A “positive trend” is established when the NASDAQ 100 Index closes at or above its historical 100-day simple moving average for five consecutive days.  A “negative trend” occurs when the index closes below its 100-day average for five days.  During a positive trend, TNDQ will track the NASDAQ 100 minus the 1.00% investor fee.  During a negative trend, TNDQ will track the performance of 3-month U.S. Treasury bills minus an investor fee of 0.50%.

The same concept is used across the entire RBS Trendpilot lineup, with the primary differences being the underlying markets and the number of days in the moving average.  The other RBS Trendpilot ETNs are:

• RBS US Large Cap Trendpilot ETN (TRND) times the S&P 500 using a 200-day moving average.
• RBS US Mid Cap Trendpilot ETN (TRNM) times the S&P MidCap 400 using a 200-day moving average.
• RBS Gold Trendpilot ETN (TBAR) times gold bullion using a 200-day moving average.
• RBS Oil Trendpilot ETN (TWTI) times crude oil futures contracts using a 100-day moving average.

Additional information on the new TNDQ is located in the overview, press release (pdf), fact sheet (pdf), and prospectus (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The underlying DBIQ Duration-Adjusted Inflation Index and DBIQ Duration-Adjusted Deflation Index have very limited history, dating back only to 7/25/2011.  ETN performance is based on gain or loss of $0.10 (on a $50 starting value) for each 1 point increase or decrease in the applicable index, plus 3-month T-Bills, less an investor fee of 0.75%.  The indexes measure the TIPS spread at three different maturities with 5-year securities nominally weighted at 50%, 10-year at 40%, and 30-year at 10%.

Other inflation-oriented ETPs do not attempt to capture the performance difference between TIPs and Treasury bonds.  For example, ProShares UltraShort TIPS (TPS) is designed for investors wanting to hedge against a decline in TIPS or potentially benefit from a downturn in TIPS.  However, due to the non-symmetrical design of TIPS, a short position is not an out-and-out bet on deflation.

Additional information on INFL and DEFL can be found in the overview, fact sheet (pdf), and prospectus (pdf).  Since they are structured as ETNs (exchange traded notes) they are subject to the credit risk of Deutsche Bank, the issuer.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The underlying index provides 150% long and 50% short exposure to static asset classes whose allocations potentially increase in value when the market/economic outlook is positive and decrease when the outlook is negative.  The base index allocations are:

• 76% long and 0% short Commodity Futures
• 46% long and 0% short Equity ETPs
• 28% long and 16% short Currency Futures
• 0% long and 34% short Sovereign Bond Futures

ONN will track the index (150% long and 50% short) minus a 0.85% tracking fee and a 1% annual distribution.  The distribution is intended to meet or exceed the expected dividend yield from the underlying equity exchange-traded products (“ETPs”).  Since ONN is a trading vehicle rather than a buy-and-hold instrument, the simulated dividend appears to have little value.

OFF will track the inverse of the index, effectively providing a 150% short and 50% long exposure (opposite from the table above), minus a 1.15% tracking fee.  The index is rebalanced quarterly, and the leverage factors are effectively reset at that time.

Although the index just began on November 4, UBS was kind enough to provide the results of the approximately 5-year back test as part of the prospectus (pdf).

The graph clearly illustrates some of the risks involved with the index, including but not limited to:

1. Underperforming both stocks and commodities prior to ETN fees being removed
2. A 75% decline from mid-2008 to early 2009
3. Remaining more than 50% below its former peak
4. More volatility than either stocks or commodities

However, I believe the graph omits one of the most significant risks - the risk that the index may not perform as expected in the future.  The index composition appears highly optimized for market conditions during the backtest period.  Furthermore, there is no provision allowing the basic index composition to change over time.

This index would clearly have not represented the “risk on” asset classes of the late 1990s.  During that period, the “risk on” trade consisted of being long large cap growth stocks and short commodities.  In the early 2000s, small cap value stocks took the lead.  Likewise, the “risk on” and “risk off” trades in 2014 (or perhaps sooner) will likely involve different asset classes than those used by the Fisher-Gartman Risk Index.

