The move to slice and dice the market is getting a new challenge. On Tuesday, three new exchange-traded funds [ETFs] are set to launch, each taking the total markets concept a step further.
The Claymore U.S.-1 Capital Markets Index ETF (AMEX: UEM) seeks to cover most investable stocks traded in America.
But it doesn't stop there. UEM also includes almost every investment-grade bond traded in the U.S. The portfolio will provide access to Treasuries, investment-grade corporates as well as federal mortgage-sponsored assets and agency issues.
"In one ETF, you can now capture the entire U.S. stock and investment-grade bond markets," said Christian Magoon, who heads up the ETF group at Claymore.
On the stock side, the 2,000 largest companies by market-cap size will be included. "One way of looking at it is that this includes all of the large-caps, all of the mid-caps and the largest of the small-caps," said Warren Schmalenberger, founder of Houston-based Dorchester Capital Management Co., which created the underlying benchmarks.
Although a rough comparison, UEM could be considered as a combination of the Russell 1000 and half of the Russell 2000 indexes. Micro-caps aren't represented in the ETF's benchmark. The ETF's expense ratio is capped at 0.37% annually through 2010.
"Warren has a database that grows by about 530 million pieces of market information a day," Magoon said. "When you look at the constituents for just the bond market index, there were 6,042 securities as of the end of 2007. And all of these ETFs coming out have backtested data that Warren has used to apply different rules."
Also debuting on Tuesday are two sister ETFs. Those are:
- The Claymore U.S. Capital Markets Bond ETF (AMEX: UBD). It's the investment-grade bond portion of the U.S.-1 V Capital Markets Index ETF. It excludes high-yield bonds and asset-backed securities. "So all of the mischievous fellows who've been bothering everyone recently won't be in this portfolio," Schmalenberger said.
The bond index is designed to capture about 80% of the investable U.S. bond market. Other notable exceptions are floating rate securities, convertibles, preferred and municipals. UBD has about 6,042 different securities with $9 trillion-plus in assets.
- The Claymore U.S. Capital Markets Micro-Term Fixed Income ETF (AMEX: ULQ). It includes investment-grade issues with maturities of one year or less. The portfolio will also hold investment-grade commercial paper and certificates of deposits.
The portfolio is intended to serve as a short-term bond investment ETF. "Ultra-short bond funds can sometimes mean less than two years in maturities," Schmalenberger said. "So we wanted to make it very explicit by naming it micro-term."
Magoon says it's the first ETF in the marketplace that's a diversified fixed-income portfolio of such terms. The closest rival, he says, is the iShares Lehman 1-3 Year Treasury Bond (NYSE: SHY).
"At the end of 2007, there were 1,861 securities in the micro-term's index," he added. "So this is a big market representing more than $6 trillion in assets."
Missing from the current trio is exposure to the 2,000 largest U.S. companies as a separate equities portfolio. "We've filed for it and we anticipate launching that ETF in the future," Magoon said.
The expense ratios on UBD and ULQ are listed at 0.27% and will be capped through at least 2010.
"We feel it's important to present other total market concepts along with the Capital Markets Index ETF, which could be considered as the grand-daddy on the efficient frontier," Schmalenberger said.
Written by Murray Coleman