Northern Trust Enters ETF Arena With First ETFs To Track Major Foreign Market Indexes

With its new line of exchange traded funds (ETFs), Northern Trust opted to stay true to their principles while traveling around the world.

Is it a sign that ETFs are slowly entering the mainstream and gaining acceptance as more than just a passing fad? An institution as old and well-known as Northern Trust entering the market could be a sign.
 

"We know who we are. We knew what we needed to bring to the market, something that was consistent with our notions of asset management overall," says Peter Ewing, the managing director of Northern Trust's ETF group.

The first batch of funds, the first to track major foreign market indexes, were a year in the making. Ideas were kicked around as the world's third-largest asset manager of institutional index-based assets felt it needed to seriously consider an ETF product line. In 2007, the management committee gave the go-ahead and they filed with the Securities & Exchange Commission (SEC).

"Our opening salvo is traditional," Ewing says. But the provider isn't averse to more inventive ETFs and strategies. But for now, "We want to stay true to our principles."

Northern Trust's ETFs, which all have an expense ratio of 0.47%, are:

• NETS S&P/ASX 200 Index Fund (AUS): Represents Australia
• NETS DAX Index Fund (DAX): Tracks Germany's major exchange
• NETS FTSE 100 Index Fund (LDN): Invests in the largest companies by market cap on the London Stock Exchange
• NETS CAC40 Index Fund (FRC): Represents France
• NETS Hang Seng Index Fund (HKG): Represents Hong Kong
• NETS TOPIX Index Fund (TYI): Represents Japan

At a later date, there will be funds issued that cover Belgium, Ireland, Portugal, South Africa and more.

Rationing Leads to Hoarding of Rice and Possibly ETFs, Too

The commodities craze spread to exchange traded funds (ETFs) awhile ago - now it's reached Sam's Club.

A worldwide rice shortage has led the warehouse unit of Wal-Mart (WMT) to start rationing some types of it, reports Cotten Timberlake for Bloomberg. Where allowed by law, customers are going to be restricted to four bags a visit.

Shrinking supply and rising prices have led to hoarding. Rice is a food staple for half the world, including in China, Vietnam, India and Egypt, countries that have also started restricting sales. Thailand is also considering restricting shipments.

Some of Costco's (COST) stores are putting limits on sales of flour, in addition to those of rice.

The good news is that both stores have extensive distribution systems, enabling them to redistribute supplies.

The rice shortage is just the latest in a long line of commodities that have become more scarce and expensive recently. Rice futures have risen 26% this month. Wheat, corn and soybeans are also at record prices, which has led to riots in Haiti and Egypt.

A spokesman for the USA Rice Federation says the rice shortage should ease up with the June harvest, and may be resolved by the end of 2009.

But if you were mulling a low-carb diet, now might be the time.

Agriculture ETFs are becoming a popular way to hedge those rising prices. Some of them include:

• MLCX Grains Index ETN (GRU): The fund has 46.7% wheat, 35.4% corn, 10.1% soy meal and 7.9% soybeans.  
• Market Vectors Global Agribusiness (MOO): Tracks an index of global companies primarily engaged in agriculture.
• PowerShares DB Agriculture (DBA): Tracks corn, wheat, soybean and sugar futures.
• iPath Dow Jones Agriculture (JJA): Composed of seven futures contracts, including wheat, cotton, soybean oil, coffee and sugar.

Deutsche Bank also issued a line of long/short agriculture exchange traded notes (ETNs) last week:

• DB Agriculture Double Short (AGA)
• DB Agriculture Double Long (DAG)
• DB Agriculture Short (ADZ)
• DB Agriculture Long (AGF)

The European ETF Market Compared To The U.S.

While most of our coverage centers on exchange traded funds (ETFs) listed in the United States, we realize that they aren't just a U.S. phenomenon. We might have the largest market for them, but Europe, Asia and Latin America all boast fast-growing ETF industries of their own.

