ETF Update: New CEF ETN, Mutual Fund vs. ETF Smackdown, iShares Offerings

Includes: GCE, IGF, SCZ, TOK
by: Tom Lydon


Claymore Securities is offering an ETN tracking 75 CEFs. The Claymore CEF Index-Linked GS Connect (NYSEARCA:GCE) is backed by Goldman Sachs and began trading last week. A CEF trades like an ETF all day on exchanges, however, they have a set number of shares. An ETN are unsecured IOUs that promise to pay returns on a given index or currency. Trang Ho for Investor's Business Daily reports that the major advantage of buying an ETN is that there should not be tracking error and the risk is with the creditor.

CEFs are actively managed like a mutual fund. Managers use tools to leverage and boost returns. The index for GCE is weighted at 40.65% fixed-income, 30.4% in global equity, and 27.84% in domestic equity funds.

Mutual Fund vs ETF Smackdown

Sure, mutual funds might hold most of the investment assets, but ETFs are surpassing them in growth. Mutual funds shouldn't wave the white flag yet, though: Sue Asci for Investment News reports that the industry is hardly in jeopardy.

As of Oct. 31, mutual fund assets had grown to $8.2 trillion. That's more than double the $3.6 trillion in assets they held in 2002. Net inflows through Oct. 31 were $233.2 billion. Those numbers are from the Financial Research Corp. of Boston.

While that sounds great, check this out: ETF assets have grown nearly fivefold in that same period, to about $590 billion. Year-to-date inflows are $94 billion, which is a 73.8% increase from Oct. 31, 2006.

Analysts say that it's easier for ETFs to have so much growth, because they're coming off a smaller base. Mutual funds are so big and have been around for so long that maintaining that kind of growth would be difficult.

New iShares ETFs

Three new iShares ETFs began trading last week on NYSE Arca. The three new funds from Barclays offer exposure to the developing global marketplace, including places such as Japan, Germany, Greece, Hong Kong, Singapore and Spain. The three new ETFs are:

  • iShares MSCI EAFE Small-Cap Index Fund (NYSEARCA:SCZ) Tracks small cap companies from developed countries.
  • iShares S&P Global Infrastructure Index Fund (NYSEARCA:IGF) Is made up of stocks of large infrastructure companies around the world, including utilities, airport services, marine ports and oil storage.
  • iShares MSCI Kokusai Index Fund (NYSEARCA:TOK) This ETF measures equity performance in developed countries, excluding Japan.