New ETPs Arriving on the Scene

The other day I made a passing reference to the fact (hope?) that there would be some new ETPs launched, as the end of the year is usually a busy time. Well, there have indeed been several interesting product launches that we can talk about.

First up is First Trust with the Smart Grid Infrastructure Fund (GRID)--the symbol is GRID; nice. As an amusing anecdote before talking about the fund, I was asked to go on CNBC for a segment about Smart Grid stuff a few weeks ago but had to decline because about all I could have said was that I think a smart grid is better than a dumb one; ahem.

Anywhoo, GRID is an international fund with noticeable weightings in France, Germany and Japan (I did not see the country breakdown anywhere) but is heaviest by far in the US. Industrials are the largest sector at 72%. While the foreign exposure is light, it seems as though the fund will actually capture this segment of the market for better or for worse. It has a couple of mega-caps in it as space filler (GE (GE) and Siemens (SI)) but they are not the largest stocks in the fund which is a good thing.

There are several funds in this general space already and more on the way. While I do not think the construction is bad, there doesn't seem to be anything that really grabs your attention. I will be surprised if this gains any meaningful traction.

Next up is the iShares Diversified Alternative Trust (ALT). This is an absolute return vehicle that appears to be actively managed. Looking at the holdings, this thing is funky. It is long some currency futures and equity index futures and short some other currency and equity index futures. There have been a lot of absolute type products that have come out in the last couple of years -- some have worked better than others and some have stunk. You can read about the strategy from IndexUniverse and, without criticizing the folks at IU, it is not easy to glean the specifics of the overall tactic. The fund does not make a good first impression.

If the fund can prove itself, great, but by prove itself I mean hold up in a nasty downturn.

The Build American Bond ETF (BAB) is finally out and the PowerShares website avails a look under the hood. As I mentioned before, it is a long dated product. Half of the holdings are 25 years or more and a quarter of the fund is 20-25 years. The average coupon reports at 6.37%, but with no indication of current prices the actual yield of the fund is not yet available (if the average price paid is 110 then the yield would obviously be less than the coupon).

California appears to be the largest state, with four issues totaling 16% of the fund. While a real problem is unlikely, a good scare is quite possible, meaning that prices on those issues could face a blip at some point. There is no North Dakota or Montana (the only two states without a budget problem) in the fund but maybe there are no BAB issues for those states or maybe if there are they are too small for the fund.

Pending the info on what the fund will yield (keep in mind yields for bond ETFs fluctuate) I think this fund will be popular. Just about every fixed income segment offers better value than the US treasury market but some are still quite risky. BAB might offer a tie in to closer to normal yields without crazy risk, although I would like to see the exposure to California come down some as new assets come into the fund and it buys more issues from the index (it is my understanding that the fund is sampling the index).

Comments

[Alan Young]

GRID is an important thesis, but perhaps a disappointing product. You can find details here: www.ftportfolios.com/R...

The #1 holding at 11% is SMA Solar. Nothing against PV solar systems, but that's not how I would go about investing in a much-needed grid buildout (or smartening). So it seems to me the index is not well designed for the investment thesis.

2009 Nov 18 12:54 PM