cap of the MSCI EM Index and 99% of the recommended Morgan Stanley weights. ETFs may offer an efficient way to access EMs. The costs associated with them may be lower than the costs traditionally associated with other EM investments. Moreover, ETFs trade on exchanges, provide intra-day liquidity, many have options available, and most ETFs can be easily shorted.
CFTC.gov Commitments of Traders Reports Update
May 21, 2010--The current reports for the week of May 18, 2010 are now available.
view current report
