ETF Times: September 20-24

Last week saw the launch of an ETF designed to perform in both bull and bear markets, an ETF that mimics a fund-of-hedge funds, and more

Morningstar ETF Analysts 28 September, 2010 | 6:45PM
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New Listings
iShares launched two new swap-based ETFs on the London Stock Exchange. These are the first swap-based ETFs that iShares has ever launched (its existing swap-based funds were acquired). The new ETFs feature some investor-friendly, risk reducing features. These include engaging multiple swap counterparties (RBS, UBS, and Credit Suisse), over-collateralisation, full daily disclosure of collateral holdings, and disclosure of swap spreads (a first in the industry). For more on recent efforts to increase the transparency of swap-based ETFs, please see our recent article “Credit Where Credit’s Due”.

The iShares MSCI Russia Capped Swap ETF (LSE ticker symbol: RUSS) charges a total expense ratio (TER) of 0.74% and tracks the performance of the MSCI Russia Capped Index, which includes companies whose market capitalisation puts them in the top 85% of the universe of investable Russian equities. The iShares S&P CNX Nifty India Swap ETF (ticker symbol: NFTY) charges a TER of 0.85% and tracks the performance of the S&P Nifty India Index, which includes 50 companies listed in India comprising about 60% of the country's equity market capitalisation. The difficulties associated with tracking emerging market benchmarks through physical replication lend them well to being tracked by swap-based funds.

Source launched a new ETF tracking a hedge fund strategy on the Deutsche Börse. The BofA ML Hedge Fund Factor Euro Source ETF tracks the performance of the Merrill Lynch Factor Model Index, which was designed to mimic the performance of a fund-of-hedge funds without investing directly in hedge funds. The index is based on a quantitatively-determined portfolio of equities from the S&P 500, Russell 2000, MSCI EAFE and MSCI Emerging Markets Indices. It takes both long and short positions in these indices and makes monthly adjustments based on new data inputs. It joins the US dollar version of the ETF already listed on the London Stock Exchange (ticker symbol: SMLD). Both versions of the ETF charge an annual TER of 0.70%. The annual fee is high relative to an average equity ETF, but is much lower than the typical expenses levied by funds-of-hedge funds. The ETF also has the benefit of greater liquidity as there are no lockup arrangements, as well as greater transparency.

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Morningstar ETF Analysts  research hundreds of ETFs available to European investors. The Morningstar Rating for ETFs is based on a risk-adjusted performance measure.