ETF XRAY

Chartwell's Fixed Income ETFfolio Adds New International TIP Market Bond ETF

By Carl Delfeld of the Chartwell ETF Advisor and Chartwell Partners Asset Management

Chartwell Partners Asset Managment today added the new SPDR DB International Government Inflation-Protected Bond exchange-traded fund (WIP) to its Fixed Income ETFfolio.

State Street Global Advisors (SSgA), the investment management arm of State Street Corporation (NYSE: STT) recently announced its new SPDR® DB International Government Inflation-Protected Bond ETF (Ticker: WIP).

The SPDR DB International Government Inflation-Protected Bond ETF seeks to track the DB Global Government ex-US Inflation-Linked Bond Capped Index, which includes 120 inflation-indexed bonds from 18 developed and emerging countries outside of the US. To be included in the Index, bonds must be capital-indexed and linked to an eligible inflation index; have at least one year remaining to maturity at the Index rebalancing date; have a fixed, step-up, or zero notional coupon; and settle on or before the Index rebalancing date. The Fund’s expense ratio is 0.50 percent.

Chartwell Managing Director Carl Delfeld commented that he "welcomes this new international bond ETF and has added it to Chartwell's Fixed Income ETFfolio in light of surging inflation around the world".

The Fixed Income ETFfolio is only one of the fourteen ETFfolios available to investors through Chartwell Partners. The others are:

Core Conservative ETFfolio
Equal Weight EFA ETFfolio
Global Dividend/Income ETFfolio
World Economic Freedom ETFfolio
Country Rotation ETFfolio
Country Rotation Momentum ETFfolio
Country Rotation Value ETFfolio
Global Sector Rotation ETFfolio
Global Growth ETFfolio
Emerging Markets ETFfolio
Asia-Pacific ETFfolio
Global Long/Short Strategy ETFfolio
Global Innovation ETFfolio

Chartwell uses these folios as building blocks to develop custom global portfolios using a core/satellite strategy.

For more information and media inquiries, contact Carl Delfeld at 719.264.1503 or at cdelfeld@comcast.net

TIPs ETF Gains Foreign Following

By Carl Delfeld of the Chartwell ETF Advisor

As inflationary expectations build in the U.S. economy, exchange-traded fund investors around the world are looking for ETF options. In November, 2007, wholesale prices posted their biggest 1-month jump since 1973?

One popular ETF choice is the iShares Lehman Bond ETF (TIP). The Treasury inflation-protected securities (TIPS) are a simple and effective way to eliminate one of the most significant risks to fixed-income investments--inflation risk. TIPs also deliver a real rate of return guaranteed by the United States government. TIPS are guaranteed to keep pace with inflation as defined by the Consumer Price Index.

For example, assume a $1,000 TIPS was purchased with a 3% coupon and also that inflation during the first year was 10%. If this were the case, the face value of the TIPS would adjust upward by 10%, to $1,100. Furthermore, the coupon payment (3%), which is also based on face value, would be $33 (in actuality, payments adjust and are paid semi-annually).

Foreign investors appear to be scooping up these bonds. According to Barchart, the 10-year TIPS issue is popular among foreign central banks as seen by the fact that indirect bidders have taken 42.9% of the last twelve 10-year TIPS auctions, which is well above the average of 35.8% seen across all recent Treasury coupon auctions.

The Treasury today will auction $8 billion in 10-year inflation-adjusted TIPS T-notes. Today’s issue was trading at 2.32% in when-issued trading late yesterday afternoon. The 12-auction averages for the 10-year TIPS auction are as follows: 1.91 bid cover, $68 million in non-competitive bids, 4.48 bp tail to the median yield, 38.28 bp tail to the low yield, and 47% taken at the high yield.

How would the TIP ETF fit into your global portfolio? Go to Chartwell ETF and find out today.

Follow Buffett with SPDR Lehman High Yield ETF (JNK)

By Carl Delfeld of the Chartwell ETF Advisor

You can use a new ETF to follow Warren Buffet who recently invested $2.1 billion in debt issued by Texas utility TXU. Buffet did say that he sees the investment as a play more on utility sector.

