Oil and Volatility ETFs Perform Best

ETF Times: Fear for potential oil supply disruptions boosted oil and volatility trackers, while Turkish equities took a hit amid concerns that higher commodity prices will fuel inflation

Morningstar ETF Analysts 1 March, 2011 | 4:55PM
Facebook Twitter LinkedIn

New Listings: February 21 - 25
iShares listed six equity ETFs on the Deutsche Börse. Three of the funds track the performance of euro-hedged indices, in this case hedging against exchange rate fluctuations between the euro and the US dollar. The three indices are the MSCI Japan, MSCI World and S&P 500, and the corresponding funds charge total expense ratio's (TERs) of 0.64%, 0.55%, and 0.45%, respectively. These funds complement the existing non-hedged MSCI Japan, MSCI World and S&P 500 ETFs that iShares offers. The three remaining funds offer exposure to Russian, Indian and U.S. equity markets. The iShares MSCI Russia Capped Swap tracks the performance of a capped version of the standard MSCI Russia Index, where no component can exceed 35% of the index's total value. It has a TER of 0.74%. The iShares S&P CNX Nifty India Swap tracks the performance of the S&P CNX Nifty TR Index, which is comprised of 50 equities that represent more than half of the market capitalisation of the National Stock Exchange of India. Its TER is 0.85%. The iShares MSCI USA tracks the performance of the MSCI USA Index and has a TER of 0.40%. The ETFs tracking the Russian and Indian benchmarks were the first iShares ETFs launched as part of the firm's new swap-based platform which debuted last September. Swap-based replication can have the advantage of reducing tracking error when tracking emerging market benchmarks which can include relatively illiquid shares.

HSBC launched an ETF tracking Canadian equities on the London Stock Exchange. The physically-replicated fund tracks the performance of the MSCI Canada Index, which includes about 100 constituent companies. It trades in both pounds sterling (LSE ticket symbol: HCAN) and US dollars (HCAD), and HSBC plans to cross-list the fund on other exchanges in the future. The London Stock Exchange currently offers three other ETFs which track the performance of Canadian equities, from iShares (SCAN), Lyxor (LCAN) and db x-trackers (XCAN). With a TER of 0.35%, HSBC's product is tied with the db x-trackers fund for the lowest fee, but it is important to keep in mind liquidity and other holding costs when assessing the total cost of ownership for these similar products. While Canada is a developed market, its abundant natural resource base--reflected in the fact that the energy and materials sectors account for about one half of the MSCI Canada index’s value--exposes the country's equity market to the prospects of global commodities. This makes the MSCI Canada a potential proxy for growth in emerging markets as countries like China have been voraciously consuming commodities to fuel their capital investment driven economic growth.

Best and Worst Performers for the Week of February 21 - 25
Products linked to two assets, oil and volatility, dominated the list of top performers for the week. The prices of oil and related products climbed as market participants feared potential supply disruptions due to the turmoil in Libya. As the overall equity markets declined, volatility-linked ETFs did well as they usually exhibit negative correlation with equities.

ETFs tracking the performance of Turkish equities were among the worst performers for the week. The Turkish stock market declined to its lowest level in more than five months, partly based on concerns that higher oil prices could cause inflation and ultimately lead to higher interest rates in the country. Palladium prices also saw steep declines this week on the back of higher oil prices as the metal is predominantly used in automobile engines.

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.

Facebook Twitter LinkedIn

About Author

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

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures