ETF Radar Magazine (Q1/2010) by ETF Radar

News • Market Intelligence • Rankings

1 Quarter 2010

etfRADAR M

Issue No. 5 ISSN 2150-9166

Snapshots

TOP 15 MANAGEMENT FEES 2009 Insights&Strategy

ASIAN INVESTORS EMBRACE ETFS Marketplace

AMERICAS, EUROPE AND ASIA-PACIFIC AT A GLANCE Research Coverstory

A NEW DANGEROUS COCKTAIL

DEMOCRATIZING THE INVESTMENT DEJONATHAN ST PAER LANDSCAPE Interview

Contents 3 EDITORIAL 5 MARKET SUMMARY Selected statistics and news from all over the world.

6 SECTOR MAP Performance of the 19 Supersectors represented by the Dow Jones Sector Titans IndexesSM.

8 COVERSTORY Democratizing the Investment Landscape: What are the advantages of hedgefund-replication via ETFs and making them available to the public?

13 Tactical Asset Allocation with ETFs: How using tactical asset allocation can help you make informed short term ETF portfolio decisions.

Does the price/earnings-ratio make sense concerning the valuation of shares?

16 MARKETPLACE

STRATEGY

17 AMERICAS

Asian Investors Embrace ETFs: A brief overview about the current situation in Asia-Pacific’s prosperous ETF business.

18 EUROPE

RESEARCH A new dangerous Cocktail: The massive, liquidity driven ralley could come to an end a lot faster than most investors might think.

Global ETF news and selected market statistics at a glance.

10 INSIGHTS &

Beautiful meets Ugly: Analyizing the performance differences between two well-known Smallcap Index ETFs brought up some surprising facts.

CONTRARIAN

19 MIDDLE EAST & ASIA-PACIFIC

20 PORTFOLIO ALLOCATOR SECTOR UPDATE

25 INTERVIEW Charles Schwab’s Jonathan de St Paer

27 CAREER & EVENTS A review of the current job market and an overview about upcoming events within the ETF industry.

29 GLOBAL PLAYERS Comprehensive details about the world’s largest ETF providers.

iShares DJ U.S. Real Estate Index Fund. COMPANY-INDEX (Name, page)

Bank of America Blackrock Citi Cohne Investment Group Deutsche Bank Dow Jones ETF Exchange (Europe) ETF Securities Geary Advisors Goldman Sachs IndexIQ iShares K1 Fund

ETF Radar Magazine • 1st Quarter 2010

4 10 4 13 7, 19 6 4 4 17 17 8 13 4

Lowas Project Investments Morgan Stanley PDC Wealth Investments Rabobank Schwab Stoxx ThinkCapital Xshartes Advisors

15 4 11 4 19 6 18 17

Editorial

A remarkable year passed, a promising but volatile 2010 just begun.

ot only for Exchange Traded Funds, 2009 was remarkable - but the year just passed marked a milestone for the global ETF market: the worldwide assets invested into the index-tracking products crossed the trillion dollar mark in December 2009, according to the latest research figures. According to the latest available figures, the ETF industry had 1,907 ETFs with 3,678 listings from 103 providers on 30 exchanges around the world. Little wonder that an increasing number of financial companies is going to enter this booming and promising market.

CONTACTS & INFORMATION

The ETF Radar Magazine NORTH AMERICA eMail: americas@etf-radar.com Phone: +1 239 384 6090 Mailing address: 2316 Pine Ridge Road #402 Naples, FL 34109 EUROPE, MIDDLE EAST and ASIA-PACIFIC eMail: europe.asiapacific@etf-radar.com Phone: +49 89 220 61 004 Mailing address: Postfach 101214 80086 Munich

One of them is Charles Schwab, the biggest discount broker in the U.S., with direct sizeable access to retail investors. “Chuck” entered the ETF space in November 2009 by launching its own equity Exchange Traded Funds. We talked with Jonathan de St Pear about the strategy behind and Schwab’s next steps. Also a newcomer is our section “Portfolio Allocator Sector Update”. Within this section David Cohne exclusively presents a tactical ETF ranking.

GLOBAL PUBLISHER Martin Raab, CAIA RESEARCH DIRECTOR Sebastian Stahn DESIGN DIRECTOR Cathrine Corbeau

In this context - let’s call it “new ideas for investment strategies” - you should not miss reading our coverstory about Adam Patti’s approach to replicate hedge fund strategies (and its returns) by using ETFs. Now investors have a serious opportunity to earn more or less market-neutral returns by following such a strategy, without having the constraints and hassels of being a limited partner of a hedge fund domiciled somewhere in the Caribbean. Nevertheless these ETFs will not fully usurp the role of traditional hedge funds but the democratization of the access to this important asset class have definitely begun. Also this issue includes very interesting facts about the ETF space (Asia and Small-Caps) and the current situation of the global financial markets and a potential bubble in some asset classes. No doubt, the volatility could come back to the markets sooner as many of us may think. The botched attempt to blow up an airplane in Chicago remembered all of us that the world have to fix not only economic challenges in 2010 but rather bring back political and social stability for some countries. I wish you a peaceful, happy and prosperous 2010!