The SPDR® Lehman High Yield Bond ETF [JNK] introduced by State Street offers a precision investment vehicle that gives you a diversified, transparent and liquid means to gain exposure to the high yield fixed income segment. These higher risk investments can provide greater potential income in comparison to the more conservative fixed income investments such as treasury bonds and investment grade debt.

The ETF currently has 105 holdings with communications as the largest sector weighting at 24%. The average yield is 8.87%, no one holding excedes 3.5% and the average quality is B1/B2.

Wider spreads for high yield bonds and State Street's worldwide leadership in indexing and ETFs provide an attractive risk/return dynamic in this asset class. State Street is the second largest sponsor of ETFs in terms of assets and has introduced a series of innovative ETFs this year to gain on leader iShares. You should only cautiously invest in this sector and Chartwell ETF can help you blend the right ETFs consistent with your goals, time horizon and risk profile.

SSGA's New International Bond ETF

By Heather Bell of Index Universe

State Street Global Advisors got the drop on Barclays Global Investors with the launch of the first international bond exchange-traded fund. Last Friday, the SPDR Lehman International Treasury Bond ETF (AMEX: BWX - News) began trading on the American Stock Exchange. The fund charges 0.50% in annual expenses.

State Street has suggested that its new fund can be used as a hedge against the U.S. dollar as the index's value has tended to rise when the dollar's value has fallen. It has also positioned BWX as a diversification play, citing international fixed income's low correlation to domestic stocks and bonds. SSgA puts the underlying index's correlation with the S&P 500 at -0.02, and even its correlations with domestic bonds are quite low - a 0.51 correlation to the Lehman U.S. Aggregate Bond Index and a 0.50 correlation to the Lehman U.S. Treasury Index.

The fund is based on the Lehman Brothers Global Treasury Ex-US Capped Index, which tracks fixed-rate sovereign debt denominated in local currency from investment-grade countries. It covers 18 countries and includes more than 670 issues. However, the ETF only holds about 62 in its optimized portfolio. Among the top five holdings are three Japanese government bonds that together represent more than 15% of the fund's total assets, a German government bond (6.47%), and a Greek government bond (4.04%). Japan is the ETF's largest country, representing almost 23% of total assets.

The fund has an average credit quality of AA2, average coupon of 4.35%, and an average "life" of 7.59 years; the underlying index has the same credit quality, but a slightly lower average coupon and a slightly longer average life.

BGI and PowerShares both have broad-based emerging markets bond ETFs in registration. Although 10% of BWX's underlying index is emerging market debt, the fund will not be a direct competitor.

Comment by Carl Delfeld of the Chartwell ETF Advisor

Heather gives a nice summary of this new ETF which we have added to one of our six model ETF portfolios. The Japan exposure is significant and a bit tricky since Japanese benchmark rates are so low at 0.50% and its central bank is very reluctant to raise them fearing an economic slowdown. The Japanese yen is also one of the most undervalued currencies in the world but again higher rates are probably necessary for the yen to move upward to any significant degree. To see my complete comments on BWX earlier this week, click here.

SSGA Launches First International Bond ETF (BWX)

By Carl Delfeld of the Chartwell ETF Advisor

The first international fixed income exchange-traded fund was lainched late last week by State Street Global Advisors.

The objective of the SPDR® Lehman International Treasury Bond ETF (BWX) is to provide investment results that, before fees and expenses, correspond generally to the price and yield performance of the Lehman Brothers Global Treasury ex-US Index.

No doubt it will take a little time for the ETF basket to look a bit more like the index which has 674 bonds. Specifically, 22.8% of the index is accounted for by Japan, Germany is at 12.7%, Italy at 12.2% and Spain, Belgium and the United Kingdom are each at 4.6%.

Right now, 39% of BWX's bonds have maturities of between five and ten years with an average coupon rate of 4.2%. The ETF has an annual expense ratio of 0.50%.

