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Snapman

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PostSubject: ETF trading/ETF Research/news   Wed Dec 09, 2009 8:48 pm

http://seekingalpha.com/article/177011-five-niche-etfs-worth-a-look

Five Niche ETFs Worth a Look




Since I missed my weekly Hottest ETFs post (here are 18 Hot ETFs
up over 100% YTD to make up for it), I wanted to share some niche ETFs
that you may not have heard of otherwise. Given a possible market
top/correction in the works following the most dramatic uninterrupted
rise in equities in decades, it's worth considering if your portfolio
is adequately diversified, requires rebalancing and whether some of
these niche ETFs may help to offset some volatility with lower
correlation to US equities than a standard S&P500 or large cap ETF.


*For context, year to date, the S&P500 is up 22%.

Name: Claymore/BNY Mellon Frontier Markets
Ticker: FRN
Background: This
ETF seeks to replicate the Bank of New York Mellon New Frontier DR
Index. What makes this ETF especially unique is the country holdings.
The top 5 Holdings are companies hailing from: Chile, Poland, Egypt,
Colombia and Kazakhstan (Borat would be proud). Seriously though, with
BRIC ETFs taking the lion share of emerging market dollars, as
investors find the next frontier of emerging market economies to
satiate appetite for high Beta returns, it may be worth hitching a ride
on this Frontier Market ETF.
Performance YTD: 57%

Name: United States Gasoline
Ticker: UGA
Background:
This ETF seeks to replicate the percent change in US gasoline prices.
I've covered this one before and have personally sold puts against UGA
as one of several ways to employ gas hedging
for my family finances. There are few ETFs that provide retail
investors with such a natural hedge for such strategies. If gasoline is
a significant expense in your personal finances, perhaps it's worth
buying UGA, selling puts or employing another similarly themed hedging
strategy, especially in light of a weak dollar and increasing commodity
prices.
Performance YTD: 80%

Name: Dollar Bear/Dollar Bull ETFs
Ticker: UDN/UUP
Background:
Depending on whether you think the US Dollar is going to collapse or
there's going to be a rush for the exits when the carry trade reverses,
you may want to employ one of these ETFs which basically pits the
strength of the American currency against a bucket of other major
currencies. When the US Dollar strengthens, UUP gains in value; when
the USD falls, UDN appreciates.
Performance YTD: UDN +8% UUP -9%


Name: Van Eck Gold Miners Juniors
Ticker: GDXJ
Background:
If you're looking to jump on the gold bandwagon, given the
speculative/hedging nature of such an investment, you might as well do
it in grand style. This ETF is even more volatile than the price of
gold itself given the nature of some of these "juniors: that explore
for years with no finds and then spike massively upon a find
announcement. Country representation: 63%, of the components are based
in Canada, followed by the U.S. with 22%, Australia 11%, South Africa
2%, China 1% and the U.K. 1%
Performance Since Launch: The ETF just launched in November. Against Gold's 3.2% move in that period, GDXJ is up 4.8%.

Name: Claymore Beacon Global Timber Index
Ticker: CUT
Background:
This ETF seeks to replicate the return of the Clear Global Timber
index. What's especially attractive about this ETF is the lower
correlation to US equities offered. Years back when the Harvard
endowment was returning 25% a year plus in rocky markets, timber was
one of the types of non-correlated investments that helped buoy the
fund in turbulent times. This year, CUT has outperformed broader
equities even given the recent run.
Performance YTD: 50%

See this full ETF List of over 800 listed ETFs, which may inspire you further to investigate new sector, country or leveraged ETFs.

Disclosure: Long GDXJ, Hedged Sold Put position on UGA.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Dec 10, 2009 5:41 pm

Via seekingalpha.com:
Boston-based Old Mutual Global Index Trackers has launched its first
ETF, listing the GlobalShares FTSE Emerging Markets Index Fund (GSR)
on the NYSE Arca Exchange Tuesday. In order to compete in an
increasingly crowded space, Old Mutual has thrown in an interesting
twist: for a limited time, GSR will have an expense ratio of zero basis
points, making it the first ETF listed under a “Zero Fee, Zero Cost”
arrangement. The ban on expenses will last until
January 31, 2010, at which point GSR will cap its expense ratio at
0.39%. At this level GSR will still be cheaper than several emerging
markets ETFs, such as EEM (0.72%) and GMM (0.59%), but will cost more than Vanguard’s low-cost VWO
(which has an expense ratio of just 0.27%). Charles Schwab is planning
to launch an emerging markets ETF in January of next year that will
charge 0.35%. GSR was seeded with more than $60 million in
assets, significantly more than most ETFs maintain at launch. Most
funds begin trading with between $5 million and $10 million in assets.
Linked to the FTSE Emerging Markets Index, GSR has approximately 300
individual holdings, including both individual stocks and other ETFs.
As of December 7, the iShares MSCI Taiwan Index Fund (EWT) and PowerShares India Portfolio (PIN)
made up about 4% and 3%, respectively, of total holdings. Other major
holdings include BRIC mega-caps Petroleo Brasileiro, China Construction
Bank, China Mobile, and Gazprom OAO. More To Come

Old
Mutual Global Index Trackers is planning to launch up to four
additional global and emerging markets ETFs in early 2010. The company
is owned by Old Mutual plc, an international firm with operations in 38
countries and more than $400 billion in global assets. “GlobalShares is
a new fresh brand and Old Mutual Global Index Trackers is an unfamiliar
name to most U.S. investors,” said managing director and CEO Tendai
Musikavanhu. “But we are confident that our tracking capabilities and
our desire to hold a position as a low-cost index advisor will enable
us to gain traction in this market.” More information on the new ETF, see the GlobalShares Web site.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Dec 10, 2009 6:03 pm

Batman wrote:
Via seekingalpha.com:
Boston-based Old Mutual Global Index Trackers has launched its first
ETF, listing the GlobalShares FTSE Emerging Markets Index Fund (GSR)
on the NYSE Arca Exchange Tuesday. In order to compete in an
increasingly crowded space, Old Mutual has thrown in an interesting
twist: for a limited time, GSR will have an expense ratio of zero basis
points, making it the first ETF listed under a “Zero Fee, Zero Cost”
arrangement. The ban on expenses will last until
January 31, 2010, at which point GSR will cap its expense ratio at
0.39%. At this level GSR will still be cheaper than several emerging
markets ETFs, such as EEM (0.72%) and GMM (0.59%), but will cost more than Vanguard’s low-cost VWO
(which has an expense ratio of just 0.27%). Charles Schwab is planning
to launch an emerging markets ETF in January of next year that will
charge 0.35%. GSR was seeded with more than $60 million in
assets, significantly more than most ETFs maintain at launch. Most
funds begin trading with between $5 million and $10 million in assets.
Linked to the FTSE Emerging Markets Index, GSR has approximately 300
individual holdings, including both individual stocks and other ETFs.
As of December 7, the iShares MSCI Taiwan Index Fund (EWT) and PowerShares India Portfolio (PIN)
made up about 4% and 3%, respectively, of total holdings. Other major
holdings include BRIC mega-caps Petroleo Brasileiro, China Construction
Bank, China Mobile, and Gazprom OAO. More To Come

Old
Mutual Global Index Trackers is planning to launch up to four
additional global and emerging markets ETFs in early 2010. The company
is owned by Old Mutual plc, an international firm with operations in 38
countries and more than $400 billion in global assets. “GlobalShares is
a new fresh brand and Old Mutual Global Index Trackers is an unfamiliar
name to most U.S. investors,” said managing director and CEO Tendai
Musikavanhu. “But we are confident that our tracking capabilities and
our desire to hold a position as a low-cost index advisor will enable
us to gain traction in this market.” More information on the new ETF, see the GlobalShares Web site.