Enjoy reading,

a rti n

Ra a b

TECHNICAL DIRECTOR Tobias Stoeger WEBSITE www.etf-radar.com ISSN 2150-9166 SINGLE ISSUE PRICE 12 USD SUBSCRIPTION Subscriptions to the magazine are complimentary for qualified readers and 72 USD for others. COPYRIGHT No part of this publication may be copied, photocopied or duplicated in any form or by any means without publisher’s prior written consent. THE ETF RADAR MAGAZINE IS A PRIVATE AND INDEPENDENT PUBLICATION. NO STATEMENT IN THIS ISSUE IS TO BE CONSTRUED AS A RECOMMENDATION TO BUY OR SELL SECURITIES OR TO PROVIDE INVESTMENT ADVICE. PLEASE SEE OUR DISCLAIMER PAGE FOR FURTHER INFORMATION. © 2009-2010 ETF Radar Magazine. All rights reserved.

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Snapshots NEWCOMER

TOP 15 MANAGEMENT FEES 2009 (Estimated annual management fees in USD; Calulation basis: AuM Nov 09 x 0.445 bps; Sorted descending)

2,098,620,000

Blackrock iShares 633,858,000

SSgA

391,155,000

Vanguard

199,360,000

Lyxor

Merrill Lynch

db x-trackers 162,736,500

LAUNCH OF THE WORLD'S FIRST THIRD GENERATION ETF PLATFORM “ETFX”

PowerShares 142,889,500

ProShares 105,509,500 Nomura 61,054,000

A few days before year end, the latest coup within the rapidly growing exchange traded funds happend. ETF Securities launched the ETF Exchange (Europe), the world's first third generation ETF platform. ETF Securities owns 80% and hedge fund SW1 Capital owns 20% on the new exchange. ETF Securities is initially working with BofA Merrill Lynch, Citi, and Rabobank, who are participants on the platform, acting as distribution partners, authorised participants and swap providers.

Van Eck 52,955,000 Credit Suisse 35,333,000 BoNY 34,265,000 ZKB 32,129,000 ETFLab 27,456,500 WisdomTree 27,145,000 EasyETF 25,810,000 Source: ETF Radar Global Research, December 2009.

UP & DOWN

John Mack the current CEO of Morgan Stanley is forgoing a year-end bonus for the third straight year, he said in a memo obtained by Reuters, putting pressure on other Wall Street CEOs to follow suit. "Given this unprecedented environment and the extraordinary financial support governments provided to our industry, I recommended to the Compensation Committee of the Board last week that I receive no year-end bonus," he said. Mack has stepped down as CEO at the end of 2009, but will remain chairman. His successor, James Gorman, is taking over as CEO during January 2010. Nevertheless there is a happy end for both - the ordinary Morgan Stanley employees which will potentially receive a bonus of roughly USD 175,000 for 2009 and John Mack, which private wealth is expected to reach USD 35 million this year because of the positive performance of his private portfolio. ETF Radar Magazine • 1st Quarter 2010

ETFX offers a total of 21 equity ETFs. All of these ETFs are swap-backed using multiple counterparties, allowing more efficient tracking, with collateral being held in excess of UCITS guidelines. To join the platform banks will need to be able to act as an approved participant, swap provider and distribution partner for ETF’s. The main cost to the Banks would be ensuring that they have the infrastructure to manage ETF and swap bookings as well as building/training the sales force. According to ETFX, it typically takes 3 to 6 months from confirming an interest in being on the platform, to go-live, with much of this time spent on due diligence.

Helmut Kiener the founder of the K1 Fund is suspected of fraud and breach of trust in a case in which Barclays, BNP Paribas and numerous private investors may have lost hundreds of millions dollars. He got arrested in Wuerzburg, a city in Northern Bavaria. The 50-year-old psychologist, whose hedge fund produced remarkable returns in the last decade, is at the centre of a multi-million-dollar corruption probe of the Caribbean-registered fund, “K1 Global Sub Trust”, he ran. Separately, FBI agents in Miami also arrested a wealth consultant on money-laundering charges which reports said was related to K1. Since years, Kiener enjoyed a luxury life. He had a private audience with the Pope this year and owns a EUR 60m private jet at Frankfurt airport. The hearing is expected in Spring 2010.

