ETF Prime Archive

The Benefits of ETFs

With the plethora of investment tools at one’s hands and the concept of indexing flooding newswires, exchange traded funds (ETFs) and their counterparts are extremely attractive and for good reason.

An alert investment advisor has probably heard of ETFs, but may not really know what they offer. In a nutshell, ETFs offer the ability to be traded intraday on an exchange, unlike traditional mutual funds which can only be bought and sold at the end of a trading day. ETFs give investors the ability to access hard to reach markets, like commodities, currencies and emerging markets, while being able to be sold short or utilized as a hedging tool. They are open-ended structures, which provides liquidity.

Additionally, the vast majority of ETFs are passively managed and track an index as opposed to being actively managed, which generally drives up costs. When it comes to taxes, ETFs are typically much friendlier than mutual funds due to their in-kind redemption and creation process, which prevents the triggering of capital gains.  They also rarely change their holdings, meaning they rarely have distributions.

Lastly, ETFs offer a characteristic that should be of utmost importance, transparency. One knows exactly what and how many shares of stocks, bonds, futures contracts or swaps an ETF holds on a daily basis. As for mutual funds, they are only required to disclose holdings on a quarterly basis.

Granted, ETFs carry expense ratios, but they still tend to be lower than the front-end or back-end loads, 12b-1 fees, management fees and other expenses associated with mutual funds. An investor knows exactly how much an ETF will cost without any hidden fees. To add icing to the cake, most ETFs actually move in tandem with their indexes, whereas the majority of actively managed mutual funds fail to match the performance of their respective benchmarks.

ETFs are a growing market and are here to stay. At the end of the May 2010, ETFs and ETNs (exchange traded notes) boasted nearly $798 billion in assets with 995 different listed products.

Claymore Brings Back Shipping ETF

As global economies start to show signs of life and growth, ETF provider, Claymore Securities recently announced the re-launch of the Claymore Shipping ETF (SEA), giving investors an opportunity to play a potential increase in global trade and a growing maritime shipping industry. If you have a shipping company, check out https://www.conexwest.com/.

SEA seeks to replicate the performance of the Delta Global Shipping Index which includes companies that derive at least 80% of their revenues from operating or leasing ships or from the transportation of goods. Another prerequisite of the companies that are included in the Delta Global Shipping Index is that they have at least $250 million in market capitalization and a 30-day average daily trading volume of at least $2 million.

As for SEA, the ETF will carry an expense ratio of 0.65% and allocates nearly 68.9% of its sector weightings to industrials and the remaining 31.1% to energy.

Additionally, it boasts Seaspan Corp (SSW), Teekay Shipping Corp (TK), General Maritime Corp (GMR) and Teekay Tankers (TNK) as its top holdings. Lastly, SEA allocates its assets with the following geographical weightings: Greece (18.55%), United States (12.31%), Bermuda (10.29%), Japan (10.24%), Hong Kong (10.01%) and China (8.43%).

During the global recession, many ships were sidelined in an effort to reduce idle capacity, however, things are slowly starting to change. This change can be illustrated by the recent performance of the Baltic Dry Shipping Index, which measures shipping costs for commodities, and generally increases as the number of shipments increases. The Index is up nearly 28% over the past four months.

In a nutshell, as long as economies around the world continue to grow and the demand for transporting goods increases, the global maritime shipping industry will likely reap the benefits.

The ETF Store names Telford Chief Investment Officer

The ETF Store, Inc. announced today that Thomas Telford has joined the firm as its chief investment officer, effective immediately.

Tom was previously a portfolio manager with American Century Investments for twelve years.  He served as manager and co-manager on a number of equity mutual funds during his time there, including the New Opportunities and Technology Funds.  Most recently Tom was the lead manager of the firm’s flagship Ultra Fund, for which he managed approximately $10 billion in assets.

Joe Massman, Founder of The ETF Store, commented on the hiring, “Tom is an outstanding and seasoned asset manager.”  Massman continued, “Tom joining the firm is a validation of our strategy and reflects the changes occurring within the investment advisory business.  Exchange traded funds have been called the next generation mutual fund and they have benefited investors tremendously.  Now, with Tom’s experience having directly managed tens of billions of dollars, we can fully leverage the power of ETFs for our clients.”

Telford added, “I’m excited to join an innovative investment advisory firm like The ETF Store.  Exchange traded funds have changed the way investors invest, and with The ETF Store I’ll have the opportunity to bring sophisticated investment strategies to retail investors.”

Separately, Telford and The ETF Store announced the formation of Impetus Capital Management, an asset management firm that will provide ETF asset management solutions to institutional, high net-worth and third party investment advisors.

The ETF Store to Present at KCEE Event

The Kansas Council on Economic Education is sponsoring a two-day conference titled “Investing Tools for the Classroom” on Wednesday, June 2^nd and Thursday, June 3^rd.  Kansas Teachers in grades 4-12 are encouraged to attend this virtual conference being held at five of the Kansas Regents Universities:  ESU, FHSU, KSU, PSU & WSU.  Free resources and training will be provided for integrating “Investor Education” into the classroom.  The conference is designed to give teachers a strong comfort level with investing topics and will be especially helpful to current Stock Market Game Advisors, personal finance, economics, business, math and FACS teachers.

As part of this event, The ETF Store’s V.P. of Finance, Nathan Geraci, will be presenting a session titled “Introduction to Exchange Traded Funds” which will provide an overview on what exchange traded funds (ETFs) are, their history, the advantages they can have compared to mutual funds, and the benefits of using ETFs in investment portfolios.

For teachers interested in attending this event, you can register online here.  There is no cost for teachers to attend this conference and continental breakfast and lunch will be provided both days.

International Bond Market Widens Arsenal

In yet another attempt to broaden the vast array of exchange traded funds (ETFs) available to investors, State Street began trading the first ever international corporate bond ETF.

The SPDR Barclays Capital International Corporate Bond ETF (IBND), which tracks the Barclays Capital Global Aggregate ex-USD > $1B: Corporate Bond Index, carries an expense ratio of 0.55% and gives investors exposure to debt that is denominated in local currencies.

IBND focuses on investment-grade corporate bonds and gives exposure to the following currencies: Euro, Australian Dollar, Canadian Dollar, New Zealand Dollar, British Pound, Japanese Yen, Swiss Franc, Swedish Krona and the Danish and Norwegian Krone. Although IBND excludes US Dollar-denominated bonds, it does include bonds issued by US companies which are payable in other currencies. In fact, according to the fund’s prospectus, the US has the largest country weighting at 17.5%, followed by Germany at 16.1% and the United Kingdom at 12.5%.

In regards to sector weightings, IBND is heavily focused on financials, industrials and utilities, which constitute 46.9%, 39.5% and 11.6% of its asset base, respectively. Additionally, the underlying index that IBND seeks to track boasts a yield of 3.05%, which can be expected if IBND tracks its underlying index accurately.

Of the holdings in the newly traded ETF, all of the bonds in the fund are rated Baa or higher, with nearly half of them carrying a rating of A or better and the average maturity for the bonds is 5.3 years with a modified adjusted duration of 4.4 years.

Another notable mention regarding the international bond market is that PowerShares has also filed the necessary paperwork to launch the International Corporate Bond Portfolio (PICB), which will seek to replicate the performance of the S&P International Corporate Bond Index and give exposure to international corporate bonds.