ETF XRAY

WisdomTree ETFs Revamps Website

By Carl Delfeld of the Chartwell ETF Advisor

The WisdomTree family of exchange-traded funds announced an upgrade of its ETF website today. Investor and advisor-friendly websites are an important way of attracting attention and gaining market share by a particular sponsor of ETFs. Competition is getting very intense.

Here is an overview of the website changes and how they can help both investors and financial advisors.

New primary navigation bar featuring quick access to advisor analytics and research

New Search By Ticker option, to make searches faster

Detailed ETF information including performance and dividend yields

An organized library with materials you can share with clients

An events page with details for invitation only events with Professor Jeremy Siegel and others.

To learn about the differences between the different families of ETFs and which ones should be in your ETF portfolio, go to Chartwell's ETF Library.

PowerShares Announces Four New International ETFs

On June 25, 2007 PowerShares family of exchnage-traded funds will launch the first wave of PowerShares FTSE RAFI International Portfolios, which use a fundamental approach to select and weight companies in the index. The funds anticipated to launch are:

PXF PowerShares FTSE RAFI Developed Markets ex-U.S. Portfolio
PAF PowerShares FTSE RAFI Asia Pacific ex-Japan Portfolio
PEF PowerShares FTSE RAFI Europe Portfolio
PJO PowerShares FTSE RAFI Japan Portfolio

Similar to the approach used by industry professionals, companies are weighted not simply by a single measure such as market-capitalization, dividends or earnings, but rather by the size of their fundamentals. Companies are selected based on the following four fundamental measures of size: sales, cash flow, book value and dividends.

The indexes on which the portfolios are based utilize an investable, liquid universe of more than 2,000 global equities that span more than 20 countries. These indexes are designed to track the performance of some of the largest global region or country-specific equities.

Posted by Carl Delfeld of the Chartwell ETF Advisor which offers investors seven model ETF portfolios including an International, Global and Asian Opportunity portfolio.

Powershares Launches Five New Global ETFs

The PowerShares family of exchange-traded funds launched five new ETFs today. Two are global ETFs tracking water and clean energy indexes and three are international ETFs folowing indexes created by
QSG using proprietary methodology, which evaluates, ranks and sorts more than 10,000 global securities using a proprietary multifactor model that is based on numerous measures of expected outperformance.

The new ETFs and a brief description are below.

The PowerShares Global Water Portfolio (PIO) is based on the Palisades Global Water Index™. The index seeks to identify a group of companies worldwide that focus on the provision of potable water, the treatment of water and the technology and services that are directly related to global water consumption.

The PowerShares Global Clean Energy Portfolio (PBD) is based on the WilderHill New Energy Global Innovation Index. The index seeks to deliver capital appreciation and is composed of companies that focus on greener and generally renewable sources of energy and technologies facilitating cleaner energy.

The PowerShares Dynamic Asia Pacific Portfolio (PUA) is based on the QSG Asia Pacific Opportunities Index, which seeks to identify stocks of companies domiciled in Australia, Hong Kong, New Zealand and Singapore that have the greatest potential for capital appreciation.

The PowerShares Dynamic Europe Portfolio (PEH) is based on the QSG Active Europe Index, which seeks to identify stocks of European companies that possess the greatest potential for capital appreciation.

The PowerShares Dynamic Developed International Opportunities Portfolio (PFA) is based on the QSG Developed International Opportunities Index, which seeks to identify global equities with strong potential for capital appreciation.

Posted by Carl Delfeld of the Chartwell ETF Advisor

New International Real Estate ETF Has Asian Tilt

The SPDR DJ Wilshire International Real Estate exchange-traded fund (RWX) has rather quickly accumulated $1 billion of assets but now has a competitor with a different geographic focus and weighting scheme. The new WisdomTree International Real Estate Fund (DRW) holds real estate companies in Europe, Japan, Hong Kong, Singapore, Australia and New Zealand.

The new WisdomTree ETF currently yields 3.26%, and charges 0.58% in annual expenses and holds 224 companies which are weighted based on regular cash dividends rather than by the traditional method of weighting companies by their market value like the SPDR international real estate ETF.

A second big difference between the two ETFs is their geographic distribution. RWX has 20% of its assets in Japan and 18.3% in the UK. The new DRW has only 9% in Japan and 8.8% in the UK but has Australia at a whopping 29.7%, Hong Kong at 20.5% and Singapore at 13.8%. All of these markets have traditionally had high dividend yielding stocks in part due to tax laws that treat dividends favorably. While DRW definitely has an Asian tilt, it has no exposure to markets in Austria, Netherlands and Canada.

