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  • S&P Bullish On Auto ETF

    By: The ETF Professor, Benzinga Staff Writer

    Coming off a year in which in U.S. automobile sales climbed 13 percent, sales are expected to rise again in 2013 as the U.S. and global economies recover. More fuel-efficient vehicles and fresher styles are among the catalysts that some analysts see as driving robust auto sales this year.

    "Our fundamental outlook for automobile manufacturers is positive," said S&P Capital IQ in a research note. "We see U.S. automotive demand trending higher on a year-over-year basis. Sales should benefit from widespread availability of and lower cost of credit for consumers. In addition, sales should benefit from an aging vehicle fleet that needs to be replaced and by consumers' desires for newer, more fuel efficient vehicles, and/or fresher styles and the latest in-vehicle technology."

    That optimism has been reflected in the recent returns of major auto stocks. In the past 90 days, shares of Ford (F), the second-largest U.S. automaker, have surged almost 24 percent. Shares of rival General Motors (GM) are up more than 13 percent over the same time period.

    Despite history of the automobile business in the U.S. and the industry's importance to the economy here, there is just one ETF devoted to the sector. That fund is the First Trust NASDAQ Global Auto Index Fund (CARZ), which S&P has a Marketweight rating on.

    CARZ, which debuted in May 2011, is reflective of the auto industry in that the ETF is global in its composition. Japan accounts for nearly 37 percent of the ETF's country weight with the U.S. and Germany combing for more than 34 percent. Germany and South Korea round out the fund's top-five country exposures and it is the global nature of CARZ that is worth keeping an eye on this year.

    "While we expect to see uneven geographic progress, including declines in Europe and weakness in South America, we look for global demand to rise in 2013, led by China and the U.S. General Motors and Ford should see material losses again in 2013 from suffering European operations," said S&P Capital IQ. "We expect global sales volume growth to be in the low to mid-single digits in 2013. We think higher volume in the U.S. and abroad versus 2012 will outweigh European challenges, helping industry profits and cash flows."

    S&P Capital IQ has four-star ratings on Ford and GM, the largest and tenth-largest holdings in CARZ, respectively. Other top-10 holdings in CARZ include Honda (HMC), Toyota (TM), BMW and Harley-Davidson (HOG).

    Regarding CARZ, S&P Capital IQ said: "When it comes to Performance Analytics, it is ranked overweight relative to other equity ETFs ranked by S&P Equity Research. However, based on Cost Factors it is categorized as underweight. Based on Risk Considerations it is ranked marketweight."

    CARZ, which has $10.5 million in assets under management, has an expense ratio of 0.7 percent. The ETF has gained about 21.5 percent in the past three months.

    For more on ETFs, click here.

    Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Jan 28 2:38 PM | Link | Comment!
  • Not All The Good ETF Niches Are Taken

    By: The ETF Professor

    With over 1,400 ETFs and ETNs on the market today, it would appear that logical that all the good ETF ideas have been exhausted. That means new entrants to the game will be forced to copy previously existing concepts, and even if that is done with the promise of lower expense ratios, the first-to-market advantage is often too deep to overcome for many rookie ETFs.

    Saying that most, if not all of the good ETF ideas have been used up in the industry's barely two decades of life is one way critics articulate that the pace of new ETF debuts has slowed in 2012.

    "Just" 160 new ETFs have debuted to this point in 2012, down from 288 at the same juncture last year, the Wall Street Journal reported citing Lipper data. Clearly that must mean all the good ideas for new ETFs have been used up, right? Wrong. Here are some potentially attractive niches with existing voids ETF sponsors can fill in the years ahead. Just remember: These our ideas, not theirs.

    Restaurant ETF Given the size and brand recognition of some publicly traded U.S. restaurant operators, the fact this ETF does not already exist is mind-boggling. There is no excuse because there is even a restaurant index just waiting to be used.

    Think this concept would not work? Think again. Figure it this way. Panera Bread (PNRA) has nearly quadrupled in the past five years. Chipotle (CMG) has more than doubled while Buffalo Wild Wings (BWLD) has jumped over 170 percent. If the restaurant ETF had come along even three years ago, investors likely would have been treated to some stellar gains.

    More Country ETFs There is no denying investors love international ETFs, particularly the emerging markets variety. And investors have started to embrace frontier markets as well.

