I stumbled across a couple of articles by Matt Haugen, who writes for Index Universe (and a couple of other publications too), about an ETF wish list. One article was his wish list and the other was a wish list taken from reader input. Both articles are worth reading. I think they are free but you will have to register.
I thought it might be worthwhile to add my two cents to this. I am not the most creative fellow and no doubt there are some great ideas for products that are needed but that I would not come up with on my own.
One of Matt's articles touches on a currency ETF that is leveraged. There are a bunch of currency ETFs (unleveraged) slated to come out soon. I would favor leveraged currency ETFs but I also think some interesting things could be done, strategically, by blending a leveraged ETF with an unleveraged in pursuit of some effect.
I would like to see an ETF made out of the Rogers International Commodity Index. Currently it is only tradable as a futures product. The Rogers index has 35 different commodities. DBC is 55% in oil. There is a commodity ETF in the works from iShares that will be 80% energy. I have held off on buying DBC because of the energy (I am still undecided) but I would buy more broad-based product tomorrow if it existed.
I would like to see certain regions of the world isolated into ETFs. I would like to see central and Eastern Europe put into the ETF format. The regional closed end funds do the job but it is tough to get good information on what is in the funds.
I think a lot of interesting things could potentially be done with sub sectors of the market with both domestic and foreign stocks. There are too many to mention but I will say that if the industry goes down this road there is likely to be a mix of useful and useless.
Matt's articles also touch on fixed income ETFs. This one is a little lost one me. Once you get too far beyond generic government bonds it gets complicated. Take convertible bonds as an example. An ETF would not necessarily be able buy the same bonds to fulfill the need for creation units. Buying different bonds takes away the index aspect of the product. If the ideas floating around for bond ETFs are more about offering active management in such a way that the premium/discount common to CEFs goes away then that would be a great product but it wouldn't be a true ETF, IMO.
ProFunds has had inverse index funds in the hopper for a long time. I don't know if they will come this year as ProFunds earlier thought but I suppose eventually they will come. They would obviously be useful fro speculators and I think would use in diversified portfolios.
The idea of this discussion ties in with a long running theme of new investment products allowing access to parts of the market that were previously difficult to access.
Two years from now I think it will be possible to have much more control over volatility and returns such that a do it yourselfer can have a lot of predictability which in turn may make being exposed to equities easier.
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5 comments:
Hi Roger
It was an interesting article that one - I responded too late for the follow up piece, but attach my comments below... what worried me a bit was that many of the ideas in focus seemed to be "flavour of the month" rather than broadening the toolbox into neglected areas.
My comments to the IndexUniverse article were...
"I’m a bit late responding here, as you have done your follow up piece already… but I’m surprised you didn’t see more calls for ETFs outside the mainstream asset classes. There are clear differences in what’s available in the US vs Europe in ETFs (US has far more sector/country/style listings – European providers still have some way to go to fill all the bases on local markets – a wish from a European user of ETFs, but I guess less relevant to your US audience). Arguably European providers have gone further on the other asset classes – e.g. EasyETF’s GSCI and GSCI Non Energy etfs and the Lyxor CRB fund. I hear that more single commodity exchange traded securities are pending in the UK…
We have been asking ETF providers in Europe for more ETFs on other asset classes over the past two or three years; it’s possibly too late for some of these in the current cycle, but it would be nice to see some of these in the toolbox:
ETF on listed private equity/mezzanine companies (European or global, say tracking the LPX index http://www.lpx.ch/english/index.html or one of its sub-sets). Or, for US centric investors, an ETF on the BDC sector.
ETF to deliver hedge fund returns, e.g. tracking one or more hedge fund (or hedge fund of fund) indices
An ETF on VIX or another index of volatility (VDAX?) would be a useful portfolio construction and risk management tool.
More ETFs on Japanese assets – sectors (including Japanese REITs and real estate operating companies); Japanese mid and small cap.
More varied bond ETFs – more duration segments for more markets. Lyxor and Indexchange do a good job for Eurozone/Germany, but there are many neglected markets. Does it worry you that respondents were asking for hot small cap and commodities, not bonds or other neglected areas…
It’s probably way too late for this time round, but ETFs on emerging market debt, high yield and CDOs could be useful one day.
ETFs on convertible bonds
Roger,
ETF tracking Rogers International Commodity Index: that's an excellent idea.
How about some more exotic ETF that would truely bring new markets to the mass? My idea is an ETF indexed on CO2 emmission rights (ticker CO2): these markets exists in the US and Europe under the Tokyo Protocol but are only accessible through very limited investment banks (such as Merrill Lynch, Morgan Stanley, Goldman Sachs,...) or hedge funds to relatively large accounts.
Do I have any other ideas? Yes, call me crazy but let me look at the periodic table of elements for few minutes and I might have others.
The problem with a BDC ETF is that there are about 10 BDC's listed. If you want to invest in high yeild and CDO's KFN [KKR Financial] is for you. It's a new REIT launched by KKR to do REIT-type loans as well as participant in various private equity transactions.
A mix of ALD, KFN, and the Gladstone companies GLAD,GOOD,GAIN would make a good "alternative" asset portfolio for typical investors.
guys thanks for these, I told you I wasn't that creative :-))
Hopefully more folks will chime in
I'm happy to chime in, as always. But I'm afraid I may spoil the fun.
What we really need is fewer ETFs, fewer mutual funds and fewer hedge funds.
Don't get me wrong: I'm all for having plenty of choices. The more choices we have as investors, the more creative we can be in constructing interesting portfolios, and that's good news for everyone.
But that's not what most people are doing. The asset management industry's marketing machine has got many of us absolutely hooked on new products like a bunch of heroin addicts. We will pay just about any price in fees to get our 'fix' on something new--the latest, greatest investment.
In reality, it's almost always nothing more than a slick repackaging of something that is already available. An "oil" ETF, for heaven's sake? C'mon...Would J.R. Ewing be caught dead buying one of those??? Be a man: get yourself a cowboy hat and a futures account.
Another example: it is simply unconscionable what Barclays is doing with its Mexico ETF. About 40% of this "fund" is invested in 2 stocks (America Movil and Cemex) that you can easily buy yourself and get nearly all the Mexican exposure most Americans need.
Instead, Barclays sells you a basket full of additional crap that costs 60 basis points a year to own. No offense to any owners of this fund, but I just think that's really dumb.
Instead of more products, we need to do more thinking. We need to learn how to use the tools we have before we go out and buy more.
We need to invest our money with truly talented, active managers rather than the latest joint-venture between the index fund and marketing departments.
We need to do some homework and learn how to buy European stocks by ourselves instead of waiting for some idiot to create an ETF to help us do it.
Sorry for the rant. Just call me St. John the Baptist from now on--the voice crying in the wilderness!
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