Some Chartwell ETF portfolios have held RWX but DRW may be a welcome addition to Chartwell's Asian Opportunity ETF portfolio.

ETF Leader Barclays Revs Up to Crack 401 (k) Market

Exchange-traded funds are the hottest investment product on Wall Street but so far have had a minimal impact on 401 (k) plans. Barclays hopes to change this as it announced a partnership with BenefitStreet, a San Ramon, Calif., firm that handles 401(k) record-keeping to launch a new platform.

The stakes are incredibly high. At the end of 2006, according to Lawrence Carrel of TheStreet.com, 401(k) plans held total assets of $2.7 trillion, with $1.5 trillion of that in mutual funds. Compare that to 1990, when these retirement plans held only $385 billion in assets. Fidelity is the dominant player in the industry with a market share of 23%.

The BenefitStreet platform hopes to address the main stumbling block to including ETF investment options in these fast growing retirement plans: technology and costs. It plans to cut costs by buying ETFs in bulk, but plan participants will still own their shares outright. Once a day, the firm will aggregate all of the orders for iShares from plan participants and buy them directly on the exchange. Invest n Retire of a Portland, Ore., has been making ETFs available in retirement plans for the past three years but so far it has not made much progress.

By Carl Delfeld of the Chartwell ETF Advisor

Van Eck ETFs Go Nuclear

The Van Eck family of exchange-traded funds announced through a press release that it has filed with the SEC for two new Market Vectors ETF. One will track nuclear related companies and the other will track an agricultural index.

It seems that at the core of each respective ETF is uranium and corn. Both of the benchmark indexes that the ETFs will track are listed on the German exchange: Deutsche Borse AG. Van Eck already has five ETFs on the market which have been well received by global ETF investors.

It will be interesting to see in particular what sort of companies make it into the nuclear ETF basket and how they will be weighted.

By Carl Delfeld of the Chartwell ETF Advisor

ETF Fee Price War Erupts Between Vanguard and iShares

Vanguard is using lower fees to upset the ETF dominance of Barclay's iShares family of exchange-traded funds. Currently, iShares accounts for 59% of total ETF assets whereas Vanguard ETFs account for about 7%.

The first shot over the bow was fired last year when Vanguard changed the benchmark on its Emerging Markets ETF (AMEX: VWO) last year so that it tracked the exact same benchmark as the popular iShares Emerging Markets ETF (AMEX: EEM). With the two funds offering substantially identical exposure, investors began to focus on the fees, where Vanguard has a clear edge: VWO charges just 0.30% in expenses, compared to 0.75% for EEM. Matt Hougan of Index Universe reports that since then, the momentum in fund flows has favored Vanguard: in Q1 2007, for instance, VWO pulled in $637 million in net inflows, while EEM posted small net outflows.

Now Vanguard has filed with the SEC for a new Vanguard EAFE ETF, which will offer substantially similar exposure to the iShares (EFA) which just happens to be the second largest ETF on the market in terms of assets. The Vanguard ETF will trade on the American Stock Exchange (AMEX) under the ticker symbol VEA and will be called the Vanguard Europe Pacific ETF.

While this competition on fees may be beneficial to ETF investors, it could slow new ETF product developments and innovation.

By Carl Delfeld of the Chartwell ETF Advisor

ETFs For Overvalued Markets

It may be time to blend a little bit of inverse exchange-traded funds in your global ETF portfolios. Short ProShares are the only ETFs designed to go up when markets go down (and vice versa). Jennifer Openshaw of TheStreet.com writes that they are a good alternative to short selling individual stocks or ETFs because they don't require a margin account, require less capital to get a desired exposure, and offer more diversification than a single stock.

Openshaw illustrates how the ProShares Short Nasdaq QQQ ETF (PSQ)works. The fund rises in value matching the drop in the index. A 5% index drop would cause PSQ to rise about 5%. If you are looking for a bit of leverage, the ProShares Ultra series doubles your bet. Buy Ultra Nasdaq QQQ ProShares ETF (QID) will go up double the rate of the decline in the underlying index. If the index drops 5%, your investment gains 10%. Likewise, it'll go down at double the rate if the index goes up.

ProShares offers 29 ETFs that are designed to move in the opposite direction of their indexes.

By Carl Delfeld of the Chartwell ETF Advisor

Active ETF is Here

What experts believe is an actively managed exchange-traded fund is relative but one would be hard pressed to argue that the new First Trust's Deutsche Bank Strategic Value Index (AMEX:FDV) is a passive ETF.

