William H. Belden, III is responsible for the overall operations of Claymore’s ETF business line. Overseeing Product Development and related activities supporting the ETFs, his management responsibilities include Product Development and Marketing for the ETF group.
Previously as Vice President and Senior Product Manager at Northern Trust Global Investments, Belden was responsible for Northern Trust’s proprietary mutual fund product line. Prior to joining Northern Trust, he was Vice President of Product Management at Stein, Roe, & Farnham and served as Vice President for Relationship Management in the Cash Products Group at Kemper Financial Services.
Bill recently sat down with Senior Editor for ETF Content Jonathan Liss, offering Seeking Alpha's readers a comprehensive view of the issuer's current ETF product line while outlining Claymore's plans for the future.
Jonathan Liss [JL]: Bill, do you have any insights into Thursday's (5/6/10) late afternoon 'flash crash' which hit ETFs especially hard? How can investors be confident this sort of thing won't happen again in the future?
William (Bill) Belden [BB]: Unfortunately, I know probably as much as you do on what happened. I haven't heard any plausible explanations as to what went wrong exactly. We have taken it up with some of the exchanges and our lead market makers, but it’s an issue which is in no way specific to Claymore. There are a large number of interested parties who would like to know exactly what happened, including Congress which has now taken an interest and is reviewing electronic records.
JL: Did you see any unusual creation/redemption activities on that day from Authorized Participants (APs)?
BB: There was nothing unusual at the AP level relating to Claymore ETFs on Thursday.
JL: Let's discuss the Claymore/NYSE Arca Airline ETF (FAA). 2010 was projected to be a great year for airlines globally from a profit standpoint and then the Iceland volcanic eruption happened. How much will that hurt the airlines?
BB: First of all, I should clarify that we brought FAA to market to fill an investor need. We introduced the product to offer investors exposure to this sector without having to engage in single equity risk by accumulating individual airline stocks. If you look at the long-term performance of the airline industry from an investment perspective, it's been extremely poor. However, as a tactical or opportunistic play, we believe investors who have conviction about the direction of the airline industry may be well served to consider FAA.
From my perspective, the Iceland volcano was an exogenous event and not one that's likely to be repeated in the near future. So in my opinion it doesn't really affect the long-term picture for the airline industry globally, either from a top line or bottom line perspective.
JL: For me, the Iceland volcano highlights the numerous risks the airline industry faces. Just to review the last decade, the industry has been hit by 2 recessions, 9/11 and the runaway oil prices of 2007 and 2008. Where do you see the industry heading?
BB: In my opinion there are three main drivers for the global airline industry. How you weigh in on those will determine whether you think FAA is a good buy at the moment or not. You touched on two of them in terms of fuel prices and recessions/consumer behavior, which significantly affect airlines' bottom lines and top lines respectively. The third driver—and I think this is the primary driver for the industry at the moment—is future consolidations. There has been much speculation about this, fanned by the mainstream media and the concern whether the industry will subsequently find the right balance between capacity and consumption.
JL: You liquidated the Claymore/Delta Global Shipping Index ETF (SEA) very abruptly on April 27 (due to a failure to attract a quorum for a proxy vote). When can we expect the new replacement fund to be up and running?
BB: On same day we were forced to shut SEA down, we filed with the SEC for a nearly identical, replacement fund which will have the same ticker and expense ratio, and will track the same index. We can't say at this point when the new 'SEA' will launch but I can tell you we're working with the SEC closely and hope to have it on the market relatively soon.
JL: Do you foresee any issues re-gathering the roughly $150M in assets the fund had when it was liquidated?
BB: Well, obviously no one wants to liquidate a fund. However, given these unusual circumstances, we hope the new fund will be able to recoup the assets that had to be returned to investors. In the past, SEA was the only ETF providing exclusive exposure to the global shipping sector and we imagine that will still be the case when the fund is launched again (I believe a different issuer currently has another shipping ETF in the filing stage). Additionally, SEA was liquidated in a straightforward and transparent manner, and interest in the shipping sector continues to grow. We'll be doing our best to heavily advertise the fund and let investors know it has returned. So our hope is we re-gather those assets fairly quickly.