Market Summary

THE GLOBAL MARKETS AT A GLANCE GLOBAL EXCHANGE TRADED FUND FLOWS (Net New Flows by region in USD bn.) JAN

DEC

NOV

MAJOR EQUITY INDICES (performace in percent)

}

110%

-131.5 +37.7

105%

+80.8

+13.3 billions

+13.7

Net New Flows YTD

100%

95%

+ 11.6

YTD-SEP 2009

90%

85%

DOW JONES INDUSTRIAL AVERAGE (US) DOW JONES EUROSTOXX 50 (EUROZONE) DAX 30 (GERMANY) NIKKEI 225 (JAPAN) HANG SENG (HONG KONG)

2008

COMMODITIES -20 -10

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190 200 UNITED STATES OFFSHORE EUROPE JAPAN ASIA PACIFIC

JAN

DEC

NOV

(performace in percent)

115%

110%

MARKET VOLATILITY JAN

DEC

NOV

OCT

SEP

100%

AUG

(performance in points) 32

30 95%

26 90%

22 85%

DOW JONES UBS COMMODITY INDEX WTI OIL FUTURE FEB 2010 (IPE) GOLD (SPOT) NATURAL GAS INDEX (AMEX)

VOLATILITY INDEX (CBOE)

Source: IDS, Blackrock | Data as of January, 13 2010.

Source: Interactive Data Solutions | Data as of January, 13 2010.

NUMBER CRUNCHER

1,000

Expected amount (in billions USD) of global ETF assets by year end 2009.

19.100

Per-capita debt (in USD) that Iceland owes to foreign depositors as a result of its banking collapse.

Percentage of single U.S. women who are “very” or “extremely” willing to marry for money.

Source: ETF Radar, Blackrock, IMF, Prince & Associates; Data as of December 2009.

ETF Radar Magazine • 1st Quarter 2010

Sector Map

THE GLOBAL SECTOR TITANS AT A GLANCE DOW JONES SECTOR TITANS INDEXES (Sector performace in percent – 3M and YTD) Official Index Partner of the ETF Radar Magazine

The Dow Jones Sector Titans Indexes reflect the composition and performance of the 19 Supersectors defined by the Industry Classification Benchmark (ICB). Stocks are chosen based on float-adjusted market capitalization, revenue and net income. The top 30 companies are selected as index components.

WORST PERFORMING SECTORS

Construction & Materials +1.56%

Personal & Household Goods +4.96%

Automobiles +6.56%

Food & Beverage +8.37%

Insurance –4.62%

Banks –5.64%

Travel & Leisure –1.11%

Telecommunication +2.01%

Retail +5.62%

Financial Services +2.58%

Industrial Goods & Services

Real Estate +4.07%

Oil & Gas +6.11%

+5.96%

Health Care +7.57%

Utilities +1.14%

Technology +7.70%

Media +7.78%

Chemicals +9.55%

Source : Dow Jo nes Ind exes/S TO

Basic Resources +18.07%

XX Ltd .

as of D

ecemb e

r 31, 2

009.

BEST PERFORMING SECTORS Index

3 Month %

Year to Date

Dow J ones Banks Ti tans 30 Index

-5.6 4%

34.81%

Dow J ones Dow J ones Dow J ones Dow J ones Dow J ones Dow J ones Dow J ones Dow J ones

Insurance Titans 30 Index Tralel & Leisure Titans 30 Index Utiliti es Tit ans 30 Index Const ruction & Materials Titans 30 Index Telecommunication Titans 30 Index Financial Services Titans 30 Ind ex Real Estate Titans 30 Index Personal & Household Goods Ti tans 30 Index

-4.6 2% -1.1 1% 1.14 % 1.56 % 2.01 % 2.58 % 4.07 % 4.96 %

10.51% 13.09% 0.51 % 27.21% 8.24 % 49.41% 27.50% 21.58%

Dow J ones Dow J ones Dow J ones Dow J ones

Retail Titans 30 Index Industrial Goods & Services Titans 30 Index Oil & Gas Tit ans 30 Index Automobiles Titans 30 Index

5.62 % 5.96 % 6.11 % 6.56 %

26.65% 27.20% 23.16% 53.53%

7.57 % 7.70 % 7.78 %

13.71% 55.47% 32.87%

8.37 % 9.55 % 1 8.07%

26.36% 49.55% 84.17%

Dow J ones Health Care Titans 30 Index Dow J ones Technology Titans 30 Index Dow J ones Media Titans 30 Index Dow J ones Food & Beverage Tit ans 30 Index Dow J ones Chemicals Titans 30 Index Dow J ones Basic Resources Titans 30 Index

ETF Radar Magazine • 1st Quarter 2010

Market Summary

FOCUS: EUROPEAN ETFS FLOW-TRENDS FLOWS OF EUROPEAN ETFS BY ASSET CLASS

AUM FOR EUROPEAN ETFS BY ASSET CLASS

(in Euro million)

Commodity - ETF

Commodity - ETC

Credit

Equity Equity

Debt Debt

Money Market Money Market

Other ETFs Other ETFs

-3.000 -2.000 -1.000

1M Flow

1.000 2.000 3.000 4.000 3M Flow

20.000 40.000 60.000 80.000 100.000 120.000

FLOWS OF EUROPEAN ETFS BY SECTOR

FLOWS OF EUROPEAN ETFS BY GEO FOCUS

(in Euro million)

(in Euro million) Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Food & Beverage Health Care Industrial Goods & … Insurance Media Oil & Gas Personal & Household Retail Technology Telecom Travel & Leisure Utilities

Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Food & Beverage Health Care Industrial Goods & Services Insurance Media Oil & Gas Personal & Household Retail Technology Telecom Travel & Leisure Utilities -90

-40

10 1M Flow

110

3M Flow

150

300

450

600

750

All data as of December 31, 2009.