FDV tracks an index called the Deutsche Bank CROCI, which is conceptually and thematically defined. The specific idea behind the CROCI is that companies with strong corporate profits and a low cost of capital will outperform the benchmark. The CROCI looks at the ratio of earnings to the weighted average cost of capital. The idea behind this is elegantly simple. The higher the earnings and the lower their cost of money, the better a company looks.

According to First Trust this is a great way to pick stock. First Trust says that the CROCI has annualized returns of 17.94% vs. about half that for the benchmark. Jonathan Bernstein of ETFzone discusses the pros and cons of this approach and notes that the forty companies in the index tend to be the larger cap companies in the S&P 500 index. He also compares it to the "Dogs of the Dow" strategy which works best when few are following it.

Get ready, this is just the tip of the iceberg of active ETFs.

By Carl Delfeld of the Chartwell ETF Advisor

iShares gets into Currency ETF Game

The iShares family of exchange-traded funds announced that it will be introducing three new Exchange Traded Notes for the currency market. The trio are expected to begin trading on the New York Stock Exchange on or around May 9th. To date, Rydex is the family of ETFs most associated with foreign currency ETFs

The ETNs to be available later this week are the:

iPathSM JPY/USD Exchange Rate ETN (Ticker: JYN)
iPathSM GBP/USD Exchange Rate ETN (Ticker: GBB)
iPathSM EUR/USD Exchange Rate ETN (Ticker: ERO)

Exchange-traded notes or ETNs are similar to ETFs but are actually debt securities backed by Barclays Bank.
For term sheets on these upcoming ETFs, click here

By Carl Delfeld of the Chartwell ETF Advisor

Five New Real Estate ETFs

The iShares family of exchange-traded funds are not content to sit on their lead. The have introduced five iShares Funds designed to track the FTSE NAREIT Indexes. With an annual expense ratio of 0.48%, the new iShares Funds trade on the NYSE and provide targeted exposure to the U.S. Real Estate Investment Trust (REIT) market. The new funds are:

iShares FTSE NAREIT Residential Index Fund (ticker: REZ)

iShares FTSE NAREIT Industrial/Office Index Fund (ticker: FIO)

iShares FTSE NAREIT Retail Index Fund (ticker: RTL)

iShares FTSE NAREIT Mortgage REITs Index Fund (ticker: REM)

iShares FTSE NAREIT Real Estate 50 Index Fund (ticker: FTY)

In a press release, Noel Archard, Head of iShares Product Development summed up the benefits of REIT exposure for ETF investors: "REIT exposure generally offers several useful portfolio attributes, such as lower correlation to the broad equity and bond markets along with higher dividend yield. The iShares FTSE NAREIT Funds should provide investors with income and portfolio diversification benefits, in a cost-effective manner."

By Carl Delfeld of the Chartwell ETF Advisor

ETFs Better than Diamonds

What is still the most-quoted market indicator in newspapers, on TV and on the Internet – the Dow Jones Industrial Index (DJIA) which has recently made historic highs. But it may be out of date and there may be better ETF options than the Dow Diamonds (DIA) to tap into the mega-cap trend.

I suggest that investors might be better off trading their Diamonds for the Rydex Mega 50 ETF (XLG) which tracks an index of the largest fifty U.S. stocks. Another good pick would be (SDY) whose basket includes the 50 highest yielding stocks in the S&P 1500. If you think the Dow is overbought you might consider the new Pro Funds ETF that moves inversely to the Dow and trades under the apt symbol (DOG).

Because the DJIA is made up of exclusively U.S. companies and by definition focused on industrial companies, it does not accurately reflect the performance of large swaths of the U.S. or global marketplace. There are a lot of good companies in the DJIA but it is no longer a good barometer of the American economy or the typical American portfolio nor a useful index for investment vehicles to track.

Another ETF to consider is the S&P Global 100 ETF (IOO) that includes exposure to 100 of the largest companies in the world. About 50% are American companies.

By Carl Delfeld of the Chartwell ETF Advisor

Russian ETF Takes Off

Van Eck Global launched the first Russia exchange-traded fund (RSX). RSX is based on a basket of 30 Russian equities which track the DAXglobal Russia + Index (DXRPUS). The Index includes 5 U.S. listed ADRs, 19 London GDRs and 6 local Russian ordinaries. RSX has a management fee of 69 bps.

Russia is primarily an energy play but the country is swimming in liquidity and its market shows good momentum. Politically, it is going backwards.