At the end of 2007, the European ETF market had amassed assets of $128.4 billion in 423 funds, reports Paul Amery for Index Universe.

iShares is the leading ETF provider in both here and in Europe, while State Street Global Advisors is the second-largest provider in the United States. The lack of similarity of product providers within the two markets is interesting, but as time goes on there will be more overlaps.

As for asset class, fixed income has almost three times the amount in fixed income that Americans do, thanks to Europeans' historical preference for bonds. Both markets have a  strong domestic bias, but the European equity sector is less interested in overseas investing than the United States is.

More than half of the ETFs in the United States are held by retail investors; in Europe, it's closer to one-third, but data backing up this figure isn't easy to find.

Europe has special challenges, thanks to differences between the countries. Most of them might be using the same currency, but their cultures and legal systems are not the same. It's also typical to have ETFs cross-listed between exchanges, since each country generally has its own. Often, you'll see primary listings, then secondary ones.

In a country-by-country breakdown, Germany has the largest number of primary listings: 157. It's followed by France (119), United Kingdom (84), Switzerland (21) and Italy (6).

Vanguard Wants to Put Its Arms Around the World With New ETF

On the heels of iShares' new all-world exchange traded fund (ETF), Vanguard is trying to enter the fray with its own similar kind of fund.

They've registered with the Securities and Exchange Commission (SEC) for the Vanguard Global Stock Index Fund, which would offer three share classes: investor shares, institutional shares and ETF shares. It's anticipated to launch in the second quarter of 2008.

The fund aims to track the FTSE All-World Index, a market-cap weighted index of large- and mid-cap global stocks in 48 countries. About 55% of the index will be made up of stocks outside the United States.

Vanguard's new fund will join the iShares MSCI ACWI Index Fund (ACWI) as the first two true all-world ETFs. The country breakdown for the iShares fund has the as its top five countries the United States, 41.8%; the United Kingdom, 9.6%; Japan, 8.6%; France, 4.7%; Germany, 4.1%.

Across the sectors, it's most heavily weighted in financials at 22.5%. Energy is 11.7% and Industrials are 11.2%. Exxon Mobil (XOM) is the largest constituent, representing 1.6% of the holdings. General Electric (GE) is 1.2%.

It'll be interesting to compare the two funds side-by-side once Vanguard's is up and running.

Germany, Austria ETFs Could Get a Lift From Stock Ownership Plans

In Europe, could more stocks given to the workers help compensate for wages that have stagnated in much of Europe, boosting exchange traded funds (ETFs) and the stock market in general?

Voestalpine, a metal working company in Austria that makes up 4.8% of iShares MSCI Austria (EWO), has set the example, as factory visits have turned into financial briefings, and employees have now become shareholders.

Many Europeans lack faith in free markets such as those in the United States or Great Britain, and they do not rely on them to address the problems with of capitalism with more free market solutions, explains Carter Dougherty for The New York Times.

More stock in the hands of the workers could help compensate for wages that have stalled in much of Europe, even as the stock markets rally. In Ireland, the United States and the United Kingdom, the ratio of employee shareholders is 20-30%, compared to 6-7% in both Austria and Germany. German and Austrian labor contracts are more focused on wages.

In Germany, unions have been resisting the idea of employee stock ownership - they don't like  that wage increases would be substituted with stocks. German unions have instead favored profit-sharing. Automaker Volkswagen, which is 3.2% of iShares MSCI Germany (EWG), gave its employees a bonus of 3,700 euros that was linked to its operating earnings. To make stock ownership catch on, Germany's two main political parties are considering tax incentives.

Big Banks Announce Write-Downs, But Financial ETFs Turn the Other Cheek

Swiss bank UBS (UBS) revealed big damage from exposure to the U.S. subprime crisis, but financial exchange traded funds (ETFs) don't appear to be bearing the scars.

The company said today that it expects write-downs of about $19 billion, reports Onna Coray for the Associated Press. That brings its total number of write-downs to $40 billion in the last nine months, the largest of any bank to this point. UBS Chairman Marcel Ospel stepped down.

Germany's largest bank, Deutsche Bank AG (DB), announced a write-down of $4 billion.

