Claymore Investments in Canada Launches the First ETF of ETFs

by: Richard Kang

ETFs Of ETFs are here. Well, not here if you’re anywhere outside of Canada. And not here, meaning not “right now”. But close (if you’re an American) and soon in terms of wait time.

As a follow up to my recent posting, “Coming Soon: ETFs of ETFs", we now have news from Claymore Investments in Canada of the world’s first ETFs of ETFs. If someone knows of others already available, please let me know.

Here’s what I know and it’s straight from the source:

Tomorrow, Claymore Investments is launching the Claymore Global Balanced Income ETF [TSX:CBD] and the Claymore Global Balanced Growth ETF [TSX:CBN]. They are the first ETF Wrap portfolios in Canada (and the world) to provide a single ETF as a core part of an investor’s portfolio.

As a wrap, these global wrap ETFs are made up of about 13 ETFs and focus on balanced portfolios bringing investors the ability to buy one product and access multiple asset classes giving exposure to fixed income, equity, real estate, commodities and other sectors.

TSX:CBD and TSX:CBN are based on a Global Balanced Index by Sabrient Systems, a partner of Claymore Investments out of California, who focus on dynamic asset allocation models using equity and fixed income.

Claymore strives to provide a lower cost option, and these ETFs follow that tradition by using lower cost structures. Management expense ratio of these ETFs is 0.7%, which includes the fees of the underlying Claymore ETFs in the portfolios. Claymore is excited to offer Canadian investors these innovative single portfolio solutions. A formal press release will be issued tomorrow – and more detailed Investor Guides (PDF documents) will be available.

So, we now have ETFs of ETFs. Not a big surprise when you think about it. Packaging a portfolio of stocks into mutual funds, mutual funds into a wrap program and hedge funds into a “fund of funds” makes sense for a lot of reasons. The application of this to ETFs would only be a logical step. Certainly, this development will expand as more competition enters the marketplace. I’m eager to see if BGI, SSGA and Vanguard decide to enter into this field. If they do, it might be a half-hearted approach with each provider building wraps with their own in-house ETFs only as ingredients. From what I understand, the Claymore offerings will not only have Claymore ETFs but those from other providers as well. We’ll know more tomorrow.

I also understand that other similar products are in the works in the US. These would be new participants in the industry … names most of you likely have not heard of yet.

I wish to reiterate my comments from the earlier posting on this subject. The fees will matter. What I hope to see is that these wrap programs develop into two groups. The first providing very low cost exposure to a well diversified group of ETFs. The second providing more of a highly active management program (GTAA?) that would justify a significantly higher fee. What “very low” and “significantly high” are, only the market will determine. But an ETF of ETFs that is well diversified, not overly traded and espouses the benefits of low cost investing, better not have a high overall MER or this exercise simply becomes counter-productive.