Van Eck has another interesting ETF in the pipeline. The Global Alternative Energy ETF (GEX), which is anticipated to launch on May 9th, has management fees of 65 bps. GEX is based on the Ardour Global Index extra-liquid (AGIXL) which contains 30 Alternative Energy stocks from around the world.

By Carl Delfeld of the Chartwell ETF Advisor

State Street's New International ETFs

State Street has introduced two new exchange-traded funds; one an all world ex-US ETF and one targeting international small cap companies in developed countries.

A press release from the company describes the SPDR S&P International Small Cap ETF (GWX) includes companies with market caps under $2 billion domiciled in developed countries outside the U.S. and carries a 0.60% expense ratio. The SPDR S&P World ex-US ETF (GWL) includes more than 5,000 companies domiciled in developed countries outside the U.S. including Canada and carries a 0.35% expense ratio.

The two new ETFs will begin trading on April 26th.

With the launch of these two SPDRs, State Street’s family of US-listed ETFs features 53 funds – including a full suite of 16 that offer precise access to international and emerging markets. State Street manages more than $114 billion of ETF assets worldwide (as of March 31, 2007) and is one of the largest providers in the US and globally, with a market share of nearly 20 percent

By Carl Delfeld of the Chartwell ETF Advisor

Don't Forget SPDR International ETFs

Don't neglect State Street Global Advisors' (SSGA) six new SPDRs emerging markets exchange-traded funds or ETFs that are listed on the American Stock Exchange (Amex). The funds are based upon the S&P/Citigroup Global Equity Indices and will carry expense ratios of 0.60 percent. At of the end of February 2007, State Street managed more than $109 billion ETF assets in a total of 76 ETFs worldwide.

Here are the ETFs with a brief description.

SPDR S&P Emerging Markets ETF (GMM)
Index includes more than 1,500 companies across 26 emerging countries.

SPDR S&P Emerging Latin America ETF (GML)
Index includes companies domiciled in Argentina, Brazil, Chile, Columbia, Mexico, Peru, and Venezuela.

SPDR S&P Emerging Middle East & Africa ETF (GAF)
Index includes companies domiciled in Egypt, Israel, Jordan, Morocco, Nigeria, and South Africa.

SPDR S&P Emerging Europe ETF (GUR)
Index features companies in countries that are nearing acceptance into the EU, including Czech Republic, Hungary, Poland, Russia, and Turkey.

SPDR S&P Emerging Asia Pacific ETF (GMF)
Index includes companies domiciled in China, India, Indonesia, Malaysia, Pakistan, the Philippines, Taiwan, and Thailand.

SPDR S&P China ETF (GXC)
Underlying index includes over 150 companies domiciled in China.

By Carl Delfeld of the Chartwell ETF Advisor

Natural Gas ETF Exits Pipeline

The first exchange-traded fund to track the price of natural gas has hit the market: the United States Natural Gas Fund (AMEX:UNG). The ETF will track the near two-month natural gas futures contract with the percentage changes in the fund's value aim to reflect the percentage changes in the price of natural gas.

This ETF innovation will make it much easier for individual investors to gain exposure to natural gas. Institutional investors will likely just continue investing through natural gas contracts notes Marie Beerens of IBD in an article on the new ETF.

The natural gas ETF is managed by Victoria Bay Asset Management which is the ETF arm of Ameristock Funds. The annual fee of the ETF is 0.77%. The iShares family of ETFs has also filed for a natural gas ETF and Ameristock is planning ETFs to track heating oil and gasoline prices.

By Carl Delfeld of the Chartwell ETF Advisor

Finally, Some New Country ETFs From Barclays

I first became intrigued with exchange-traded funds when I saw the line up of country-specific ETFs on Barclays iShares menu. There are now 23 country ETFs including two that track the Japanese market.
My waiting for more country ETFs seems to have ended last week as an SEC filing listed the following ETFs in the pipeline: iShares MSCI BRIC Index Fund, iShares MSCI Chile Index Fund, iShares MSCI Israel Index Fund, iShares MSCI Thailand Index Fund and a iShares MSCI Turkey Index Fund. These are welcome but were certainly not at the top of my wish list. What about Ireland, Norway and Denmark?

Thailand is interesting as it has been the best market in Asia and is also still one of the world's cheapest. I have also gotten quite a bit of calls asking about turkey. Israel is a technology center that packs a punch way beyond its weight. Chile is a wonderful success story and the star of Latin America not to mention an excellent play on copper.