I like the pricing dynamic in the ETF market. Low cost for great exposure. Only need to use massive amounts of capital is the downside if you want to make decent profit.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Dec 10, 2009 8:40 pm

What I thought was interesting is thta this ETF holds other ETF's within its basket. The ETF game has so much room to expand.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Dec 10, 2009 9:05 pm

Batman wrote:
What I thought was interesting is that this ETF holds other ETF's within its basket. The ETF game has so much room to expand.

This is the beauty and the downside to financial engineering. I forget who said it, but my financial markets teacher always harps on it. It was either buffet or (greenspan?) some other academic head that spoke about the great developments in finance esp. with derivatives and being about to engineer some of the great advances that great improved efficiencies and liquidity and etc... etc... in the financial markets. But it was also what led the down of our 08 crisis (double edged sword).

But I totally agree with you, the ETF game has much much more room to expand. Just wait until structured products mixed with etf's become a mainstream in banking. Despite regulation those institutions that adapt will always find away to innovate around the issue at hand and come out on top. Which is part of the reason why America will still be on top even if they don't lead out of this recession. R&D, innovation, etc... im sure you catch my jist.
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PostSubject: Re: ETF trading/ETF Research/news   Fri Dec 11, 2009 7:36 pm

The Commerce Department reported Friday morning that U.S. retail
sales jumped 1.3% in November, led by sales in autos, gasoline and
electronics. Excluding auto and gasoline sales, core retail sales rose
by 0.6%. This is a positive economic sign amid the holiday shopping season, as reported by AFP. The strength across most retail sectors should buoy investors’ confidence. The SPDR S&P Retail ETF (XRT) is up more than 1% so far today. In
addition, the Reuters/University of Michigan preliminary index of
consumer sentiment rose for December rose to 73.4, from 67.4 in
November and above estimates. The measure of current conditions, which
tells us whether consumers think it’s a good time to buy big-ticket
items, jumped to 79.1 in December. This is up from 68.8 in November and
is the highest reading since March 2008. Improved sentiment may help
fuel spending and sustain the recovery into 2010, reports Vincent Del Giudice for Bloomberg.
The index of expectations for six months from now, which more closely
projects the direction of consumer spending, increased to 69.7 from
66.5. The U.S. dollar rose to a one-month high against
other major currencies today as gains in retail sales and consumer
sentiment increased speculation that the Federal Reserve will raise
interest rates next year. In recent weeks, strong U.S. economic data
has led to positive reactions in the U.S. dollar, reported Ben Levisohn and Ye Xie for Bloomberg. The dollar index touched its highest level since Nov. 3. The PowerShares DB U.S. Dollar Index Bullish (UUP) is up about 1% this morning. Goldman Sachs (GS) moved to defuse public outrage over their compensation practices. Susanne Craig of the Wall Street Journal reports that Goldman’s top 30 executives will receive no cash
bonuses for 2009 despite the firm’s expected record profits. However,
the changes are only for 2009 and will not affect the more than 31,000
other Goldman Sachs employees. The SPDR Select Sector Fund – Financial (XLF) is virtually unchanged currently.
Tony D’Altorio contributed to this article.
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PostSubject: Re: ETF trading/ETF Research/news   Fri Dec 11, 2009 7:39 pm

If this is the case maybe the equities up dollar strength story will con tune for a bit. I know we have been discussing this alot recently. This move could change the name of the game if it holds.

================================================================================================================================



By Mike Conlon
What Lies Ahead (Below) for the Euro? I
feel like at times I neglect the Euro, as it’s sort of the “middle
child” in the currency pecking order of the risk trade. So while my
focus tends toward the more extreme pairs (Aussie & Kiwi for risk-taking, Dollar and Yen for risk aversion), perhaps it’s time to turn my attention back to the Euro. While
the recent move down hasn’t escaped my attention, it appears as though
this may be the reversal that has been long overdue. The Euro is an
interesting currency in that it is comprised of different countries
that both cooperate and compete with one another. This is what gives it
that balance, as strong countries tend to balance out the weaker ones.
Think of it as automatic diversification. But what happens when
the balance begins to slip? Increased volatility and a move to the
downside, which is what we are starting to see now. The reason is that
there are more countries that are in economic trouble in the Euro zone
than there are those that are seemingly economically sound. The fact that there seems to be a pickup in sovereign debt downgrades to Euro zone members is the catalyst at this point. S&P cut Spain’s rating and Fitch cut Greece’s rating all within the last two days. There is no proof that this will mark the last of the downgrades. Combine
this with already noted economic weakness in Ireland, Iceland,
Portugal, and the Eastern Bloc and it makes one wonder who is actually
doing well. As of this writing, it appears to be France, Germany, and
the Scandinavian countries, although Germany just reported a decrease
in industrial production, when an increase was expected. So
while many are correctly predicting that there won’t be a rate hike
from 1% any time soon, I wouldn’t necessarily rule out a rate
REDUCTION. While it’s no secret that the ECB lost out on the interest
rate race to the bottom, it might just be time to loosen monetary
policy as more members end up on ratings agency watch lists. As
ECB President Trichet whined about Euro strength as a result of dollar
(and by proxy Chinese Yuan) weakness, he did nothing about it. While
tasked with keeping inflation at bay, this doesn’t appear to be a
problem anytime soon and could in fact prolong recovery if the
unemployment and economic picture gets any worse. Let’s take a quick look at a chart of EUR/USD: As
we can see, the Euro appreciated mightily against the Dollar until
recently when its trend-line has broken. Expect to see further Euro
weakness as the ECB scrambles to come up with measures to help
stabilize individual economies. This also plays into the “risk
aversion” trade, which would cause Dollar strength if the signs of Euro
zone recovery seem distant. Any way you slice, the Euro zone
seems to be in trouble and the question now is whether they can enact
measures fast enough to halt a potential domino effect. You can’t be all things to all people, as Trichet is finding out the hard way.Disclosure: The author may hold a position in some or all of the securities/trades mentioned above.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Mar 04, 2010 12:58 pm

http://groupanlz.blogspot.com/2010/03/nat-gas-trade-03032010.html
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PostSubject: Re: ETF trading/ETF Research/news   Thu Jun 03, 2010 8:35 pm

WHere will the SPX wind up in the short-term. As we have discussed in our morning sessions, the SPX has room to rally before we get another sell-off. This ETF analysis of the SPY enhances that argument:

http://www.etf-corner.com/markets/2010/05/spy-the-three-litlle-pigs-.html
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PostSubject: Re: ETF trading/ETF Research/news   Thu Jun 03, 2010 8:44 pm

