August was a hectic month to say the least, as the first few days saw violent swings in major indexes, at times reaching up to 6% in either direction. The majority of the market volatility came first from our inability to pass a solid debt plan in a reasonable amount of time. Though Congress passed the bill with just hours to spare, investors were not very reassured by the longer-than-expected debates as well as the legislation itself. Next came the knockout blow, as the S&P issued the first-ever downgrade of U.S. debts, sending markets into a frenzy and earning a fair amount of backlash from the Obama Administration and big name investors like Warren Buffett as well.
The ETF industry continued to sputter along, with just nine funds hitting the market over the course of the month. The lack of funds debuting can likely be attributed to a summer slowdown which will likely pick back up as vacation season wraps up and we edge towards the finish line of 2011. August was the slowest month of the year from a product development standpoint, but many of the new ETFs that did begin trading last month were first-to-market ideas.
ETFs that began trading in August include:
- EG Shares rolled out the Emerging Markets High Income Low Beta ETF (HILO). The ETF will will seek to replicate the Indxx Emerging Markets High Income Low Beta Index, a 30-stock benchmark designed to provide lower volatility and higher income than cap-weighted emerging markets indexes. Later in the month, EG also unveiled the first-of-its-kind India Consumer ETF (INCO), offering new exposure to this popular emerging market [see EGShares Rolls Out India Consumer ETF].
- Rydex, known for its long line of equal weight ETFs, added to to its tally this past month. Many investors feel that traditional cap-weighted funds overweight overpriced securities and that the equal weight strategy helps to eliminate that issue, allowing many funds that follow this strategy to outperform their cap weighted competitors. This month saw the introduction of the S&P MidCap 400 ETF (EWMD), and the S&P SmallCap 600 ETF (EWSM), hoping to match the success that the large-cap RSP has seen [see Rydex Rolls Out Mid Cap, Small Cap Equal Weight ETFs].
- In an environment where investors are hungry for high yield, Van Eck released the Market Vectors Mortgage REITs ETF (MORT). The fund features about 25 different REITs, with the largest allocations going to Annaly Capital Management (about 20%) and American Capital Agency Corp (12%). Now that Bernanke has announced a hold on rates until mid-2013, this ETF may be a great place to find the yield your portfolio needs.
- iShares had a busy month, as it pulled the curtains on three new products. The first was the MSCI Emerging Markets Small Cap Index Fund (EEMS), which will grant exposure to the high growth potential (but very risky) small-cap sector of numerous emerging markets. The next two came in the form of target retirement funds for 2045 and 2050, with TZW and TZY.
- The month closed with a new volatility ETN from iPath. The new S&P 500 Dynamic VIX ETN (XVZ) is designed to dynamically allocate between the S&P 500 VIX Short-Term Futures Index Excess Return and the S&P 500 VIX Mid-Term Futures Index Excess Return depending on the steepness of the implied volatility curve.
August saw a number of ETF filings to keep the pipeline full for the foreseeable future:
- In addition to releasing their mortgage REIT fund, Van Eck also filed for a “Dim Sum” bond fund that would track Chinese debt denominated in yuan as opposed to the greenback.
- Bond giant PIMCO is continuing to make inroads in the ETF industry as the California-based firm laid the groundwork for three new fixed income instruments. The three proposed funds will target the total bond markets of Germany, Canada, and Australia. The filing, though omitting tickers, offered an in-depth look at the three products.
- PowerShares, though absent from this month’s launches, revealed several new financial products it has in the works: PowerShares Bank Portfolio, PowerShares Capital Markets Portfolio, PowerShares Insurance Portfolio, and PowerShares Regional Banking Portfolio.
- Russell followed PIMCOs steps with three more bond product filings: Russell Total Return Fixed Income ETF, Russell Core Fixed Income ETF, and Russell Emerging Markets Fixed Income ETF.
- An old issuer, Northern Trust, has prepped a line of five new products to make another run at the ETF industry after being forced to shut down at the end of 2008.
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