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.

BRIC ETFs Have Many Access Points for Investors

A reader wrote in recently wanting to know more about BRIC and the related exchange traded funds (ETFs). We're here to help!

BRIC stands for four of the fastest-growing emerging markets out here: Brazil, Russia, India and China. In 2007, these countries delivered some of the biggest returns of any ETFs or exchange traded notes (ETNs) around. So far for 2008, BRIC ETFs and some of the single country funds have been fairly quiet.

But make no mistake: these countries are still growing, and could have plenty to offer down the line.

The Asian Tiger ETFs Aren't Roaring As Loud

Many Asian-country focused exchange traded funds (ETFs) are giving back their 2007 gains. Are the Asian tigers of 2007 going to become the sleeping tigers of 2008?

A standout such as iShares MSCI Singapore (EWS) has given back much of  2007 gains all during the first quarter of 2008, says Gary Gordon for ETFExpert.

iShares Xinhua China 25 Index (FXI) finished 35% off its highs last Friday, giving back 50% of its 2008 gains, within 14 days, and Gordon reminds us that a 35% loss requires a 50% gain to get back to your starting gate.

One tiger remains standing, however: The iShares MSCI Taiwan Index (EWT) is still up 14% over the same time period. It's quite a turnaround for the fund. In 2007, it gained only 3.8%. So far this year, it's up 11.5%, leaving other Asian countries in the dust.

If you believe that the Asian markets are merely in a slump and will eventually make a turnaround, Gordon suggests getting a little more diversification across Asia with funds such as iShares S&P Asia 50 Index (AIA), which invests in the top 50 companies from the leading tigers: Taiwan, Singapore, South Korea and Hong Kong. Taiwan is the only single Asian country outperforming the fund at the moment, which is down 6.2% year-to-date.

Another diversified fund is the BLDRS Asia 50 ADR Index (ADRA), which is down 9.3% year-to-date.

For full disclosure, Tom Lydon's clients own shares of EWS.

Everyone, Welcome the New ETF Provider Northern Trust (Hi, Northern Trust)

The exchange traded fund (ETF) industry has a new provider. It's Chicago-based Northern Trust, and the launch of their funds have been anticipated since last winter.

Murray Coleman for Index Universe reports gives the lowdown on the first batch of funds, which will have an expense ratio of 0.47%:

• NETS FTSE 100 Index Fund (LDN): Invests in the largest companies by market-cap on the London Stock Exchange.
• NETS S&P/ASX 200 Index Fund (AUS): It will compete against the iShares MSCI Australia (EWA), which is one of the oldest international ETFs around.

Four more ETFs will follow soon:

• NETS DAX Index Fund (DAX): Tracks the major exchange in Germany.
• NETS TOPIX Index Fund (TYI): Covers Japan
• NETS CAC-40 Index Fund (FRC): Tracks France's market
• NETS Hang Seng Index und (HKG): Follows stocks in Hong Kong

Missing from the list are Northern Trust's anticipated entries into the all-world ETF segment, which was recently joined by both Vanguard and iShares.

The timing of the France-focused single country ETF could bring good things, as France's economy has been holding up well against the international credit crisis. Helen Beresford for Thomson Financial News reports that on the flip side, the GDP growth forecast was cut by the government to between 1.7-2%. The iShares MSCI France (EWQ) is up 8.7% in the last month, although it's down 5.4% year-to-date.

The German economy has been growing, but it needs to make changes if that growth is going to continue. Paul Carrel for Reuters reports that the German economy needs reform to refresh the labor market and education systems, both vital parts of the country's economy.  The iShares MSCI Germany (EWG) is up 6.9% in the last month, but it's down 9% year-to-date.

China's Inflation Creates More Opportunity For Other Emerging Market ETFs

China is facing an inflationary trend, and exchange traded funds (ETFs) from competing countries might be able to gain an edge against one of their biggest competitors. Thus far, Chinese growth has relied upon low prices with high top-line sales growth. Low-cost Chinese imports allowed a way to keep inflation at bay.

