Tuesday, January 20th, 2015

ETF Deathwatch for January 2015: The Year Begins At 322

By Ron Rowland
3:38 am CST

ETF Deathwatch begins 2015 with 322 products on the list, consisting of 222 ETFs and 100 ETNs.  Fourteen names joined the lineup this month and nineteen exited.  Just nine came off due to improved health, while the other ten met their death and no longer exist.  Despite the closure of about 450 ETFs and ETNs over the past decade, there are still 322 zombie products remaining, and they average just $6.4 million in assets.  The average age of these products is 47 months, more than enough time to attract a little investor interest.  Clearly, these products are neither desired by investors nor profitable for their sponsors, making one tend to wonder why they still exist.

The fourteen new names on the list this month include a dozen based on MSCI indexes, nine ‘quality’ ETFs from State Street SPDRs, and two ‘low volatility’ products from BlackRock iShares.  There are dozens of successful products tracking MSCI indexes, carrying SPDR and iShares brands, and pursuing factor-based strategies, yet these new additions are struggling.  The recipe for success obviously requires more than just having the right ingredients.

Thirty-six brand names appear on ETF Deathwatch, and two of these brands have their entire product line on the list.  All five Columbia ETFs are included.  These actively managed funds have been on the market about five years, yet none have gathered more than $10 million in assets.  QuantShares is the sponsor of four ETFs, all more than three years old, all with less than $4 million in assets, and all on ETF Deathwatch.

It’s now 2015, which means a second calendar year has come and gone without the iPath Short Enhanced MSCI Emerging Markets Index ETN (EMSA) registering a single trade.  November 9, 2012 was the last time EMSA saw any action, and there were only 100 shares traded that day.  It was just one of eight products going the entire month of December without a transaction.  Additionally, 145 products failed to register any volume on the last day of the year.

Here is the Complete List of 322 Products on ETF Deathwatch for January 2015 compiled using the objective ETF Deathwatch Criteria.


The 14 ETPs added to ETF Deathwatch for January:

  1. First Trust ISE Global Platinum (PLTM)
  2. iPath Bloomberg Industrial Metals ETN (JJM)
  3. iShares MSCI Asia ex Japan Minimum Volatility (AXJV)
  4. iShares MSCI Emerging Markets Consumer Discretionary (EMDI)
  5. iShares MSCI Europe Minimum Volatility (EUMV)
  6. SPDR MSCI Australia Quality Mix (QAUS)
  7. SPDR MSCI Canada Quality Mix (QCAN)
  8. SPDR MSCI EAFE Quality Mix (QEFA)
  9. SPDR MSCI Emerging Markets Quality Mix (QEMM)
  10. SPDR MSCI Germany Quality Mix (QDEU)
  11. SPDR MSCI Japan Quality Mix (QJPN)
  12. SPDR MSCI Spain Quality Mix (QESP)
  13. SPDR MSCI United Kingdom Quality Mix (QGBR)
  14. SPDR MSCI World Quality Mix (QWLD)

The 9 ETPs removed from ETF Deathwatch due to improved health:

  1. First Trust Developed Markets x-US Small Cap AlphaDEX (FDTS)
  2. First Trust Managed Municipal (FMB)
  3. Global X Junior MLP ETF (MLPJ)
  4. iPath Pure Beta Broad Commodity ETN (BCM)
  5. iShares Currency Hedged MSCI EAFE ETF (HEFA)
  6. PowerShares DB Crude Oil Short ETN (SZO)
  7. ProShares Global Listed Private Equity (PEX)
  8. RevenueShares ADR (RTR)
  9. Teucrium Soybean (SOYB)

The 10 ETPs removed from ETF Deathwatch due to delisting:

  1. Market Vectors Bank and Brokerage (RKH)
  2. Market Vectors Colombia (COLX)
  3. Market Vectors Germany Small-Cap (GERJ)
  4. Market Vectors Latin America Small-Cap (LATM)
  5. Market Vectors Renminbi Bond (CHLC)
  6. Teucrium Natural Gas (NAGS)
  7. Teucrium WTI Crude Oil (CRUD)
  8. EGShares Emerging Markets Dividend Growth (EMDG)
  9. EGShares Emerging Markets Dividend High Income (EMHD)
  10. Direxion Daily Gold Bear 3x Shares (BARS)

ETF Deathwatch Archives

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentionedNo 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.