    Given the popularity of ETFs tracking Brazil, China and plenty of small emerging markets, one might think the market for global funds is tapped out. Not really. That point can be illustrated in the form of a trivia question. Did you know that 10 of the world's 50 largest economies do not have a U.S.-listed exclusively devoted to them? Sure, that group includes Venezuela and Iran, which probably will not be getting ETFs anytime soon, but it also includes the United Arab Emirates and the Czech Republic, both of which stand as valid options for their own ETFs down the road.

    India Bond ETFs Considering that India is the "I" in BRIC and the tenth-largest economy in the world, the country does not issue bonds at pace comparable to that of some other major economies. That coupled with previously tight restrictions on foreign ownership of Indian corporate and sovereign debt has made tapping the Indian bond market difficult, particularly through ETFs.

    The WisdomTree Asia Local Debt Fund (ALD) offers a 5.6 allocation to India and that is the largest weight to the country among U.S.-listed bond ETFs. Interestingly, India just increased foreign ownership limits on its debt. The country raised the limit on corporate bonds issued by non-infrastructure companies by $5 billion to $25 billion and the total foreign investment allowed in Indian bonds to $75 billion from $65 billion, according to the Wall Street Journal.

    It might take a while, but it is not unreasonable to expect the Indian debt market to become attractive to ETF sponsors in the coming years.

    For more on ETFs, click here.

    Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Dec 13 12:30 PM | Link | Comment!
  • S&P Sees Strong 2013 For Bond, Emerging Markets ETFs

    By: The ETF Professor

    With inflows to exchange-traded products on a record pace this year, industry observers and market participants are turning to their heads to what 2013 has in store for ETFs. Following $15.6 billion in inflows last month, which bring the year-to-date total to $154 billion, the year ahead for ETFs looks bright in the eyes of some.

    "While many forecasts for 2013 are tied to the state of the U.S. economy and the likelihood of Congress having resolved the fiscal cliff, S&P Capital IQ believes the ETF industry will continue to gather assets," said S&P Capital IQ in a research note.

    The research firm points to expense ratio reductions as one driver of inflows to ETFs, calling 2012 "the year of the expense ratio cut." In September, Charles Schwab (SCHW) cut fees on all of its lineup. BlackRock's (BLK) iShares, the world's largest ETF sponsor, would fire back with its own fee reductions. In late November, PowerShares, the fourth-largest U.S. ETF sponsor, cut fees on six of its ETFs.

    Of course, it cannot be forgotten that Vanguard, often viewed as the low-cost leader in the ETF space, announced index changes for 22 of its ETFs in October. Those changes are aimed at lower investor costs and position Vanguard to potentially lower fees on those products next year.

    S&P Capital IQ did note that emerging markets ETFs appear poised to thrive again in 2013.

    "One prediction we will make is that diversified international and emerging market products will continue to garner attention as investors seek out low-cost, diversified ways to take on added risk in hopes of achieving higher returns," the firm said in the note.

    S&P Capital IQ highlighted the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) and the iShares Core MSCI Emerging Markets ETF (IEMG) as newly minted funds that could provide competition to the Vanguard MSCI Emerging Markets ETF (VWO). IEMG debuted in October as lower cost alternative to VWO. The iShares offering has an expense ratio of 0.18 percent compared to 0.2 percent for VWO. IEMG now has $130.1 million in assets under management.

    EELV, which debuted in January, has accumulated $86.5 million in AUM. That fund along with the iShares MSCI Emerging Markets Minimum Volatility Index Fund (EEMV) have benefited from investors' appetite for low volatility ETFs. While both EELV and EEMV have slightly higher expense ratios than VWO, both have delivered superior returns in 2012.

    Bond ETFs will continue to be asset-gathering juggernauts, in S&P's opinion. Inflows to the group totaled $3.8 billion last month and stand at $48 billion for the year. The research firm highlighted the inflows to the PIMCO Total Return ETF (BOND) and the SPDR Barclays Capital Short Term High Yield Bond ETF (SJNK). Those two ETFs debuted earlier this year and have gathered assets at break-neck speed. BOND could end the year with $4 billion in AUM while SJNK has attracted $551.6 million since its mid-March launch.

    More established bond funds also have the potential to thrive again next year, S&P noted.

    "With the yield on the 10-year Treasury note likely to remain below 2% in 2013, we think investors will continue to see the benefits of these ETFs and more established and diversified ones such as iShares Core Total Return US Bond Market ETF (AGG) and the Vanguard Total Bond Market ETF .

    For more on ETFs, click here.

    Disclaimer: Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Dec 13 12:30 PM | Link | Comment!
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