Carl Delfed for Forbes says the deflationary impact of China on world markets is now becoming an inflationary red flag with implications for global investors. Wages have begun an upward climb, energy is expensive and food prices and demand are exploding. The Chinese Consumer Price Index (CPI) was up 8.7% in just one year.

Delfeld recommends a lean toward countries that are net exporters of commodities instead of net importers like China. iShares MSCI Brazil (EWZ) or the iShares MSCI Hong Kong (EWH) present better opportunities than the iShares FTSE/Xinhua China 25 Index (FXI) ETF.

China's inflationary pressures will create opportunities for other emerging market countries to pick up the slack, such as India. India has two ETFs right now: the PowerShares India (PIN) and Wisdom Tree India Earnings (EPI).

This is an ever-evolving situation, so keep an eye on it. Once these areas head above their trend lines, they could be worth a look.

Barclays Throws Hat Into Foreign Currency ETN Ring

Barclays Global Investors is set to roll out three new exchange traded notes (ETNs) that will track currencies in Asia, the Middle East and emerging markets. The ETNs have already acquired $150 million during the month ahead of their launch.

Jesse Emspak for Investor's Business Daily says the new ETNs are:

• Asian and Gulf Revaluation: This tracks an index Middle Eastern and Asian currencies tied to the U.S. dollar. Included are the yuan, Hong Kong dollar, Saudi Arabian riyal, Singapore dollar, and United Arab Emirates dirham.
• Global Emerging Markets Strategy: Tracks 15 emerging markets countries' currencies, including Asia, Latin America and Eastern Europe, through money markets.
• Intelligent Carry Index ETN: Follows the 10 most liquid currencies in the world, designed to give market-neutral returns.

These ETNs are just in time to join two other currency ETNs that have recently launched: Market Vectors Indian Rupee (INR) and Market Vectors Chinese Renminbi (CNY). CurrencyShares by Rydex was the first to cover currency through exchange traded products.

Bear in mind, the IRS has done away with the tax breaks on foreign currency ETNs. A ruling on other types of ETNs is awaited sometime this year.

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

U.S. Credit Crisis Delivers a Punch to Some Global ETFs

The problems aren't just here in the United States: the credit crisis is also hitting markets in other countries and taking some of their exchange traded funds (ETFs) down with it.

Investors are wary of the acquisition of Bear Stearns by JPMorgan, reports Toby Anderson for the Associated Press. One bank was saved, but what does it mean for the banks that are still standing? The challenge now for investors is knowing if the bottom has been reached, or if the markets will continue to fall even further.

While the Federal Reserve scrambles to prevent an all-out meltdown, global markets still reflected a nervous sentiment:

• iShares MSCI United Kingdom Index (EWU): down 3.7% intraday, down 11.2% year-to-date
• iShares MSCI France Index (EWQ): down 2% intraday, down 12% year-to-date
• iShares MSCI Australia (EWA): down 2.8% intraday, down 12.8% year-to-date

Asian stocks fell today, as well. Japan's benchmark index lost 3.7% to hit its lowest point in more than two and a half years. Interestingly, the iShares MSCI Japan Index (EWJ) was up 2.5% intraday. The fund is down 12.8% year-to-date. Hong Kong's Hang Seng index fell 5.2%, and the iShares MSCI Hong Kong (EWH) was down 1.9% intraday. Year-to-date it's down 22.3%.

U.S. Malaise Spreads to Malaysia's ETFs and Beyond

Has the economic downturn in the United States finally hit Malaysia and its exchange traded fund (ETF)?

For awhile, the iShares MSCI Malaysia Index (EWM) was one of the few single-country funds exhibiting decent performance despite the woes that seem to have affected other global regions in one way or another. In the last two weeks, though, it's down 5.5%. Year-to-date, it's down 2.3%.

What's going on?