Batman wrote:
WHere will the SPX wind up in the short-term. As we have discussed in our morning sessions, the SPX has room to rally before we get another sell-off. This ETF analysis of the SPY enhances that argument:

http://www.etf-corner.com/markets/2010/05/spy-the-three-litlle-pigs-.html

Nice chart there Smile
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PostSubject: Re: ETF trading/ETF Research/news   Thu Jun 17, 2010 1:06 am

Sauros wrote:
Batman wrote:
WHere will the SPX wind up in the short-term. As we have discussed in our morning sessions, the SPX has room to rally before we get another sell-off. This ETF analysis of the SPY enhances that argument:

http://www.etf-corner.com/markets/2010/05/spy-the-three-litlle-pigs-.html

Nice chart there Smile


lol and he huffed and he puffed! .... and then saw a 1000 ;-)
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PostSubject: Re: ETF trading/ETF Research/news   Wed Jun 23, 2010 12:50 pm



News
Huge put trade in materials ETF
June 22, 2010 Tue 12:05 AM CT

Materials stocks finished higher yesterday, but the puts dominated option trading in a key sector ETF.

The average option volume is roughly 10,000 contracts in the Materials Select Sector exchange-traded fund, but yesterday the XLB saw 101,000 contracts change hands. Of those, 60,000 were included in one strategy when a trader moved 30,000 each of the July 30 and 32 puts at the same time.

The July 32 puts traded for $1.10 against open interest of 349 contracts, so this was a new opening position. The July 30 puts went for $0.40, but the volume was less than the open interest of 34,128 contracts so it was unclear whether the trade was done to open or close a position.

It appears from all the data that the July 32 puts were sold and the July 30 puts were bought, which would make it either a bullish credit spread or a trader rolling up a short put. In either case, the sale of the July 32 puts appears to have been done against short shares. There was a spike in the volume of XLB stock the minute before the options traded, with 300,000 shares traded in total.

So this isn't as much of a bullish bet as it is a wager that shares will remain in this range until expiration.

(Chart courtesy of tradeMONSTER)[
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PostSubject: ETFs Gone Wild    Mon Jun 28, 2010 4:45 pm

Fantastic article on the history, future, and hidden risks of many ETFs...


=======================================================

July, 2010 (Bloomberg Markets) -- Exchange-traded funds--many stuffed with exotic derivatives--are shaking up the mutual fundindustry. Regulators want to make sure they don’t become the next financial time bomb. The skunk works at IShares’ headquarters in San Francisco is buzzing. Researchers in the development lab pore over data flashing across computer screens while colleagues refill their mugs at the coffee bar and huddle in conference rooms illuminated by translucent blue partitions. These brainiacs, who create the exchange-traded funds that have made the BlackRock Inc. unit the kingpin of the global ETF market, took a radical departure in November from the index trackers IShares has churned out for a decade. They released a hedge fund in a box.

The IShares Diversified Alternatives Trust ETF packs the complex bets favored by hedge fund managers into one security. There’s no rock star money manager calling the shots; a computer program monitors the fund daily. Anyone with about $50 and a brokerage account can buy a share of an ETF that uses derivatives to bet on swings in stocks, government bonds, currencies and commodities around the world, Bloomberg Markets magazine reports in its July issue. “There’s going to be a whole rash of these things coming out,” says Michael Latham, head of IShares’ U.S. and Canada operations. A physicist named Nathan Most invented the ETF more than 20 years ago as a simple mutual fund that trades on bourses like a stock. Fund providers are now unleashing a new breed of “extreme ETFs” that use short selling, leverage and derivatives in a bid to capture a larger share of investor assets.

Double and Triple Returns

The creators range from BlackRock to startups founded by Ivy League professors. And the ETFs come in an array of styles. While “hedge fund replicators” mimic the strategies of exclusive investment pools, other ETFs offer investors easy entree to the volatile world of commodity futures trading. Some “leveraged and inverse” securities even promise to double and triple returns on moves in the Standard & Poor’s 500 Index and other benchmarks. Assets in more than 260 such funds have soared to $40 billion globally from virtually zero in about four years, according to BlackRock.

Fund providers and registered investment advisers say that if used judiciously, extreme ETFs can help investors curb losses. In the first week of May, the Greek debt crisis triggered the most-volatile swings in U.S. stocks in more than a year. The S&P 500 dived more than 7 percent in five trading days. The ProShares Advisors LLC’s UltraShort S&P 500 ETF, which uses futures contracts and swaps to bet against the index, surged 17 percent during the same period.

‘It’s Insanity’

“If you’re not hedged these days, you’re going to get killed,” says Adam Patti, the chief executive officer of IndexIQ Advisors LLC, a firm in Rye Brook, New York, that copies hedge fund-style investing in ETFs. John Bogle counters that extreme ETFs may be the next financial concoction to blow up in investors’ faces. Bogle, the creator of the first index mutual fund in 1975, says these complex securities subvert the discipline of buy-and- hold investing and encourage investors to chase market-beating returns by speculating like day traders. The ProShares UltraShort S&P 500 ETF plunged 9 percent on May 10 after the stock market rallied on news that the European Union set up a bailout fund for indebted nations. “It’s insanity,” says Bogle, 81, the founder of Vanguard Group Inc. “This is a classic case of Wall Street trying to capitalize on the worst instincts of investors.” Some investment advisers say hedge fund replicators and their ilk may be twisting the innovative ETF into an overly complex and murky security that is dependent on derivatives.

Reining in Excesses

“I couldn’t possibly justify putting clients’ money into those because they’re brand new, not tested, and I don’t know what’s in them,” says Andrew Mathieson, the founder and managing member of Fairview Capital Investment Management LLC in Greenbrae, California. “It looks like just another way for investors to get plucked.” Investors can examine the holdings for ETFs managed by IShares and other fund providers online. “We believe innovation means good ideas coupled with good execution, and we focus on bringing products to market that provide greater access to a range of asset classes or investment strategies in efficient ways,” says Noel Archard, IShares’ head of product development.

Regulators are moving to rein in possible excesses. On March 25, the Securities and Exchange Commission announced it was deferring approval of new ETFs that use derivatives as its staff reviews whether fund managers are stuffing too much leverage and complexity into offerings aimed at retail investors.

Too Risky

And in June 2009, the SEC and the Financial Industry Regulatory Authority Inc. (Finra) issued a joint alert warning investors that returns in leveraged and inverse ETFs could deviate widely from their underlying indexes when held longer than a day. Finra, the Washington-based organization that polices broker-dealers, has several investigations under way to see if investors are being sold ETFs they may not understand or that may be too risky for their needs, says James Shorris, the agency’s acting chief of enforcement. Shorris is concerned about the role ETFs are playing in what he calls the “retailization” of leverage, derivatives and other hedge fund-style investing techniques. “Hedge funds are restricted to high-net-worth individuals and institutions for a reason; they are very complicated, and you have to take the risk of losing everything,” Shorris says. “It would surprise us if retail brokers could explain the risks satisfactorily to their customers.”

