• Dow Jones EURO STOXX 50
• FTSE 100
• CAC 40
• DAX

All of the new funds will be issued utilizing ETF Securities "third generation ETF model," which the firm believes will offer increased price compettion, enhanced liquidity, and reduced counterparty risk for investors. This third generation model diversifies index replication across a consortium of the industry's strongest financial institutions, whereas "second generation" ETFs use only a single counterparty. "First generation" ETFs replicate index returns by replicating the underlying holdings, thereby introducing potential tracking error resulting from rebalancing costs. Commenting on the launch of the new funds, Hector McNeil, head of sales and marketing at ETF Securities said, "It is clear that the continued issuance of ‘third generation’ ETFsgive investors peace of mind during these turbulent times." With the launch of these funds, ETF Securities now manages 140 exchange-traded products with $12 billion in assest, establishing itself as one of the leaders in Europe's ETF industry.

This significant expansion in leveraged ETF offerings in Europe comes at a time when these funds are enjoying tremendous popularity, but also attracting numerous criticisms, in the U.S. Morningstar's Scott Burns recently made a case for subjecting these funds to the same regulations as their underlying holdings (derivatives), and his call has been echoed by countless parties in the industry. On Monday, the Financial Industry Regulatory Authority (FINRA) issued a warning to financial advisers reminding them of their fiduciary duty and implying that these leveraged funds are appropriate for only a very small percentage of clients.

The concern over leveraged ETFs is that while they offer sophisticated investors a powerful short-term investment tool, they are being used by both "average Joe" investors and dangerously ignorant financial advisers who do not understand exactly how these instruments work. While leveraged ETFs generally do an excellent job of tracking the daily performance of their target indexes, due to the compounding returns, performance over any period longer than a day can vary (sometimes significantly) from the amplified return on the underlying benchmark. ETF Securities fully acknowledges that these funds have a relatively narrow target audience, peppering warnings and disclosures throughout its literature on these products as well as its web site. ETF Securities notes that their funds are "only suitable for sophisticated investors who understand leverage, compounded daily returns, and are willing to magnify potential losses." 

Despite similar warnings and transparency from the primary U.S. issuers of leveraged ETFs, ProShares and Direxion, however, concerns over misuse continue. It will be interesting to see how these funds are received in Europe (I'm guessing they will be tremendously popular) and how much scrutiny they receive from both the public and the industry regulators. Hopefully our friends from across the pond will be able to provide some insight as to how we might solve the dilemma posed bythese securities.

Disclosure: No positions at time of writing.

BRIC countries include Brazil, Russia, India, and China. The term was introduced by Goldman Sachs in 2001 to collectively describe the four fast-growing emerging markets that were hot investment options at the time. It was theorized that given the tremendous growth rates of these four small (at the time) economies, the BRIC countries could eclipse the combined economies of the world's richest countries by 2050. While BRIC leaders have previously held less formal meetings during UN conferences, this week's summit in Russia market the first effort of these disparate nations to formally organize themselves and convert their collective economic resources to geopolitical clout.

The BRIC countries have evolved into four extremely different nations, not only in terms of population and location, but in terms of economic and international policies as well. Such differences appeared to prevent any meaningful resolutions from emerging from this week's summit. Their differences are perhaps best highlighted by the clash between countries over the role of the U.S. dollar as the world's reserve currency. When Russia and Brazil called for the BRIC to try to loosen the grip of the dollar on the world's financial system, China passed up the opportunity to show its support for such an effort, likely out of concern for the value of its huge holdings in U.S. government bonds. Recent Treasury Department data indicates that China has $767.9 billion of U.S. Treasuries, making it the world's largest holder.

Russia and China also clashed over policies towards metals-rich central Asia. China recently announced plans to give $10 billion of loans to the region, potentially embarrassing Russia, whose promises of support and aid have been downsized or delayed as a result of the financial crisis. "While both China and Russia are keen to keep the U.S. and Europe out of the region, Moscow is none too keen to be displaced as the political power in the region by its eastern neighbour," said Chris Weafer, a chief strategist at Uralsib, a Moscow brokerage.