JL: At the end of last year, you were bought by Guggenheim Partners. How has the acquisition changed your outlook for Claymore's product line? Is there a feeling that there will be a greater investment in your ETF pipeline due to the acquisition?
BB: Our working relationship with Guggenheim actually began in July of 2007 when we partnered with them to launch a closed-end fund. There's always been a good rapport between our two organizations. Since buying Claymore, Guggenheim has been extremely supportive of our objectives. They brought Wilshire to the table, which led to the launch of our three most recent ETFs in March (Wilshire 5000 Total Market ETF (WFVK), Wilshire 4500 Completion ETF (WXSP), Wilshire US REIT ETF (WREI)). And there are plans to launch additional ETFs with Wilshire as the underlying index provider. This will allow us to significantly round out our product line with greater exposure to core strategies—something we haven't been in a position to do in the past.
Another example of Guggenheim's support is our ability to file for 10 investment grade corporate bond ETF term trusts (similar to what iShares did with their muni term trusts launched in January). So in terms of Guggenheim, we couldn't be more pleased with how supportive they've been.
JL: Has there been any expectation that funds that haven't gathered significant assets yet will have to justify their continued existence, so to speak?
BB: Well that happened even before Guggenheim came into the picture. We're always assessing the long-term viability of our products. Even for products that haven't made a serious dent in terms of gathering assets to date, we generally try to take a longer-term view of whether they're good products. We continue to believe that many of our exchange-traded products will 'get there' eventually, and either haven't had sufficient press or investor exposure to capture the asset base we believe they're capable of capturing. So in that regard, nothing has changed since the Guggenheim acquisition.
JL: Can you discuss your pipeline at all? I know you have a big follow-up Wilshire launch planned, comprised mainly of Wilshire Market Cap and Style funds. First of all, have you been happy with the reception the 3 Wilshire ETFs you've already launched have received so far? Also, don't the new Wilshire funds you have planned overlap with part of Rydex's product line of pure value and growth funds (granted your planned funds track a broader index and will define 'Growth and 'Value' differently but the concept is essentially similar). Is Guggenheim ok with that?
BB: Thus far, Guggenheim has allowed us to take a long-term view of the products we have, and that flexibility carries over to upcoming launches. With that in mind, it is still way too early in the game to comment on the 3 Wilshire funds we launched back in March. Those are all 'core' products and have very low expense ratios. We maintain our strong conviction in these products' ability to be successful in the long-run.
In terms of the planned Wilshire launch, Rydex runs their business and we run ours. We wish them all the success in their world, but Guggenheim has made clear that Claymore will continue to operate independently as will Rydex. There has been no discussion of synergies between Claymore and Rydex.
JL: Until now, Claymore has generally been known as a 'niche' ETF shop. Now it seems there's been a change in focus to round out your product line. Will you still concentrate on launching the types of 'single-theme' products for which you've become famous, or has there been a 'sea change' in this regard where you're only going to be focusing on ETFs with a broader scope going forward?
BB: I'd call it more of a progression or an evolution than a 'sea change'. We're not moving away from thematic or strategy-driven products if we see that there's a need we can fill for investors. In addition to the sorts of more narrowly focused products we've brought to market in the past, we are now making a conscious effort to launch ETFs that are more broadly defined, supporting our pursuit for a greater share of investors' portfolios.
JL: The ETF commission wars continue to heat up with Vanguard the latest issuer to make its ETFs available to its brokerage clients commission-free. Does this concern you at all? Or put differently, have you thought about doing something similar to what iShares has done with Fidelity where you team up with a discount broker?