UBS provides extensive background materials, and I advise all potential investors to study them prior to purchase.  The methodology of the Fisher-Gartman Risk Index is available at the index sponsor’s website, http://www.mbfih.com/.  Additional details on the underlying futures contracts, ETFs, and ETNs that comprise the index are available in the ONN overview and OFF overview as well as the ONN fact sheet (pdf) and OFF fact sheet (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Investor fees are 0.50% for PowerShares DB Inverse Japanese Govt Bond Futures ETN (JGBS) and 0.95% for PowerShares DB 3x Inverse Japanese Govt Bond Futures ETN (JGBD).  Leverage will be reset monthly.

The new products came to market despite a poor investor reception by long-side versions.  PowerShares DB Japanese Govt Bond Futures ETN (JGBL) and PowerShares DB 3x Japanese Govt Bond Futures ETN (JGBT) both launched on 3/23/11 and joined ETF Deathwatch in October.

Additional information can be found in the overview, fact sheet (pdf), and prospectus (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The key feature making ETFs and ETNs similar is their ability to create and redeem shares via in-kind or cash exchanges.  This ongoing process is the essence of the ETF/ETN structure.  In addition to providing liquidity and tax efficiency, it keeps trading prices aligned with net-asset-values, avoiding (or at least minimizing) the discounts and premiums associated with closed-end funds.

The key feature making ETFs and ETNs different is that ETFs are fully collateralized stand-alone entities, independent of the sponsor, issuer, and manager.  ETNs are senior unsecured debt obligations of the issuing firm.  ETNs own nothing, are not collateralized, and carry the credit risk of the issuing firm.

An important but often overlooked point is that the issuer may be different from the ETN’s sponsor and not identified in the product’s name.  Occasionally, identifying the issuer is straightforward: Morgan Stanley (MS) issues the Morgan Stanley brand of ETNs, and Credit Suisse (CS) issues the Credit Suisse ETNs.

Some firms use brand names.  iPath ETNs are from Barclays (BCS) and ETRACS are issued by UBS (UBS).  Some firms issue ETNs under multiple brands.  For example, JPMorgan (JPM) issues ETNs that carry the JPMorgan name as well as products with the KEYnotes brand.

If you own an ELEMENTS brand ETN, identifying the issuer becomes more difficult.  This is because ELEMENTS is the only ETN sponsor currently using multiple issuers – three different firms in this case.

By my count there are currently 196 ETNs available to US investors, marketed under 15 different brands, and issued by 11 different firms.  The table below can help identify the company to which you are lending money when you buy a given ETN brand.

ETN Sponsors and Issuers

 All data as of 10/31/2011.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

RBS Global Big Pharma ETN (DRGS) will track, less an investor fee 0.60%, an underlying index that holds stocks and depositary receipts of 16 large cap global (50% are US based) pharmaceutical companies involved in various phases of the development, production, and marketing of pharmaceuticals.  However, DRGS is an unsecured debt obligation issued by the Royal Bank of Scotland and does not hold any of the 16 stocks in the index.

The index currently has a 3.3% yield, but DRGS does not plan on making any distributions to reflect that yield.  Instead, it tracks a “total return” index with the ETN’s net asset value reflecting the reinvestment of dividends.

The four ETFs that DRGS will compete with:

1. SPDR S&P Pharmaceuticals (XPH) (XPH overview) has an expense ratio of 0.35% and currently holds 29 US pharmaceutical stocks using a modified multi-tier equal-weight methodology.
2. iShares DJ US Pharmaceuticals (IHE) (IHE overview) has an expense ratio of 0.47% and currently holds 39 US pharmaceutical stocks using a capitalization weighted methodology.
3. PowerShares Dynamic Pharmaceuticals (PJP) (PJP overview) has an expense ratio of 0.63% and currently holds 30 US pharmaceutical stocks using a quantitative selection process and a multi-tier equal-weighting methodology.
4. HOLDRS Pharmaceutical (PPH) (PPH conversion to Van Eck ETF) has annual expenses of only 8 cents per share in the HOLDRS structure.  It is slated for transformation into the Market Vectors Pharmaceutical ETF (PPH) later this year, holding 25 global pharma stocks (including all 16 in the underlying index for DRGS) with an expense ratio of 0.35%.

