Claymore's New Rotation and Dividend ETFs: A One-Stop Approach To Country Investing and Income Growth

Includes: HGI, XRO
by: IndexUniverse

Claymore is on a roll. With roughly 30 exchange-traded funds (ETFs) introduced since last September, the fund group is expanding its product line-up at a rapid pace. The latest two launches are global variations of strategies available in older funds. Christian Magoon, senior managing director of product development, says the firm is working toward developing suites of products.

One of the first ETFs Claymore launched last year was the Claymore/Zacks Sector Rotation ETF (AMEX: XRO), which now has about $72 million in assets. The fund, which moves its portfolio to whatever sector is hot, was up a little more than 8% for the first six months of the year compared with the S&P 500's total return of nearly 7%. Building on that theme, on July 11, Claymore introduced the Claymore/Zacks Country Rotation ETF (AMEX: CRO), which takes the rotation strategy global.

Drawing from the countries included in the MSCI EAFE index plus Canada, the underlying index selects stocks in countries that it believes have a high potential to outperform the global market, and weights the countries accordingly. Any of the 22 countries can have a weighting ranging 0% to 45% of the index, and the index includes just 12 countries at a time. At the end of June, the United Kingdom represented nearly a quarter of the fund, followed by Australia at nearly 13% and Hong Kong at nearly 11%. The only other country from the Asia Pacific region with a weighting above 0% in the fund was Singapore-the rest of the countries with representation in the index were in Europe. Ireland had the smallest weighting at 0.17%.

Magoon describes CRO as a one-stop approach to country investing at a time when allocation among countries and regions is becoming more complicated. Investors don't always want to have to worry about how much they should invest where, and since the ETF handles all the allocation and transaction issues, the investor and his or her returns benefit from greater tax efficiency.

"It's a way for investors to automate their country exposure outside the U.S.," Magoon says. He notes that many of the new ETFs launched this year were international ETFs and points out that although CRO covers only developing markets, Claymore also has a "BRIC" ETF covering Brazil, Russia, China and India, which are some of the most talked-about emerging markets.

The other fund to launch on Wednesday was the Claymore/Zacks International Yield Hog Index ETF (AMEX: HGI), which applies a strategy Claymore used as the basis for a domestic ETF at the international level. The underlying index uses Zacks' methodology to create an index of 150 components which it has identified as having potentially high income and superior risk/return profiles. It will buy anything with a yield: dividend-paying equities, global REITs, master limited partnerships, emerging market ADRs, closed-end funds and Canadian royalty trusts.

"It's not just about income; it's about growth of income," Magoon says.

The underlying index has a current yield of 5.4%. Among its top 10 holdings are the Templeton Russia Fund, the Latin America Discovery Fund, the National Bank of Greece and Lloyds TSB Group PLC.

Both ETFs carry an expense ratio of 0.65%, and list on the American Stock Exchange.

Magoon believes that investment strategy ETFs represent a next generation of ETFs. "We believe investment strategy ETFs are going to become more popular and grow faster than straight building-block ETFs," he asserts, although he does think that there is room for both models to be successful.