US firm, MarketGrader.
This automatically makes
asset allocation decisions
around a particular index
(currently limited to US
indices such as the S&P
500, Russell 1000, Nasdaq
etc.) using selected company
fundamentals to identify
the best and the worstperforming
companies.
It gets round the issue
of an ETF that adheres to
the strict cap weighting of
an index, by moving to a
more active choice of
which stocks to choose
ranked by fundamentals.
The fly in the ointment
is that this particular ETF
range is only rebalanced
every quarter, so when it
holds a company – or a
number of companies – in
a sector or a number of
sectors, that underperform,
it maintains this position
for as long as three consecutive
months. It is entirely a
rules-based index.
Recently launched etfs
“This means if they do
not like a particular sector,
they invest in it,” Freedman
bemoans. “It is highly frustrating
because it has had a
high energy weighting for
most of this year – when
energy stocks were flying
high this was fantastic.
“Obviously when the oil
price started to come down
and they kept their energy
stocks, it was frustrating as
we really wanted them to
sell. But it is rules-based so
it will eventually rebalance
itself. In the meantime, it is
painful on performance.”
So SPA ETF’s range is
limited in that it only looks
at the US – though there
are plans to introduce indices
across Europe and Asia
in the next two or three
years – and it is, as are
most other providers, currently
struggling against
the backdrop of hugely
volatile equity markets.
But what the company
ETF name Curr Sec’ties Sec’ties Fund Ann TER AUM Dividend Launch
in ETF in index structure (bps) (£m) frequency date
PowerShares Dynamic Japan Fund £ – – Irish VCIC 75 1.34 Quarterly 15 Sep ’08
PowerShares Glbl Agriculture Nasdaq OMX Fund £ – – Irish VCIC 75 0.64 Quarterly 15 Sep ’08
DB x-trackers DJ Stoxx 600 Banks £ 64 64 Luxembourg Part 1 30 115.88 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Basic Resources £ 24 24 Luxembourg Part 1 30 15.11 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Food & Beverage £ 28 28 Luxembourg Part 1 30 3.43 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Health Care £ 29 29 Luxembourg Part 1 30 50.66 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Industrial Goods £ 86 86 Luxembourg Part 1 30 16.73 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Insurance £ 35 35 Luxembourg Part 1 30 16.40 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Oil & Gas £ 25 25 Luxembourg Part 1 30 24.54 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Technology £ 22 22 Luxembourg Part 1 30 16.00 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Telecoms £ 22 22 Luxembourg Part 1 30 18.78 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Utilities £ 33 33 Luxembourg Part 1 30 8.46 Reinvested 5 Aug ’08
DB x-trackers MSCI Europe Mid Cap Trn £ 294 294 Luxembourg Part 1 40 2.77 Reinvested 5 Aug ’08
DB x-trackers MSCI Europe Small Cap Trn £ 1,181 1,181 Luxembourg Part 1 40 2.15 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Banks Short £ – – Luxembourg Part 1 50 39.91 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Health Care Short £ – – Luxembourg Part 1 50 21.06 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Oil & Gas Short £ – – Luxembourg Part 1 50 14.67 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Technology Short £ – – Luxembourg Part 1 50 16.49 Reinvested 5 Aug ’08
DB x-trackers DJ Stoxx 600 Telecoms Short £ – – Luxembourg Part 1 50 6.91 Reinvested 5 Aug ’08
iShares Global Inflation-Linked Bond £ 33 – Irish VCIC 25 8.33 N/A 4 Aug ’08
iShares € Covered Bond £ 27 – Irish VCIC 20 13.03 September 4 Aug ’08
All Ucits III and do not have distributor status in the UK. Source: Barclays Global Investors
has done is
show that the
UK market is still open to
actively-managed, noncap-weighted
ETF products,
and that the provider
markets are not just the
preserve of big names such
as Barclays.
l UK situation
Taking a lead from the US,
the UK market is now virtually
fully covered in
terms of what it is that
ETFs offer exposure to. It
has moved incredibly
quickly from simple, mainstream
indices and beta
coverage, to more actively
managed, manufactured
indices to generate alpha.
December 2008 [www.portfolio-adviser.com] POrTFOLIO ADVISer
Index InvestIng ActIvely mAnAged etfs
The way
the market
has developed has allowed
UK investors within just a
few years to use ETFs for
active asset allocation
themselves or to leave that
up to the ETF provider; as
part of either a core and/or
satellite approach to their
portfolio; and for both beta
and alpha generation. All
these are already available
through using a full range
of ETFs as building blocks
to give access to sectors,
regions, individual stocks
or entire asset classes.
“What you have seen is
first of all the proliferation
to cover all the various
forms of beta,” says Reid
Steadman, a senior director
of exchange listed prod-
“
With the
popularity of ETFs
there is the desire
to offer to financial
professionals
and sophisticated
institutional investors
the ability to fine-tune
their exposures in a
way they feel is going
to maximise return
”
Reid Steadman, senior director
of exchange listed products,
S&P Index Services
39
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