Heard On The Street: August 2011
The ETF marketplace continues to expand at an impressive pace and in July alone there have been a handful of unique “first-to-market” products to hit the street. The tech-space in particular has seen a great boom in interest lately as many issuers are rolling out hyper-targeted equity funds that provide exposure to certain corners of the market, previously inaccessible by average investors. Below, we give the highlights and lowlights of the last month, sorting through a flurry of activity in an industry that continues to grow by leaps and bounds:
FaithShares Goes In A New Direction
FaithShares, an Oklahoma City based issuer, is closing the doors on all of its unique faith-based exchange-traded products. In December 2009, FaithShares launched five ETFs designed to attract Christian investors by constructing the products with a methodology that filters out any companies that do not meet the investing requirements of certain religious affiliations, such as stocks with ties to tobacco, alcohol, or gambling (among many others). The firm offered a Catholic Values Fund, Methodist Values Fund, Christian Values Fund, Lutheran Values Fund and Baptist Values Fund. However, due to lack of investor interest these funds weren’t able to gain traction and are now in the process of shutting down.
FaithShares filed documents recently with the SEC to change its name to Exchange Traded Concepts LLC. CEO Garret Stevens, who limited his comments about the new company due to regulatory concerns, said the new business would serve to substantially reduce the amount of time it takes to get an exchange traded fund up and running. “We are closing these (funds) and transitioning to a new business model that’s much larger in scope,” Stevens said. “Everything we have learned over the past couple of years will make this new venture ultimately successful”.
BNP Paribas Lays Groundwork For ETF Debut
BNP Paribas has filed a proposal with the SEC for a new enhanced volatility fund. The offering is designed to give investors long exposure to forward implied equity market volatility of the S&P 500 Index. BNPV is the proposed ticker symbol and the fund will accomplish its objective through holding and periodically replacing VIX Futures. The Fund utilizes an enhanced daily futures contract rolling strategy, to determine the new futures contract months. This is designed to maximize yield from rolling long futures contracts in backwardated markets and minimize roll loss from rolling long futures positions in contangoed markets. The fund may also hold part of its assets in cash, alternative financial instruments, money market funds, U.S. Treasuries and other high credit-quality fixed-income securities.
UBS Rolls Out Internet ETNs
UBS launched two new ETNs this month, EIPO and EIPL, that offer exposure to Internet-related companies that have recently completed an initial public offering (IPO). Because the common thread through these companies is a focus on the Internet as opposed to a specific core set of operations, the result of the methodology is a collection of stocks engaged in a wide variety of businesses across multiple sectors. EIPO currently has 20 components, including online music provider Pandora, cloud computing and hosting firm RackSpace, and social networking site LinkedIn. EIPL offers 2x monthly leveraged exposure to the same index. Investors should note that both of these funds rebalance monthly, and as such generally won’t participate in the first day of trading for new IPOs.
SKYY Comes Flying Out Of The Gate
First Trust debuted the first ever cloud computing ETF earlier this month and SKYY’s launch was a tremendous success to say the least. The days leading up to the launch saw a fair amount of skepticism over the level of demand for such a hyper-targeted product, but once the opening bell rang SKYY came flying out of the gates. The new ETF traded an aggregate of over one million shares in its first two days on market and quickly blew past the $10 million mark that many new funds take months to clear. SKYY is linked to a unique benchmark that includes everything from small relatively new tech companies to established giants such as Microsoft, Apple, and Google. The methodology behind the index includes both “pure play” cloud computing companies that focus their operations on this emerging technology, as well as firms that derive only a portion of their revenues from “the cloud”.
Inflation In The Crosshairs: WisdomTree Debuts Real Return ETF
WisdomTree launched the Real Return Fund (RRF) which is a new actively-managed ETF that takes a unique approach to delivering total returns that outpace the rate of inflation. RRF features a number of different components, each optimized to deliver a very unique risk/return profile to investors concerned about the potentially adverse impact of surging inflation. The funds underlying holdings will be split between inflation-protected bonds (about 2/3 of the portfolio) and commodities (1/3 of the portfolio). Bruce Lavine, WisdomTree President & COO, said “We believe investing in U.S. TIPS alone is simply an incomplete inflation fighting strategy. We have designed the Global Real Return Fund as a diversified, multi-asset class approach to combating inflation.”
Schwab Continues ETF Price Wars: Cheapest Ever Bond ETF
Charles Schwab rolled out the Schwab U.S. Aggregate Bond ETF (SCHZ), a new offering in the Total Bond Market ETFdb Category that competes directly with existing funds from industry giants including iShares, Vanguard, and State Street. SCHZ tracks a broad-based benchmark that measures the performance of investment grade U.S. debt. The funds underlying holdings include allocations to Treasuries, mortgage-backed securities, investment grade corporate debt, and other securities issued by agencies of the U.S. government. Cost-conscious investors are likely rejoicing over SCHZ since it charges a mere 0.10% expense fee, making it by far the cheapest fund in the total bond market category, undercutting former cost-leader BND by a single basis point.
Fuhr’s Role At BlackRock Shuffled
Deborah Fuhr, head of exchange traded fund research at BlackRock, has stepped down from her position as the firm’s ETF Landscape Research has been moved under the BlackRock Investment Institute umbrella. Although Fuhr will not be replaced, the research division will instead be lead by Russ Koesterich, global chief investment strategist at BlackRock’s ETF subsidiary iShares. The BlackRock Investment Institute is know for conducting some of the most in-depth analysis in the ETF industry, having published several research reports on topics ranging from sovereign risk to Chinese savers.
Teucrium Gets Private Equity Investment
Teucrium Trading LLC, the issuer behind the popular CORN fund and several other unique commodity products, announced that Sun Mountain Capital, a private equity and venture capital firm, has made an investment in the company. “Sun Mountain is excited to be supporting an innovative and unique company like Teucrium Trading,” said Matt Culler, Principal at Sun Mountain Capital. “As a provider of single-commodity exchange traded products, we believe that Teucrium’s fund offerings will continue to gain market traction and deliver previously unavailable trading strategies to a marketplace eager for commodities exposure”.
Unlike most other commodity ETPs on the market, Teucrium’s funds have been designed to mitigate contango by employing a comprehensive futures-based approach. Teucrium’s offerings accomplish this by holding contracts in multiple months based on the unique characteristics of each specific commodity.