New ETF Innovations for Investors


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Even as ETFs have gone mainstream, the innovations continue. Here is a review of some new creative ETFs that have been launched or will shortly hit the market.

First Trust Advisors now has eight ETFs available to investors. The First Trust NASDAQ-100 Equal Weighted ETF (QQEWI) weights each of the 100 non-financial companies in the index equally and then rebalances on a quarterly basis. This avoids the problem in the market-cap weighted QQQQ where the ten largest companies in the index account for 40% of the total value. Another good option that does not get the attention it deserves is the Fidelity ETF, (ONEQ), which tracks the NASDAQ composite index of 3,000 companies. It too is market cap weighted but has somewhat better balance since the top ten holdings represent 29% of the basket’s value.

The First Trust IPOX-100 ETF (FPX) is a basket that includes the 100 largest, most liquid initial public offerings (“IPOs") in the U. S. IPOX Composite Index. No one IPO can account for more that 10% of the ETF and the index it tracks measures the average performance of U. S. IPOs during the first 1,000 trading days.

Pro Fund Advisors is launching this week its first eight ETFs that allow investors to go long and short popular indexes in a cost effective manner. The ETFs will track the Nasdaq 100, the S&P 500, the Dow Jones Industrial Average (DJIA) and the S&P Midcap 400.

The ETFs that will target 200% of the value of the underlying indexes are Nasdaq 100 (QLD), S&P 500 (SSO), DJIA (DDM) and S&P Midcap 400 (MVV).

The Pro Fund ETFs that will target 100% of the inverse performance of the underlying indexes are the Nasdaq 100 (PSQ), S&P 500 (SH), DJIA (DOG) and S&P Midcap 400 (MYY). The expense ratio for these new ETFs will be 0.95%.

Rydex is launching six additional currency ETFs to build on the popular Euro ETF (FXE) as a hedge on the U. S. dollar. The currency ETFs will benchmark to the spot price versus the $USD and the strategy for each is to return the spot price, plus interest, less the trust expenses. These new products may be available to investors in about a week and will trade under the following tickers: British Pound (FXB), Canadian Dollar (FXC), Mexican Peso (FXM), Australian Dollar (FXA), Swiss Franc (FXF) and the Swedish Krona (FXS).

The largest family of ETFs, iShares, is not resting on its laurels but continues to press ahead with new ETFs. Its ten iShares Dow Jones U. S. Subsector ETFs, launched on May 1st, gives investors the ability to slice the sector markets thinly. Some examples are the Broker-Dealer iShare (IAI), the Insurance iShare (IAK), the Oil Equipment & Services iShare (IEO), the Aerospace & Defense iShare (ITA) and the Regional Banks iShare (IAT). All are market cap weighted with an expense ratio of 0.48%. The Regional Banks iShare has a decent dividend yield of 3.21%.

Some of the indexes that these new ETFs track have done quite well over the last three years through March of this year. The Oil Exploration & Production index was up 49%, the Aerospace & Defense index was up 38.3% and the Investment Services index was up 49.7%.

But if you like me prefer equal-weighted ETFs and want sector and industrial ETF exposure, State Street Global Advisors has exactly what you need with this Thursday’s launch of six new ETFs. Based on S&P Total Market Select Industry Indexes, they are (XME) Metals & Mining, (XRE) Retail, (XPH) Pharma, (XES) Oil & Gas Equipment & Services, (XOP) Oil & Gas Exploration & Production, and (KRE) Regional Banks which is a equal-weighted basket of 50 US regional bank stocks.

iShares has also recently introduced its iPath Dow Jones-AIG Commodity Index Total Return Exchange-Traded Notes. This is a mouthful but essentially this ETF are unsecured debt securities issued by Barclays Bank PLC that are linked to the total returns of the index .

This iShares commodity ETF (DJP) has an expense fee of 0.75% and provides exposure to the following commodity groups: energy 30%, livestock 9%, precious metals 9%, industrial metals 21% and agriculture 31%. Based on monthly returns from March 1991 through March of this year, the index has had only a correlation of 9% to the S&P 500 index and 23% to the MSCI EAFE index. The index is currently is made up of the prices of 19 exchange traded futures contracts.

Chartwell members seem to be looking for more international products such as country-specifics for more emerging market countries and some fixed income international ETFs. I have been working on a equal-weighted EAFE index which an ETF could track easily. The market cap-weighted EAFE iShare (EFA) has 49% allocated to Japan and the UK and my numbers show that an equal-weighted EAFE has outperformed the market cap weighted index by a substantial margin over a three, five and ten year period.

This explosion in choice over the past few years is a blessing and a challenge. Choose carefully and get some good advice from an ETF specialist.

Carl T. Delfeld President & Publisher Chartwell Partners

Carl has over twenty years of experience in the global investment business with a strong background in Asia.

  • Author of global investor primer “The New Global Investor"
  • President of the global investment advisory firm Chartwell Partners
  • Publisher of the Chartwell Advisor ETF Report and Asia-Pacific Growth
  • Columnist on global investing with Forbes Asia: “Global Gambits"
  • Former U. S. Representative to the Executive Board of Asian Development Bank
  • Chairman of the global economic strategy think tank ChartwellAmerica
  • Asian specialist with the U. S. Joint Economic Committee and the U. S. Treasury
  • Former member of the U. S. Asia Pacific Economic Cooperation Committee
  • Former investment executive with Robert Baird & Company and UBS
  • Graduate of the Fletcher School of Law & Diplomacy with economics scholarship from U. S. -Japan Friendship Commission
  • Exchange student at Sophia University, Japanese Ministry of Education Fellow at Keio University


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