BB: In fact, we have discussed the matter and believe it's definitely a positive development in terms of ETF distribution. It does raise the question of whether you want to put the focus on trading ETFs or investing in them. I can't say too much in terms of what our plans are beyond that we're definitely paying attention to this trend.
In general, we're looking at several ways to enhance our distribution model. There are partnership opportunities all over the place. This is just one approach.
JL: I assume another of the ways would be to team up with 401(k)s managers? Do you think the tide is finally beginning to turn in terms of getting ETFs into 401(k)s in a much broader manner?
BB: I do. I think most of the operational obstacles within these plans that favored mutual funds to the exclusion of other investment vehicles like ETFs have largely been overcome. The great market downturn of 2008 and early 2009 has also helped open up these plans to including a greater selection of investment vehicles. Discussions continue to crop up around 401(k) transparency, disclosure and fees—all things that were problematic during the sell-off. We believe ETFs can only benefit from these discussions, and in the long run, so will 401(k) investors.
JL: Name one Claymore fund you think is a well-kept secret in that it's been a great performer but hasn't really garnered the attention of investors to date?
BB: If I have to highlight just one, I'd say Claymore/Zacks Multi-Asset Income Index ETF (CVY)—formerly known as the 'Yield Hog' ETF. It has been an outstanding performer, and particularly attractive over the last year. Unlike some of its closest rivals such as DVY, CVY isn't fully dependent on equity dividends for producing income. It holds dividend-paying equities, but combines them with MLPs, Preferreds, REITS, and CEFs. We're seeing this fund starting to gain some traction of late—it has gathered close to $250 million in assets—but we feel it has much greater potential on that front.
JL: How about your 'Sabrient' funds - they track indexes based on some sort of proprietary stock-picking formula. Do you think retail investors should be playing with these sorts of funds, or are these best left to the professionals?
BB: It's true these funds may be a bit more complex due to how their underlying indexes select their components. Yet, these funds are fairly straightforward—even somewhat boring in the case of an ETF like the Claymore/Sabrient Defensive Equity Index ETF (DEF) which is a defensive fund. So I wouldn't really draw a contrast between professionals and retail investors in terms of holding these funds.
The Claymore/Sabrient Insider ETF (NFO) is another 'hidden gem' in my opinion. It's been a great performer and its strategy is not really as 'offbeat' as it seems. Picking stocks based on insider sentiment is a pretty standard strategy.
JL: It's been a real pleasure talking with you Bill. Good luck in all Claymore's future endeavors.
Claymore's Disclaimer: There can be no assurance that the Funds will achieve their investment objectives. Investors should consider the following risk factors and special considerations associated with investing in an ETF, which may cause you to lose money, including the entire principal that you invest. Micro-, Small- and Medium-Sized Company Risk: Investing in securities of these companies involves greater risk as their stocks may be more volatile and less liquid than investing in more established companies. These stocks may have returns that vary, sometimes significantly, from the overall stock market. Micro-cap companies may be newly formed, less developed and there may be less available information about the company. Foreign Investment Risk: Investing in non-U.S. issuers, although limited to ADRs, may involve unique risks such as currency, political, and economic risk, as well as less market liquidity, generally greater market volatility and less complete financial information than for U.S. issuers. Emerging Markets Risk: Investment in securities of issuers based in developing or “emerging market” countries entails all of the risks of investing in securities of non-U.S. issuers, as previously described, but to a heightened degree.
Industry/Sector Risk: A significant percentage of the Index may be comprised of issuers in a single industry or sector of the economy. If the Fund is focused in an industry or sector, it may present more risks than if it were broadly diversified over numerous industries and sectors of the economy In addition the funds are subject to Non-Correlation Risk, Replication Management Risk, Issuer-Specific Changes, and Non-Diversified Fund Risk. Please read each Fund’s prospectus for more detailed information on these risks and considerations. Information on current performance for each Fund is available at www.claymore.com.
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