DRGS is the first ETN offering from RBS that is not part of its TrendPilot family of asset class timing ETNs.  Its global focus and equal weighting are the only attributes that can potentially be considered positive features.  However, those are probably not enough to overcome the higher expenses and ETN structure.  Additional information is located in the overview and fact sheet (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The sponsor firm is a relatively new arrival in the U.S. market, launching eleven months ago with a suite of six volatility-linked VIX ETNs.  Both the volatility suite and new precious metals suite are exchange-traded notes (“ETNs”) issued by Credit Suisse.  As such, they are unsecured debt obligations that carry the credit risk of Credit Suisse.

VelocityShares 3x Long Gold ETN (UGLD) is linked to +300% the daily performance of gold futures via the S&P GSCI Gold Index ER with a 1.35% investor fee [UGLD fact sheet (pdf)].

VelocityShares 3x Inverse Gold ETN (DGLD) is linked to -300% (inverse) the daily performance of gold futures via the S&P GSCI Gold Index ER with a 1.35% investor fee [DGLD fact sheet (pdf)].

VelocityShares 3x Long Silver ETN (USLV) is linked to +300% the daily performance of silver futures via the S&P GSCI Silver Index ER with a 1.65% investor fee [USLV fact sheet (pdf)].

VelocityShares 3x Inverse Silver (DSLV) is linked to -300% (inverse) the daily performance of silver futures via the S&P GSCI Silver Index ER with a 1.65% investor fee [DSLV fact sheet (pdf)].

VelocityShares 2x Long Palladium ETN (LPAL) is linked to +200% the daily performance of palladium futures via the S&P GSCI Palladium Index ER with a 1.35% investor fee [LPAL fact sheet (pdf)].

VelocityShares 2x Inverse Palladium ETN (IPAL) is linked to -200% (inverse) the daily performance of palladium futures via the S&P GSCI Palladium Index ER with a 1.65% investor fee [IPAL fact sheet (pdf)].

VelocityShares 2x Long Platinum ETN (LPLT) is linked to +200% the daily performance of platinum futures via the S&P GSCI Platinum Index ER with a 1.35% investor fee [LPLT fact sheet (pdf)].

VelocityShares 2x Inverse Platinum ETN (IPLT) is linked to -200% (inverse) the daily performance of platinum futures via the S&P GSCI Platinum Index ER with a 1.35% investor fee [IPLT fact sheet (pdf)].

All these ETNs track indexes of precious metals futures contracts -  not the physical or spot price of the metals.  As such, their performance is subject to contango and backwardation effects resulting from the term structure of the underlying indexes.

Additional information can be found in the press release (pdf) and the prospectus (pdf)

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

October’s early dozen includes four new ProShares ETFs, Russell’s expansion of its Disciplined Index ETFs into the small cap space, additional Chinese Renminbi-based products from CurrencyShares and Market Vectors, a TrimTabs actively-managed fund from AdvisorShares, and a UBS leveraged cloud computing ETN.

Here is a brief description of each new product along with my initial comments:

CurrencyShares Chinese Renminbi Trust (FXCH) (FXCH overview) was launched by Rydex on 10/4/11 and is designed to track the price of the Chinese Renminbi, net of the fund’s 0.40% expenses.  FXCH is structured for monthly distributions, but with interest rates at 0.1%  investors should not expect distributions anytime soon.

Opinion: While this is not the first Chinese currency fund, FXCH has the lowest cost.  CurrencyShares also has the most extensive lineup of currency related ETFs.  WisdomTree Dreyfus Chinese Yuan (CYB), the category leader with more than $500 million in assets, is actively-managed and has an expense ratio of 0.45%.  Market Vectors Chinese Renminbi/USD ETN (CNY) is the most expensive of the three with a 0.55% annual investor fee.

ProShares Ultra VIX Short-Term Futures ETF (UVXY) (UVXY overview) and ProShares Short VIX Short-Term Futures ETF (SVXY) (SVXY overview) were listed on 10/4/11 with expense ratios of 0.95%.  UVXY seeks to provide 2x the daily performance of the S&P 500 VIX Short-Term Futures Index, before fees and expenses.  SVXY seeks to provide -1x (non-leveraged inverse) the daily performance of the S&P 500 VIX Short-Term Futures Index.

