ETF Update: New 401(k) Platform, Blossoming ETNs, Foreign Fund Choices

by: Tom Lydon

New Wisdom Tree 401(k) Platform

WisdomTree Retirement Services, a subsidiary of the ETF provider WisdomTree Investments, announced yesterday the launch of a 401(k) platform. This is one of several ways companies are trying to set up platforms for easy ETF access in 401k plans. The platform uses index-based investing and WisdomTree’s fundamental ETFs in addition to no-load, actively-managed mutual funds for extra diversification. The open platform features third-party ERISA fiduciary and investment advisory services and is designed to be used by plan sponsors, advisers, brokers and third-party administrators (TPAs).

The comprehensive service platform offers an all-inclusive 401(k) ETF program for as low as 65 to 70 basis points and has eliminated the trading fees and commissions typically associated with retail ETF purchases. To deliver the platform, WisdomTree has partnered with CLS Investment Firm for asset allocation services, Professional Capital service for record-keeping and ICTC (Ameritrade) for custody and trading services. The two options available on the platform are:

  • Model Plan
    The model plan is a wrap-free ETF 401(k) plan that offers six ETF portfolios designed for different investors' risk tolerance or target retirement date. The models feature ETFs from WisdomTree as well as Vanguard and iShares. Additionally, advisers can supplement the ETF models with a menu of mutual funds.
  • Custom Plan
    The custom plan features all of the investment options available in the model plan and allows advisers who can assume more responsibility for their clients to create customized portfolios.

Blossoming ETNs

Exchange traded notes have blossomed recently. They are beginning to cover a wide variety of areas, although currently commodity and currency ETNs dominate. So far, Barclays holds the most ETNs (eight total) in its iPath series, which recently surpassed $3 billion in assets. However, two ETNs from other providers have launched this year to add some competition.

Bear Stearns recently launched the BearLinx Alerian MLP Select Index ETN (BSR), which follows a benchmark of energy-related investments, reports Ian Salisbury for the Wall Street Journal. Also, this summer, Goldman Sachs launched its first ETN: the GS Connect S&P GSCI Enhanced Commodity Total ReturnStrategy Index ETN (NYSEARCA:GSC). It tracks a tweaked version of the S&P GSCI Index.

Let's see how these 10 ETNs are doing:

  • iPath Dow Jones-AIG Commodity Index Total Return ETN (NYSEARCA:DJP) - up 8.3% year-to-date
  • iPath S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA:OIL) - up 21.1% year-to-date
  • iPath S&P GSCI Total Return Index ETN (NYSEARCA:GSP) - up 16.9% year-to-date
  • iPath MSCI India Index ETN (NYSEARCA:INP) - up 48.7% year-to-date
  • iPath JPY/USD Exchange Rate ETN (NYSEARCA:JYN) - up 4.9% for the last three months, having launched in May
  • iPath EUR/USD Exchange Rate ETN (NYSEARCA:ERO) - up 4.7% for the last three months, having launched in May
  • iPath GBP/USD Exchange Rate ETN (NYSEARCA:GBB) - up 3.0% for the last three months, having launched in May
  • iPath CBOE S&P 500 BuyWrite Index ETN (NYSEARCA:BWV) - down 0.1% for the last three months, having launched in May
  • GS Connect S&P GSCI Enhanced Commodity Total ReturnStrategy Index ETN (GSC) - up 5.0% since July inception
  • BearLinx Alerian MLP Select Index ETN (BSR) - down 11.0% since July inception

Foreign Fund Choices

Broad-based ETFs could lead you to believe that you own a small piece of the world, but indexes such as the EAFE might have a few too many gaps. The $49 million iShares MSCI EAFE Index ETF (NYSEARCA:EFA) is the second-largest ETF in the world, and it covers 21 developed nations with Britain, Japan, France and Germany making up 62%.

Because the index value is weighted by market capitalization, the larger nations get over-weighted. Countries such as Mexico, Canada and Russia are not even in the index. Lynn O'Shaughnessy for BusinessWeek reports other options are available for investors who want to invest in foreign stocks.

Now there are 124 foreign-based ETFs, which is up from about 50 over the past year. Check out four ways to expand a portfolio's global reach:

  • Emerging Market ETFs
    Consider the Vanguard Emerging Markets ETF (NYSEARCA:VWO) or iShares Emerging Markets Index Fund (NYSEARCA:EEM). These ETFs merge developed and emerging markets, giving investors broad exposure, especially to growing economies.
  • Single-country ETFs
    Single country ETFs also offer an easy way to add some foreign exposure to a portfolio. Examples include the iShares MSCI Canada Index (NYSEARCA:EWC), iShares MSCI Mexico Index (NYSEARCA:EWW) and iShares MSCI Brazil Index (NYSEARCA:EWZ).
  • Small-caps
    Many investors generally don't associate small-cap stocks with emerging markets, but they are out there. One example is the SPDR S&P International Small Cap (NYSEARCA:GWX) that has nearly 500 companies that are scattered around the world and have a market capitalization of less than $2 billion.
  • Dividend ETFs
    Some international-based ETFs even pay dividends. Some examples include the iShares Dow Jones EPAC Select Dividend Index Fund (NYSEARCA:IDV) and the WisdomTree International Real Estate Fund (NYSEARCA:DRW).

For full disclosure, some of Tom Lydon's clients own EEM and EWC.