By Heather Bell
New SPDR International Sectors Exclude U.S.
On July 22, State Street Global Advisors took sector ETFs in a new direction with the launch of 10 international sector ETFs on the American Stock Exchange.
The new funds exclude the U.S., giving more flexibility to U.S. investors who may already have a domestic allocation and may not want to duplicate those holdings with sector funds. While there are ex-U.S. sectors currently trading, they are offered by WisdomTree and are dividend weighted. Other global sector ETFs from Barclays Global Investors are derived from more narrow indexes (the sectors of the S&P Global 1200 Index) and include U.S.-domiciled components.
The new funds cover the 10 sectors of the S&P World ex-U.S. Broad Market Indices, with the number of components in each sector ranging from as few as 70 (Telecommunications) to more than 1,200 (Industrials). Individual components must have market capitalizations of at least $100 million. Three of the sectors—Financial, Health Care and Technology—cover only developed markets, while the remainder can include stocks both from emerging and developed markets. However, there do not appear to be any emerging markets represented in the portfolios currently.
The new ETFs include the following:
- SPDR S&P International Consumer Discretionary Sector ETF (AMEX: IPD)
- SPDR S&P International Consumer Staples Sector ETF (AMEX: IPS)
- SPDR S&P International Energy Sector ETF (AMEX: IPW)
- SPDR S&P International Financial Sector ETF (AMEX: IPF)
- SPDR S&P International Health Care Sector ETF (AMEX: IRY)
- SPDR S&P International Industrial Sector ETF (AMEX: IPN)
- SPDR S&P International Materials Sector ETF (AMEX: IRV)
- SPDR S&P International Technology Sector ETF (AMEX: IPK)
- SPDR S&P International Telecommunications Sector ETF (AMEX: IST)
- SPDR S&P International Utilities Sector ETF (AMEX: IPU)
Each fund charges an expense ratio of 0.50%.
WisdomTree Files For Currency Hedged ETFs
In what seems like a pretty logical solution to the dollar’s precipitous slide, WisdomTree (WSDT.PK) has filed for two international ETFs that seek to hedge away currency fluctuations.
The WisdomTree Currency Hedged DEFA Fund and the WisdomTree Currency Hedged Emerging Markets Fund track indexes that seek to minimize the effects of the changes in the holdings’ local currencies against the dollar. The prospectus notes that returns on international equity investments feature two components—the return resulting from changes in international stock prices and the return resulting from fluctuations in foreign currencies relative to the U.S. dollar. The indexes incorporate one-month forward currency contracts in order to minimize the effects of those currency fluctuations, although it may not be possible to eliminate them entirely. Essentially, the indexes are designed to see more upside than a noncurrency-hedged index when the U.S. dollar’s value is increasing relative to foreign currencies, and more downside when the U.S. dollar’s value is declining.
The WisdomTree Currency Hedged DEFA Fund’s underlying index is simply a currency-hedged version of the WisdomTree DEFA Index (covering Europe, Far East Asia and Australasia). The index can include components from the 16 developed European markets in the WisdomTree Europe Dividend Index, as well as Japan, Hong Kong, Singapore, Australia and New Zealand.
The WisdomTree Currency Hedged Emerging Markets Fund will track an index that covers Argentina, Brazil, Chile, China, Czech Republic, Hungary, India, Indonesia, Israel, Malaysia, Mexico, Philippines, Poland, Russia, South Africa, South Korea, Taiwan, Thailand or Turkey.
Both indexes are dividend weighted and components for both indexes must have paid out at least $5 million in cash dividends during their most recent annual cycle.
iShares Plans Target Date ETFs…
Barclays Global Investors has filed for some interesting funds recently—including a family of target date ETFs, a family of asset allocation ETFs and another addition to its lineup of municipal bond ETFs.
The target date family includes eight funds, including a fund designed for “now”—as in the currently retired investor—and seven funds with target dates set at five-year intervals ranging from 2010 to 2040. The funds track a family of indexes designed by Standard & Poor’s that comprise nine other iShares ETFs. The weights of those component ETFs change according to the time horizon of each target date index.
Interestingly, the component indexes of the S&P Target Date indexes do not exclusively track S&P indexes. They include the iShares linked to the S&P 500, the S&P MidCap 400, the S&P SmallCap 600, the Cohen & Steers Realty Majors Index, the MSCI EAFE Index, the MSCI Emerging Markets Index, the Lehman Brothers Aggregate Bond Index, the Lehman Brothers Short Treasury Bond Index and the Lehman Brothers TIPS Bond Index. S&P determines the weight of the components for each of its target date indexes based the results of an annual survey it conducts of the asset allocations of target date funds.
The eight target date funds include the following:
- iShares S&P Target Date Retirement Income Index Fund
- iShares S&P Target Date 2010 Index Fund
- iShares S&P Target Date 2015 Index Fund
- iShares S&P Target Date 2020 Index Fund
- iShares S&P Target Date 2025 Index Fund
- iShares S&P Target Date 2030 Index Fund
- iShares S&P Target Date 2035 Index Fund
- iShares S&P Target Date 2040 Index Fund
The split among equities, fixed income and cash ranges from 42% equities and 58% fixed income (with the rest in cash) for the iShares S&P Target Date Retirement Income Index Fund, to 91% equities and 9% fixed income for the iShares S&P Target Date 2040 Index Fund.
The funds will compete against the TDAX Independent Target Date Shares that were launched by XShares Advisors and TD AMERITRADE.
…And Asset Allocation ETFs
It’s not enough to have a whole family of target date funds in the works; BGI is also looking to launch a family of target risk funds—essentially based on a risk profile rather than a time horizon.
The new iShares will include the iShares S&P Conservative Allocation Fund, iShares S&P Moderate Allocation Fund, iShares S&P Growth Allocation Fund and iShares S&P Aggressive Allocation Fund. Each fund tracks an index that comprises the same component ETFs as the S&P Target Date indexes mentioned above, with their weights adjusted to meet different risk profiles.
The equity/fixed-income split for the S&P Target Risk indexes ranges from 29% equities and 71% fixed income for the conservative index, to 92% equities and 8% fixed income for the aggressive growth index.