What New Exchange Traded Products Do We Really Need?

The other night a reader pasted an entire article from Morningstar about the new VIX ETNs (I think it was the whole thing anyway). I'm not sure if the article drew the correct conclusion or not, but it struck me as far more balanced than what I have read previously from Morningstar about new types of products. The VIX ETNs are only about ten minutes old but they are different.

For years I have been writing about ETF innovation allowing investors to create more sophisticated portfolios. This is a fairly obvious observation but I have been making the point for a while, and although progress has been made, I wish the industry was a little further down the innovation trail.

I thought it might be interesting to put together a list of ETPs that I'd most like to see. Some have already been filed for and some others I just think should be created. (ETP stands for exchange traded product.)

Working down the IndexUniverse list of filings, the first thing that catches my attention is a Peru ETF from iShares (a company called Global X has also filed for a Peru fund). Peru is an interesting country that is worth learning about. It is obviously resource-rich, has been a surplus country (that might change this year), but I still have some learning to do. There are a couple of stocks from Peru that trade here but an ETF would obviously create more choice and make it easier for people to buy who may not want to pick a stock but like the top-down story.

EGA Emerging Global Shares is a company I have mentioned before. They have filed for emerging market sector funds which I think would be a big deal in terms of top-down portfolio construction done at the sector level. One of the brains behind this company is one of my blogging friends, Richard Kang, and about all I know is that the company exists, but I think these would be huge; specifically, telecom, financials, utilities, materials and maybe industrials. Tech would be tough unless that fund is all the contract manufacturers in SE Asia.

Back to Global X, which in addition to Peru has also filed for an Egypt fund. I have long been intrigued by Egypt as an investment destination. There is some sort of trust that trades very thinly in London but if you learn the story you might think this one would come soon -- that is, if Global X is actually a company. Market Vectors also has an Egypt fund in the hopper, and a Vietnam fund too.

IndexIQ has filed for some ETFs that try to create hedge fund strategies using ETFs (so funds of funds). Included in the proposed roster is a market neutral fund that will try to not be affected by what the overall market is doing. It will go long and short ETFs based on a strategy that is not clear to me from reading the prospectus. For now I am curious.

Macroshares has filed for a Medical Costs Up/Medical Costs Down combo. I must be missing something because this seems like a one-way trade.

WisdomTree has one of the more interesting pipelines but they have been very slow to move the filings to fruition. I am not sure if it is a business conditions thing or something else, but they have dividend-weighted country funds and currency funds galore in their filings. Dividend-weighted country funds would allow for a rotation to favor value in a country at certain points and then rotate back to a slightly growthier feel later, or use their fund, which presumably would be less volatile than the iShares equivalent, as the core exposure for the country with a more volatile stock as they explore exposure.

As far as the currency filings I am most interested in the Singapore dollar, the Chilean Peso and the Israeli shekel. If the dollar is going to be as doomed as so many people think, it would be nice to spread around some cash into different types of currencies.

Included in the list of ETPs I would like to see but that are not filed for is something that tracks the CBOE Put Write Index. Similar to the buy write index, its history has better returns over the entire cycle with less volatility. In a similar vein I'd like to see buy write versions of country indexes. Several of these already exist around the world, they tend to do the same thing versus the benchmark index as the US buy write index does against the S&P 500.

I think there is all sorts of room for fixed income products that focus on foreign markets. There are plenty of very specific indexes that already exist, but I'd like to see funds for as many individual countries as they want to make, or even regional funds or funds with countries that have like qualities.

There are many different themes I'd like to see, like global ports / toll roads / airports. There are also more commodity ETFs I'd like to see (iPath ETNs cover a lot of ground but I am not crazy about the wrapper).

The big obstacle to these is investor demand, which I realize would probably be quite low. How about you? Got any ideas?

Comments

[Kansas City Shuffle]

an etf on lithium producing mines (or lithium futures) would be interetsing given the future boom in demand for the product...

2009 Feb 09 01:13 PM

[Steve in TN]

We need more bond ETFs. For example, the LQD is fine for the blue chip companies in the corporate sector, but it only covers a long-term duration. We need a short-term or intermediate-term LQD.

2009 Feb 09 03:23 PM

[klarsolo]

I want ETFs for convertible bonds, corporate loans, and ABS sectors (credit cards, autos, equipment deals, etc.)

2009 Feb 09 05:37 PM

[Roger Nusbaum]

SPDR filed for one a while ago. Give them a call and tell them. Investor demand accounts for something.


On Feb 09 05:37 PM klarsolo wrote:

> I want ETFs for convertible bonds, corporate loans, and ABS sectors
> (credit cards, autos, equipment deals, etc.)

2009 Feb 09 06:45 PM

[klarsolo]

Thanks, Roger. I'm really looking forward to that ETF. Now would be a great time to introduce it.

2009 Feb 10 09:12 AM

[User 86999]

Most important, we need ETFs that work with simple tax structure, like 1099 forms, and not those phantom income producing, K-1 form based products which can produce negative surprise for the consumer at the end of the year. Worst nightmare is when they don't bother to spell it out in the prospectus that they will produce K-1 and hide behind keywords like "partnership" and so on. I would like to see some movement in favor of the consumers. Enough with the wall street games!

2009 Feb 10 09:32 AM