Many purists are scornful of the country ETFs since they tend to be dominated by a few big multinationals and also are increasingly less dependent of their domestic economy. I accept that they are a hybrid; part play on global growth and part play on the home economy. The emerging market country ETFs (There are seven of them) are more centered on their country's economy. Plus, studies have shown that where a company has its primary listing and the perception of its home economy does impact stock prices.

Regardless, I find it continually fascinating to buy a county's stock market with just a click of the mouse.

By Carl Delfeld of the Chartwell ETF Advisor

ETF Giant Barclays Could Announce $80 Billion AMRO Deal Today

After intensive meetings all weekend between the two parties, the Wall Street Journal reported that ABN Amro Holding NV, the giant Dutch bank at the center of a developing auction, is close to selling itself to the sponsor of the iShares ETF family, Barclays PLC, in a transaction valued at more than $80 billion.

John Shinai of MarketWatch reports that the future of the Chicago-based LaSalle is critical to sealing the dea. Barclays (BCS) was up 1.4% on Friday but has publicly stated that it is willing to walk away from the deal.

If the announcement comes this morning, it will be a the biggest bank takeover in U.S. history and provide a big boost for markets.

By Carl Delfeld of the Chartwell ETF Advisor

Diamond, Cube, Spider and Viper ETFs

What are the most popular exchange-traded funds in terms of volume? ETF Zone has a nice one pager with a snaphot of the following ETFs. Keep it as a ready reference guide when you get a bit confused between a diamond, cube, spider and viper.

Standard & Poor's 500 Index Depository Receipts (SPY:AMEX)

Nasdaq-100 Index Tracking Stock (QQQQ:AMEX)

DIAMONDS Trust (DIA:AMEX)

iShares S & P 500 (IVV:AMEX)

Standard & Poor's MidCap 400 SPDRs (MDY:AMEX)

iShares Russell 2000 (IWM:AMEX)

iShares MSCI EAFE (EFA:AMEX)

Total Stock Market VIPERs (VTI:AMEX)

iShares SmallCap 600 (IJR:AMEX)

By Carl Delfeld of the Chartwell ETF Advisor

ETF Revolution or Pollution?

Do you know what 1774, 1924 and 1990 have in common? In each of these years a significant innovation in the world of investments took place; the first mutual-style fund (by a clever Dutch merchant), the first modern mutual fund and the first exchange-traded fund.

The Economist traces the development and growth of ETFs and discusses if the newer more exotic ETFs coming onto the market are going too far. Assets held by American-listed ETFs rose by a shade under 40% last year to $418 billion. By the end of March they had climbed by a further $22 billion.

One new ETF that catches their eye is the ProShares UltraShort QQQ which is a "double inverse" on the NASDAQ 100. Investors gain 2% if the index falls 1%. Investors need to be careful that they understand just what is in the ETFs they choose for their global ETF portfolio.

By Carl Delfeld of the Chartwell ETF Advisor

Van Eck to Launch Russia ETF

Last month, 45 new exchange-traded funds were launched, bringing the total to 435. Van Eck annouced in a press release two more ETFs that are to begin trading sometime during the second quarter: the first Russia ETF listed in the U.S. and a global alternative energy ETF. Both will be listed on the NYSE and their ETF basket will contain 30 stocks.

I view Russia as primarily an energy play and in many respects the country is moving in the wrong direction.
Still if you can stomach the volatility and uncertainty, the Russian market can be explosive on the upside and is swimming in liquidity.

By Carl Delfeld of the Chartwell ETF Advisor

Country ETFs with Momentum

One important trend to look at when selecting ETFs for your global ETF portfolios is momentum. What ETFs are showing strength. Then you can look at value to see if they match up.

If we look at the iShares country ETF performance over the last 30 days, here are the leaders.

Malaysia (EWM) up 11.84%
South Africa (EZA) up 10.47%
Australia (EWA) up 10.23%
Brazil (EWZ) up 10.13%
Netherlands (EWN) up 10.1%

The only country ETF down is Japan (EWJ) which has lost 1.43% during the last 30 days.

By Carl Delfeld of the Chartwell ETF Advisor

The Simplicity of New Vanguard ETFs

Some are questioning the value of the four new bond exchange-traded funds introduced by Vanguard this week . Mark Hulbert of MarketWatch comments in a good article that "Try as I might, I don't see how or why the world will be better off because of these new funds."

Mark then goes on to mention a few possible reasons such as slightly lower fees. What I like about these new ETFs is their simplicity and that they will encourage individual ETF investors to get more fixed-income into their portfolios. Most investors need a limited menu and while iShares offers more bond ETF choices, this also leads to confusion and indecision by most investors.