Opinion: These are the first leveraged and inverse VIX products in an ETF format.  ProShares is the only firm offering exposure to VIX futures in an ETF wrapper instead of the less desirable ETN structure used by other firms.  As such, volatility traders are likely to quickly embrace these new ETFs.

AdvisorShares TrimTabs Float Shrink ETF (TTFS) (TTFS overview) is an actively managed exchange-traded fund that began trading on 10/5/11.  The fund’s sub-advisor, Trim Tabs Asset Management, seeks to produce long term returns in excess of the Russell 3000 with less volatility.  How?  The plan is to invest primarily in stocks whose outstanding share quantity shrank over the past 120 days (float shrink).  The fund will typically hold 100 equally weighted positions that have also been screened for free cash flow and debt ratios.  The expense ratio for TTFS is capped at 0.99%.

Opinion: The path to success for an actively managed equity ETF is a tough one, and none have cracked the $100 million asset threshold yet.  AdvisorShares Cambria Global Tactical ETF (GTAA) has amassed more than $160 million in assets, but its tactical strategy typically includes a large allocation to bonds.  Two established ETFs have similar strategies to TTFS.  PowerShares Buyback Achievers (PKW) has an expense ratio of 0.70%, and it is beating the S&P 500 with lower volatility.  Guggenheim Insider Sentiment (NFO), with 0.60% expense ratio, has dramatically outperformed the market since inception five years ago. 

Russell Small Cap Aggressive Growth ETF (SGGG) came out on 10/5/11 with a 0.45% expense ratio.  The underlying Russell U.S. Small Cap Aggressive Growth Index focuses on companies in the Russell 2500 Index expected to have above average near-term earnings growth.  The discipline includes companies with average to high consensus forecasted earnings and average to high one-year historical sales growth.  It excludes companies with low earnings retention (high dividend yields) and stocks with low price-to-book ratios (SGGG overview and the largest of its 319 holdings).

Russell Small Cap Consistent Growth ETF (SCOG) was launched on 10/5/11 with a 0.45% expense ratio.  The underlying Russell U.S. Small Cap Consistent Growth Index focuses on companies in the Russell 2500 Index with above average long-term earnings forecasts and consistent historical earnings growth.  The discipline includes companies with average to high consensus forecasted earnings, consistent earnings (average to low earnings per share volatility), and efficient asset utilization (average to high return on assets for the prior quarter).  It excludes companies with low anticipated growth prospects as measured by a low price-to-book ratio (SCOG overview and the largest of its 261 holdings).

Russell Small Cap Contrarian ETF (SCTR) was launched on 10/5/11 with a 0.45% expense ratio.  The underlying Russell U.S. Small Cap Contrarian Index focuses on companies in the Russell 2500 Index that have consistently lagged the market and their sector peers.  The discipline includes companies where opportunities exist for the stock price to improve as measured by a low historical price to sales and cash flow multiples.  It excludes companies that have outperformed their market and sector peers as measured by cumulative total return over the last one to three years (SCTR overview and the largest of its 225 holdings).

Russell Small Cap Low P/E ETF (SCLP) was launched on 10/5/11 with a 0.45% expense ratio.  The underlying Russell U.S. Small Cap Low P/E Index focuses on companies in the Russell 2500 Index trading at lower multiples relative to their prior level or their sector peers.  The discipline includes companies that have a price to one-year forecasted earnings, price to trailing earnings, and/or price to trailing cash flow multiple below their five-year historical average.  It excludes stocks that have a price-to-sales or price-to-book multiple that exceeds their sector peers (SCLP overview and the largest of its 396 holdings).

Opinion: Russell introduced the Large Cap Investment Discipline Index ETFs on 5/19/11.  Those ETFs select stocks from the Russell 1000 Index, which has a 500 stock overlap with the Russell 2500 Index used for the new ETFs.  The new small cap versions do not include the Growth at a Reasonable Price (“GARP”) and Equity Income disciplines.  The lineup of Russell Discipline ETFs offers pseudo-active strategies by indexing established investment disciplines.

UBS ETRACS Monthly 2x Leveraged ISE Cloud Computing TR Index ETN (LSKY) (LSKY overview) was introduced on 10/5/11 and provides exposure to the monthly compounded two times leveraged performance of the ISE Cloud Computing Total Return Index, reduced by accrued tracking fees of 0.60% and accrued financing charges.