According to Thomson Financial, investors in Malaysia are reacting to, among other things, the recent bad news from Wall Street and the Dow's loss of more than 300 points on Friday. The mood in Malaysia is expected to remain downbeat because of uncertainty about the general elections, which will take place this Saturday.

The ruling coalition is guaranteed to win, but increasing ethnic tensions and a rising cost of living have many believing that there will be a reduced majority.

Will Malaysia overcome its challenges?

Other Asian markets and ETFs are feeling the pinch from Wall Street, too, and experienced sharp drops on Friday:

• iShares MSCI Australia (EWA), lost 4.5%
• iShares MSCI Singapore (EWS), lost 3.4%
• iShares MSCI Japan (EWJ), lost 1.1%
• iShares MSCI Hong Kong (EWH), lost 3.1%

Sector Rotation In A Global ETF Portfolio

  Adapting your investment strategy with exchange traded funds (ETFs) is important when economies around the world are becoming more interrelated.

Doing so will add value and increase the chance of outperforming benchmarks, reports  Carl Delfeld for Index Universe. The wheres of a company is also becoming less important as the industries and sectors which it operates is taking center stage.

The basics of global indexing, says Delfeld, are take the S&P Global 1200, a composite of seven indexes that represent leaders in their respective regions. The market values of the 1200 companies in the indexes represent around 70% of the world's capital markets with a market value of $28 trillion or more. Here is a brief breakdown:

• The S&P 500 covers 75% of U.S. markets.
• The S&P Europe 350 covers 70% of the region's market cap across 17 countries.
• S&P/TOPIX 150 covers 70% of the Japanese market.
• S&P/TSX 60 offers exposure to 60 large-cap, liquid Canadian companies.
• S&P/ASX All Australian 50 is comprised of 50 liquid, domestic-oriented Australian companies.
• S&P Asia 50 covers 50 leading companies in Asia ex-Japan domiciled in Hong Kong, South Korea, Taiwan and Singapore.
• S&P Latin America 40 is a basket of 40 companies from Argentina, Brazil, Chile and Mexico which offers exposure to 70% of the regions' market cap. It is heavily weighted to Brazil and Mexico.

By using a top-down macro analysis of studying market-cap global sector weightings, a global sector rotation method can be useful in a growth portfolio. The weakness is that smaller countries get less weighting, and the traditional market-cap weighting which gives trademark exposure to emerging markets.

Hong Kong, Taiwan and Their ETFs Could Have Potential

If Hong Kong plays its cards right, it could become the world's most developed city, something that could be good news for its exchange traded fund (ETF).

An Lu for Xinhua says it will need to maintain its status as an international financial center and speed up its integration with mainland China in order to be the powerhouse one economist believes it could be.

Justin Lin Yifu, senior vice president and chief economist of the World Bank, also wants to see Taiwan remove its political barriers. Lin feels that the world economy is headed for another period of development after a correction, and the Chinese economy will grow overall about 10% between 2008 and 2009.

Powering the growth, he says, will be domestic demand and consumption while challenges with export uncertainties will be faced.

Any growth in Hong Kong and Taiwan could prove to be beneficial to the iShares MSCI Hong Kong Index (EWH) and the iShares MSCI Taiwan Index (EWT). Year-to-date, EWH is down 15.3%, while EWT is down 11.4%. Could the tide someday turn?

 

Coal ETF Mines the Opportunities

Last week, a new exchange traded fund (ETF) covering a commodity that had many asking, "Wait, wasn't there one for that already?" began trading on the American Stock Exchange.

Market Vectors Coal (KOL), as you might guess from the name, tracks an index made up of 60 companies involved in the mining or transportation of coal, manufacture of coal mining equipment and the production of clean coal.

But with coal's ubiquity and everyday use, one has to wonder what took so long for a fund that tracks the commodity to finally appear.