Vanguard also states that the diversification within its bond ETFs helps keep tracking tight and default risk low. The Vanguard Total Bond Market ETF (BND) holds more than 20 times the number of bonds of its competitor’s iShares product. In addition, the estimated expense ratio for each of its new bond ETFs is 0.11%. That's nearly 40% below the average for competing ETFs.

I don't think most individual investors will trade these new ETFs but will rather use them as core holdings.

Here are the names and tickers for the new Vanguard bond ETFs.

Total Bond Market ETF (BND)
Short-Term Bond ETF (BSV)
Intermediate-Term Bond ETF (BIV)
Long-Term Bond ETF (BLV)

Clean and simple like I like it. Vanguard is definitely targeting the individual investor just as iShares leans more to the institutional investor.

By Carl Delfeld of the Chartwell ETF Advisor

The Big Vanguard International ETF

If you are looking for a simple , low cost exchange-traded fund to gain international exposure, take a look at the Vanguard FTSE All-World ex-US ETF (VEU). It offers investors:

instant exposure to international markets with an annual fee of only 0.25%

better option than (EFA) which puts half your assets in Japan and the UK and does not include exposure to Canada

nice blend of 2,200 companies from almost 50 countries with large cap allocation of 52%, midcap, 38% and smallcap, 10%

top ten holdings account for 9.4% of net assets and the ETF has a dividend yield of 2.3% and a return on equity of 19%

By Carl Delfeld of the Chartwell ETF Advisor

Vanguard Launches Bond ETFs

Vanguard has followed up on the recent expansion of iShares bond exchange-traded fund line with four new bond ETFs of its own.

A webpage announcing the new ETFs stated that diversification within its ETFs helps keep tracking tight and default risk low. The Vanguard Total Bond Market ETF (BND) holds more than 20 times the number of bonds of the leading competitor's product. In addition, the estimated expense ratio for each of its new bond ETFs is 0.11%. That's nearly 40% below the average for competing ETFs.

Here are the names and tickers for the new Vanguard bond ETFs.

Total Bond Market ETF (BND)
Short-Term Bond ETF (BSV)
Intermediate-Term Bond ETF (BIV)
Long-Term Bond ETF (BLV)

By Carl Delfeld of the Chartwell ETF Advisor

ETFs Rush to Market

The pace of introducing new exchange-traded funds or ETFs is rapidly expanding. In 2005, we saw 52 ETFs come to market, and that figure tripled to 159 in 2006. This year we're already at 94--a pace that may be unsustainable.

Russel Kinnel in "The Great Land Rush" points out that ETF families are rushing to stake out sectors and sub-sectors in an effort to co-opt competitiors and grab some space to grow. Any marketing angle will do with the goal of building volume and brand.

But while Russel advocates reigning in the growth, I say we all need to slow down and look under the hood of ETFs before we buy or recommend them to clients. Choice is a good thing to have but judgement and investigation is essential for success. And watch the expenses and tax efficiencies in the new ETFs. After all, simplicity, transparency, cost and tax efficiency are what launched the ETF industry in the first place.

By Carl Delfeld of the Chartwell ETF Advisor

ETF Mutant Turtles

Exchange-traded funds or ETFs were designed to offer broad indexed diversification more cheaply and tax efficiently than mutual funds. Keeping it simple and transparent was the hallmark of early ETFs.

But with the heated competition between ETF families came a more marketing oriented process leading to creating highly specialized indexes which defeat the purpose of indexing. As Megan Johnston and Michael Maiello point out in a recent Forbes article "ETF Freaks", that gets you into the realm of active management, in which case why not just buy the individual stocks yourself? Is the next step actively managed ETFs? The article includes a slideshow of ten oddball ETFs.

Johnston and Maiello point out that no matter that there might not be people managing some of these securities, there are computer programs that are constantly rebalancing the underlying portfolios in a way that can only be compared with active management. The American Stock Exchange developed an “Intellidex” that screens for companies using 25 factors for stock picking. Powershares follows it. ETFs that follow so complex a screening process are bound to trade pretty actively, and you can bet that ETF sponsors will find a way, through cutting dividends or raising expenses, to pass the costs of frequent trading on to new and existing shareholders.

By Carl Delfeld of the Chartwell ETF Advisor

State Street Global Advisors Add 6 New Emerging Markets ETFs

Today, State Street Global Advisors (SSgA) launched six new SPDRs emerging markets ETFs on the American Stock Exchange (Amex). The funds are based upon the S&P/Citigroup Global Equity Indices and will carry expense ratios of 0.60 percent.