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Friday, January 9th, 2015

ETF Stats for December 2014 – $1.999 Trillion

By Ron Rowland
12:48 pm CST

The ETF industry crossed above the $2 trillion threshold in December but was unable to hold it as the month and year ended.  By our calculations, at the close of business on December 31, 2014, U.S.-listed ETFs had $1.972 trillion in assets and ETNs stood at $26.9 billion, for a combined total of $1.999 trillion.  If not for the market pullback on the last day of the year, the major threshold would have held.  Rounding is perfectly acceptable when dealing with large numbers, so no one is going to claim foul if you say $2 trillion.

If fund-of-funds ETFs are included, then assets are indeed above the $2 trillion mark.  We exclude these in our monthly calculations as it amounts to double counting.  For example, when a $1 billion fund-of-funds ETF has all of its assets invested in other ETFs, the underlying ETFs will already be reflecting that same $1 billion in their asset values.

Thirteen new ETFs and two ETNs were introduced in December, putting the launch count for the year at 193.  A dozen closures last month brought the yearly total to 79.  December’s net increase of three ETPs produced a year-end listing count of 1,662 products, consisting of 1,451 ETFs and 211 ETNs.  This is a net increase of 126 for the year, or 8.2% growth in products available to investors.

Asset growth was more robust, climbing 1.0% in December and 17.8% for the year.  The average exchange traded product now has $1.2 billion in assets.  However, average is not typical.  Just 221 ETFs can count themselves as above-average when it comes to assets.  That’s just 13.3% of all ETPs, relegating the remaining 86.7% to below-average status.  The median asset level, the level at which half of all products have more and half have less, is just $82 million.  As you can see, typical is a far cry from average.  It’s not every day you see a dataset where the average is 14.6 times greater than the median.

Actively managed ETFs continue to gain a foothold in the industry.  Their count increased by three in December, bringing the number of listings to 125.  The year began with just 71 actively managed funds, so this represents a huge 76% growth.  Assets remain relatively low in these products at just $17.2 billion.  The actively managed product count has 7.6% market share while their AUM has just a 0.8% share.

Trading activity jumped 63% in December over November’s level, with nearly $1.9 trillion of shares changing hands.  This is the second highest level in three years, with only the $2.3 trillion surge two months ago in October being larger.  The number of ETPs averaging more than $1 billion a day in trading increased from seven to nine and captured 55.4% of all trading activity.

December 2014 Month EndETFsETNsTotal
Currently Listed U.S.1,4512111,662
Listed as of 12/31/20131,3322041,536
New Introductions for Month13215
Delistings/Closures for Month12012
Net Change for Month+1+2+3
New Introductions 6 Months968104
New Introductions YTD19114205
Delistings/Closures YTD72779
Net Change YTD+119+7+126
Actively-Managed Listings125 (+3) n/a125 (+3)
Assets Under Mgmt ($ billion)$1,972$26.9$1,999
% Change in Assets for Month+1.0%-1.8%+1.0%
Qty AUM > $10 Billion44044
Qty AUM > $1 Billion2455250
Qty AUM > $100 Million74537782
% with AUM > $100 Million51.3%17.5%47.1%
Monthly $ Volume ($ billion)$1,796$60.6$1,856
% Change in Monthly $ Volume+62.26%+92.4%+63.1%
Avg Daily $ Volume > $1 Billion819
Avg Daily $ Volume > $100 Million95499
Avg Daily $ Volume > $10 Million31814332
Data sources:  Daily prices and volume of individual ETPs from Norgate Premium Data.  Fund counts and all other information compiled by Invest With An Edge.

