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News the SPDR S&P Emerging Europe ETF (NYSE Arca: GUR). GUR is also heavily concentrated in Russia, albeit less so than ESR. The new ETF has an annual expense ratio of 0.72 percent, compared with 0.60 percent for GUR. BarCap Halts Share Creations For PGM Barclays announced on Oct. 16 that it would temporarily stop creating more shares of the iPath Dow Jones-UBS Platinum Subindex Total Return ETN (NYSE Arca: PGM), effective immediately. PGM tracks the performance of front-month platinum futures contracts traded on the New York Mercantile Exchange. At about $100 million in assets, PGM is a relatively small product. However, the platinum futures market is a very thin market, and the New York Mercantile Exchange has tight “accountability” limits in the platinum space, beyond which the exchange can force holders to reduce their positions. Currently that limit is 1,500 net futures positions, almost equal to PGM’s portfolio at the time of the announcement. PGM was the fifth exchange-traded product to put a freeze on creations. At press time, it was trading at a 22 percent premium. The Commodity Futures Trading Commission is expected to announce new federal position limits in the commodity futures space later this year. Claymore Rolls Out China All-Cap ETF Newly acquired Claymore Securities, Inc., launched its third China-focused ETF in mid-October. The Claymore/ AlphaShares China All-Cap ETF (NYSE Arca: YAO) is designed to provide balanced exposure to investable small-, mid- and large-cap Chinese companies. The ETF holds 99 securities, with a capitalization breakdown tilted slightly toward mid- and small-cap stocks. The fund faces competition from three established ETFs covering China’s market. Its biggest rival is the $9.4 billion iShares FTSE/Xinhua China 25 ETF (NYSE Arca: FXI), which holds a focused portfolio of 25 mega-cap stocks. Meanwhile, the PowerShares Golden Dragon Halter USX China Portfolio (NYSE Arca: PGJ) and SPDR S&P China ETF (NYSE Arca: GXC) each have about $450 million in assets. YAO carries an expense ratio of 0.70 percent, slightly below FXI’s 0.74 percent expense ratio, on par with PGJ’s 0.70 percent and above GXC’s 0.59 percent. USCF Debuts Short Oil ETF In September, United States Commodity Funds LLC rolled out a new ETF designed to provide short exposure to the crude oil market. The United States Short Oil Fund (NYSE Arca: DNO) aims to capture the inverse of the daily return of the front-month West Texas Intermediate crude oil futures contract, as traded on the New York Mercantile Exchange. On a one-day basis, the fund should mirror the returns of the popular United States Crude Oil Fund (NYSE Arca: USO). Over longer time frames, the returns may diverge due to compounding. Unlike most leveraged and inverse products, DNO does not use swaps to achieve its exposure. Instead, it takes short positions in the actual underlying futures contracts. DNO charges 0.60 percent in annual expenses. United States Commodity Funds LLC rolled out a new ETF designed to provide short exposure to the crude oil market. IndexIQ Debuts Two More ETFs ETF provider IndexIQ rolled out two more ETFs in October. The IQ ARB Global Resources ETF (NYSE Arca: GRES) and the IQ CPI Inflation Hedged ETF (NYSE Arca: CPI) charge expense ratios of 0.75 and 0.65 percent, respectively. GRES invests in commodity-related equities using a sector rotation strategy. It covers eight distinct commodity sectors: energy, industrial metals, precious metals, food and fiber, livestock, timber, water and coal. Sectors are underweighted or overweighted based on valuation and price momentum. CPI is an ETF of ETFs that seeks to outperform the return of the Consumer Price Index by 2-3 percent per year. Component ETFs are chosen by a rulesbased strategy that considers the historical performance of various asset classes during inflationary environments. 60 January/February 2010
ALPS Debuts Jefferies Funds ALPS is sponsoring three new funds from Jefferies Asset Management that track the Thomson Reuters/Jefferies In-The-Ground CRB Global Commodity Equity Index and two of its subindexes. The underlying index of the Jefferies TR/J CRB Global Commodity Equity Index Fund (NYSE Arca: CRBQ) covers 145 companies that produce energy, agricultural products, raw metals and precious metals. CRBQ, however, was just the first fund in the family; it debuted in September. October saw the launch of the Jefferies TR/J CRB Global Agriculture Equity Index Fund (NYSE Arca: CRBA) and Jefferies TR/J CRB Global Industrial Metals Equity Index Fund (NYSE Arca: CRBI). CRBQ and CRBA compete directly with existing ETFs, but CRBI is the first global, broad-based mining ETF to focus strictly on industrial and base metals. All three funds charge annual expense ratios of 0.65 percent. UBS Launches DJP Competitor Near the end of October, UBS launched its first new ETN in more than a year. The firm had rolled out its E-Tracs