"Developed in response to investor demand, our new international SPDRs provide distinct exposure to virtually the entire emerging markets universe, several key regions, including China," stated James Ross, senior managing director of State Street Global Advisors. "The regional SPDRs are designed to provide a level of diversification unavailable in more concentrated country-specific approaches, and the SPDR S&P China ETF covers a much larger range of the Chinese equity market than any of the country's other benchmarks."

Here's a quick summary of each new fund:

SPDR S&P Emerging Markets ETF (GMM)
Index includes more than 1,500 companies across 26 emerging countries.

SPDR S&P Emerging Latin America ETF (GML)
Index includes companies domiciled in Argentina, Brazil, Chile, Columbia, Mexico, Peru, and Venezuela.

SPDR S&P Emerging Middle East & Africa ETF (GAF)
Index includes companies domiciled in Egypt, Israel, Jordan, Morocco, Nigeria, and South Africa.

SPDR S&P Emerging Europe ETF (GUR)
Index features companies in countries that are nearing acceptance into the EU, including Czech Republic, Hungary, Poland, Russia, and Turkey.

SPDR S&P Emerging Asia Pacific ETF (GMF)
Index includes companies domiciled in China, India, Indonesia, Malaysia, Pakistan, the Philippines, Taiwan, and Thailand.

SPDR S&P China ETF (GXC)
Underlying index includes over 150 companies domiciled in China.

At of the end of February 2007, State Street managed more than $109 billion ETF assets in a total of 76 ETFs worldwide.

Asian Biotech ETF On the Way

The range of sector exchange-traded funds or ETFs continues to expand. XShares Advisors, which provides the HealthShares line of biotech ETFs, plans to market an Asian Biotech ETF in the near future according to Centient Biotech Investor.

The Asian ETF is one of six funds that XShares has currently in development. Two of the others are European biotech funds. XShares already offers a portfolio of biotech ETFs that target specific therapeutic areas. Also, First Trust is now offering the AMEX Biotechnology Index Fund (FBT), which is meant to track the AMEX Biotechnology Index. This ETF, like the upcoming Asian Biotech ETF, contains 20 biotech companies on an equal weighting basis rather than the traditional market cap weighting which concentrates investments in a few of the larger companies.

By Carl Delfeld of the Chartwell ETF Advisor

ProShares ETFs Top $4 Billion

Timing is everything for the success or failure of new exchange-traded funds or ETFs. In only nine months -the ProShares family of exchange traded funds (ETFs) passed the $4 billion mark in assets. ProShares offers the first and only ETFs designed to provide short or magnified exposure to well-known market indexes.

"The stock market's recent volatility has sparked even more interest in ProShares. Since the big one-day decline in the Dow on February 27, our average volume has doubled to more than 20 million shares per day. And, while our assets were already growing rapidly--by an average of $100 million per week--in the three weeks since that drop, our assets are up by more than $1 billion," said Michael Sapir, CEO of ProShare Advisors. here is the full press release from ProShares.

With volatility and mediocre returns so far this year, ETF investors are warming up to the idea of using a modest amount of these inverse ETFs to buffer their overall portfolio's volatility. I use some of them in a few of our model ETF portfolios but caution investors to be careful and not get carried away.

By Carl Delfeld of the Chartwell ETF Advisor

Why Are There So Many ETFs?

A common question I get is are there too many ETFs on the market? I used to hedge my answer thinking the more the better but now I am a straight shooter and my answer is "YES". When a guy like me who does nothing but follow ETFs gets confused and mixes up symbols, this has to be the right answer.

My guess as to why we are suffering through a deluge of new ETFs was confirmed by a new article at Forbes by Bill Cara who states that "this army of index-tracking ETFs because of the humungous trading business it does with quant-based hedge funds......" Quant funds, by the way, are computer savvy--they are funds that are more computer based than human directed.

You need to realize that the vast majority of ETF trading right now is done by institutional investors like hedge funds. Since most individual investors need no more that 15 or so ETFs in their portfolio, choosing from a menu of 800 is a daunting task. My advice is to choose no more than three or so ETF families and a universe of no more than 100 ETFs. Don't jump on each new ETF or your portfolio will look like it did before you switched to ETFs - a mess of 100 individual stocks with no strategy or coherence.

By Carl Delfeld of the Chartwell ETF Advisior

Vanguard Launches Mutual Fund with ETFs

The line between mutual funds and ETFs is getting blurry. The Vanguard Group today launched a mutual fund with exchange traded fund (ETF) shares attached: the Vanguard FTSE All-World ex-U.S. Index Fund. It offers investors exposure to 47 countries.

