The second wave of product launches for 2012 contains a pair of “breakeven inflation rate” ETFs, a small-cap emerging Asia-Pacific fund, two low volatility ETFs targeting emerging and developed international markets, new ETFs targeting the regional emerging markets of Latin America and EMEA, an actively-managed fund-of-funds with a global rotation strategy, and a German sovereign debt fund.
ProShares 30 Year TIPS/TSY Spread (RINF) listed on 1/12/12 with an expense ratio capped at 0.75% (RINF overview). The underlying Dow Jones Credit Suisse 30-Year Inflation Breakeven Index tracks the performance of long positions in 30-year Treasury Inflation Protected Securities (TIPS) and duration-adjusted short positions in U.S. Treasury bonds of the closest maturity. The difference in yield (or “spread”) between these bonds (Treasury yield minus TIPS yield) is commonly referred to as a “breakeven rate of inflation” and is considered to be a measure of the market’s expectations for inflation. The index is designed to appreciate as the breakeven rate of inflation increases. Additional information about the index is available at Dow Jones Indexes. RINF is implementing this strategy with a combination of swaps and 30-year U.S. Treasury securities.
ProShares Short 30 Year TIPS/TSY Spread (FINF) listed on 1/12/12 with an expense ratio capped at 0.75% (FINF overview). The new ETF seeks daily investment results, before fees and expenses, that correspond to the inverse (-1x) of the daily performance of the Dow Jones Credit Suisse 30-Year Inflation Breakeven Index. See the description of RINF above for additional information on the underlying index. FINF is implementing this strategy with a combination of swaps and 30-year U.S. Treasury securities.
Analysis/Opinion: RINF and FINF bill themselves as the first Breakeven Inflation ETFs. However, PowerShares introduced similar inflation/deflation expectation products last month, although they were in an ETN wrapper. Another major difference is that RINF/FINF target the 30-year spread while the INFL/DEFL pair from PowerShares measures the spread at three different maturities with 5-year securities nominally weighted at 50%, 10-year at 40%, and 30-year at 10%. This should result in the new ProShares pair having more sensitivity (larger price swings) to changes in inflation expectations under most conditions.
SPDR S&P Small Cap Emerging Asia Pacific ETF (GMFS) listed on 1/12/12 with an expense ratio of 0.65% (GMFS overview). The underlying S&P Asia Pacific Emerging Under USD 2 Billion Index is a market capitalization weighted index designed to track the investable universe of publicly traded small-cap companies domiciled in emerging Asian Pacific markets. Country weightings are Taiwan 39.7%, China 23.4%, India 13.8%, Malaysia 9.6%, Indonesia 6.4%, Thailand 5.7%, and the Philippines 2.5%. Sector breakdown includes Technology 21.6%, Financials 17.1%, Industrials 15.8%, Consumer Discretionary 13.4%, and Materials 12.3%. GMFS currently has 491 holdings with none exceeding a 1% weighting in the fund.
Analysis/Opinion: GMFS is the small-cap complement to the large-cap SPDR S&P Emerging Asia Pacific ETF (GMF) (GMF overview). As is often the case, sector and country representations shift between large- and small-cap segments. The large-cap GMF has its largest allocations going to China at 37.9% and Financials 25.2%. Investors often mistake iShares Pacific ex-Japan (EPP) as being a competitive offering to GMF, but there is no overlap as EPP only covers developed markets.
PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) listed on 1/13/12 with an expense ratio capped at 0.29% (EELV overview). The underlying S&P BMI Emerging Markets Low Volatility Index measures the performance of 200 of the least volatile stocks of the S&P Emerging BMI Plus LargeMid Cap Index. Largest country allocations include Malaysia 23.3%, South Africa 18.6%, Taiwan 11.8%, Brazil 9.1%, and Chile 5.9%. The sector breakdown has Financials at 25.4%, Utilities 15.4%, Consumer Staples 15.2%, Materials 10.1%, Telecommunications 10.0%, and Industrials 9.8%.
PowerShares S&P International Developed Low Volatility Portfolio (IDLV) listed on 1/13/12 with an expense ratio capped at 0.25% (IDLV overview). The underlying S&P BMI International Developed Low Volatility Index measures the performance of 200 of the least volatile stocks of the S&P Developed ex US and South Korea LargeMid Cap BMI Index. Largest country allocations include Canada 20.3%, Japan 16.6%, U.K. 11.4%, Singapore 11.2%, and New Zealand 9.3%. Sectors with more than 10% weightings include Financials 22.4%, Consumer Staples 17.9%, Industrials 14.0%, Consumer Discretionary 11.2%, Utilities 11.0%, and Health Care 10.3%.