Oddly, though, financial ETFs are soaring today. After UBS and Deutsche Bank announced their write-downs, the European banking sector shot up 3%. UBS shares soared more than 6%, and Deutsche Bank shot up more than 3%, reports CNBC. The iShares S&P Global Financials (IXG) is up more than 4.5% today. It holds 1.2% of UBS and 1.1% of Deutsche Bank.

iShares MSCI Switzerland (EWL) and iShares MSCI Germany (EWG) are up about 1.5% so far today. UBS is 5.6% of Switzerland's fund, while Deutsche Bank is 4.9% of Germany's.

The financial sector has been given a bit of a revival from U.S. Treasury Secretary Henry Paulson's proposal for an overhaul of the financial system.

This has got some wondering if the light has appeared at the end of the tunnel. Some are skeptical and feel that the temptation to go bargain hunting should be avoided until next year.

We agree - wait until the sector has steadied some and heads back above its 200-day moving average.

Overseas ETFs Suffer With U.S.

The U.S. recession fears are touching down on all parts of the globe, and exchange traded funds (ETFs) suffered along with world markets.

Trang Ho for Investor's Business Daily  reports that similar to the U.S. indexes, most bounced back after hitting new lows and closed in the middle of intraday trading prices, after Tuesday's emergency 75 basis-point cut.

The iShares benchmark combines 820 stocks from around the world, including the United States, Australia, and developed markets in Europe and Asia, undermined its August 2007 low. It ended at $69.48, 21% below its all-time high from mid-July.

Meanwhile, Germany's DAX Index was down 7.2% and was the most heavily sold off in all of Europe. iShares MSCI Germany (EWG) fell 10.5% to settle at 6.3%, closing at $30.20. It fell below the 200-day moving average, undoing all the progress of the past 10 months. On Wednesday, EWG lost another 1.9%.

iShares MSCI Xinhua/China 25 Index (FXI) fell 7.93% to 144.50. It  is 34% below its October high and is at a six-month low. On Wednesday, the fund reversed itself and rose 5.3%.

International sector funds have been hit as well, with utilities, basic materials and and energy falling the most.

Europe Gives ETFs Air Kisses As They Gain In Popularity

The next big market for exchange traded funds (ETFs) is shaping up to be Europe.

In fact, reports Vito J. Racanelli of Barron's, Europe is showing the strongest growth in the popularity of ETFs. But while there's a lot of investor interest, it hasn't reached the U.S. level just yet.

According to Morgan Stanley, assets in European-listed ETFs jumped 40% -- from $90 billion to $126 billion -- in the first nine months of 2007. Worldwide, assets in ETFs jumped 32%. In the U.S., assets grew by 30%, and they are nearing the $600 billion mark. As of Sept. 30, of the European countries, Germany had the most ETFs at 154. France came in second, with 114.

The ETFs attracting the most interest in Europe are those linked to the Dow Jones Euro STOXX 50, a large-cap index. At the moment, ETFs in Europe are geared toward institutional investors. But as an increasing number of individual investors discover their benefits, their ranks and assets under management can only grow.

German ETF And Economy Feel a Chill

Germany's economy is expected to cool because of slower growth and rising food and oil prices, possibly affecting the German-focused exchange traded fund (ETF). The slowing is blamed mostly on rising food and oil prices, in addition to fallout from the U.S. subprime crisis.

The Associated Press reports that Economy Minister Michael Glos was quoted as saying the government was scaling back its 2008 forecast to just below 2%, but he didn't give a specific figure.

Increased global risk could slow growth and touch down on iShares MSCI Germany Index (EWG). The economy isn't frozen by any means, said the president of Germany's economic institute. GDP is expected to expand 2.1%, following the 2007 growth of 2.4%. Also, 300,000 new jobs are expected by 2009 and average salaries are on their way up for the first time in five years.

Market and ETF Facts to Consider

There's a lot going on in the markets and exchange traded funds (ETFs).  Matt Hougan for Index Universe looks at 10 interesting market facts and we've added some ETF related information.