Opinion: The First Trust ISE Cloud Computing Index Fund (SKYY), introduced in July, is an ETF tracking the same underlying index.  The new LSKY, in an apparent attempt to capitalize on the success of the First Trust offering, is a monthly leveraged version of SKYY.  However, it comes in the less desirable ETN wrapper that brings with it the full credit risk of UBS.

ProShares Ultra DJ-UBS Natural Gas (BOIL) (BOIL overview) and ProShares UltraShort DJ-UBS Natural Gas (KOLD) (KOLD overview) were introduced on 10/ 6/11.  Both have expense ratios of 0.95%.  BOIL seeks to provide 2x the daily performance of the Dow Jones-UBS Natural Gas Subindex, before fees and expenses, while KOLD seeks to provide -2x (200% inverse) the daily performance.

Opinion: These are the first US-listed ETPs to provide either magnified or inverse exposure to natural gas futures.  The funds will hold futures and swaps, and are therefore exposed to performance impacts from contango and backwardation conditions in the futures markets.

Market Vectors Renminbi Bond ETF (CHLC) (CHLC overview) was introduced by Van Eck Global on 10/12/11 and it will have expenses capped at 0.39%.  It seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the Market Vectors Renminbi Bond Index.  Fixed-rate Chinese renminbi-denominated (RMB) bonds are issued by Chinese and non-Chinese corporate, government, quasi-government or supranational issuers, and are available to market participants outside of mainland China.  Bonds included in the index, or the parent company of an RMB bond issuer, must have at least one investment grade rating.

Opinion: This is the third Dim Sum bond ETF for US investors and the market is likely too small for all three to survive.  Guggenheim Yuan Bond ETF (RMB) and PowerShares Chinese Yuan Dim Sum Bond Portfolio (DSUM) both launched in September.  I gave the nod to DSUM in my original analysis and comparison of the two.  The new CHLC offering has the lowest expense ratio of the three, but the offering materials lack information on yield and duration.  Until additional operating history on these three funds is established, I will continue to favor DSUM for its higher estimated yield.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

The underlying index typically consists of 75 long positions at 1.33% each (100% allocation) and another 75 short positions (an inverse 100% allocation).  The selection universe consists of 750 stocks (275 North America, 300 Europe, and 175 Japan) based on size and liquidity constraints.

Stocks are grouped into 10 sectors and ranked by the proprietary Credit Suisse HOLT system, a cash-flow-return-on-investment framework.  Stocks in the top 10% of each sector and top 34% of each region are included in the long allocation.  The short allocation then pairs the selected longs with the lowest ranked stocks in the same sector and region to ensure market neutrality.

The index has been in existence for four years, and the performance looks like this (chart from CSMN fact sheet): 

Although the index is market neutral within each sector (“sector neutral”), the sectors with the largest number of positions include Financials 17%, Consumer Cyclical 17%, Consumer Non-cyclical 13%, Communications 13%, and Industrials 12%.  Data on current region allocations was not available.

Because CSMN is an ETN instead of an ETF, it is an unsecured debt obligation subject to the credit risk of Credit Suisse.  The overview page contains additional information and provides links to the fact sheet and prospectus.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

Also on Monday (9/19/11), Barclays launched an IVO replacement (pdf) by tacking “II” to its name and “P” to its ticker symbol, producing the new iPath Inverse S&P 500 VIX Short-Term Futures ETN II (IVOP).

If you are experiencing déjà vu while reading this, you are not alone.  These events closely resemble a similar occurrence three months ago: VZZ Terminates and VZZB Fills the Void.  VZZ lasted only seven months.  IVO lasted eight months.

The new IVOP, launched at $20, has already traded as low as $15.62 after just four days on the market.  Like its predecessor, it also has a $10 early termination trigger and could easily set a new record for ”ETP with the Shortest Lifespan”.

IVOP has a 0.89% annual fee and appears to be identical to IVO, which is identical to XXV (IVO appears to be a clone of XXV) with the exception that IVOP’s initial participation level is based on a higher VIX level than when IVO launched.  Additional information on the “new” IVOP can be found in the overview, fact sheet (pdf), and prospectus (pdf).

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.