ETF Watch: New Listings

By Matthew Hougan

Bear Stearns (BSC) Launches First Active ETF – Finally!

On March 25, a day after JPMorgan Chase (JPM) raised its takeover bid for the company, the beleaguered Bear Stearns launched the first active exchange-traded fund.

With all the hoopla around the sale of the company, the Bear Stearns Current Yield Fund (AMEX: YYY) opened with little fanfare.

Since the parent company's fortunes turned so dramatically – a day before YYY's initial scheduled March 18 release date, shares of Bear Stearns fell almost 50% – Bear Stearns Asset Management had been noncommittal about whether the first active ETF would even come to market at all.

Besides earning first-to-market honors among what should be a flood of new active fixed-income ETFs, YYY also late in the day was given Standard & Poor's highest bond rating. Even though it's actively managed, the new ETF also received S&P Ratings Service's lowest volatility mark.

The fixed-income ETF is somewhere between a money market fund and a short-duration bond fund. It doesn't follow an index but will invest in U.S. government and corporate debt with short-term durations. The most YYY's weighted average maturity will extend to is one year, but its average should be closer to 180 days, according to the ETF's prospectus.

YYY charges an expense ratio of 0.35%.

• Read the prospectus for YYY here.

Rupee and Renminbi Currency ETNs Launched By Morgan Stanley, Van Eck

Morgan Stanley has teamed up with Van Eck Global to launch currency ETNs offering exposure to the Chinese renminbi and the Indian rupee. The Market Vectors - Chinese Renminbi/USD ETN (NYSE: CNY) and Market Vectors - Indian Rupee/USD ETN (NYSE: INR) are the first exchange-traded products to offer exposure to those two currencies. They launched March 17 on NYSE Arca.

The notes are designed to go up in value when the named currency appreciates against the U.S. dollar, and down when the dollar strengthens. The ETNs are underwritten by Morgan Stanley, and Van Eck is the marketing agent. The notes charge 0.55% in annual fees.

To get around government restrictions on foreign currency holdings, the ETNs actually each track an index tied to currency futures. Those futures have historically tracked very closely with the spot price of the currency.

Unlike most currency products, the new ETNs earn interest based on the U.S. Federal Funds interest rate, not local interest rates. Further, they do not pay out interest income; instead, it is added to the share value of the note. Investors must still pay taxes each year on this notional interest, in light of the recent IRS ruling.

• Read the prospectus for CNY here.
• Read the prospectus for INR here.

U.S. Gets Its First Global TIPS ETF

The first U.S.-based global international Treasury Inflation-Protected Securities ETF launched on March 19, opening exposure for investors to TIPS in 18 different countries and 15 different currencies.

The SPDR DB International Government Inflation-Protected Bond ETF (AMEX: WIP) includes TIPS issued in both developed and emerging foreign markets, with 70% developed exposure and 30% emerging.

WIP has 47 different holdings ­ – mostly A-rated and above in credit quality. The average life of those bonds is listed at 9.06 years, although a portfolio duration total won't be known until the ETF has more of a history.

The fund follows the Deutsche Bank Global Government ex-U.S. Inflation Linked Bond Capped Index. In the past 12 months, that benchmark has returned 20.9%. About 12% of those gains were currency-related, and another 5% was associated with inflation adjustments. Another 2% came from coupon interest payments. Less than 1% came from price appreciation.

The real yield on WIP is around 2.01%, reflecting a worldwide flight to quality as credit markets continue to struggle from the U.S.-led mortgage meltdown.
Since the fund deals with government debt and buys in foreign currencies, it should be very liquid. Some of the ETF's currencies include the euro, yen, pound, Brazilian real and the krona.

The expense ratio on WIP is listed at 0.50%.

• Read the prospectus for WIP here.

BGI Launches First True All-World Fund, Others

U.S. consumers looking for a true all-world fund just got one March 28 as Barclays Global Investors launched five new ETFs including the iShares MSCI ACWI Index Fund (NASDAQ: ACWI). It holds 2,884 different stocks from developed and emerging markets in every investable market in the world, and is the first truly global ETF available in the U.S. At the end of 2007, the U.S. had about 42% of the underlying MSCI All-Country index's weighting. Meanwhile, Canada represented 4% and Europe comprised 31%. Emerging markets made up 11% and Japan had 8.5%.

ACWI carries an expense ratio of 0.35%.

BGI also launched a trio of single-country iShares: The iShares MSCI Israel Capped Investable Market Index Fund (NYSE: EIS), the iShares MSCI Turkey Investable Market Index Fund (NYSE: TUR) and the iShares MSCI Thailand Investable Market Index Fund (NYSE: THD). Each charge 0.74% and track foreign markets not previously covered by U.S.-listed ETFs.

Also included in the launch is the iShares MSCI ACWI ex-US Index Fund (NASDAQ: ACWX). That will compete against several others, including the SSgA SPDR MSCI ACWI Ex-US (AMEX: CWI), which tracks the same index and charges the same 0.35% expense ratio.

• Read the prospectus for ACWI here.
• Read the prospectus for ACWX here.
• Read the prospectus for EIS here.
• Read the prospectus for TUR here.
• Read the prospectus for THD here.

New iPath ETN Tracks Currency Strategy Index

Also out is the iPath Optimized Currency Carry ETN (NYSE: ICI). With an expense ratio of 0.65% per year, ICI tracks the Barclays Intelligent Carry Index. That benchmark uses quantitative modeling to capture the returns of the highest-yielding currencies from G-10 nations. The methodology results in the portfolio taking long positions on some currencies and shorting in lower-yielding currencies.

But it doesn't have any set number of long and short currencies it'll take position in at any given time. As of February, the ETN was shorting the U.S. dollar, the Swiss franc, the Swedish krona and the Canadian dollar. It was long the six other currencies in its basket: the euro, the yen, the British pound sterling, the Australian dollar, the New Zealand dollar and the Norwegian krone.

• Read the prospectus for ICI here.

PowerShares Launches Three ETFs

PowerShares launched three new ETFs on April 3 that take unique twists on well-known markets.

The PowerShares Global Nuclear Energy Portfolio (NYSE: PKN) uses an underlying index that employs a hybrid weighting methodology. It equal-weights companies included in two of its five main categories: primary construction and technology. In the three others – technology (equipment and services), utilities and fuels – names are market-cap-weighted, with individual weightings capped at 3%. Segments also are given a set weighting. Reactors and construction each represent 15% of the total while utilities and tech make up 25% apiece. Meanwhile, fuels comprise 20% of the overall portfolio.

The underlying index is provided by WNA Global Indexes, which was formed last year in partnership with the World Nuclear Association, an industry trade group.

PKN carries an expense ratio of 0.75%.

• Read the prospectus for PKN here.

The PowerShares FTSE NASDAQ Small Cap Portfolio (NASDAQ: PQSC) invests in the smallest 10% of the broader FTSE NASDAQ Index. Its FTSE NASDAQ Small Cap Index is weighted by market capitalization sizes. The index through March included some 1,159 companies with health care and tech as the leading sectors. The underlying index's top three holdings were Savient Pharmaceuticals (0.37%), Bruker (0.35%) and Cybersource (0.35%).

PQSC charges annual expenses of 0.70%.

The PowerShares NASDAQ Next-Q Portfolio (NASDAQ: PNXQ) does just what its name implies. Its underlying index includes, by market-cap weightings, the 50 securities next in line to replace any of the stocks in the NASDAQ 100. It charges an expense ratio of 0.70%.

• Read the prospectus for PQSC and PNXQ here.

• More on choosing the right ETF