Garnering Momentum

All this action comes as ETFs continue to explode in popularity and draw investors away from traditional mutual funds. Assets in ETFs worldwide have more than doubled to $1.1 trillion since 2005, and with 833 new funds in the pipeline the market will soar another 20 to 30 percent this year, says Deborah Fuhr, BlackRock’s global head of ETF research. While mutual funds, with $19.5 trillion in assets, still dwarf ETFs, these upstart securities are garnering momentum: In 2009, ETF providers raked in net sales of $118 billion in the U.S., more than two times the $54 billion collected by index mutual funds, according to Loren Fox, a senior analyst at Strategic Insight Mutual Fund Research and Consulting LLC. On some days more than 4 out of 10 trades on U.S. stock exchanges involve ETFs, says Tom Lydon, the editor of ETFtrends.com, an industry website. Following the “flash crash” of U.S. equities on May 6, more than 70 percent of the trades canceled due to excessive declines involved ETFs, according to the SEC and Commodity Futures Trading Commission.

More Exotic Specimens

Some of the biggest names in asset management are jumping into the arena. Legg Mason Inc., Pacific Investment Management Co. and T. Rowe Price Group Inc. are in various stages of unveiling actively managed ETFs that aim to outperform market benchmarks the same way nonindex mutual funds do. And IShares has cracked the $2.7 trillion market for 401(k) retirement plans in the U.S. by selling its ETFs to small and mid-size companies. “It’s safe to say ETFs aren’t a fad,” Lydon says. The creators of ETFs are cranking out ever more exotic specimens to bolster the asset management fees they collect from investors. ETFs are cheap: The average plain vanilla one charges investors about 5 cents for every $10 they invest compared with 9 cents for stock index-based mutual funds, according to Morningstar Inc. IShares and its competitors fetch far more money for complex funds. IShares’ Diversified Alternatives Trust ETF costs 0.95 percent, and the ProShares UltraShort S&P 500 ETF charges 0.91 percent.

Exorbitant Fees

The exotic securities cater to a broad spectrum of investors. “You can use the exact same product for the most sophisticated institution and for mom-and-pop investors,” says IShares’ Latham, a burly Californian who grew up surfing the Pacific Ocean just 15 miles (24 kilometers) south of his office. “Goldman Sachs is buying the same product as my mom, and for the same price.”

Fund providers are also peddling fancy ETFs to investors who have soured on paying exorbitant fees to hedge funds. Many of these firms blocked clients from withdrawing cash during the credit crash, and about 2,500 out of 9,050 hedge funds in the U.S. shut down in 2008 and 2009, according to data compiled by Hedge Fund Research Inc.

Lack of Liquidity

The IQ Hedge Multi-Strategy Tracker ETF, with fees of 0.75 percent, is a bargain compared with the typical hedge fund that charges 2 percent on assets under management and 20 percent of gains, says IndexIQ’s Patti. Plus, shareholders can bail out of the ETF anytime they choose. The City of New Haven City Employees Retirement Fund invested $8 million in Patti’s strategy. “The trustees were turned off by the lack of liquidity and transparency in traditional hedge funds,” says Derek Ciampini, a consultant at a unit of Ameriprise Financial Inc. who advised New Haven’s pension board.

In the late 1980s, Most, then head of product development at the American Stock Exchange, set out to boost volume by making mutual funds tradable securities. Most, a polymath who’d worked as an acoustical engineer and commodities trader, faced a problem: A mutual fund would constantly redeem shares as it traded, generating too many taxable transactions. So he retooled the mutual fund to make redemptions with securities instead of cash, limiting capital-gains taxes. That made ETFs cheaper and opened the door to continuous trading.

The First ETF

“That was the key concept of the ETF from which all other features evolved,” Most wrote in a foreword to Exchange Traded Funds by Jim Wiandt and Will McClatchy (Wiley, 2001). Most died in 2004 at the age of 90. With Most’s help, State Street Corp. in 1993 brought out the first ETF, the SPDR S&P 500 Trust, which was dubbed the Spider. Investors wary of the newfangled instruments mostly shunned them for years. Then in 2000, Lee Kranefuss, head of the retail products group at Barclays Global Investors in San Francisco, wagered that better product development and marketing would spur a market for ETFs. So with the support of BGI’s then-CEO Patricia Dunn, Kranefuss created IShares at the asset management division of London-based Barclays Plc. And he recruited Latham, an accountant who’d climbed BGI’s management ranks since joining the firm in 1994, to run IShares’ day-to-day operations.

Next Generation

During the next six years, IShares leapfrogged State Street and brought out scores of ETFs that tracked industries, international equities and, eventually, commodities, currencies and bonds. Today, IShares manages more than $516 billion in assets in 430-plus funds and commands 46 percent of the global market, about twice the combined share held by No. 2 State Street and No. 3 Vanguard, according to IShares and Bloomberg data. Latham took over as head of IShares’ U.S. and Canadian businesses in January 2006 as pressure mounted from investors for exotic ETFs that would hedge market volatility. “We’d come out of the baby stage where the industry was just trying to break through,” says Latham, tieless in a white Brooks Brothers shirt and chinos at IShares’ 10-story headquarters. “Now, it was moving into the next generation of ETFs.”

In early 2007, Latham turned to Archard, the product development chief, to mint a new line of ETFs with complex strategies that institutions had long used but had been largely inaccessible to Main Street investors. Archard, 40, a chatty Philadelphian fond of plying his colleagues with Dunkin’ Donuts, and his 20-member team occupy two floors at IShares.

Absolute Return

The open office, with its rows of computer screens and desks stacked with books on investing theory, feels like a cross between a trading floor and a university library. That’s fitting given IShares’ provenance. In the late 1960s, economists Eugene Fama, Myron Scholes and William Sharpe tested their theories about market efficiency and risk-return ratios at the firm that eventually became BGI. In 1971, it pioneered the first index strategy by tracking the performance of every equity on the New York Stock Exchange. Now Archard, who had developed ETFs at Vanguard, and his team have created the first IShares ETF that doesn’t rely on an underlying index. Diversified Alternatives, which trades under the ticker ALT, isn’t designed to produce robust returns associated with hedge funds, according to its prospectus.

Instead, it’s set up to deliver modest gains regardless of how the global economy or the financial markets behave -- what Wall Street professionals call an absolute return. The fund’s paramount goal is to take half the risk of the average equity portfolio by going long and short in broad groups of securities, says the prospectus.

Three Strategies

The ETF blends three strategies that many hedge funds use to insulate their performance from wild swings in the markets. The “momentum/reversal” approach tries to anticipate which way a group of equity indexes, interest rates and commodities are going to move by looking at price history. If a stock index’s recent surge exceeds past performance, the ETF goes long; a slide below historical levels cues a short position. The other two approaches hunt for baskets of securities that are under- or overpriced and exploit changing spreads between groups of fixed- income securities and commodities contracts. The fund executes all three strategies with futures contracts and currency forward contracts. On May 10, the ETF was bullish on the CAC 40 index of French stocks and the Australian dollar, and it was shorting the euro, Japanese government 10- year bonds and the S&P/TSX 60 index of Canadian equities.

