Five ETF Developments To Watch

It is an exciting time to be around the ETF business. Here are five reasons why:

5) WisdomTree Emerging Market High Yield fund (DEM). Someone is going to think WisdomTree (WSDT.PK) is paying me money (I can assure you that is not true - though we finally did sell them an ad in JoI), because they come in alone at number five two days in a row. But I LOVE WisdomTree chipping into these truly investor-focused, asset allocator areas. They've become trailblazers particularly among the international size and style areas I know many of you have been craving. And emerging markets companies that are running on great margins and really paying out dividends are to me as compelling of a story as the standard EM growth story everyone seems to buy into.

4) Alternative/fundamental/enhanced/active GALORE. Man - RAFI and WisdomTree continue to roll them out and now VTL and SPA will be entering a very similar space, and PowerShares, Claymore and First Trust are rolling out essentially active funds (some of them with some very interesting returns series). We are watching this area closely, because a lot of bold claims have been made. It should be fun to see how things play out in the next 5, 10, 20 years.

3) Hot investment areas that make their own sales pitch. BGI (BCS) and SSgA are on the infrastructure project. That resonates the way that the water story does. Perhaps even moreso that is the case with the timber and nuclear products on tap from Claymore and Van Eck...two of the best recent stories in the industry. Claymore really seems to have gotten over the hump assetwise, and they're building a very smart operation. They'll need one to get the word out on their quant products. Van Eck has quietly picked off some areas that saw the big guys sleeping. The nabbed Russia, Steel AND the gold companies ETF. And they would have done it with Munis too, if it hadn't been for those meddling kids. OK. Oh no. Not kids, not kids at all. All the big artillery is on #2

2) Muni bonds. ABOUT TIME. BGI, SSgA, PowerShares AND Van Eck are all in a race to get the first Munis to market. Noticeably absent as yet are Vanguard and Ameristock. AND an Ohio muni. For my mom. You'll be getting plenty of information about these offerings in the coming weeks and months, I'm sure.

1) Notes. It feels like the floodgates are about to open on exchange-traded notes. And they'll REALLY open once we get that tax ruling for ETFR. GOLDMAN SACHS (GS) is in the business now (after abandoning their indexes to S&P). Bear Stearns (BSC). Plus the Rogers Commodities indexes come in from the Refco debacle with a couple SPECTRUM ETNs.

I've said it before, and it's no secret. These things could really shift the terrain in the exchange-traded product business...particularly where rough tax treatment is an issue. They track perfectly barring a note-backer implosion, and they can move everything to long-term capital gains rate (barring an unfortunate IRS ruling or legislation. All precedent would seem to be against that. But it's a real risk. As is the possibility of issuer default...and added wrinkle which bothers me. But so do a lot of things.

You just need to step back and look at all the issues and take it from there on product structure selection. Tax sheltered I think I go for the more traditional structure. Taxable I'm in the ETN. That's my take. Like I said, a lot of things could happen around this. Keep your eyes on ETFR re: the tax issue.

Written by Jim Wiandt

Comments

[j'adoube:]

JIm-

Stop holding us in suspense - what is this timber product? From Claymore? Do tell.

2007 Aug 30 11:18 PM

[j'adoube:]

JIm-

Stop holding us in suspense - what is this timber product? From Claymore? Do tell.

2007 Aug 30 11:18 PM