Analysis/Opinion: PowerShares is trying to capitalize on the roaring success of its PowerShares S&P 500 Low Volatility Portfolio (SPLV) launched last May [Analysis of New High Beta and Low Volatility ETFs from PowerShares]. Not only did SPLV deliver on its promise of low volatility, but it also generated above average returns while kicking out above average yield. Although not marketed as a dividend ETF, SPLV is now part of my ETF Dividend & Income Strategy. I suspect EELV and IDLV will also be success stories. IDLV has a current yield of about 3.5% while EELV yield data is not available at this time.
iShares MSCI Emerging Markets EMEA Index Fund (EEME) listed on 1/19/12 with an expense ratio of 0.49% (EEME overview). The underlying index is a free float adjusted market capitalization weighted index that measures equity performance of the emerging market countries of Europe, the Middle East, and Africa (“EMEA”). The largest of the 131 holdings includes Gazprom 10.0%, Lukoil 4.6%, MTN Group 4.4%, Sasol 4.3%, and Sberbank 4.0%. The largest sector allocations fall to Energy 28.1%, Financials 24.6%, Materials 15.7%, and Telecommunications 10.6%. Country weightings include South Africa 44%, Russia 30%, Poland 8%, and Turkey 7%.
iShares MSCI Emerging Markets Latin America Index Fund (EEML) listed on 1/19/12 with an expense ratio of 0.49% (EEML overview). The underlying index is a free float adjusted market capitalization weighted index that measures equity market performance of Latin American emerging markets. The largest of the 124 holdings includes Petrobras 7.0%, Vale 6.0%, American Movil 5.6%, and ITAU Unibanco 5.4%. The five largest sector weightings are Financials 21.5%, Materials 21.1%, Energy 16.2%, Consumer Staples 14.4%, and Telecommunications 8.0%. Country breakdown includes Brazil at 65%, Mexico 20%, Chile 8%, Columbia 4%, and Peru less than 1%.
Analysis/Opinion: With these two new ETFs, iShares has begun the process of providing ETFs that divide the emerging markets into three major regions. They have yet to offer the third region: Emerging Market Asia Pacific. However, as mentioned above in the GMFS analysis, the SPDR S&P Emerging Asia Pacific ETF (GMF) is such a fund.
AdvisorShares Accuvest Global Opportunities (ACCU) listed on 1/26/12 with an expense ratio of 1.78% that is capped at 1.80% (ACCU overview). It is an actively managed fund-of-funds ETF targeting long-term capital appreciation in excess of the MSCI All Country World Index. The portfolio manager, Accuvest Global Advisors, selects a portfolio of U.S. listed country-specific exchange traded funds (ETFs), using its proprietary multi-factor country ranking model. Its current holdings and allocations are iShares MSCI Thailand (THD) 21.7%, iShares S&P 500 (IVV) 20.1%, iShares MSCI Brazil (EWZ) 15.6%, iShares MSCI South Africa (EZA) 14.9%, iShares MSCI Russia Capped (ERUS) 13.5%, and iShares FTSE China 25 (FXI) 13.0%.
Analysis/Opinion: The AdvisorShares fee capping process and description leaves much to be desired. It states the fees for ACCU will be capped at 1.25%, but the cap does not apply to the acquired fund fee expenses of 0.55%. Therefore, the actual cap of 1.80% (1.25% + 0.55%) exceeds the stated gross expense ratio of 1.78%. The ACCU prospectus (pdf) includes a discussion of the past performance of the portfolio manager, including charts and tables showing it underperformed its benchmark for the past 1-year and 5-year periods.
ProShares German Sovereign/Sub-Sovereign ETF (GGOV) listed on 1/26/12 with an expense ratio capped at 0.45% (GGOV overview). The underlying Markit iBoxx EUR Germany Sovereign & Sub-Sovereign Liquid Index measures the performance of fixed rate debt securities of the Federal Republic of Germany as well as local governments and entities or agencies guaranteed by various German governments. It has 33 constituents with an average yield to maturity of 1.9% and a modified adjusted duration of 4.8 years. The fund currently holds about half of its assets in swaps with the other 50% directly in the underlying bonds.
Analysis/Opinion: The relatively low yield of GGOV will likely make it more sensitive to currency fluctuations than interest rates. GGOV will compete with PIMCO Germany Bond Index Fund (BUND), which also includes German corporate bonds. Additionally, there is PowerShares DB German Bund Futures ETN (BUNL), which is an exchange-traded note and does not issue dividends.
Disclosure covering writer, editor, and publisher: Long SPLV and THD. 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.