Digging Deeper Into International Small Cap ETFs

International small-cap exchange traded funds (ETFs) are the latest frontier that providers have captured. There are now five choices in this space and ETFs that have the same asset class are not always the same underneath. Matthew Hougan for Index Universe takes us on an expedition, to dig deeper into these small-cap ETFs and discover what is behind the ticker symbols and their index returns.

iShares MSCI EAFE Small-Cap (SCZ) launched last week and has an expense ratio 0.40%. Industrials make up 23.5% of the ETF, followed by financials at 20.7% and consumer discretionary at 16.1%. Top countries represented are Japan at 24.8%, the U.K. at 19.8% and Australia at 8.9%.

iShares FTSE Developed ex-U.S. Small-Cap (IFSM) began trading last month with an expense ratio 0.50%. Top sectors represented in this ETF include industrials at 28.5%, financials at 22.4% and consumer services at 12.9%. The U.K. makes up 24.1% of the ETF, followed by Japan at 15.9% and France with 6.1%.

PowerShares FTSE RAFI Developed ex-U.S. Small-Mid (PDN) hit the market in September with an expense ratio of 0.75%. Consumer discretionary makes up 18.3% of this ETF, while consumer staples is 9.4% and energy is 3.8%. Japan is the top country represented with 34.4%, the U.K. is 11.9% and Hong Kong makes up 7.0%. PDN also includes mid-cap companies.

SPDR S&P International Small-Cap (GWX) launched earlier this year in April and has an expense ratio of 0.60%. GWX consists of industrials at 25.8%, consumer discretionary at 19.4% and financials at 16.9%. Japan is again the top weighted country at 24.0%, followed by the U.K. at 12.0% and Canada at 10.9%.

WisdomTree International Small-Cap Dividend Fund (DLS) was the first to launch in June 2006. It has an expense ratio of 0.58%. The top sectors are industrials at 25.3%, consumer non-cyclical at 18.1% and financials at 17.8%. Japan's weight in DLS is 22.6%, Australia follows with 18.5% and then the U.K. at 18.3%.

This illustrates that there can be many choices within a certain asset class. The conclusion is to dig deep to find out what the differences are and what fits with your portfolio and your financial goals.

Status on Asian ETF Market

Exchange traded funds (ETFs) have taken off here in the U.S. and are growing in Europe.  But what about Asia?  Jim Wiandt for Index Universe has some interesting thoughts surrounding the Asian ETF market.

• The Asian ETF market hasn't taken off. There is no real clear reason why it hasn't, but suggestions range from Asian investors not being indexers to not enough push to develop the ETF market.
• Asian governments using ETFs as a tool. The Hong Kong TRAKR is an ETF product that the government used as a way to stabilize the economy.  Malaysia is now looking to do the same thing in an effort to bring its country back into the investing mainstream.
• China - Boom, Bubble or Both? Observing resources and growth potential, China has a future the way Japan never could. With an 8-9 month stretch of doubling its market cap, the Chinese stock market scaled new heights - is a pullback coming or can there still be more ahead?
• A shares or H shares? Hang Seng has put together an index that tracks the A Share/H Share premium/discount.  The A Shares are trading at a huge premium - 60% higher than H Shares.  This premium could go away if China opens the Hong Kong market to mainland investors.
• Asian investor mentality. With Chinese investors and their new found wealth they are driving the market.  Wiandt compares this to U.S. investors driving up the tech market to insane heights.

Hong Kong Is On Board With Islamic Fund -- When Will There Be an Islamic ETF Here?

Hong Kong is the latest country to have formally entered the hot Islamic finance market, now that the Hang Seng Islamic China Index Fund has been given the go-ahead, reports Andrew Wood at the Financial Times. With all this interest, could an Islamic exchange traded fund (ETF) be far behind?

Islamic funds have been doing well these days and invest according to the principles of Islamic law. They avoid companies that charge interest or carry a lot of debt, and they also don't invest in companies that make alcohol, pork-related products or are involved in gambling.