The BRIC countries have agreed to work together to ensure that the interests of developing countries continue to receive appropriate attention at G8 and G20 summits. But such a resolution seems obvious and vague, and no specific details emerged on how these countries might work together to further their collective economic development. While they have agreed to convene again next year in Brazil, future meetings seem more likely to result in clashes of political and economic policies than empowering resolutions. Aligning their interests and presenting a unified front to the world's rich countries would no doubt aid the BRIC nations. But failure to reach a consensus on certain issues could result in escalating tensions that hinder development.

While this week's BRIC summit was, in my mind, a pointless endeavor, future meetings may very well prove to be destructive and destabilizing. The BRIC partnership seems forced and vulnerable. Perhaps we've made too much out of a "partnership" that was, after all, devised by an analyst with an investment bank in an economic environment very different from the current global situation. BRIC investments have flourished as these countries operated independently and took little action to further the notion of a cohesive and unified group. Attempting to do so know seems like an unnecessary step that could only backfire.

BRIC ETFs, including Claymore's EEB, are up nearly 40% on the year but were little changed following the conclusion of this week's summit.

Disclosure: No positions

Mousavi is a stark contrast to the hardline Ahmadinejad, promising to seek improved relations with the U.S. and soften Iran's global image. He's even floated the idea of a world consortium overseeing uranium enrichment in Iran. Ahmadinejad, on the other hand, views uranium enrichment and Iran's pursuit of a nuclear program as a nonnegotiable "right." While the most interested observers will be in Washington, Wall Street is likely to keep a close eye on the elections as well. Here's a look at three ETFs that could be on the move as the results are reported:

• iPath S&P GSCI Crude Oil Total Return Index (OIL): Iran, one of OPEC's founding members, holds approximately 136 billion barrels of proven oil reserves, representing the third largest supply in the world and approximately 10% of worldwide reserves. As oil prices are frequently impacted by escalations in geopolitical tensions, election of a leader viewed as more open to international cooperation may reduce volatility in prices.
• Van Eck Market Vector Russia ETF Trust (RSX): At more than 900 trillion cubic feet, Iran's proven natural gas reserves are second to only Russia. A more stable and integrated Iran could allay fears of existing and potential natural gas customers and weaken Russia's control over prices in certain regions. The oil and gas industry accounts for nearly 40% of the index tracked by RSX.
• iShares Don Jones U.S. Aerospace & Defense Fund (ITA): As the Obama administration has sought to distance itself from Bush policies, a war with Iran is much less likely than it was a year or two ago. But given Ahmadinejad's anti-U.S. views, commitment to pursuing a nuclear program, and volatile personality, such a conflict is certainly within the realm of possibility. Although there is no certainty as to how Mousavi's foreign policies would actually play out, he pledged during the campaign to improve U.S. relations, indicating that a conflict would be less likely if he wins election.

Disclosure: No positions.

• BMO Dow Jones Canada Titans 60 Index (BCA): Will track the Dow Jones Canada Titans 60 Index.
• BMA Dow Jones Diamonds Index (BDJ): Will track the Dow Jones Industrial Average.
• BMO U.S. Equity Index (BUE): Will track the Dow Jones U.S. Large-Cap Index.
• BMO Canadian Government Bond Index (BGB): Will track the Citigroup Canadian Government Bond Index.

Both BDJ and BUE will hedge their exposure to U.S. dollars. Commenting on the launch of the ETFs, BMO president and CEO Gilles Oullette noted, "we are pleased to provide a home-grown Canadian investment option that can help investors achieve their financial goals."

BMO's new ETFs will likely compete with several existing Canadian iShares products for investor funds. BCA is similar to iShares' CDN Large Cap 60 Index, and BGB follows an index similar to the one tracked by iShares CDN DEX All Government Bond Index. BDJ will compete directly with State Street's DIA, while BUE is similar to ELR. Expense ratios on the new BMO funds range from 0.15% to 0.23%, making their costs comparable to competing funds. State Street and iShares funds, however, are well-established funds with high levels of liquidity, an obstacle BMO's products will have to overcome.

Three additional BMO ETFs have received final prospectus approval from regulators and will likely be launched in coming months. According to Oullette, "this is the first phase of our ETF offering, with additional products to come. Based on the popularity of ETFs world-wide, we anticipate this will contribute to the growth of BMO's wealth management business."

View MBO's press release here.