New products launched in December (sorted by launch date):

  1. Credit Suisse S&P MLP Index ETN (MLPO), launched 12/3/14, is an exchange traded note with returns linked to the S&P MLP Index.  The index includes master limited partnerships and publicly traded limited liability companies that have tax treatment similar to MLPs.  To be included the securities must have oil and gas operations, at least $300 million in market cap, and $2 million in daily traded value.  The index currently has about 80 constituents and institutes a 15% weighting cap.  Coupons are expected to be paid quarterly, and the expense ratio is 0.95%.  Credit Suisse has not yet deemed the ETN worthy of being posted on its website, but here is a link to the MLPO filing on the SEC website.
  2. ETRACS S&P 500 VEQTOR Switch Index ETN (VQTS), launched 12/3/14, is an exchange traded note whose returns will be linked to a strategy utilizing the S&P 500 and VIX futures.  The strategy will include allocations to the S&P 500 as well as short positions in VIX futures when volatility drops and long positions when volatility spikes.  The note’s annual expenses are 0.95% (VQTS overview).
  3. KraneShares E Fund China Commercial Paper ETF (KCNY), launched 12/3/14, invests in commercial paper denominated in renminbi and issued by sovereign, quasi-sovereign, and corporate issuers in China.  Holdings will be investment-grade and have remaining maturities of no more than one year and no less than one month.  The current average maturity is 128 days, but no yield information is provided.  The fund sports an expense ratio of 0.56% (KCNY overview).
  4. iShares iBonds Dec 2020 Corporate ETF (IBDL), launched 12/4/14, will hold U.S. dollar-denominated, investment-grade corporate bonds maturing in 2020.  The fund has a current yield of 2.7% and an effective duration of 4.7 years.  IBDL has an expense ratio of 0.10% (IBDL overview).
  5. iShares MSCI ACWI Low Carbon Target ETF (CRBN), launched 12/9/14, invests in large- and mid-capitalization equities that have lower carbon exposure relative to the broad market.  Stocks will be selected from developed and emerging markets.  The fund’s expense ratio will be capped at 0.20% until 11/30/16 (CRBN overview).
  6. Cambria Global Asset Allocation ETF (GAA), launched 12/10/14, is a fund-of-funds seeking to provide exposure to a diversified portfolio of assets, including domestic and foreign stocks, bonds, real estate, commodities, and currencies.  The underlying funds combine to hold over 20,000 securities.  Some media hype surrounding the launch implied the fund is free to investors.  While GAA may have a 0.0% direct management fee, the 29 ETFs it invests in all have management fees that get passed on to shareholders.  In the end, GAA has a total expense ratio of 0.29% (GAA overview).
  7. Deutsche X-trackers MSCI EMU Hedged Equity ETF (DBEZ), launched 12/10/14, provides investors access to Eurozone equities while hedging against the impact of currency fluctuations between the U.S. dollar and the euro.  Investors will pay 0.45% annually to own this fund (DBEZ overview).
  8. Validea Market Legends ETF (VALX), launched 12/10/14, is an actively managed ETF that holds 100 stocks from a wide variety of investment styles, including value, growth, momentum, and income.  Validea uses a proprietary selection process based on its interpretation of the published investment strategies of high-profile Wall Street personalities.  VALX sports a 0.79% expense ratio (VALX overview).
  9. WisdomTree Emerging Markets ex-State-Owned Enterprises Fund (XSOE), launched 12/10/14, invests in emerging market companies that are less than 20% owned by the respective government.  Since excluding government owned enterprises can affect the overall allocations of countries and sectors in the universe, XSOE adjusts the weightings to target close to the initial universe.  The fund’s expense ratio is 0.58% (XSOE overview).
  10. BioShares Biotechnology Clinical Trials Fund (BBC), launched 12/17/14, invests in clinical trials-stage biotechnology companies, which are usually younger and smaller companies that do not have any FDA approved drugs.  These companies are focused on testing their experimental drug candidates in Phase 1, 2, or 3 human clinical trials.  BBC has an expense ratio of 0.85% (BBC overview).
  11. BioShares Biotechnology Products Fund (BBP), launched 12/17/14, invests in products-stage biotechnology companies, which are more established companies that have already traversed much of the failure and risk associated with clinical trials.  They typically have a drug that has been FDA approved.  Investors will pay 0.85% annually to own this fund (BBP overview).
  12. ValueShares International Quantitative Value ETF (IVAL), launched 12/17/14, is an actively managed ETF that will invest in about 50 international value stocks that it views as cheap, yet high quality.  Its quantitative screens include forensic accounting to analyze financial statements for signs of financial distress, valuation for low enterprise values relative to operating earnings, and quality for long-term business fundamentals and current financial strength.  IVALS’s expense ratio ekes in just under the 1% threshold at 0.99% (IVAL overview).
  13. Reality Shares DIVS ETF (DIVY), launched 12/18/14, is an actively managed fund designed to provide exposure to the aggregate value of ordinary dividends expected to be paid on a portfolio of large U.S. equities, irrespective of the activity in the trading price of the equities.  The strategy tries to isolate the dividend payments from the stock price.  DIVY uses a combination of options, dividend swaps, futures, and forwards on indexes or other representations of large cap securities.  The fund sports a 0.85% expense ratio (DIVY overview).
  14. PowerShares Russell 1000 Equal Weight Portfolio (EQAL), launched 12/23/14, invests in the stocks of the Russell 1000 index with a two-step weighting process.  First, the stocks are grouped into nine sectors with each sector given an equal allocation.  Then, stocks in the sector groups are equally weighted.  The fund will be rebalanced quarterly.  The ETF’s expense ratio is 0.20% (EQAL overview).
  15. ALPS Medical Breakthroughs ETF (SBIO), launched 12/31/14, seeks to replicate the performance of the Poliwogg Medical Breakthroughs Index, by investing in the U.S.-listed stocks of mid cap and small cap companies operating in the biotechnology and pharmaceutical sectors.  SBIO has an expense ratio of 0.50% (SBIO overview).

