New State Street Ex-US ETF: Global Exposure In One Trade

Tom Lydon’s piece on trends for 2007 and various other recent entries here at SA have noted the recent expansion, and supposition of continued growth, in the ETF products around the globe. Although I believe in the KISS principle and the use of very low cost ETFs, I do have a strong interest in new product development and where this could lead the industry and those who are interested in it:

• Hedge funds and other who use these instruments
• Mutual fund companies and other investment management dinosaurs who realize that they might need to acquire ETFs and/or hedge funds to adapt to the changing environment
• Index providers who are caught somewhere between trying to figure out the new benchmarks that institutions will want to have their portfolios (or parts of) linked to and determining where the ETF product development people are finding potential demand

There have been recent developments where new forms of ETFs have begun to expand globally. For example, what ProShares, and soon from Rydex, have done with levered and inverse ETFs, we have seen similar launches from BetaPro ETFs in Canada and Société Générale Asset Management in France. There could be more of these types of ETFs in other countries and if so, please add a comment further to this entry (oh, the beauty of blogging!).

But let’s step back and get back to basics. There was a press release on a new ETF from SSGA launched on January 17th. This ETF, the SPDR® MSCI ACWI (All Country World Index) ex-US ETF (CWI) should be of great interest to US investors who believe in the most extreme forms of KISS … aside from the fact that the name of this ETF is “SPDR® MSCI ACWI ex-US ETF”. Killer. Add a few addition signs and and arrow in there and you could have a chemical formula (remember high school chem class). Hey marketing people … come on!

But seriously, in one trade, exposure to the MSCI All Country WorldSM ex USA Index can be established. CWI provides for the first time robust international exposure that includes both developed and developing markets and this places this instrument in a fairly unique space. I don’t think that any sophisticated investor would use CWI as a component of a globally diversified asset allocation program in isolation. Perhaps another “5 position ETF portfolio” will be created suggesting CWI for international equity exposure along with a US ETF, a bond ETF, etc, etc, etc. Not a bad idea for the small and highly novice investor but considering costs, they might do best with no load index mutual funds. Nevertheless, with regard to these “one stop simple portfolios” … are we done with those yet?

For everyone else, for the purposes of transition management or quick cash equitization CWI is ideal. For many investors in times of transition (acquiring a new client account, starting up a new fund, etc.) CWI could be an ideal launching pad before breaking out into EAFE/VWO combinations and further allocations divided by region, industry sector, style and other factors.

This line of thinking makes me now think of SSGA’s recent international real estate ETF (RWX) also mentioned in the press release. That could be an ideal starting point for then tweaking allocations to various regions for real estate exposures. Problem is that we don’t have ETFs for this yet but CEFs and other direct securities selection will allow for this.

Clearly, despite recent news of potentially hundreds of new ETFs coming down the pipe, there will always be new areas where someone will say “Build one for this, too!”