A week that got off to a hot start on news of a floating yuan came to a close on a relatively tame note on Friday, despite news of a financial overhaul that will fundamentally alter the way big banks do business. There was no shortage of action this week, as new twists emerged in the Gulf oil spill, Obama fired the general in charge of the Afghanistan war, and buildup to the G-20 meetings in Canada this weekend continued.
In the world of ETFs, this week was an eventful one. In addition to the launch of the first Brazil mid-cap ETF, the last few days have seen a number of interesting filings that could change the competitive landscape of the ETF industry in the not-so-distant future. Below, we profile three of the best ETF stories from around the Web:
Vanguard Drops Bomb With S&P 500 ETF Plans at Index Universe:
Vanguard got the green light on the creation of its first ever S&P 500 ETF, a product that would be a separate share class of its ultra-popular S&P 500 index fund. The new licensing agreement between Vanguard and Standard & Poor’s, allows for eight new equity funds linked to S&P indexes, along with twelve other funds based on benchmarks maintained by other providers. With the proposed S&P 500 ETF boasting a expense ratio of just 0.06%, the development escalates the industry price wars, and presents a challenge to other issuers. In this article, Olivier Ludwig and Heather Bell note that this is a major development, in part because Vanguard and S&P parted ways back in 2003 when they were unable to reach a licensing agreement for S&P’s indexes.
Reverse Stock Splits by ETFs Usually Good News at The Wall Street Journal:
While a reverse stock split usually spells bad news for stocks, it is not necessarily a negative development in the ETF world. Chuck Jaffe notes that this process can increase the efficiency of ETFs that have seen their prices drop significantly, particularly funds that offer daily leverage. In this article, Jaffe walks through specific examples and formulas of how a stock split and reverse splits effects an individual investor’s portfolio. He explains why such an event might not necessarily mean it’s time to panic, and how a reverse split can improve the investment experience in certain funds.
Chinese Yuan ETF In Focus After Beijing’s Surprise Announcement at ETF Database:
In an unexpected turn of events, the Chinese government will allow its exchange rate to fluctuate. The most obvious result will be the appreciation of the Chinese yuan relative to the U.S. greenback, a development that is welcome to some and devastating for others. Chinese consumers’ spending power will increase, but industries that thrive on high demand overseas may struggle, as a stronger yuan would make imports from China more difficult to afford. This news will likely cause a spike in interest in ETFs that have exposure to the yuan/dollar exchange rate. The article outlines two funds, the WidsomTree Dreyfus Chinese Yuan Fund (CYB) and Market Vectors Chinese Renminbi/USD ETN (CNY), that offer a way to play the yuan.
Disclosure: No positions at time of writing.