1. The U.S. stock market is uneasy. Volatility is the best performing index this year, up 138.7% on the CBOE Volatility Index, compared to a year ago.
2. Technical analysis aside, the Dow Theory says "If the train slows down, the economy soon follows." iShares Dow Jones Transportation Average (IYT) is up 0.4% year-to-date.
3. Utilities are going off, as you may know from those huge checks you write each month. Utilities Select Sector SPDR (XLU) is up 15.7%.
4. Some indexes following Europe aren't as pretty as you may think, even with a strong currency.  Although we find the iShares S&P  Europe 350 Index (IEV) is up 14.7%. Isn't the euro worth more than gold right now?
5. European countries and their markets aren't always in sync. Performance ranges up and down, depending which country you're in. iShares MSCI Germany Index (EWG) is up 32% and iShares MSCI Belgium Index (EWK) is down 0.5%.
6. The China/Japan dichotomy, with such proximity, what gives? iShares MSCI Japan(EWJ) is down 1.3% and iShares MSCI Xinhua/China 25 Index (FXI) is up 66.9%.
7. Understanding contango in commodity investing is important.  It's confusing and has investors angry.
8. One of best domestic sector ETFs is Aerospace & Defense -PowerShares Aerospace and Defense (PPA) is up 24.6%. The worst sector is homebuilding - SPDR S&P Homebuilders (XHB) is down 53.4%.
9. Small-cap growth is doing well, maybe not as well as in recent past, but they are holding their own. iShares S&P SmallCap 600 Growth (IJT) is up 5.4%, compared to the S&P 500 which is up 3.6%.
10. Dividends aren't offering the safe haven thought of through tough markets. iShares Dow Jones Select Dividend Index (DVY) is down 6.0%.

Single-Country ETFs...And The Winner Is....

Single-country exchange traded funds (ETFs) can be a good investment for portfolios, however, picking which country is a hard decision. There are many factors to consider like reward-to-risk, performance comparison, pullbacks and time frames, as well as local politics and economics. Matthew D. McCall for Seeking Alpha analyzed 25 single-country ETFs and came up with four that were worthy of the reward-to-risk setup. The winners are, in order of reward-to-risk opportunity:

1. iShares MSCI Spain (EWP) gained 48% in 2006 compared to 13.6% for the S&P; up 22.8% year-to-date, while the S&P 500 is down 0.8%%.
2. iShares MSCI Germany (EWG) gained 32% in 2006, and is up 26.9% year-to-date.
3. iPath MSCI India ETN (INP) year-to-date up 65.4%, and only began trading in December 2006.
4. iShares MSCI Malaysia (EWM) returned 33% in 2006, and is up 32.3% so far this year.

Stunted Stalwart Growth For German ETF?

Strong exports have been key in Germany's latest economic growth, sending focused stocks and exchange traded funds (ETFs) upward. A stronger euro is a worry that exports from the euro zone will be less desirable and competitive in overseas markets. As a result, German investors confidence has plunged to its lowest level in 14 years, as the U.S. subprime mortgage crisis fuels expectations of a "significant economic downturn".

The Associated Press reports that the continuously extending subprime crisis has financial market experts readjusting economic expectations. The ZEW's index, a measure of investors economic expectations for the next six months, fell to -32.5 points in November, from -18.5 points the previous month. iShares MSCI Germany Index (EWG), currently up 31.7% year-to-date, may reflect any expectations about the German economic environment.

Video of Tom Lydon Discussing Single-Country ETFs

Tom Lydon appeared on CNBC's weekly "ETF Tracker" segment of Closing Bell yesterday and discussed German, Malaysian, and Austrian single-country ETFs with Melissa Francis. Video of Tom's segment appears below:

Germany's ETF Looks Festive for Octoberfest

Maybe Octoberfest glee has spread to Germany's exchange traded fund. Currently, iShares MSCI Germany Index (EWG) is up 28.6% year-to-date.

More than likely though, something else is behind EWG's strong performance. One of the factors could be that Asia, and the growing economies within the region, has become the most important export market for the German economy, reports Henrik Bohme for Deutsche Welle. This is excellent news, as Germany is an export-oriented country. However, as the euro continues to hit new highs, and exchange rates move farther apart, the exports could suffer.