Product closures/delistings in December:

  1. Market Vectors Bank and Brokerage (RKH)
  2. Market VectorsColombia(COLX)
  3. Market VectorsGermanySmall-Cap (GERJ)
  4. Market VectorsLatin AmericaSmall-Cap (LATM)
  5. Market Vectors Renminbi Bond (CHLC)
  6. Teucrium Natural Gas (NAGS)
  7. Teucrium WTI Crude Oil (CRUD)
  8. EGShares Emerging Markets Dividend Growth (EMDG)
  9. EGShares Emerging Markets Dividend High Inc (EMHD)
  10. Direxion Daily Gold Bear 3x Shares (BARS)
  11. Guggenheim BulletShares 2014 Corporate Bond (BSCE)
  12. Guggenheim BulletShares 2014 High Yield Corporate Bond (BSJE)

Product changes in December:

  1. Direxion Junior Gold Miners Bull 3x Shares (JNUG) had a 1:10 reverse split and Direxion Russia Bull 3x Shares (RUSL) had a 1:6 reverse split effective December 23.

Announced Product Changes for Coming Months:

  1. ProShares will close 17 ETFs with the last day of trading occurring on January 8 (press release).
  2. EGShares Low Volatility Emerging Markets Dividend ETF (HILO) will be renamed EGShares EM Quality Dividend ETF (HILO) and begin tracking a new index effective January 26.
  3. Russell plans to close its last remaining ETF, the actively managed Russell Equity ETF (ONEF), with its last day of trading on January 26.  Russell closed its other 25 ETFs more than two years ago (October 2012).

Previous monthly ETF statistics reports are available here.

Disclosure covering writer, editor, publisher, and affiliates: 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.

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Friday, January 2nd, 2015

iPath Natural Gas ETN Is A Broken Product

By Ron Rowland
12:44 pm CST

ETF and ETN investors should avoid broken products.  I have repeated this caution numerous times over the years.  Upon hearing this warning, most investors want to know what a broken product is.  Once they understand the definition, they quickly grasp the danger.

ETFs and ETNs are unique securities.  The primary feature that differentiates them from other investment vehicles is the ability to create and redeem shares, typically through an in-kind exchange process.  Another key feature is the publishing of the underlying portfolio’s value throughout the trading day.  The two features combined allow market makers to keep the trading price very close to the value (often called the Intraday Value or the iNAV).

