I Just Don't Get These New Claymore ETFs

By now you know that Claymore just listed three ETFs that have the (kind of) brand name of Capital Markets. The broadest fund is the Capital Markets Index Fund (UEM) which takes in equities, fixed income and money market instruments. There are 9903 holdings in all (according to the Claymore website).

Slightly narrower are the Capital Markets Bond Index Fund (UBD) and the Capital Markets Micro Term Fixed Income Fund (ULQ).

I first heard about these ages ago and I have to say I was confused about what has ultimately become UEM when I first heard about it, and I am still confused about it now. I asked one person from Claymore what the point was, and he said that you can own the entire capital market in one fund. It might be me (seriously) but I don't know why that is useful.

As of year end 2007 UEM was 51.24% in equities, 35.55% in long term fixed income and 13.21% in cash and equivalents.

What I do know from having talked to Claymore is that there is a ton of science and research behind the concept, that the people who have created (Dorchester is the name of the company) are very smart, and I do not doubt it will do what it is intended to do.

But I still do not know what the point is. You can read the literature and perhaps you can glean a better understanding than me.

Part of my lack of understanding is that I think even the laziest and most passive of investors makes the stocks/bonds/cash decision, but buying UEM takes even that away.

You don't have to have read this site very long to know I prefer blending together narrower things, to allow for management of things like sector, style, asset class (think commodities, currencies, REITs and infrastructure), different countries, volatilities, yield, cap size and so on.

Even investors who would never pick an individual stock can make use of narrow products, in proper moderation, to add a lot of value versus a broad equity benchmark. (As a note, adding value doesn't have to mean outperforming; It can also mean smoothing out the ride).

After all that, maybe UEM will turn out to be the most useful fund ever, but I still probably won't get it.

Comments

[Positive NPV]

I haven't read the Claymore material, so I don't claim to understand their intention. However I can see the point of an ETF that tries to capture the totality of the capital markets.

If one believes in some form of the efficient market hypothesis, then one rational approach would be to construct a portfolio with exposure to all asset classes that exist in the world. And, depending on how strong one believes in the EMH, one might desire a capitalization-weighte... exposure to the asset classes.

The Claymore product, if constructed appropriately, could be the proxy for the capital markets assets. (I don't know if they've constructed it to represent the world, just the US, the US and EU, etc.) That could be the end of the job for some people.

However, if you want true exposure to all the assets in the world, then that would leave a portfolio builder the the job of filling in the holes with securities that provide exposure to all the remaining asset classes (commodities, RE, collectibles, currency, capital markets that may not be in the Claymore ETFs such as certain emerging markets, etc.).

[User 86999]

Time UEM S&P500
15-Year 8.01% 10.49%
10-Year 5.85% 5.91%
5-Year 8.89% 12.83%
3-Year 7.07% 8.62%
1-Year 6.31% 5.49%

Hence, what's the point?

[RogerNusbaum]

it is 49% in bonds and cash