Germany's economy is also known for its iron, steel, coal, cement, chemicals, vehicles and electronics industries. Corporate restructuring and growing capital markets could help Germany meet globalization and European economic integration demands, according to the CIA World Factbook.

Germany ETF Stout and Sturdy

While the U.S. markets and exchange traded funds (ETFs) continue to see ups and downs from the widening credit crunch, some countries seem to be experiencing less damage. One of those countries is Germany. Researchers say that German economic growth shows little sign of being directly hurt by the credit crisis, according to AFX News for Forbes. Loans available to German companies are operating as normal; however, the turbulent U.S. markets could hurt German exporters that depend on the U.S. for sales. If the German economy prospers despite the global credit problems, its ETF iShares MSCI Germany Index (EWG) should benefit as well. Although EWG has been down for the last couple of weeks, currently, it is up 17.7% year-to-date.

Around the ETF World

As the international exchange traded fund (ETF) market expands, it's becoming a more popular area in which to invest. Asian country-based ETFs have been doing especially well because of strong labor markets. China's economy has been growing so fast and performing so well that it's had to tighten credit six times this year.

Europe has had some strong performers as well, namely Germany and Spain. Increased spending and falling unemployment has helped Germany's ETF do well. Spain's success can be partially attributed to Europe's economic prosperity. Carl Delfeld for ETF XRAY also commented on the global markets. Below are the ETFs and their performances year-to-date.

• iShares MSCI South Korea Index (EWY) - up 25.5%
• iShares FTSE/Xinhua China 25 Index (FXI) - up 16.9%
• PowerShares Golden Dragon Halter USX China (PGJ) - up 18.8%
• SPDR S&P China (GXC) - up 14.6% for the last three months (launched in March)
• iShares MSCI Germany Index (EWG) - up 16.9%
• iShares MSCI Spain Index (EWP) - up 9.2%

European ETFs: Get One Whole or Take Them by the Slice

Investing in Europe via exchange traded funds (ETFs) is another way to diversify your portfolio. In a way, it's kind of like ordering pizza. When you invest in a European ETF that has different holdings in various countries, it's like you get a whole pizza with different toppings. Or, if you're not feeling as hungry, you can order by the slice: Invest in a specific country with its own economy. Again, there's plenty of variety, as you can see from the menu below. (Note that it is not an all-inclusive list of European ETFs.) That's the beauty of them, there's always something to satisfy your investment craving. To learn more about European ETFs, check out this article from Zoe Van Schyndel for The Motley Fool.

ETFs That Can Benefit from the Dollar's Decline

With the dollar in decline, it could pay to invest in a variety of international and foreign currency exchange traded funds (ETFs). As we mentioned last week, there are several benefits abroad and reasons why the dollar continues to weaken, they include:

1. The U.S. economy is growing slower than many other countries' economies (such as South Korea, Brazil, Germany).
2. U.S. interest rates are at the status quo while other countries' interest rates are declining, according to Carl Delfeld of ETF EXRAY.
3. The U.S. housing market is kind of a mess and is not predicted to improve.

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

European ETFs Blow Past U.S. in Performance

Europe has been kicking our butts lately when it comes to exchange traded funds (ETFs) and their performances. But why? 

One reason could be the new wave of political reform across several European countries, including Germany, Sweden, Belgium and France. The newly-elected, center-right leaning leaders tend to drive bull markets, says Carl Delfeld of ETF XRAY. And although our market has hit new highs, so have the European markets.

In addition, Europe's overall economy has been stronger than ours. Since the end of 2006, Europe's GDP has outpaced America's. The euro is at new highs against the dollar (today it reached $1.38) and the yen. Unemployment is down to 7%, which is the lowest it has been since the euro was created in 1999, according to The Economist.

Every dog has its day; it's only a matter of time before the United States is in the lead again.

• iShares MSCI Germany Index (EWG) - up 29% year-to-date
• iShares MSCI Sweden Index (EWD) - up 21% year-to-date
• iSHares MSCI France Index (EWQ) - up 17% year-to-date
• iShares MSCI Belgium Index (EWK) - up 11% year-to-date

For full disclosure, some of Tom Lydon's clients own EWG.