Disclosure: No positions

Price-Weighted Index

In a price-weighted index, each component stock makes up a fraction of the index proportional to its trading price. Think of a price-weighted index as if it holds one share of each of the constituent companies.  There are several drawbacks of a price-weighted index. First, absolute stock prices are somewhat arbitrary, since then can be influenced through stock splits and dividend payouts. Second, development of a price-weighted index won't accurately reflect changes in the market values of the constituents, since stock trading at $100 will make up 10 times more of the index than a stock trading at $10, regardless of the total market capitalizations of the company. Finally, price-weighted indices need to be constantly rebalanced to reflect changes in stock prices.

Consider a hypothetical price-weighted index consisting of ten stocks: Berkshire Hathaway, IBM, Microsoft, Wal-Mart, Pfizer, GE, Google, Boeing, Exxon Mobil, and Intel (with the exception of GOOG and BRK-A, all of these are current components of the Dow Jones Industrial Average Index). Berkshire would account for more than 99% of the total index weighting, due to the fact that its share price is significantly higher than any other stock in the index.

The Dow Jones Industrial Average (tracked by DIA), perhaps the most widely reported market index in the world, is an example of a price-weighted index.

Market Capitalization-Weighted Index

In a market capitalization-weighted index, each component stock is weighted according to its market capitalization (i.e., trading price multiplied by number of shares outstanding). Think of a market capitalization-weighted index as if it holds all outstanding shares of each constituent company. If we were to implement a market capitalization weighting methodology to the same index presented above, we can see that the weightings to each company would be dramatically different.

Many market capitalization-weighted indices are now float adjusted, meaning the number of shares used in the calculation of the weighting is is adjusted to include only publicly-floated shares (i.e., excludes shares held by insiders, large holders (generally more than 5%), and restricted shares).

Examples of market capitalization-weighted indices include the S&P 500 (tracked by SPY, IVV, IVW, IVE), NASDAQ 100 (QQQQ), Hang Seng (Hong Kong), Russell Indices (IWV, IWF, IWD), IBEX 35 (Spain), and the NYSE Composite Index.

Equal-Weighted Index

Think of an equal-weighted index as if it holds an equal dollar amount (say $1,000) in each of the component companies. The S&P 500 Equal Weight Index (EWI) holds the same stocks as the traditional S&P 500, but assigns a weight of 0.20% to each. An issue with equal-weighted indices is the frequency of rebalancing. As stock prices change, the weightings will move away from an equivalent level, but if the index rebalances too frequently, it becomes impractical for funds to track the index in a cost-efficient manner. So the rebalancing frequency must strike a balance between representation and investability. The S&P 500 EWI rebalances its constituents to 0.20% on a quarterly basis.

Fundamentally Based Index

Here's where things get a little unconventional. In fundamentally based indices, stocks are weighted based on one or many fundamental factors, such as book value, revenue, EPS, number of employees, etc. This sounds a bit bizarre, but the logic behind such an index is quite interesting. Traditional market capitalization-weighted indices, by nature, overweight overvalued stocks and underweight undervalued stocks. Equal-weighted indices avoid these problems, but are susceptible to high turnover and volatility (as discussed above). Fundamentally based indices remove the systematic inefficiencies of a capitalization-weighted system while avoiding drawbacks of simple equal-weighted indices.

Disclosure: Long IVV.

Seven of the ETFs will track inverse indices, the first time France short sector indices have been offered. The inverse funds include:

• Short European Sectors: inverse exposure to European sector indices, including Banks, Oil & Gas, Healthcare, Technology, and Telecommunications.
• S&P 500 Short: similar to ProShares' SH.
• FTSE 100 Short

In addition to the inverse ETFs, Deutsche Bank will launch funds tracking:

• FTSE 100 Vietnam: Tracks the largest and most liquid Vietnamese stocks.
• S&P/ASX 200: Tracks 200 large-cap Australian equities.
• Russell 2000: Tracks a broad base of U.S. equities.

With the addition of these funds, db x-trackers now offers 37 ETFs in France, including 10 ETFs on short indices. NYSE Euronext's European markets now offer 396 ETFs with 434 listings from 14 issuers. These ETFs cover more than 275 indices encompassing a variety of assets and strategies.

View the NYSE Euronext Press Release

Disclosure: No positions