Future ETFs

A computer program, closely monitored by a team of portfolio managers, oversees the fund’s holdings. The ETF, which has a market value of $55 million, has slipped 0.17 percent from its debut on Nov. 16 through May 27, about the same as the HFRX Global Hedge Fund Index. Latham says this fund is a prelude to future ETFs. In December, BlackRock acquired BGI for $15.2 billion, making the New York-based company the No. 1 global investment firm, with $3.3 trillion in assets. Latham is now working to package BlackRock’s investment strategies in IShares’ ETFs. One area of research: tailoring funds to address specific liabilities for retirees. If inflation were to send a client’s health-care costs higher, for example, the ETF would automatically adjust its bets to produce extra income for a client’s medical bills. Entrepreneurs are devising their own experimental ETFs. SummerHaven Investment Management LLC, a 14-month-old firm in Stamford, Connecticut, created an index to tame the unpredictable gyrations of commodity derivatives.

One-Room Office

The company, which plans to manage an ETF pegged to its SummerHaven Dynamic Commodity Index this year, hardly seems a hotbed of financial engineering. Its four partners share a one- room office subleased from Basso Capital Management, a hedge fund, with a view of Interstate 95.

SummerHaven’s founders know their way around the arcane world of raw materials investing: K. Geert Rouwenhorst, 50, is a Yale School of Management finance professor who authored a research paper called “Facts and Fantasies About Commodity Futures” in 2004 with Gary Gorton, then a professor at the Wharton School of the University of Pennsylvania. Gorton, now at Yale, is a senior adviser to SummerHaven. Partner Kurt Nelson, 40, was head of UBS AG’s commodity index business in Stamford until last year.

Startling Results

Rouwenhorst and Gorton showed that from 1959 to 2004, commodities futures didn’t move in sync with stocks yet delivered about the same level of returns. Moreover, the contracts posed less risk for investors than equities, which was startling given the reputation of commodities for volatility. In a 2007 follow-up paper, the duo, joined by Professor Fumio Hayashi from the University of Tokyo, demonstrated that futures for commodities with low inventories consistently outperformed those with abundant stockpiles. “These guys brought academic respectability to commodities and showed it’s a real asset class and not just a place for speculators who go broke in pork bellies,” says Jim Rogers, an investor who called the bull market in raw materials in the late 1990s and is chairman of Rogers Holdings in Singapore.

Rouwenhorst, a data hound who studied the commodities- pricing treatises of economists John Maynard Keynes and Nicholas Kaldor, wanted to convert his thesis into an investing strategy. Beginning in the fall of 2009, he and Nelson, along with SummerHaven partner Adam Dunsby, assembled a basket of futures contracts for 27 commodities ranging from platinum to unleaded gasoline to hogs. Then they formulated algorithms to discover which commodities were fetching higher prices for immediate delivery rather than in the future, a pattern called backwardation that signals supplies are dwindling. And they also factored in short-term price momentum.

Nickel and Cotton

The index selects the 14 top contenders every month. In March, the portfolio rotated in nickel and cotton futures and rotated out aluminum and natural gas. And by giving the 14 contracts equal weight, the index decreases the risk of buying just crude or gold. “When you think about stocks, you think about earnings,” Rouwenhorst says in the precise accent of his native Holland. “So what do you think about with commodity futures? The answer is inventories.” The SummerHaven index was up 8 percent in the 12 months ended on May 27 compared with an 2 percent increase by the bellwether Goldman Sachs Commodity Index. In December, United States Commodity Fund LLC, an Alameda, California-based company that manages energy ETFs, announced it would distribute a SummerHaven fund.

Next Big Fiasco

Some money managers say investors should avoid extreme ETFs and get back to basics by acquiring undervalued stocks and holding them for the long term. “We should be dialing this stuff down, but instead we’re going the opposite way,” says Robert Olstein, the chairman and chief investment officer of Olstein Capital Management LP, a mutual fund provider in Purchase, New York. “When all these funds come unglued, this is going to be the next big fiasco on the Street.” Many investment professionals are telling their clients it may be riskier not to use these new ETFs. The S&P 500 fell 2.7 percent annually in the decade ended on Dec. 31, 2009. Investors, especially baby boomers on the cusp of retirement, have to consider the prospect of depending on income from their portfolios in a bear market. “Most people want simple solutions, but buy-and-hold investing only works in a bull market,” says Louis Stanasolovich, CEO of Legend Financial Advisors Inc. in Pittsburgh. “Investors can be more nimble now; the tools are out there.”

Future of Investing

Investors are warming to this brave new world. In April 2009, Frank Transue, a Chicago-area civil engineer, agreed to let his investment adviser plow hundreds of thousands of dollars from his 401(k) plan into many ETFs, including one for oil futures and another that shorts Treasury bonds. “It took some convincing because I’m a conservative investor,” Transue, 68, says. “Now, I’m looking at moving a large portion of my portfolio into ETFs.” The true test for exotic new funds will come when they demonstrate they can reap profits consistently in a volatile, post-crash world. Then, shareholders will see whether these newfangled ETFs are the future of investing or just another financial experiment gone awry.
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PostSubject: Re: ETF trading/ETF Research/news   Tue Jun 29, 2010 4:24 pm

Aluminum Exchange-Traded Fund Will Start Next Month
(Update1)


http://noir.bloomberg.com/apps/news?pid=20601009&sid=agUWz14HwXTg


June 29 (Bloomberg) -- United Co. Rusal, the world’s largest
aluminum producer, said an exchange-traded fund for the metal is set to start
as early as next month, offering support after lower prices forced smelters
globally to shut.


Rusal and other producers are in talks to supply the metal
for the fund, which may buy as much as 1 million metric tons of aluminum in a
year, Chief Executive Officer Oleg Deripaska told reporters in Tokyo today.


Aluminum prices in London have declined 11 percent this year
amid concerns China’s measures to curb its property market will curtail demand
and as the European debt crisis roiled markets. An exchange-traded fund may
help support metal prices as physical demand stayed strong, Deripaska said.


Aluminum for three-month delivery on the London Metal
Exchange dropped 1.9 percent to $1,990 a metric ton at 7:02 p.m. Tokyo time.
Prices closed at $1,867.50 a ton on June 7, the lowest level in eight months.
The price reached an 18-month high on April 16.

Prices of the metal will rise to $2,400 a ton by the
end of the year as physical demand remains healthy, Deripaska said today.
Rusal, based in Moscow, won’t change its production target this year, he said.
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PostSubject: Re: ETF trading/ETF Research/news   Fri Jul 09, 2010 4:39 pm

National Stock Exchange says assets in US listed exchange-traded funds and exchange-traded notes totalled approximately USD787.5bn at June 2010 month-end, an increase of approximately 30 per cent over June 2009 month-end when assets totalled USD603.2bn.

At the end of June 2010, the number of listed products reached 1,009, topping 1,000 for the first time, compared to 837 listed products at June 2009 month-end.

June 2010 net cash inflows from all ETFs/ETNs totalled approximately USD12.3bn, with year-to-date net cash inflows totalling USD39.9bn, which is a record for the first six months of the year.

