If you had not heard, the NYSE put out a report entitled What You Should Know About Exchange Traded Funds (link is to a PDF). You probably should read the report, it is short, and you probably should know the things the report covers but it strikes me a a couple of years, or more, late.
I would be shocked if you found something new in it. There are plenty of investors that know very little but I think at this point the people that don't know about them would be very unlikely to visit the NYSE site for anything.
People involved enough with their investments to seek out a stock market blog will find very little utility in the report.
With the number of ETF providers growing it is surprising that there still is not better media coverage yet.
To this point CNBC just ran a segment about whether there are too many ETFs citing that the O-Strip ETF (OOO) is closing due to a lack of demand. While we should not be shocked the segment had almost no meat on the bone it does show that MSM has shockingly little understanding. When they do have someone on who does get it, like today, they don't know what questions to ask. It is kind of weird, seriously. Take Erin's question today about which ETFs are the most popular. Most popular? Are you kidding?
ETFs are simply tools for accessing parts of the market. Sometimes a given ETF is the best way to capture the market and many times it is not. It is only logical that some products will fail and some will succeed.
Too many ETFs chasing too few assets (as mentioned in today's interview) is an issue on the horizon but I view it as too many ETFs chasing the same part of the market. One example would be broad based dividend ETFs. Yes they all have different methodologies but the results are not that different. That one could fail for lack of interest should not be a surprise nor be a deathblow to the company. StateStreet has a diverse product line and one of them didn't work. No big deal there will be other funds that close. This is how new things evolve.
Wikinvest Wire
12 comments:
This is from the ETF newsletter about fixed income etfs which seemd to be trickier to find. I would love to have international bond etfs avaialble, by country or sector or something.
That's Bond...Ameri-Bond
Aug 31, 2006
Ameristock Funds, the mutual fund company behind the U.S. Oil exchange-traded fund (ETF) (AMEX: USO), has filed with the Securities and Exchange Commission (SEC) for the right to launch five fixed-income ETFs. The funds will track U.S. Treasury indexes from Ryan ALM, as follows:
Ameristock/Ryan 1-Year Treasury ETF
Ameristock/Ryan 2-Year Treasury ETF
Ameristock/Ryan 5-Year Treasury ETF
Ameristck/Ryan 10-Year Treasury ETF
Ameristck/Ryan 20-Year Treasury ETF
The prospectus is available here.
The funds will be the first new fixed-income ETFs to hit the market in the U.S. in four years, and will fill an important competitive role in the fixed-income universe. Since 2003, when ETF Advisors shut down its fledgling fixed-income ETFs (known as FITRs), Barclays Global Investors (BGI) has been the only company offering U.S. investors ETF-based access to the fixed-income market .
BGI has done very well with the funds, too: Their six fixed-income ETFs boast $18.8 billion in assets. People have long wondered when one of BGI’s competitors would enter the fixed-income arena, and there have been rumors about almost all the fund companies, including State Street Global Advisors (SSgA), WisdomTree and PowerShares. Now, it looks like Ameristock has beaten them to the punch.
Interestingly, the new funds will track the same indexes as the failed FITRs, namely, Treasury indexes from Ryan. The Ryan indexes differ from the indexes tracked by BGI in that they track the performance of a single-year Treasury – or, at least, the closest approximation to that. For instance, the Ameristock/Ryan 2-Year Treasury ETF will track an index composed of a single security: the most recently auctioned 2-Year Treasury Note. In comparison, BGI offers a 1-3 year Treasury fund, tracking the blended performance of more than 20 securities. (Note: Ryan's 1-year and 20-year indexes are blends of two securities each: 6-month and 2-year Treasuries for the 1-year Index, and 10-year and 30-year Treasuries for the 20-year index.)
The singular focus of the Ameristock ETFs presents some unique management challenges. Because the underlying indexes hold just one or two securities, and role them over each time the U.S. government holds a Treasury auction, faithfully tracking the indexes would lead to massive portfolio turnover. To mitigate this, the fund will hold a mix of securities - including, possibly, futures and other derivatives - designed to let it mimic the underlying indexes. Investors will have to closely monitor tracking error in the early days.