KEY FINDINGS  By Indices: Within the last six weeks the DJ Euro Stoxx 50 and the DAX 30 (represented within the category “Equity”) have the largest net inflows.  By Asset-Class: Biggest winner are Equity ETF, which still gained assets. Money Market ETFs are still out-offavour.  By Sector: Because of profit-takings, bank ETFs lost assets. The biggest gainers are currently Health Care, Construction and Techs.  By Fund: Again, the three biggest asset gathering ETF brands were iShares, Deutsche Bank and Lyxor.

ETF Radar Magazine • 1st Quarter 2010

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Coverstory

Democratizing the Investment Landscape Hedge fund strategies can be extremely powerful tools for portfolio construction but are also associated with some challenges like manager selection, access and fees. By seeking to make hedgefund-like returns broadly available, ETFs are democratizing access to this important asset class. BY ADAM S. PATTI | INDEXIQ | NEW YORK

ince the early 1990s, hedge funds have grown at a staggering pace as a result of the growing demand for the diversification benefits and other performance characteristics they offer. Over the past 20 years, in fact, the number of hedge funds has jumped from approximately 600 in 1990 to almost 9,000 today, according to industry data provider Hedge Fund Research Inc. Perhaps of greater significance to investors, however, are the problems that exist with current hedge fund offerings, including high fees, a lack of liquidity, limited transparency, manager-specific risk (lately personified by Bernie Madoff), access issues and, in recent years, increasing correlation to the broad equity markets, the last in part a result of that explosive growth referenced above. More managers are chasing the same “alpha,” or outperformance, making true market-beating returns more difficult to come by.

“ Hedge Fund replication ETFs can help solve for problems with access and manager selection while also reducing fees. ” All of these factors have laid the groundwork, and spurred the demand, for new product innovation. Wall Street, like nature, abhors a vacuum. In this instance, it's Exchange-Traded Funds that have stepped in to fill the void in the marketplace. ETFs offering hedge fund re plication, inf lation-hedging, sophisticated commodities exposures, and other strategies have all been brought to market in the past year, finally making

ETF Radar Magazine • 1st Quarter 2010

such approaches available to the retail market while also offering institutions and high net worth investors new ways to maintain exposure to the alternative asset class, while limiting their susceptibility to hedge funds' major drawbacks. That's not to say that these funds are for everyone. Like any sophisticated product, it is imperative that investors properly educate themselves about the risks that may be involved. But the risks from an ETF are vastly different from those of a traditional hedge fund, and the advantages can potentially be powerful. Alternative Exchange Traded Funds and the Retail Marketplace Retail investors have been on the outside looking in when it came to accessing some of the more sophisticated strategies that institutions and high-net-worth individual (HNWI) investors have long had at their disposal. High minimum investments and stringent net worth requirements have seen to that. But that hasn't stopped financial advisors from increasingly recommending hedge funds to their clients as a result of the potential portfolio diversification benefits. But even those who meet the criteria to invest in hedge funds aren't home free. One big issue is performance dispersion. Average returns hide an extraordinarily wide range of individual fund performance. Given the fees charged by managers the average is slightly below the often cited “2 and 20” (2 percent of assets and 20 percent of performance results) picking the right fund is paramount. The only thing more painful than paying a huge management fee is »

Coverstory

of any long-term investing strategy for the foreseeable future.

THE WORLD OF ALTERNATIVE INVESTMENTS HEDGE FUND PERFORMANCE 2009 INDEX

Performance YTD

Performance 2008

Eurekahedge Eastern Europe & Russia Hedge Fund Index

60.43

-54.54

Eurekahedge Long-Only Alternative Return Fund Index

42.43

-42.35

Eurekahedge Emerging Markets Hedge Fund Index

32.19

-23.15

Eurekahedge Asian Hedge Fund Index

23.33

-20.68

Eurekahedge North American Hedge Fund Index

21.14

-8.92

Eurekahedge European Hedge Fund Index

20.73

-21.24

HIGH NET WORTH ASSET ALLOCATION 7% Alternative Investments 28% Equities

30% Fixed Income

15% Real Estate

19% was the average return of hedge funds in 2009.

20% Cash/Deposits

Sources: World Wealth Report 2009, EurekaHedge.com, Hedge Fund Research

paying that same fee for poor performance. So essentially there are two hurdles that a retail investor must clear: access and manager selection. Hedge fund replication ETFs can help solve for both of these problems while also reducing fees. The trade-off is that these investors will not be placing their money directly with a hedge fund. Such ETFs aren't trying to provide direct hedge fund access, but rather are seeking to synthesize hedge fund returns and use readily available equities (which often include other, pre-existing ETFs already on the market) to replicate hedge fund industry performance, an important point that investors need to be aware of before making an investment. But as the past year has shown, the fact that their money is not with a hedge fund manager could actually be a major plus since an ETF does not come with any lock-ups or “gates,” remains highly transparent and highly liquid, and of course, since it's a passive product, avoids idiosyncratic manager risk.

ETF Radar Magazine • 1st Quarter 2010

The High-Net-Wor th and Institutional Marketplace Those investors who have been able to access hedge funds came to make them a significant portion of their asset allocation model, as the chart above illustrates.

Even with the challenges the hedge fund industry has endured over the last two years, such investors still understand that a well-constructed portfolio needs alternative exposure going forward. After all, while hedge funds returned approximately -19 percent in 2008, that far outpaced the 37 percent drop experienced by the S&P 500. Simply put, hedge funds did what they were supposed to do: provide a hedge against the performance of the broad equity markets. Add to this the fact that many retail and institutional investors have some serious ground to make up with regard to their expected future payout needs, and it becomes clear that alternative investment strategies, with their potential for providing market beating returns, will remain an important component

But while the need for alternatives may not have changed, the way these investors are looking at maintaining this exposure has. Liquidity and transparency, perhaps the two biggest buzzwords of 2009, are now top priorities for fiduciaries and funds. Fees have also started to come u n d e r mu ch m o r e s c r u t i n y. Increasingly, large investors are starting to chafe at the hedge fund industry standard fee structure and are looking either for fee concessions from managers or for new ways to gain exposure to alternative asset classes. For these investors, hedge fund replication ETFs can offer an attractive solution either as a core holding or as a satellite strategy that builds off of their main alternative exposures. Understanding the role of ETFbased alternatives Like any new idea, ETF-based hedge fund replication faces its share of challenges. For example, while the ETF structure may at first appear relatively straightforward, there are a number of moving parts when you look under the hood. Investors and their advisors should take time to understand these indexes, and the methodologies on which the indexes are built. Equally important is determining the impact these products will have to an overall asset allocation strategy. These ETFs will not fully usurp the role of traditional hedge funds, but that's not what they're designed to do. T h e y w i l l s e r ve t o f u r t h e r democratize an important asset class, letting all investors benefit from the low correlation and steady returns that hedge funds can deliver, often with reduced costs, g reater transparency, and higher liquidity than hedge funds themselves. 

Insights&Strategy

Asian

Investors Embrace ETFs Asia Pacific has shown the strongest growth, with assets in ETFs up by more than 50%. As this investment instruments become more popular in the region, ETF providers will be expected to meet investor's demands for more education and more product ideas.

BY JANE LEUNG | BLACKROCK ASSET MANAGEMENT | HONG KONG

orldwide, investors are increasingly adding ETFs to their portfolios. In the aftermath of the global credit crisis and economic collapse, investors are switching from complicated structured products to low cost, transparent products. In Asia, where the ETF market is still in its early development stage, investors are discovering ETFs as a useful investment tool that provides transparency and liquidity. As of October 2009, worldwide assets in ETFs reached USD 942 billion. As of 30 October, ETF assets have grown by 32.5%. Comparing this figure to the 20.2% rise in the MSCI World Index, the ETF market has seen impressive growth in the past year. Analysts expects that assets in ETF market are likely to double, reaching USD 2 trillion by the end of 2010. Within the global ETF market, emerging market ETFs are particularly in demand. The Asia Pacific (ex-Japan) region has shown the strongest growth, with assets in ETFs up by 54.8%. Taking into account the fact that there are 732 and 801 ETFs in the US and Europe respectively, compared to only 116 ETFs in the Asia Pacific ex-Japan region, the potential for growth in the Asia ETF market is clear. Asian ETF Market The Asian market is still at its developing stage, and this is reflected not only in the number of ETFs in the region but the range of products as well. Compared to the US and European markets, which allows investors to access a variety of asset classes using ETFs, investors in Asia have fewer types of products to choose from, and equity ETFs are still dominant. Bond ETFs and sector ETFs are less prolific than in developed markets. Perhaps not surprisingly, the biggest ETF market in Asia ex-Japan is in Hong Kong, with USD 20.28 billion in ETF assets, far ETF Radar Magazine â&#x20AC;˘ 1st Quarter 2010

above the second largest market China, at USD 5.18 billion. South Korea ranks third. Hong Kong, as the regional financial hub, has attracted investors from Asia as well as around the world. The Hong Kong ETF market is the largest in Asia-Pacific with a record high USD 56.6 billion trade volume in 2008. In Hong Kong, iShares is the clear leader, with accounting for over 60% of all Hong Kong listed ETF turnover. Potential for ETF Growth in China Taking a step closer and examining the success of ETFs in Asia ex-Japan, it is clear that many investors see China as the way forward. The Top 5 ETFs in Asia ex-Japan in terms of AUM are all related to the China market. Given the high expectation of a strong recovery in China's economy, many investors want to gain access to this fast growing market. However, since only Chinese residents and Qualified Foreign Institutional Investors (QFII) are able to directly invest in China A-Share stocks, China AShare ETFs listed in Hong Kong have become a popular alternative for investors outside of China. Spotting this market demand, iShares recently launched the world's first China A-Share Sector ETF Series in Hong Kong, tracking the booming energy, infrastructure, financial and materials sectors of China. iShares is preparing to launch more ETFs in 2010 and investors are likely to see more ETF providers getting into the China market in the coming years. As ETFs become more popular in the region, ETF providers will be expected to meet investor's demands for more education and more products. Since ETFs are still a relatively new product to Asian investors, education around its benefits and uses will be needed to support the growing market. ď Ž

Insights&Strategy

Beautiful

Meets

UGLY Analyzing performance differences between two well-known Smallcap Index ETFs revealed surprises, as well as an enduring lesson. One surprise? These popular Smallcap Index ETFs have remarkably different long-term performance. The enduring lesson? Things change.

BY PETER DICHELLIS | PDC WEALTH INVESTMENTS | SANTA MONICA

sn’t it sad when a beautiful theory gets utterly destroyed by an ugly fact? That seems to be what happened to a SmartMoney magazine analysis of the performance differences between the iShares S&P SmallCap 600 ETF (IJR) and the iShares Russell 2000 ETF (IWM), which both track popular small stock indexes.

some rational faith in the stocks of fundamentally sound companies, showed this beautiful theory could be the real thing, because there’s not big overlap in the stocks these two ETFs hold. Specifically, one of Top 10 holdings of IJR and IWM overlaps according to iShares, and only two of the Top 25 overlap, according to the last available Morningstar data.

JAN

DEC

NOV

OCT

2009

SEP

2008

AUG

JUL

2007

JUN

2006

MAY

APR

MAR

FEB

JAN

According to the SmartMoney magazine, over the past nine years the S&P 600 Index cranked out 56% in capital This, even though the Top 5 sectors for both ETFs are the appreciation, compared to 23% for the Russell 2000, the same, albeit in slightly different order: financials, standard measure of small stocks for big institutions. technology, industrials, consumer discretionary and SmartMoney adds that since 1994, the S&P index has healthcare. Both ETFs fit snugly into Morningstar’s “Small outperformed its Russell counterpart by two percentage Blend” style box, with average market caps of $700 to points a year. And true to $800 million. Both show form, the S&P 600 IJR is SMALL CAP INDEX PERFORMANCE P/E ratios in the mid-20s (Comparison between index performance) whupping the Russell 2000 and betas around 1.3. And IWM by a whopping both trade near the NAV of margin since these ETFs’ their underlying holdings. 130% inception in 2000, with The difference in their 1 yr. average annual total returns expense ratios is negligible, 120% .20% for IJR and .24% for of 6.2% vs. 3.9%. IWM, all based on iShares 110% data. Additionally, both The theory of both have paid a small small stock indexes distribution every quarter 100% Truly beautiful, and here’s 137.5% since their 2000 inception, the beautiful theory: The with indicated yields of S&P 600 Index uses 90% 100% about 1.5%. screens, including a profitability screen, to 80% So the biggest difference gather up “some of the 5 yrs. 50% between these two ETFs best companies” in the 70% seems to be their stocks, smallcap universe, while iShares Russell 2000 ETF and the S&P 600 IJR is the Russell 2000 does iShares S&P SmallCap 600 ETF screening for high quality nothing of the kind. A little businesses. » bit of digging, along with Source: Interactive Data Solutions | Data as of Janaury 7, 2010.

ETF Radar Magazine • 1st Quarter 2010

Insights&Strategy

Beautiful - but here’s the ugly fact Beginning in the middle of 2007, Russell changed its method for annually reconstituting its index. The change in method was specifically designed to prevent traders from continuing to exploit Russell’s annual index changes with short-term arbitrage strategies. And since that change in the middle of 2007, IWM and IJR have performed almost identically. Chart their prices at bigcharts.com and you won’t see a millimeter of daylight between them over this time period. One lesson for investors? Forget the history archives, either of these Exchange Traded Funds could work for your portfolio. Investors who want to stay in step with institutions’ grand view of smallcaps might prefer IWM, while independent-minded believers in fundamental analysis might lean to IJR, but the days of a one-way nobrainer are gone. Beautiful theories and ugly facts aside, smallcaps can be an attractive spot for a good low-cost Exchange Traded Funds, even for investors who like to pick individual stocks. Let’s face it, individual smallcaps can be jumpier than a monkey at lunchtime while many, though not all, small-stock mutual funds stick investors with high expense ratios and hidden trading costs.