Total fixed income and total US equity led all categories with net cash inflows of USD4.9bn and USD4.3bn respectively for June 2010.
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PostSubject: Re: ETF trading/ETF Research/news   Mon Jul 12, 2010 3:54 pm

Bank of America Plans Volatility ETN to Compete With Barclays
July 09, 2010, 10:41 AM EDT

July 9 (Bloomberg) -- Bank of America Corp. will introduce an exchange-traded note whose value is derived from the size of stock-price swings in the U.S., competing with Barclays Plc securities that won as much as $2.8 billion in assets. The ETN will track prices for Standard & Poor’s 500 Index options using a Bank of America gauge similar to the Chicago Board Options Exchange Volatility Index, or VIX, according to John O’Brien, co-head of equity derivatives sales at the firm. It will be called the Investable Volatility Index.

While the Barclays volatility products, known as the VXX and VXZ, have lured money since their introduction in 2009, critics say they don’t work as long-term investments because costs are too high due to their monthly purchase of futures that tend to decline in value as time passes. Bank of America says it has addressed that problem by instead buying S&P 500 options that don’t drop in value as fast. “If a product comes along that doesn’t have these deteriorating return characteristics, it may be attractive compared to VXX,” said Jim Strugger, an options strategist at MKM Partners LP in Stamford, Connecticut. Traders use put and call options to hedge against losses on equities. Because the VIX and S&P 500 move in opposite directions about 80 percent of the time, investors buy and sell options and futures on the volatility measure -- as well as the Barclays securities -- to guard against market plunges. The VIX quadrupled between Aug. 22 and Nov. 20, 2008, as the financial crisis intensified and the S&P 500 retreated 42 percent.

42-Fold Jump
Trading volume for the VXX has jumped more than 42-fold compared with a year ago to a four-week average of 22.1 million a day. The number of outstanding shares has risen to 44.5 million and peaked at 76.4 million in April. The VXX is an effective way to make short-term bets on volatility, Strugger said. That’s what investors generally use the ETN for, according to Ian Merrill, director of U.S. investor solutions at Barclays. “There had not previously been an investable VIX index,” Merrill said. “Now many investors are watching what’s happening in the marketplace and taking positions on the direction of volatility.” Critics of the VXX, which has 56 times the average trading volume of the VXZ, say that it doesn’t protect against losses over long periods of time because the fund periodically buys more expensive long-term contracts as current holdings near maturity, boosting costs. Bank of America’s product tracks options with an average maturity of five months. The VXX tracks VIX futures that expire in one or two months.

‘Carefully Educated’
“VXX provides a vehicle for retail investors to gain volatility exposure,” said Dominic Salvino, a specialist at Group One Trading, the primary market maker for VIX options on the CBOE floor. “However, they need to be carefully educated on exactly what they are getting. The VXX will slowly bleed away value unless there is an event. In this case, the event is a spike in volatility which usually means a market meltdown.” Bank of America’s Investable Volatility Index has fallen 34 percent since the S&P 500 sank to a 12-year low in March 2009. The VXX has lost 77 percent and the VIX dropped 48 percent. “Existing products haven’t consistently delivered on the performance of the VIX, and many clients have come to us asking for a better way to gain exposure to volatility,” O’Brien said.
An option is a contract that gives its holder the right to buy or sell a security at a fixed price, while a futures contract carries an obligation to buy or sell. Structured notes are bank-issued securities that combine bonds with derivatives, which are contracts whose value is derived from stocks, bonds, currencies and commodities.

Last month, Bank of America started selling derivatives such as structured notes and swaps that reference its volatility gauge, according to Kerrie McHugh, a New York-based spokeswoman. Bank of America’s ETN will track the price of S&P 500 options that are farther from maturity instead of short-term VIX futures to minimize the cost of carrying positions, O’Brien said. The Barclays VXZ note tracks longer-dated VIX futures and is suitable for “medium-term” investments, Merrill said.

--Editors: Nick Baker, Chris Nagi

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PostSubject: Re: ETF trading/ETF Research/news   Mon Jul 12, 2010 6:13 pm

Snapman wrote:
Bank of America Plans Volatility ETN to Compete With Barclays
July 09, 2010, 10:41 AM EDT

July 9 (Bloomberg) -- Bank of America Corp. will introduce an exchange-traded note whose value is derived from the size of stock-price swings in the U.S., competing with Barclays Plc securities that won as much as $2.8 billion in assets. The ETN will track prices for Standard & Poor’s 500 Index options using a Bank of America gauge similar to the Chicago Board Options Exchange Volatility Index, or VIX, according to John O’Brien, co-head of equity derivatives sales at the firm. It will be called the Investable Volatility Index.

While the Barclays volatility products, known as the VXX and VXZ, have lured money since their introduction in 2009, critics say they don’t work as long-term investments because costs are too high due to their monthly purchase of futures that tend to decline in value as time passes. Bank of America says it has addressed that problem by instead buying S&P 500 options that don’t drop in value as fast. “If a product comes along that doesn’t have these deteriorating return characteristics, it may be attractive compared to VXX,” said Jim Strugger, an options strategist at MKM Partners LP in Stamford, Connecticut. Traders use put and call options to hedge against losses on equities. Because the VIX and S&P 500 move in opposite directions about 80 percent of the time, investors buy and sell options and futures on the volatility measure -- as well as the Barclays securities -- to guard against market plunges. The VIX quadrupled between Aug. 22 and Nov. 20, 2008, as the financial crisis intensified and the S&P 500 retreated 42 percent.

42-Fold Jump
Trading volume for the VXX has jumped more than 42-fold compared with a year ago to a four-week average of 22.1 million a day. The number of outstanding shares has risen to 44.5 million and peaked at 76.4 million in April. The VXX is an effective way to make short-term bets on volatility, Strugger said. That’s what investors generally use the ETN for, according to Ian Merrill, director of U.S. investor solutions at Barclays. “There had not previously been an investable VIX index,” Merrill said. “Now many investors are watching what’s happening in the marketplace and taking positions on the direction of volatility.” Critics of the VXX, which has 56 times the average trading volume of the VXZ, say that it doesn’t protect against losses over long periods of time because the fund periodically buys more expensive long-term contracts as current holdings near maturity, boosting costs. Bank of America’s product tracks options with an average maturity of five months. The VXX tracks VIX futures that expire in one or two months.

‘Carefully Educated’
“VXX provides a vehicle for retail investors to gain volatility exposure,” said Dominic Salvino, a specialist at Group One Trading, the primary market maker for VIX options on the CBOE floor. “However, they need to be carefully educated on exactly what they are getting. The VXX will slowly bleed away value unless there is an event. In this case, the event is a spike in volatility which usually means a market meltdown.” Bank of America’s Investable Volatility Index has fallen 34 percent since the S&P 500 sank to a 12-year low in March 2009. The VXX has lost 77 percent and the VIX dropped 48 percent. “Existing products haven’t consistently delivered on the performance of the VIX, and many clients have come to us asking for a better way to gain exposure to volatility,” O’Brien said.
An option is a contract that gives its holder the right to buy or sell a security at a fixed price, while a futures contract carries an obligation to buy or sell. Structured notes are bank-issued securities that combine bonds with derivatives, which are contracts whose value is derived from stocks, bonds, currencies and commodities.

