Issuers of Exchange-traded Funds and Their Role
PowerShares Capital Management LLC represents one of the most noteworthy firms within the noteworthy sphere of the ETF investment market. With its first ETFs issued in 2003, PowerShares became the second largest issuer of exchange traded funds in America with the release of four new funds (the PowerShares Dynamic Telecommunications & Wireless Portfolio; the Hardware & Consumer Electronics Portfolio; the Value Line Timeliness Seclect Portfolio; and the PowerShares Water Resources Portfolio) in December 2005.
Shortly thereafter, PowerShares claimed further financial page headlines in January 2006 when the Atlanta-based asset management giant AMVESCAP announced their acquisition of all thirty-six PowerShares ETFs then extant. AMVESCAP has expanded their reach into London and the Continent, no doubt to dip into the new ETF markets there. AIM Investments, a subsidiary of AMVESCAP, now distributes PowerShares.
The PowerShares XTF investment line is tied to Intellidex, a quantitative analysis system based on dynamic indexes. The Intellidex method reportedly makes the PowerShares XTF funds more flexible than those of the typical ETF, as stocks in an XTF fund are selected with regard to capital appreciation potential. Intellidex is “rules-based,” meaning that no arbitrary or subjective decisions are made once the investment is made, “thereby overriding the emotional conflicts that may interfere with sound investment decisions” according to company information.
Rydex Investments offers over sixty mutual funds and exchange-related products and have recently entered the ETF market. Rydex’ pair of speculative ETFs, the Rydex S&P Equal Weighted ETF and the Rydex Russell Top 50 ETF, have already achieved impressive returns, however: The former fund topped $1 billion in assets in October 2005.
Rydex Pure Style ETFs are more along the traditional hands-off, tightly focused lines of an exchange traded fund. Directly related to the Standard & Poor’s / Citigroup Pure Growth index and the Value index series, the half-dozen includes the Rydex S&P Small Cap 600 Pure Growth ETF; the Rydex S&P Small Cap 600 Pure Value ETF; the Rydex S&P MidCap 400 Pure Growth ETF; the Rydex S&P MidCap 400 Pure Value ETF; the Rydex S&P 500 Pure Growth ETF; and the the Rydex S&P 500 Pure Value ETF. Rydex Investments, priding itself on the role of “a creative inventor of alternative mutual funds” is planning on living up to the self-label in the near future with the Rydex Euro Currency Trust, an ETF based on the value of the Euro and the first currency-based ETF of any sort.
State Street Global Advisors manages an ETF group known as streetTRACKS. streetTRACKS is based on a multitude of indices from the Dow Jones global market to Morgan Stanley Dean Witter’s technology indices. The creation and issuance of streetTRACKS goes back to 2004, when in the midst of a boom in the ETF market, the two hundred-year-old Boston-based State Street Corporation released the first ETF to tie in with a commodity: the StreetTRACKS Gold Shares. Some estimates state that streetTRACKS Gold Shares had amassed a mind-boggling $1.5 billion-plus in assets within its first month of release.
In 2005, State Street delved into another area of the exchange traded funds industry with its issuance of sub-sector ETFs, the streetTRACKS KBW Bank ETF and the streetTRACKS KBW Bank ETF; these ETFs are based on Keefe, Bruvette & Woods-tracked indices and are tied in the bank, capital markets and insurance sections of the KBW financial industry index.
But State Street is an old hand at exchange traded funds, having released in partnership with the American Stock Exchange the very first such fund in the U.S. Known as the Standard & Poor’s Depository Receipt (or SPDR), this ETF was introduced in 1993 and is currently the most commonly held ETF in America.
The firm has moved well beyond its Boston boundaries for the twenty-first century. State Street’s Shangai 50 was the first ETF in China, and the State Street Corporation investment management strategy division, State State Street Global Advisors, is the single largest investment manager in the world. State Street Global Advisors has offices in Boston, Montreal, London, Milan, Munich, Paris, Zurich, Hong Kong, Singapore, Tokyo and Sydney; internationally, SSgA assets are closing in on $1.5 trillion in investment programs. A subdivision of SSgA is State Street Global Advisors Funds Management, Inc., which advises on streetTRACKS and SPDR ETFs.
Investment management firm Vanguard was home to the very first index fund back in 1976 via John C. Bogle’s study of mutual funds, and was a pioneer in exchange traded funds as well. A particular forte of Vanguard today is its ETF funds for retirement, a proposition that not long ago was thought sketchy by most. Though ETFs are known for their constant turnover and would therefore seem to be ideal for those wishes to augment their retirement cushion, these funds are also known for the notorious broker commissions they carry. Vanguard has seemingly found proper solutions for this problem and are now hoping to increase investor confidence in ETFs as a part of retirement 401(k) plans. Target dates for the existing Vanguard Target Retirement funds are 2005, 2015, 2025, 2035 and 2045. A sixth such ETF is dubbed the “Vanguard Target Retirement Income Fund” and is open-ended.
Vanguard’s ETFs are known as VIPERs, and a particular point of pride for Vanguard came with the naming of nineteen Vanguard ETFs to Money magazine’s “Money 65” list of “the world’s best mutual funds and ETFs.” At nineteen funds given the nod, Vanguard blew its competition out of the water – their nearest competitor placed six funds on the list.
VIPERs have been praised for their industry-low expense ratios among similar exchange-traded funds. The VIPERs are tied into Morgan Stanley Capital International Inc. indices. VIPER Shares in the European, Pacific, and Emerging Markets Stock Index funds were available as early as first quarter 2004.
Funds known as “iShares” represent an ETF group created by Barclays Global Investors, the world’s largest institutional investor. Six iShares funds placed in the top nine in terms of assets at the conclusion of year 2005: the iShares Dow Jones Select Dividend Index Fund, the iShares MSCI EAFE Index Fund, the iShares MSCI Emerging Markets Index Fund, the iShares MSCI Japan Index Fund, the iShares Russell 2000 Index Fund, and the iShares Standard & Poor’s 500 Index Fund. Barclays is planning on getting on the ETF commodities bandwagon as well, as the iShares Silver Trust is on the drawing board.