family of ETNs in the first half of 2008 and then saw them languish— no doubt in part because of the credit disaster that followed in the second half of the year. But the firm’s partial ownership of the popular Dow Jones- UBS Commodity Index (formerly the DJ-AIG Commodity Index) may come with some serious upside. The E-TRACS Dow Jones-UBS Commodity Index Total Return ETN (NYSE Arca: DJCI) tracks the popular Dow Jones-UBS Commodity Index, a broadly diversified index of 19 commodity futures. It charges investors just 0.50 percent in annual expenses. That’s in marked contrast to the market-dominating iPath DJ-UBS Commodity Index Total Return ETN (NYSE Arca: DJP), which charges 75 basis points. DJP is the largest ETN on the market in terms of assets, at $1.9 billion, but it looks like it could face serious competition from DJCI. Pimco Launches FIVZ, ZROZ Pimco’s newest bond ETFs began trading in early November, with the launch of the Pimco 3-7 Year U.S. Treasury Index Fund (NYSE Arca: FIVZ) and the Pimco 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSE Arca: ZROZ). FIVZ tracks the Merrill Lynch 3-7 Year U.S. Treasury Index, while ZROZ reflects the performance of the BofA Merrill Lynch Long Treasury Principal STRIPS Index. Both come with a price tag of 15 basis points. BACK TO THE FUTURES CME Launches DJ-UBSCI Swaps In November, CME Group announced the Dec. 7 launch of cash-settled swaps on the Dow Jones-UBS Commodity Index. The exchange said that it would be providing clearing services through its CME ClearPort service. The new swaps join CME’s existing futures contract on the DJ-UBSCI. According to the CME, the swaps “will be subject to position accountability, transaction reporting, and margining and risk management standards that are comparable to commodity index futures contracts.” KNOW YOUR OPTIONS CBOE Sees Declining Volumes Year-Over-Year Overall trading average daily volume (ADV) at the Chicago Board Options Exchange in October 2009 declined 21 percent from October 2008. However, the ADV for cashsettled index options and ETF options was down even further. The index options ADV fell 36 percent year-over-year in October, while the ETF options ADV fell 39 percent. Year-to-date, the CBOE’s overall ADV was down just 6 percent, but down 17 percent and 19 percent for index options and ETF options, respectively. During October, the options on the S&P 500, the SPDR S&P 500 ETF, the PowerShares QQQ Trust, the CBOE Volatility Index and the iShares Russell 2000 Index Fund were the most actively traded index and ETF options. FROM THE EXCHANGES Deutsche Boerse Changes Index Licensing Model It appears that Deutsche Boerse is going to be keeping a tighter grip on its index data starting in 2010. An October announcement from the exchange said that it was moving to align its business model with international practices. Basically, going forward from Jan. 1, more detailed data on the DAX will be made available for professional and commercial use only after the users sign licensing contracts. Certain data will still be publicly available, including methodology, constituents and some historical information. However, the change will not necessarily be that abrupt, as the exchange has declared a three-month transition period that is set to end on March 31, 2010. ON THE MOVE Bond Trims PowerShares Role H. Bruce Bond, founder, CEO and chairman of Invesco PowerShares, announced in November that he will be scaling back his role with the ETF provider and will no longer hold the position of CEO. Ben Fulton, currently the executive vice president in charge of global product development, will be taking on the day-to-day management responsibilities of the Invesco unit as a managing director. PowerShares’ leadership team will report to Fulton, who will also join the Invesco Global Product Committee. Invesco executives Andrew Schlossberg and David Warren will also take on leadership roles with the Invesco PowerShares unit. Bond said he will remain active and involved with PowerShares, but that the change will give him more flexibility to work on other things. He originally founded PowerShares Capital Management in 2003. Fulton joined the PowerShares team in 2005 from Claymore Securities, where he was co-founder, president and CEO. www.journalofindexes.com January/February 2010 61
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Documenting The Collapse Of The Cor
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Contributors Rob Arnott Rob Arnott
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FREE subscRiption oFFER! The Journa
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David Smith Publisher dsmith@fa-mag
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Editor’s Note Was 2008 A Last Gas
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Page 13 and 14: Figure 4 Correlations Of Weekly Ret
Page 15 and 16: Diversification And Risk Management
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