Chartwell ETF is considering adding BWX to some of its more conservative ETF portfolios.

Bond ETF Competition Heats Up

Perhaps looking ahead to lower interest rates and global equity markets, exchange-traded fund families are rolling out fixed-income ETFs. There are almost two-dozen fixed-income ETFs on the market although their returns this year are nothing to get excited about.

Last week State Street started trading five fixed-income ETFs, Vanguard introduced its line-up of bond ETFs in April and earlier this year, Barclays launched 10 new funds. Other players such as Bear Stearns and Ameristock have plans to launch bond ETFs later this year.

Are the new bond ETFs all the same? Rebecca Knight of the FT takes a look and finds some differences. The new bond ETFs runs the spectrum of maturities. State Street’s Lehman 1-3 Month Treasury Bill index, for instance, includes all publicly issued zero-coupon US Treasury bills that have a remaining maturity of less than three months and more than one month, are rated investment- grade and have $250m or more of outstanding face value. Meanwhile, its Lehman Brothers Long US Treasury index includes securities that have a remaining maturity of 10 or more years.

Even when a bond ETF tracks the same index, there are differences. For example, the Vanguard Total Bond Market index ETF and iShares Lehman Aggregate Bond fund, both of which track the $5.5bn Lehman Aggregate index. The iShares ETF, however, uses a sampling methodology and holds just 120 bonds. The Vanguard fund replicates the index in full and holds more than 2,500.

By Carl Delfeld of the Chartwell ETF Advisor

State Street Rolls Out Five New Bond ETFs

State Street Global Advisors (SSGA), the sponsor of the SPDR family of exchange-traded funds announced five new fixed income ETFs that will begin trading tomorrow May 30th.

Here they are with a brief thumbnail description from a press release. The expense ratio for all of them is 0.13%.

SPDR® Lehman 1-3 Month T-Bill (BIL) The Lehman Brothers 1-3 Month U.S. Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value.

SPDR® Barclays TIPS ETF (IPE) The Barclays US Government Inflation-Linked Index includes publicly issued, U.S. Treasury inflation protected securities that have at least 1 year remaining to maturity on index rebalancing date, with an issue size equal to or exceeding $500 million.

SPDR® Lehman Aggregate Bond ETF (LAG) The Lehman Brothers U.S. Aggregate Index provides a measure of the performance of the U.S. dollar denominated investment grade bond market.

SPDR® Lehman Intermediate Term Treasury ETF (ITE) The Lehman Brothers Intermediate U.S. Treasury Index includes all publicly issued U.S. Treasury securities that have a remaining maturity of greater than or equal to 1 year and less than 10 years, are rated investment grade, and have $250 million or more of outstanding face value.

SPDR® Lehman Long Term Treasury ETF (TLO) The Lehman Brothers Long U.S. Treasury Index includes all publicly issued, U.S. Treasury securities that have a remaining maturity of 10 or more years, are rated investment grade, and have $250 million or more in outstanding face value.

By Carl Delfeld of the Chartwell ETF Advisor

iPath MSCI India Index ETN (INP)

What do you know about INP iPath MSCI India Index? I'll have to be honest before today I knew very little. I did know its recent reversal was in excess of 17%. At that I began doing a little research and found out the following:

The iPath MSCI India Index ETNs are linked to the MSCI India Total Return Index (the "Index"). The Index is a free float-adjusted market capitalization index designed to measure the market performance, including price performance and income from dividend payments, of Indian equity securities. The Index is currently comprised of the top 68 companies by market capitalization listed on the National Stock Exchange of India (the "NSE").

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DE Smith MyportfolioView

Is the Time Right for New High-Yield Bond ETF?

With all the concern about weaker credit markets, is it the right time for iShares to roll out its new iShares iBOXX $ High Yield Corporate Bond exchange-traded fund? (AMEX:HYG)

The nation's fourth largest bank, Well Fargo, reported decent earnings yesterday but noted that bad loans have jumped and worries over subprime lending are seeping into investors brains. But evidence shows that for the high yield market, interest rates trump quality.

Will McClatchy, Editor of ETF Zone, notes in a great article that the J.P. Morgan Emerging Markets Bond Index is testing its narrowest spread over 10-year Treasuries at about 1.6 percentage points. This appears to be an unnaturally small margin, and its expansion to historical norms would damage HYG.

The 50 or so bonds in this ETF basket will as a whole have an average yield to maturity of 7.43% which will catch the eye of yield hungry investors.

By Carl Delfeld of the Chartwell ETF Advisor

International Bond ETFs?

With the announcement of Vanguard's four new bond ETFs last week which mirror existing index funds, the thought did cross my mind; when are we going to see some international bond ETFs?

Tyler Mordy, writing in Seeking Alpha, went a step further and put together a nice article on the subject. After a review of the benefits of fixed income ETFs, he notes that international fixed income is currently one of the few remaining assets with low correlation statistics, even as measured from multiple currency domiciles.

Tyler wites that with the U.S. economy on recession watch and many financial markets looking stretched, current market conditions are characterized by growing risks and unfavourable valuations. Incorporating low or negatively correlated conservative assets with reasonable return prospects is now appropriate – foreign fixed income can certainly fill part of that role. In particular. Asian bonds are an excellent example of a foreign bond market with low correlation qualities, higher yields, attractive value and sufficient liquidity, not to mention in many cases, improving credit quality.

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

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

Don't Forget New Bond ETFs

If you are thinking of using exchange-traded fund (ETFs) for your fixed income portfolio, don't forget the new eight bond ETFs introduced by iShares. You might think that these are a bit boring compared to other ETFs on the market but I bet you wish you had more in your portfolio over the past week. Don't forget income in your portfolio strategy.

Bond ETFs offer investors many advantages: low expense ratios, close tracking to benchmarks, flexibility and ease of use, stop and /or limit orders, a round lot is not necessary, there are no investment minimums and options are available on many ETFs.

Here is a great comparison of iShares fourteen fixed income ETFs.

By Carl Delfeld of the Chartwell ETF Advisor

ABCs of Bond ETFs

Don't forget that exchange-traded funds (ETFs) offer investors the opportunity to invest in corporate or government bonds.

Bond ETFs are portfolios of bonds that track the performance of a bond or index, such as 20-year Treasuries. They are bought and sold like stocks. Investors reap interest via monthly dividends, and any capital gains are paid out through an annual dividend. Bond ETFs don't mature, but they reflect the particular bond index's maturity and can be shorted, traded on margin and hedged with options.

Joanne Von Alroth discusses in an article some other advantages to using bond ETFs. It costs less to buy a bond ETF than to buy varying bonds of different maturities -- known as laddering. There's historical transparency in pricing and you avoid fees on each individual bond trade and the spreads that are built into stocks.

Also, you spread your risk if you invest in an ETF that tracks the 100 bonds on the corporate bond index -- such as iShares Lehman Aggregate Bond Fund (AMEX:AGG - News) -- rather than putting all your money behind one or two corporate bonds.

New and existing Bond ETFs

Overall
AGG    Lehman Aggregate Bond Fund
GVI    Lehman Investment Grade US Government & Corporate Bond Index (3-10 Year Maturities)
GBF    Lehman Investment Grade US Government and Corporate Bond Index

Corporate
CSJ    Lehman Corporate Bond Index (1-3 Year Maturities)
CIU    Lehman Corporate Bond Index (3-10 Year Maturities)
CFT    Lehman Brothers Investment Grade Corporate

US Treasuries
SHV    US Treasuries (Less than one year maturities)
SHY    US Treasuries (1-3 year maturities)
IEI       US Treasuries (3-7 year maturities)
IEF      US Treasuries (7-10 year maturities)
TLH    US Treasuries (10-20 year maturities)
TLT     US Treasuries (20+ year maturities)
TIP      US Treasuries Inflation Protected Series

Blue symbols represent the newest of ETFs issued January 11, 2007.