The funds will match the BGI funds on expenses, with both funds charging a management fee of just 15 basis points. It too early to say how the two fund families will compare on “all-in” fees, but Ameristock’s streamlined holding structure could possibly give it an edge.
The new Ameristock ETFs will list on the American Stock Exchange (AMEX).
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I wrote about these for TheStreet.com which you can read here
How long did it take CNBC to find that husky voiced Erin? "How popular?" ....right. Remember folks, CNBC is entertainment---not fact.
In the also ran column, not much differenct between the ETFs?
How 'bout this?
SPY 3 yr return = 10.7%/yr
PWC 3 yr return = 16.2%/yr
Don't know about ya'll, but that is different.
g
Roger, On the big picture theme. I'm a a retired boomer and fixed income is a big deal. Our mind set about investing is making a sea change. Reliance on a predictable stream will be in demand. That's my bottom up comment on what may be one of those dominant forces in the near future. Not sure how it will playout. Already seeing variable annuities give the pitch..discount ones at vanguard and fidelity...and conservative journalist are endorsing when they never did before. Personally, won't touch somehting i dont' understand. Closed end funds are awful seductive, but do not have a strategy for DD and ditto for high yield stocks. Would not mind a mechanical fundamental driven etf, for longgg term hold, that does active managing and as long as the fee is not outrageous. At the moment,wisdom t.et al dividend etfs look overbought.
After doing a lot of comparisons between those broad etfs, I would not assume insignficant differences. Cap weighting vs equal weighting; and passive vs active managing....and the name of a broad etf may not reflect underlying components. Morning star helps. Just signed up for membership. Their reports help.
Roger, how do you find out correlational data between entities? Is it the trader's almanac? Never been there, but it sticks in my mind.
PWC is actively managed and has done very well from the outset, clearly.
to anon, you would consider a dividend ETF for the longgg (as you spelled it assuming you mean years and years) yet you imply you would hold off on an unnamed WisdomTree fund because it looks overbought?
For a ten year hold (I am randomly making up that time period) would even 5% either way matter?
I think what anon is saying about the dividend etfs...he is really meaning---the whole high dividend paying sector has done so well the past 6yrs, that the liklihood that it continues to outperform is UN likely.
OK....I buy that line of reasoning.
What has UNDERperformed?
Large Growth, including Tech.
HHHmmmmmm.....
Thank you, Roger! I had somehow missed the last couple of posts you did on that other site. (I have had several small trips that have me behind.)
I really wish, though, that some international corporate bond etfs were available, done well for the individual investor. I know you'll alert us if you see some.
how large or how many shares/day need to exsist before they pull the plug on a ETF?
I am interested in some of the wisdom tree ETFs, but the low volume concerned me.
There is no formula. ETFs cost money. The revenue generated either justifies the expense or it doesn't but that is a subjective decision.
while I am not privy to anything special I have to think that WisdomTree will give their funds a lot of time to gain traction.
The Ryan ETFs are meant for hedge funds/investors that need precise exposure to certain parts of the TSY yield curve.
The whole reason these exist has to do with the fact the bond yields for any given duration/credit rating can be approximated very well by the TSY yield curve and a spread factor.
These indexes were created to speed calculation of the big bond indexes like the Lehman aggregate.
Instead of having to price 4000 illiquid bonds in the OTC market, you could quickly price the most recent treasury bonds from the last auction and then apply a spread.
You can read the whole history here:
http://www.ryanalm.com/DesktopModules/RyanALMPublic//Data/Ryan%20Index/History_Ryan_Index.pdf
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For practical investment purposes these have no advantages over the aggregated indexes in SHY/IEF/TLT.
The O-strip ETF was created for a time when NASDAQ trading was expensive and slow on the less liquid stocks.
The idea was that if you needed to assemble an S&P 500 portfolio, it would be faster to buy shares on the NYSE, and the correct amount of OOO, than it would be to wade into the NASDAQ to buy the 141 stocks of the O-strip yourself.
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