Last month, Bank of America started selling derivatives such as structured notes and swaps that reference its volatility gauge, according to Kerrie McHugh, a New York-based spokeswoman. Bank of America’s ETN will track the price of S&P 500 options that are farther from maturity instead of short-term VIX futures to minimize the cost of carrying positions, O’Brien said. The Barclays VXZ note tracks longer-dated VIX futures and is suitable for “medium-term” investments, Merrill said.

--Editors: Nick Baker, Chris Nagi


More Aplphabet cereal. Something tells me that these type of products may cause serious problems over th enext few years. I absolutely love ETFs for trading. However, I forsee a prominent pension fund or college ENdowment getting talked into a product like this in order to "manage risk." Meanwhile the BofA rain-maker is laughing all the way to the bank.

At present, Many institutional investors have fled more and more to ETFs to avoid the recurring hedge fund fees. These type of products should not been deemed as an investments. ETFs are often characterized as tradable Mutual funds. Hardly the case. To the contrary, these products are closer to wealth destructing than wealth creating.

Undoubtedly, ETFs are great for getting exposure to asset classes which were un-reachable for years to the common investor. Also, in general ETFs have a cheap cost structure, are tax-friendly, and pay respectable dividends. Though, I remain weary of the "value" created by investing in these products. If you are a short-term player in the market then these are perfect. However, if you wish to buy and hold, you are better off putting your money in plain vanilla fixed income or equities.

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PostSubject: Re: ETF trading/ETF Research/news   Thu Jul 15, 2010 6:26 pm


Published on ETF Express (http://www.etfexpress.com)
Home > Asia Pacific ETF turnover down 22.3 per cent
Asia Pacific ETF turnover down 22.3 per cent

By Emily.perryman
Created 14/07/2010 - 11:15

Monthly average daily turnover of Asia Pacific exchange-traded funds declined by 22.3 per cent in the quarter ended 30 June 2010, totalling USD780m on 9 July, according to Deutsche Bank.

The largest ETF by turnover was the iShares Asia Trust - iShares FTSE/Xinhua A50 China Tracker issued by BlackRock with USD150m accounting for 19.3 per cent of total turnover.

Assets under management declined four per cent in the previous week compared to last quarter. AUM as of 9 July was USD63.3bn.

The largest ETF by AUM is the iShares Asia Trust - iShares FTSE/Xinhua A50 China Tracker managed by BlackRock with AUM of USD7.0bn.

There are 225 equity based ETFs in the Asia Pacific region with 313 listings across 12 countries and 15 exchanges. Japan has the largest market share by AUM accounting for 40.87 per cent of the whole market, whilst China has the largest market share by turnover with 36.52 per cent.

During the week Mitsubishi UFJ Asset Management listed four commodity ETFs on Japan's Tokyo stock exchange which track precious metals such as gold, silver, platinum and palladium.

Article Tag:
Asia Pacific, exchange-traded funds, Deutsche Bank
Weekly Asia News (Friday)
Copyright © 2009 Hedgemedia Ltd. All Rights Reserved
Source URL: http://www.etfexpress.com/2010/07/14/54450/asia-pacific-etf-turnover-down-223-cent
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PostSubject: Re: ETF trading/ETF Research/news   Thu Jul 15, 2010 6:31 pm

There’s an ETC for your every need
Thursday, 15th July 2010
More ETCs arrive as competition hots up
Jessica Mead
FANCY investing in emerging market equities, hedge fund performance or copper? If so, then there’s almost certainly an exchange-traded product (ETP) for that. For ETPs are rather similar to the ubiquitous smartphone application: they are cutting-edge, give users fast, simplified exposure to investments and providers can quickly launch in response to user demand.
And as in the smartphone space, competition is hotting up among the providers and especially in the commodity exchange-traded products space. In the second quarter there were 13 providers of commodity ETPs managing almost €32bn of assets. And this week we saw Deutsche Bank’s exchange-traded funds (ETFs) division db x-trackers list 10 new exchange-traded commodities (ETCs) on the London Stock Exchange. This follows the launch of the provider’s ETC platform on the Xetra Frankfurt exchange earlier this year.
They are backed by physical gold and give exposure to a range of commodities from gold and silver to industrial metals via the S&P GSCI Industrial Metals index. The Industrial Metals ETC includes exposure to copper (43.48 per cent), aluminium (30.19 per cent), nickel (11.84 per cent), zinc (8.57 per cent) and lead (5.92 per cent).
There are also a number of booster ETCs, which are designed to optimise the rolling over of commodity contracts through minimising costs from the roll-over. When commodity futures contracts are rolled over, there can be a divergence between the spot price and the future price.
While the db x-trackers’ products give diversified one-stop exposure to commodities, you can also get single commodity exposure via ETF Securities’ ETCs and UBS’s range of ETCs – both listed on the LSE. For example, the UBS CMCI Aluminium ETC aims to follow the performance of the UBS Bloomberg CMCI (CMCI) Aluminium Total Return index. It measures the collateralised returns from a basket of aluminium futures contracts and is designed to be representative of the entire liquid forward curve. The sterling-denominated ETC’s total expense ratio is 0.87 per cent compared to 0.37 per cent for the dollar-denominated product.
And while single industrial metal ETCs have not fully taken off, there is demand from the investment community, says William Adams, head of research at BaseMetals.com. Adams adds that he is seeing increased interest in the ETF sector from the smaller institutional investors such as hedge funds and sovereign wealth funds that do not specialise in commodities but which nonetheless want some exposure to the asset class.
While gold has been going from strength to strength thanks to heightened risk aversion, investors are still looking at the prospects for industrial metals in the light of a renewed global slowdown.
But being more selective in your exposure could yield you better returns. In its quarterly base metals report, Sucden Financial says that only copper and tin “seem to present the most persuasive fundamentals for demand leading prices higher, but other metals present supply-driven bearish risks”.
For copper, we may see another dip, says Steve Hardcastle, head of client services at Sucden Financial, but he adds this should be contained at around $6,250/tonne. Technical analysis points to resistance at around $7,350/tonne. And for tin, the outlook is for solid price performance in the $17,000-$19,000 range but the metal has the technical potential to exceed the January and April highs and reach as high as $20,220. For the more bearish others, at least there’s an ETC that – ETF Securities already offers short ETCs and others are sure to move into the space too.
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PostSubject: Re: ETF trading/ETF Research/news   Mon Aug 16, 2010 5:49 am

ETF Database
By: Michael Johnston

======================================================================================

There is no denying that the ETF boom is in full swing, as billions of dollars continue to flow into the industry every month despite a difficult economic environment. As individual investors and advisors alike become more informed on the nuances and potential benefits of ETFs, usage has surged. Part of the impressive surge in assets is no doubt attributable to the flexibility of the exchange-traded structure; these securities have found homes in the portfolios of investors across the risk tolerance spectrum. ETFs have been embraced by long-term buy-and-holders because of the extremely competitive expense ratios relative to traditional actively managed mutual funds. They’ve also become quite popular as “replacements” to equities; more active investors who measure holding periods in hours have gravitated towards the exchange-traded structure because it provides exposure to a basket of securities that can be traded throughout the day.