German ETF Up on Global and Local Economy

The German exchange traded fund (ETF) iShares MSCI Germany (EWG) is up 17% year-to-date due to the stocks in its basket. Top company holdings are multinational first-class, including Siemens, Daimler Chrysler, BASF and Deutsche Bank. This ETF has surprised many, as Germany has been seen to be dependent on global growth. However, it's own economy is starting to show some signs of life as well.  Carl Delfeld for ETFXRAY.com says improvement is coming from increased spending and a stronger German consumer. Domestically, investment is strong, which will serve as another propeller for this country and its stock market. Falling unemployment should also help secure this theory. Germany is also solid as one of the world's largest exporters.

News today of Daimler selling the Chrysler portion of the company, helped boost Daimler Chrysler (DCX) stock, which makes up 7% of EWG.

For full disclosure, some of Tom Lydon's clients own EWG.

German ETF -Stalwart Growth

The German economy has been given new life and the exchange traded fund (ETF) iShares MSCI Germany Index (EWG) is up 12.5% year-to-date. The transformation of Germany is embedded so well that German executives are not even concerned about a slowdown in the U.S. economy. Their export-led recovery would not be dented. Although the American consumer may drive a lot of the global economy, Germany's success is driven by Russia and the former Soviet countries - total exports within Europe are 5 times that which are shipped to the U.S., Mark Landler for The New York Times explains.

EWG has broad diversification with top holdings in Allianz, 10%; Deutsche Bank, 7%; and Daimler Chrysler, 6%. Finance and banking lead the way, followed by the auto industry and chemicals and industrial close behind. Europe could benefit from Germany's boom because of its size and the fact that Germany is one-fifth of the economic activity in the European Union. The German economy is projected to grow about 2% this year.

For full disclosure, some of Tom Lydon's clients own EWG.

German ETF (EWG) A Pleasant Surprise

The German exchange traded fund (ETF) iShares MSCI Germany Index(EWG) is up 31% over the past 12 months despite Germany's slow growing economy. Carl Delfeld states this shows the de-linking of company share prices and ETFs to home country economic growth. The German consumer is conservative with low expectation of prospects for a stronger economy - 61% actually believe the situation will worsen due to high unemployment.  Most citizens save 11% of income and GDP growth has been less than 1% a year.  Germany's strong point is the exportation of industrial goods.

Prospects for EWG are good because of this low expectation. Any marginal improvement will positively affect markets. The overall market isn't expensive at 14x's earnings. The top holdings in EWG are world-class multinationals that are closely tied to Asia rather than crawling Germany. Holdings are Siemens (SI), Daimler Chrysler (DCX), and Bayer (BAY), to name a few. The German economy is a huge restructuring play that could take time for results.

German ETF (EWG) Play on Global Economy

Although the World Cup is over, it doesn't mean we should stop looking at Germany.  Murray Coleman of Investor's Business Daily took a look at the exchange traded fund iShares MSCI Germany (EWG).  He reviews the country's economic potential and how it is part of an interconnected global economy.  Germany is a huge exporter of capital goods to emerging markets.  And with growth in these areas, Germany is sure to benefit.  The Port of Hamburg services over 1,000 ports worldwide. The ETF is up 6% since bottoming out in June.

ETF Trends - World Cup Brings German Economy to Light

All eyes are on Germany as the World Cup is in full swing. And, although the recent global market correction has effected Germany too, many agree that Germany has great economic potential going forward.

The Los Angeles Times mentioned today "It is a little-known fact that in spite of Germany's unexceptional economic data, no other industrial nation has so successfully harnessed the opportunities offered by an interconnected global economy."

The easiest and most economic way to get exposure to Germany in your portfolio is via the exchange traded fund, iShares MSCI Germany (EWG).  Top holdings in this ETF include Siemens, Allianz, Deutsche Bank and DaimlerChrysler.  EWG is up 5.3% for the year.