ETF Times: November 22-26

A number of European brokers have picked up on the US-lead trend towards offering commission-free ETFs, thus eliminating one of the advantages that traditional funds have over ETFs

Ben Johnson 30 November, 2010 | 4:43PM
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ETFs Want to be Free
News of commission-free ETF trades on offer at a number of German banks made headlines last week. DAB Bank (DRN), Germany’s largest online broker, had begun to offer commission-free ETF trades within savings plans linked to db x-trackers ETFs two months ago, and has since seen these plans quadruple in size. Maxblue, which is Germany’s fourth largest online broker and a subsidiary of db x-trackers’ parent Deutsche Bank (DBK) has also begun offering commission-free ETF trades for db x-trakcers funds within its regular savings plans. Fellow German online broker Sbroker has been offering commission-free trades for 13 ETFlab products since September. Meanwhile, in the UK, Stocktrade is reported to be planning to offer commission-free ETF trades for regular savers in the near future.

The trend towards offering commission-free ETF trades began in November of 2009 in the US when Charles Schwab (SCHW) became the first online broker to offer clients zero-commission transactions within its own lineup of ETFs. More recently, TD Ameritrade (AMTD) has upped the ante in what has been an escalating series of competitive actions amongst online brokers, offering a list of over 100 ETFs (selected by Morningstar Associates) on a commission-free basis.

When brokerages compete, investors win. Trading commissions are one of the larger components of the total cost of ETF ownership, especially for regular savers making periodic contributions to their investment portfolios. By eliminating this cost, brokerages also eliminate one of the advantages that traditional funds have over ETFs for regular savers—there are typically no explicit costs incurred when making regular contributions to a traditional fund. That said it is important to remember that there are still frictional costs involved in transacting in ETF shares. Most notably, investors must still be mindful of bid-offer spreads, which in some cases could be more significant than any commissions levied on a trade.

db x-trackers Debuts in Spain
db x-trackers listed 11 ETFs on the Bolsa de Madrid and has grand plans for further expansion into the Spanish market following a favourable regulatory change that has made for a more benign tax treatment of Spanish investors placing money into Sicav funds. “We currently have more ETFs--over 140--registered with the Spanish regulator for potential distribution to institutional investors. That is more than any other provider,” said Engracia Borque, responsible for db x-trackers ETFs in Spain. The addition of the 11 db-x-trackers funds brings the total number of listings on the ETF segment of the Madrid exchange to 55. Turnover on the Bolsa de Madrid has experienced strong growth thus far in 2010, with the accumulated traded volume and the number of trades up 107% and 33% through the first ten months of the year, respectively.

iShares Lists High-Yield Fixed Income ETF in Germany
The iShares Markit iBoxx Euro High Yield ETF has begun trading on the Deutsche Börse’s XTF segment. The fund--which was first launched on the London Stock Exchange in September--gives investors access, for the first time in an ETF wrapper, to high-yield corporate bonds denominated in euros with issuers in or outside the euro zone. All the constituent bonds have a sub-investment grade rating. Per the iBoxx Euro High Yield index’s methodology, only the largest and most liquid bonds with an amount outstanding of at least €250 million are included, and the weighting per issuer is limited to 5 percent in order to minimise risk.

Goldman Sachs Launches Hedge Fund Strategy ETF
On Tuesday, November 23, the Goldman Sachs Absolute Return Tracker Index ETF was launched on the XTF segment of the Deutsche Börse. The fund tracks the Goldman Sachs Absolute Return Tracker Index which is designed to reflect the return of a dynamic basket of long and short investable market factors determined by an algorithm to approximate patterns of hedge fund returns as a broad asset class. The fund levies a TER of 1.215%. The launch marks Goldman’s debut as an ETF provider in Europe. Goldman is also a partner in Source ETF, whose own BofAML Hedge Fund Factor ETF has seen limited investor interest since its late-September launch.

Best and Worst Performers for the Week
Source’s S&P 500 VIX Futures ETF was the best performing (we exclude leveraged and inverse products from this universe given their inherent volatility) ETF during the past week. The market’s “fear gauge” surged 17% last week, sending nearby VIX futures prices higher, as worries over the state of Ireland’s balance sheet made investors increasingly skittish.

Turkish and Spanish equity-following ETFs were amongst the week’s worst performers. Many investors are concerned that Spain will be next in line for a bailout given its poor fiscal condition. Meanwhile, worries over the debt crisis-that-never-quite-ended will weigh on regional growth took their toll on Turkish markets.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Ben Johnson

Ben Johnson  is director of passive funds research at Morningstar.

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