There are other, more creative uses for ETFs as well. These securities can extremely useful for investors looking to implement market neutral pairs trading strategies that generally involve equivalent long and short positions in related (but unique) asset classes. By identifying two securities that are seemingly mispriced relative to one another, investors can capitalize by purchasing the undervalued asset and shorting the overvalued asset. Because the net exposure is zero, these investors don’t really care if broader markets boom or bust; so-called “market neutral” positions can thrive in any environment.

Such a strategy theoretically carries significant risk; (moreover, the presence of a short position means that potential losses are infinite). But by implementing such a strategy with two related assets, investors can effectively establish a low volatility position, since the two will almost always move in the same direction.

Pairs trading is nothing new. All walks of investors have been using market neutral strategies for decades, most commonly establishing long and short positions in two similar stocks (e.g., long BAC, short JPM). But ETFs have changed the game of pairs trading, allowing investors to make plays on perceived high level macroeconomic price discrepancies instead of company-specific disconnects.

Six Ways To Play
There are a number of ways to construct market neutral portfolios with ETFs, including strategies that seek to capitalize on relative mispricings between sectors, countries, market capitalizations, and slivers of the fixed income pie:

6. Value/Growth
There has been a tremendous amount of research done on the relative merits of value and growth investing styles, and ETFs offer investors an opportunity to capitalize on differences in the performance between these two strategies. For example, going long the iShares Russell 1000 Growth Index Fund (IWF) and short the Russell 1000 Value Index Fund (IWD) creates an opportunity to profit if growth stocks outperform value equities (the opposite strategy would allow investors to profit if value stocks beat their growth counterparts).

5. Market Cap
Another pairs trading idea within the same economy involves splitting up equities by market capitalization. Within an individual economy, equities will usually exhibit strong correlations. But different sizes of stocks can maintain very unique risk and return profiles, creating opportunities to capitalize on differences in performance. An investor who thinks small cap Indian equities will perform better than large caps could go long SCIN/short INP. Those who think large cap Brazilian equities are a better bet than mid caps could go long EWZ/short BRAZ. And of course, there are dozens of combinations within the U.S. market.

4. Single Sector
There are a couple of variations on the pairs trading idea that can be implemented within a single sector. The first is to establish a market neutral position consisting of long exposure to a sector in one economy and short exposure to the same sector in a different economy. For example, investors might think that emerging market financials carry less risk and greater potential for return than the U.S. financial sector; going long EFN and short XLF would be an intriguing way to make this play while maintaining net zero equity exposure.

It’s also possible to bet on different market caps within a single sector. Earlier this year PowerShares rolled out a suite of nine sector-specific small cap ETFs that can serve as both alternatives or complements to the sector SPDRs from State Street. An investor looking to stay within the domestic energy market could play long XLES/short XLE, positioning a portfolio to benefit if small cap energy companies beat large cap energy stocks. Because the correlation between these ETFs would likely be strong, such a position should exhibit minimal volatility regardless of whether markets surge higher, plunge lower, or trend sideways.

3. Cross Sector
Some investors like the idea of pitting various corners of the market against each other, betting that a certain industry will perform better than others. This pairs trade idea may have significant potential for return, as various corners of the economy often perform significantly better than others. So far in 2010, the Industrial SPDR (XLI) is up more than 11%, while the Health Care SPDR (XLV) is down almost 5%.

Head-to-head sector ETF pairs trading isn’t only an option within the U.S. EGShares offers a suite of sector-specific emerging market products; investors could go long EMT/short EEO if they think metals & mining firms hold brighter prospects than energy companies. And Global X offers a number of sector-specific ETFs targeting various corners of the Chinese and Brazilian markets, creating dozens of potential market neutral strategies.

2. Cross Region
For investors with informed opinions on the outlooks for various countries, ETFs offer the fuel to power near-limitless strategies. With funds covering every major world economy, investors can access any corner of the globe through a single ticker [use the free country lookup tool to identify ETFs with exposure to a specific country]. The options for cross-region ETF strategies are numerous: long PLND/short EZU could allow investors to bet on relatively strong performance from Poland relative to the euro zone. Long ILF/short GMF would be appealing to those who think Latin American emerging markets hold more promise than developing economies in Asia.

1. Fixed Income Duration
Moving beyond the equity ETF universe, fixed income funds present some intriguing options as well. Although interest rates are expected to remain near zero for the foreseeable future, bond prices have been somewhat unpredictable. Investors looking to play changes in interest rates or investor sentiment have a number of ETF tools to utilize; long exposure to long-term bonds coupled with short exposure to short-term bonds makes for an interesting mismatch in duration, and there is no shortage of options for implementing this play.
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PostSubject: Re: ETF trading/ETF Research/news   Thu Aug 19, 2010 11:57 am

Can Chinese Demand Boost The Corn ETF?
by MICHAEL JOHNSTON on AUGUST 10, 2010 | ETFs Mentioned: CORN


Earlier this summer a sight appeared on China’s eastern coast that hadn’t been seen in nearly 15 years: a ship full of U.S. corn docking at a Chinese port. Several more ships packed with U.S. maize followed, sparking speculation over a seemingly sudden and severe shift in the country’s agricultural policies. Historically, China has imported only limited quantities of grain, priding itself on agricultural self sufficiency. But so far in 2010, the country has imported about 1.2 million metric tons from the U.S., the world’s largest producer.

The sudden surge in Chinese demand has puzzled analysts, many of whom offer up competing views over the implications of recent purchases. Some see it as a sustainable trend, the arrival of an era of major exports to an increasingly-wealthy Chinese population. Others think the surge in demand for U.S. corn is a non-recurring event driven by recent extreme weather conditions in Russia and other parts of the world [also see ETFs To Play A U.S. Export Boom].

“Predicting China’s corn demand is complicated by the Chinese government’s intense secrecy,” writes Brian Spegele. “The Communist Party has long considered grain self-sufficiency a core element of national security, and the leadership reaffirmed earlier this year that China aims to produce at least 95% of the grain it consumes through 2020.” The Communist Party in China keeps the size of its grain reserves secret, meaning that there is no way for outsiders to gauge the extent to which China will be agriculturally self sufficient in the future. If Chinese corn demand has begun to outpace supply, the country could become dependent on U.S. exports to feed a population that is growing in both size and wealth. That scenario could obviously give corn prices a boost, as a previously untapped market could quickly become a major consumer of U.S. corn [also see All American ETF Options].

Corn ETF In Focus

Investors in the Teucrium Corn Fund (CORN) have no doubt been watching developments in China with tremendous interest. CORN, which began trading in June of this year, offers investors a way to establish efficient exposure to exchange-traded futures contracts on corn. The fund invests in corn futures trading contracts trading on the CBOT, allocating 35% of holdings to the second-to-expire contract, 30% to the third-to-expire contract, and 35% to the contract expiring in the December following the third-to-expire contract. Currently, that means that holdings are split between contracts expiring in September 2010, December 2010, and December 2011 [see CORN's holdings].



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