The Islamic finance market is estimated to be worth about $500 billion, according to Standard & Poor's, and there's room for yet more growth as Muslims look to invest in companies that are in line with their religious beliefs.

London has plans to launch the first western government Islamic bond, and Japan has also expressed some interest. Is the U.S. next?

Is China 3G Plan Boost for China ETFs?

The latest market reaction in China points to the fact that Beijing may be close to unveiling plans for the 3G wireless service, helping to boost stocks and exchange traded funds (ETFs). Shares of China's state-controlled but Hong Kong-listed fixed-line telecom companies rose on early this week in response that the government may grant mobile licenses soon, reports Mure Dickie for Financial Times.

The news has been met with a lot of excitement. Speculation concerning 3G has been a long-discussed topic because the remodeling would reduce the number of big operators from four to three. The two biggest contenders are China Telecom and China Netcom, already the two major fixed-line operators. China Telecom shares rose 4.6% to close at HK$5.45 ($0.70). China Netcom closed 5.5% to HK$21.15 ($2.72). China-focused ETFs may experience the surge down the line:

• iShares FTSE/Xinhua China 25 Index (FXI)
• SPDR S&P China (GXC),
• PowerShares Golden Dragon Halter (PGJ)
• iShares MSCI Hong Kong Index (EWH)

China's Delay Opening Hong Kong Market Weakens ETFs

A groundbreaking program allowing Chinese investors to trade directly in Hong Kong shares could be put on hold, leaving analysts to wonder what may come of the strong stock market gains that were made as a result of the anticipation, affecting out markets and exchange traded funds (ETFs) alike.  The State Administration of Foreign Exchange (SAFE) announced a pilot program in August to allow Chinese investors to invest in H shares.  It needs approval from the China Banking Regulatory Committee. 

Jonathon Cheng for The Wall Street Journal reports that the Chinese Premier Wen Jiabao  wants the government to  pull back and fully consider all possible results that would negatively impact mainland and Hong Kong stock markets. Massive funds flooding the Hong Kong markets concern many because of the potential to weaken mainland markets. Beijing officials are wary that the mainland markets will overheat eventually. In Hong Kong, the markets reacted to the further delay, falling 5%. The ETFs that track China and Hong Kong were also affected by the news, losing over 5%.

• iShares FTSE/Xinhua China 25 Index (FXI)
• SPDR S&P China (GXC)
• PowerShares Golden Dragon Halter USX China (PGJ)
• iShares MSCI Hong Kong Index (EWH)
  

Hong Kong - A New ETF Frontier?

Hong Kong may be the next Asian frontier for related exchange traded funds (ETFs). The stock market is taking off: It hit new highs Thursday and rose 11% in the past month for a 58% gain. Financial Times reports that the currency, contrasted with the U.S. dollar, is pushing its upper limit. The benchmark Hang Seng is trading at 22 times next year's earnings. Chinese companies make up more than half of the market capitalization and resources is one of its fattest sectors.

iShares MSCI Hong Kong (EWH) may be a gateway for ETF investors to tap into this booming market. Carl Delfeld for ETFXRAY believes that Hong Kong is right behind the United States in terms of market. Hong Kong is volatile and heavily tied to real estate. The stock market is a different animal these days in comparison to the tech bust.  Hong Kong markets closed sharply lower on Friday dragged down by property stocks and on profit taking.

For full disclosure, Tom Lydon's clients own shares of EWH.

Asian ETFs Party on with New Highs

Some Asian stocks and exchange traded funds (ETFs) set new records yesterday, indicating the economic party remains in full swing.

Japan and its ETF iShares MSCI Japan Index (EWJ) received a big boost after Moody's Investors Service upgraded the country's domestic currency debt rating to A1 from A2. Moody's has high expectations for the new government under Prime Minister Yasuo Fukuda, reports  V. Phani Kumar for MarketWatch. It's the first time Japan's market the Nikkei 225 entered positive territory since July. Currently, EWJ is up 2.0% year-to-date.