This is the “promise” behind ETFs and ETNs, and investors expect these products to live up to it.  However, sometimes the share creation mechanism is suspended or terminated for a given product, and that is when it becomes a broken product.  Without a viable share creation process, an ETF or ETN can trade like a closed-end fund with price premiums.  The typical retail investor does not have an easy way of knowing if a product is broken or not, and that is where the danger lies.  It could be trading at a substantial premium, a premium that could disappear instantly.

This is not just a theoretical problem; it is very real and happening today.  You are probably aware that crude oil prices have been falling for a number of months.  More recently, natural gas prices plunged.  ETFs and ETNs tracking natural gas fell right along with the underlying commodity.  Last week, the United States Natural Gas Fund (UNG) dropped 12.5%.  The leveraged ProShares Ultra Bloomberg Natural Gas ETF (BOIL) was whacked for a 22.6% loss.  However, iPath Bloomberg Natural Gas ETN (GAZ), an unleveraged product tracking the same index as BOIL, gained 5.9%.

The reason for this is because GAZ is a broken product.  On August 21, 2009, Barclays “temporarily suspended” the creation unit process for GAZ.  More than five years later it is still suspended, straining the credibility of the word temporarily.  I’m willing to bet most investors are unaware GAZ is broken.

Without the ability to create and redeem units of GAZ, it is impossible for market makers to keep the trading price near the net asset value (“NAV”).  The NAV of GAZ went from $1.9182 to $1.5874 per unit last week, a plunge of 17.2%.  The price went the other way, increasing from $2.02 to $2.14.  GAZ started the week trading at a 5.3% premium and closed with a 34.8% premium.  The premium narrowed slightly earlier this week, but it was more than 36% at the close on Wednesday.  Anyone buying GAZ today is far more than it is worth.

This is not a traditional liquidity problem, as GAZ has averaged more than 100,000 shares a day recently.  This high volume suggests that many participants are unaware of its broken product status.  One day, regulators may require investors be informed they are buying a broken product by requiring a ticker symbol suffix or some other means.  Until then, be careful out there, and don’t get caught owning a broken product when the premium disappears.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentionedNo 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.

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Wednesday, December 10th, 2014

Don’t Believe The Hype – New ETF Is Neither Free Nor First

By Ron Rowland
10:25 am CST

Perhaps you’ve seen the hype.  Dressed up as “news” stories and industry insights in otherwise reputable media outlets and blogs, the true facts behind this new ETF contradict the headlines.

A mash-up of the many headlines I observed this week might read “The First Free ETF Finally Arrives” or otherwise suggest this is the first ETF to ever have a 0% expense ratio.  Closer inspection reveals the new ETF will have an expense ratio of 0.29%.  That is not the definition of free.  Additionally, there are about 300 ETFs listed for trading in the U.S.with lower expense ratios.

Even if it were to have a 0% expense ratio, which it doesn’t, it wouldn’t be the first.  Want an example?  Check out the iShares Treasury Floating Rate ETF (TFLO).  Its website shows an expense ratio of 0.00%.  That is much closer to free than 0.29%.  Granted, TFLO’s zero expenses are due to a 0.15% waiver, but the math still works.

Old Mutual was the first firm to launch a free ETF for U.S. investors.  Its GlobalShares FTSE Emerging Markets Fund (GSR) came to market December 8, 2009 with a 0.00% expense ratio.  Five years ago probably makes this one first.

The Cambria Global Asset Allocation ETF (GAA) launches today (12/10/14).  It is a passively managed Fund-of-Funds with an expense ratio of 0.29%.  The expense ratio is based on a 0.00% management fee and acquired fund fees of 0.29%.  However, about 9% of GAA’s holdings will consist of other Cambria ETFs that have management fees of 0.59%, resulting in an indirect management fee of about 0.05%.

GAA may indeed be an innovative approach to ETF investing and could become a very successful product.  However, this is not an article about GAA.  It’s a warning to investors to read beyond the headlines before investing in any product.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentionedNo 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.

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