SMALL CAP INDEXES AT A GLANCE TOP 10 HOLDINGS Russell 2000 Index

S&P 600

Human Genome Sciences Tupperware Brands Corp 3Com Corp E*Trade Financial Corp Assured Guaranty, Ltd. Solera Holdings, Inc. Skyworks Solutions, Inc. Highwoods Properties Domtar Corp Informatica Corp

0.60% 0.31% 0.31% 0.29% 0.29% 0.27% 0.25% 0.25% 0.25% 0.24%

Atmos Energy Corp Green Mountain Coffee Roasters Inc Mednax Inc Senior Housing Properties Trst Varian Semiconductor Equipment Skyworks Solutions Inc St Mary Land & Exploration Co Atwood Oceanics Inc Greenhill & Co Inc Rock-Tenn A

0.67% 0.66% 0.66% 0.63% 0.62% 0.59% 0.52% 0.51% 0.47% 0.47%

RISK FIGURES Russell 2000

S&P 600 Standard Annualized Deviation Volatility

9-day Period 20-day Period

4.23

10.57

14.91

38.11

Standard Deviation 9-day Period 20-day Period

Annualized Volatility

1.83

8.63

8.5

40.9

Sources: Morningstar, iShares | All data as of December 31, 2009.

for rollercoaster rides can find individual stocks in all these areas as well. Some investors might ask whether the time for small stocks has passed, arguing smallcaps already made their traditional post-bottom move. I’m not artful enough a timer to weigh-in on that one, so will only say that holding smallcaps as part of a diversified portfolio has generally rewarded long-term investors. By the way, the demolition of this beautiful theory about IJR doesn’t shake my faith about investing in the stocks of companies with strong businesses. Not in the least.

you get similar performance. And so there’s one more lesson here for investors, as well as for investment writers. Don’t limit your homework to reviewing ancient history. The ugly fact is that things change. 

“Beautiful theories and ugly facts aside, smallcaps can be an attractive spot for a good low-cost ETF, even for investors who like to pick individual stocks. ” And in addition to the small stock indexes, there are Exchange Traded Funds for growth, value, dividendpaying and international smallcaps, as a recent Barron’s article pointed out. Of course, investors with a stomach ETF Radar Magazine • 1st Quarter 2010

After all, when you compare Exchange Traded Funds portfolios of 600 and 2000 stocks that have similar market caps, sector mixes, P/E ratios, dividend yields, style boxes, and on and on – it should be no surprise if

Insights&Strategy

Tactical

Asset Allocation with ETFs

How using tactical asset allocation can help you make informed short term ETF portfolio decisions.

BY DAVID COHNE | COHNE INVESTMENT GROUP | BOSTON

n volatile markets, adhering to a passive strategy of buy and hold investing can be nerve wracking for many investors. For instance, in 2008, many investors sat by helplessly as their retirement funds plummeted. Tactical asset allocation in its most simplistic form could have helped many of these investors by allocating to more cash or bonds during that time. The problem is that many investors have been conditioned to avoid any kind of market timing system. Contrary to popular belief, market or asset timing can very well lower risk and increase returns. The question on most people's minds is how to know when to be in stocks, bonds or cash. The Problem with Buy & H o l d Pa s s ive Investing Cohne Investment Group was founded as way to answer that question. Over the last decade, I've watched as passive investors were getting burned by high volatility and very little growth. For instance, a buy and hold investor holding an S&P 500 index fund over the last ten years would have actually lost money. To me, that's completely unacceptable. There are a few ways to approach tactical asset allocation. One of which is the valuation of the various

asset classes. A second way which I prefer to use is a momentum approach that looks for trends in the asset classes.

Momentum as a Tactical Strategy I first came across momentum strategies eight years ago using mutual funds. I had read about investors such as Gil Blake that followed a strategy based on the theory of persistence of performance. I researched it myself and realized that the phenomenon does occur. Essentially asset classes that perform well over specific time periods are likely to continue that performance over to the next time period. I decided to devise my ow n m o m e n t u m TACTICAL ASSET ALLOCATION WITH ETFS strategy with the intention (Comparison between index performance) of trading monthly. The $180.000 problem I had with mutual 21.2% funds is that many of them annualizied return $160.000 had redemption fees if you didn't hold them long $140.000 enough. There also weren't enough index funds to $120.000 capture all of the asset classes I wanted to evaluate. $100.000 That essentially put a -5.6% annualizied return temporary stop to my short $80.000 term portfolio allocations, $60.000 but the idea of using momentum was always on $40.000 the back of my mind. A few years later, there was an explosion in the number of Portfolio with TAA Strategy ETF offerings and assets Portfolio with S&P 500 Index flowing into these funds. This now gave me the Âť

ETF Radar Magazine â&#x20AC;˘ 1st Quarter 2010

Source: Cohne Investment Group | Data as of December 31, 2009.

