The ETF industry now has numerous indexes aimed at matching the broad market or a market segment or sector. The goal of most of these products is to not even tie the index. At best they will under perform due to their fees.
Some ETFs outperform by a basis point or two before fees. This is typically due to tracking error, and with some of the most prosaic of the indexes, the fees can be quite low. These are the indexes that can perhaps be best replicated and purchased as a passive mutual fund for even lower fees than an ETF.
There are some players in the industry who are trying to be first to market with the same old indexes, the “land grabbers.” Some players are merely introducing products off these same old indexes with a weighting strategy that has been offered institutionally for years. This is being heralded as “innovative” now that, as an ETF, it is available to individual investors.
What you will see from Clear Indexes LLC, the firm that I founded and run, are indexes for products that fulfill some simple, yet desirable principles. They are:
* Differentiated in the marketplace;
* Positioned to out-perform major indexes;
* Easy to explain to institutions, wholesalers, brokers/advisors and investors; and
* Scalable with capacity in multiple product structures.
To elucidate, we seek indexes that are not identical to other market, sector or investment themed indexes. We develop each new index based on an investment thesis that is unique to the ETF marketplace, and is designed to outperform traditional market indexes. Furthermore, we seek to publish indexes that have that “A-ha!” factor, where a pension consultant, institution or financial intermediary can swiftly grasp our investment concept and work with its clients to explain our objective, process and desired outcome. Lastly, we require scalability, because as we bring solid products to the public markets we want to allow for, and encourage, broad investor participation.
Tomorrow we will introduce the first of three new indexes that are licensed for ETF products. The published index is the Clear Mid Cap Growth Index [AMEX: CLRMCG]. For each ETF, I will place my own money in the first set of trades as I am confident in, and proud of, the work we have done.
Each index utilizes our power of observation in the marketplace and our mathematical prowess that allows us to explore ideas and rigorously test them in the laboratory before publishing the index. As a subsidiary of an asset management firm, we make sure that we bring “live money management” principles into our development process.
Tomorrow the Claymore/Clear Mid Cap Growth ETF (MCG) is anticipated to begin trading with a brand new take on an existing strategy. Stay tuned for the introduction of our next two indexes with investment themes that are not directly correlated to the broad market, and break new ground. These are not “fancy new fangled ideas,” but instead they represent the four principles outlined above, so much so that once again it will be my money invested in the ETF first.
Only when our confidence is high enough to place my own funds into it, and those of my friends and family, is a Clear Index brought to market.