David Hoffman of Investment News explains that the fund, which seeks to track the performance of the FTSE All-World ex US Index, provides exposure to 95% of the investable developed and emerging markets outside the United States. There will be a 0.25% purchase fee on investments in the Investor and Institutional Shares and a 2% redemption fee applied to non-ETF shares redeemed within two months of purchase.

US ETF Snapshot: February 2007

As of February 28, 2007, 432 ETFs in the US were managed by 15 ETF managers, with assets totaling approximately $431 billion. Overall, industry assets increased by about 2.1%. 45 new ETFs were launched during the month of February. ProShares launched 34 ETFs, Wisdomtree launched six ETFs, Powershares launched two ETFs; First Trust launched two ETFs, and Rydex launched one ETF. US-listed ETF assets rose by approximately $9 BN in February. Specialty, size, and style-based ETFs experienced considerable asset growth, respectively gaining $2 BN, $2 BN, and $1 BN in February.
Notably, all asset-class groupings of ETFs experienced positive growth for the month. In terms of managers, Barclays Global Investors (BGI) has the largest AUM with $254 BN in 128 ETFs, followed by State Street with close to $100 BN in 45 ETFs.

Technology ETFs Show Strength

During the recent global pullback in exchange-traded funds or ETFs, technology has demonstated relative strength.

Standard & Poor's estimates the technology sector will have earnings in 2007 of $4.11 in Q1; $4.46 Q2; $4.59 Q3; and $5.33 Q4. The Q4 is very strong, a 16 percent improvement from Q3 after good prior quarterly advances. In fact, most of the ten industrial sectors in Standard & Poor's 500 Index have good earnings gains estimates for 2007, especially the energy and financial services sectors.

Max Issacman of East/West Securities in an article for ETFZone describes four of the many choices investors have in ETF's for IT representation is the Nasdaq-100 ETF (NASDAQ: QQQQ - News); Select Sector SPDR (AMEX:XLK - News); PowerShares Value Line Timeliness Select Portfolio (AMEX: PIV - News), which is 21.48 percent tech; and PowerShares Dynamic OTC Portfolio, (AMEX:PWO - News), which is 50.52 percent tech.

By Carl Delfeld of the Chartwell ETF Advisor

ProShares Inverse ETFs Cushion Portfolios

Exchange-traded fund or ETF investors can sometimes hedge their bets by using inverse or short ETFs to tactically benefit from falling prices.

ProShares Advisors offers 29 short ETFs covering various sectors and levels of leverage and the ETFs are designed to be used for tactical asset allocation rather than strategic investing because long-term shorts will always lose money.

Jesse Emspak of IBD explains that rather than shorting individual securities, which would cost a lot in margin interest, the ETFs use swaps. In these swaps, one party (the ETF) assumes a short position while the counterparty can offer cash or take a long position. The ETF simply promises the value of the shares involved. Rydex has 96 ETFs in the pipeline.

Investors can also purchase put options for many of the iShares ETFs. For example, you can purchase a put option on the China iShare (FXI) which gives you the right to sell at a specific price up to 18 months out.

By Carl Delfeld of the Chartwell ETF Advisor

What Makes WisdomTree ETFs Different

What makes WisdomTrees ETFs unique? Just the other day I was asked by a fellow advisor if WisdomTrees had a unique approach. I did a little research and came across and found some very informative information on their homepage. WisdomTree believes that market cap-weighted indexes provide more weight to stocks with the highest market capitalization; and as a result they tend to become overweighted in overvalued stocks and underweighted in undervalued stocks. So WisdomTrees fundamentally weighted indexes anchor the initial weights of individual stocks to some metric of fundamental value such as cash dividends or core earnings.

Key Characteristics of the WisdomTree Dividend Family
• Broad Market Representation. For example, the WisdomTree Dividend Index is comprised of approximately 1,500 securities and covers $12.8 trillion of the U.S. market capitalization (as of 12/31/06).
• Weighted based on cash dividends or dividend yields. Dividends are an objective measure of a company’s value that can not be manipulated.
• Potential bear market protection - as stock prices fall, investors can buy more shares with reinvested dividends.
• The potential for income-generating yields.
• The potential for long-term total returns. From 1926 - 2004, reinvestment of dividends accounted for 96% of the stock market's total return after inflation.*
• Recent tax legislation lowering tax rates on qualifying dividends makes dividend-paying stocks more attractive to investors. (Future changes in legislation could adversely impact the payment and taxation of dividends.)

*The Future for Investors, Jeremy Siegel, 2005.

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