In Hong Kong, the Hang Seng Index rose 2% to end at a new record thanks to soaring interest in China stocks. The Hang Seng China Enterprises Index rose 5.1%. Some experts say the main drive behind the new highs is simply lots of liquidity. Asia holds a lot of growth opportunities now compared to the U.S. and European markets, so it's where people are moving their money. Another factor increasing the Hong Kong and Chinese markets and ETFs is the plan that has yet to be implemented that will allow domestic Chinese investors to invest in Hong Kong's markets, which generally are cheaper, reports Jonathan Cheng for The Wall Street Journal. Both the Chinese ETF iShares FTSE/Xinhua China 25 Index (FXI) and the Hong Kong ETF iShares Hong Kong Index (EWH) are at new highs. Year-to-date, FXI is up 72.6%, and EWH is up 36.9%.

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

A "Triple Whammy" for Foreign ETFs

International stocks, and the exchange traded funds (ETFs) that hold them, are gaining more value now that interest rates have declined. Bill Donoghue for MarketWatch says it's a triple whammy: Rising foreign stock values, plus a weakening dollar and lowered interest rates combine to make foreign investments highly attractive. Some foreign ETFs that have been performing well lately with the triple whammy play include:

• iShares FTSE/Xinhua China 25 Index (FXI) - up 56.3% year-to-date
• iShares MSCI Brazil Index (EWZ) - up 52.1% year-to-date
• iShares MSCI South Korea Index (EWY) - up 36.4% year-to-date
• Vanguard Emerging Markets Stock ETF (VWO) - up 31.9% year-to-date
• iShares MSCI Hong Kong Index (EWH) - up 29.9% year-to-date

In comparison, the S&P 500 is up 7.6% year-to-date.

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

Will China Restrict Its Decision to Let Locals Invest in Hong Kong's Market and ETFs?

It wasn't long ago that China approved its domestic, individual retail investors to directly invest in Hong Kong's stock exchange, causing Hong Kong and Chinese exchange traded funds (ETFs) to increase. However, recently the Chairman of the China Banking Regulatory Commission (CBRC) has been talking about changing that decision to include quotas on how many people can invest in the Hong Kong market. The Chinese central bank and securities regulators are becoming concerned that the opening to Hong Kong's stock exchange might hurt local markets. If an avalanche of money comes into H shares (Hong Kong shares), it could hurt domestic Chinese A shares that are only available to Chinese investors, says Carl Delfeld for ETF XRAY.

Adding to the concern is that if the market were completely open, the majority of investors would invest in Hong Kong because it's a cheaper market. If restrictions and quotas are placed on investments into the Hong Kong market, how will the Hong Kong and Chinese ETFs be affected?

Today, high commodity prices helped boost Chinese stocks in Shanghai and Hong Kong to new records, reports the Associated Press. Year-to-date, the Chinese and Hong Kong ETFs are:

• iShares MSCI Hong Kong Index (EWH) - up 28.7%
• iShares FTSE/Xinhua China 25 Index (FXI) - up 51.2%
• PowerShares Golden Dragon Halter USX China (PGJ) - up 48.9%
• SPDR S&P China (GXC) - up 30.2% for the last three months, having launched in March

Hong Kong ETF (EWH) Hits New High

The exchange traded fund (ETF) iShares MSCI Hong Kong Index (EWH) hit a new high yesterday. Currently, it's up 18.6% year-to-date. EWH's latest high could be a result from China's recent decision to allow domestic, individual retail investors to directly invest in Hong Kong's markets. According to a financial strategist, the Hong Kong dollar's value against the U.S. dollar has strengthened, which has helped keep fund inflows strong, reports AFX News Limited for Forbes. However, EWH could be affected by concerns that an economic recession is on the way for the U.S. and Japan, which are the world's largest economies and the top consumers of Hong Kong's exports.