Halloween is upon us once again, so whether you're preparing to douse yourself in facepaint and stock up on goodies, or to barricade yourself behind the front door and spend Sunday evening in silence with the lights off, we've got four treats and a solitary trick for you to add to your exchange-traded funds cauldron.
1. Treat: Transparency. ETF providers such as iShares and Credit Suisse have demonstrated a commitment to full transparency by disseminating the composition of the collateral baskets held by their swap-based funds on a daily basis. While investors will in many cases not be able to make sense of the composition of these baskets--as they often bear little resemblance to the funds’ reference indices--regular disclosure will allow for greater scrutiny of the assets backing these funds. Independent research groups such as Morningstar will no doubt scour these new disclosures and try to provide a better sense of the collateral portfolios’ safety. Read more here.
2. Treat: On-exchange liquidity is on the rise. Year-to-date GBP turnover for exchange-traded products on the London Stock Exchange has risen 43.6%. Increasing turnover bodes well for the future direction of exchange-traded products trading costs.
3. Treat: Increasing choice. From pre-packaged asset allocation strategies to more narrow slices of sovereign debt markets to an expanding roster of country-specific products, investors’ choices in the ETP universe are expanding.
4. Treat. In response to the buzz created by an FT article highlighting the potential for nasty tax consequences of investing in ETPs that do not have UK “distributor” or “reporting” status, providers quickly responded by filing for such status—if they hadn’t already—and more prominently highlighting whether or not a particular product had filed for or been granted this status on their Web sites. For a full list of certified distributing funds, please click here.
5. Trick: Physically-backed industrial metals funds. Recent announcements by a number of providers including ETF Securities and iShares have the media abuzz about physically-backed copper ETPs in particular. While we don’t have any explicit figures on the expense ratios for the products, an educated guess (based on publically available warehousing costs) would put these funds TERs north of 6%. This is enough to make even some hedge fund managers blush.
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