Insights&Strategy

proper vehicle to develop a short term or tactical approach to investing. Most investors when hearing asset allocation think stocks, bonds and cash. This is only partly true. I went further to

between asset classes each month based on how they were ranked. This strategy did quite well. Over the past three years, the model portfolio, run in real time, has returned an annualized

tactical asset allocation rankings is that it could be applied to various universes of ETFs. For instance, we have built a tactical sector rotation portfolio that is based on our ranking of our core

“Over the past three years, the model portfolio, run in real time, has returned an annualized 22% versus –6% for the S&P 500. ” include alternative assets such as real e s t a t e, a b s o l u t e r e t u r n a n d commodities as well as dig deeper into the various styles and sectors of the equity and fixed income components. I put together a list of the core market cap styles, international regions, sectors, alternative assets and fixed income securities. From this list, I identified one ETF for each asset class based on liquidity and assets under management. Once I had my core group of ETFs, I extensively back tested various formulas and algorithms that looked at momentum and trends. Once I constructed a proprietary way of ranking the asset classes, I was able to build portfolios that switched

22% versus -6% for the S&P 500 (see chart). Since the model portfolio is based on quantitative rankings, I was able to back test the ETF portfolio over 5 years and then over 10 and 20 year time periods using the underlying index performance when the ETFs did not exist. The annualized returns in all periods were very similar and consistent.

sector ETFs. We have also applied this metric to fixed income and international regions. We see ETFs continuing to grow and attracting assets away from mutual funds. To take advantage of this trend, we recommend investors and advisers consider using a tactical asset allocation strategy for their portfolio needs. 

Start Implementing Tactical Asset Allocation Cohne Investment Group is now offering this strategy and similar strategies to investors and investment advisers through subscription based products. Managed accounts will soon be available. The best part of our

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Contrarian

Does the price/earnings-ratio make sense concerning the valuation of shares? BY MICHAEL ZIGANKE | LOVAS PROJECT INVESTMENT GMBH SWITZERLAND | SCHÖNENBERG

e all would like to earn money on the stock exchange rather than to loose it. But the problem is, in this respect, the valuation of the future, because the development of share prices orientates to the future of international economies. I would like to start with that method of measurement, which, I myself, find is the best and most reliable one. While reading this article it will become clear, why. The method, which makes most sense to me is the analysis of the limited companies, which are underlying the concerning shares. By the way, this is the large-scale method, because the following has to taken into consideration and has to be done as well: 1. The technical analysis to determine the right moment for buying the share. If the share seams to be cheap on the chart, it has to be found out, whether the moment really is favourable to the purchase of the share. In consequence, this requires … 2. …The fundamental analysis. This one starts with the assessment of the development of the world economy and international politics. Nowadays all important companies are busy internationally. It follows the analysis of the economy of that country, in which the concerning company is situated. Than, the branch has to be analysed, in which the concerning company is busy. Now, the prospects of the company have to be analysed, the shares of which one intends to buy. The result of all of this leads back to the technical analysis in order to receive ETF Radar Magazine • 1st Quarter 2010

the confirmation, that the share in fact is cheap for buying it: the accordance with the technical and the fundamental analysis. More or less all of the people participating on the stock exchange market prefer to avoid this tremendous amount of work and time. This lead to the search of a more convenient and time saving method of valuation of shares. That method, which became the mostly used one, is the valuation by considering the price/earnings-ratio per share (PER), which means: How many times earnings per share fit into the price of that share? For example: The price of the share is EUR 72, the earnings of the share are EUR 5.75 That means that the earnings per share fit 12.5 times into the price of the share. What, now, can be considered as cheap and what as expensive? As a guide line the following figures may be valid: Shares with a PER up to 13 times can be considered as cheap, shares with a PER up to 20 times can be considered as fair valued, and shares with a PER more than 20 should be considered as expansive. Here, it has to be mentioned, that meanings are different. Actually, the PER only has little evidence, since it builds up on estimates, not on facts. The basis for the PER are the estimates of earnings of the running business year of the underlying company, or even worth, the estimates of the next near. We all know that nearly all estimates are inaccurate or wrong. This is the nature of the subject. In consequence, the PER is wrong, too. When PER are still

low after a remarkable upswing on the stock exchange, the question rises, why is it so? There are two possibilities: There are existing companies or branches, respectively, which are capital intensive, like insurances, for example. When interest rates are rising, costs are rising, too. This curtails earnings. This is, why shares may keep cheap, but still are not interesting for investments. In this case, the direct environment of the company is important for the future. On the other hand, there may be companies having a low PER, because they are in a turn around situation. Earnings are beginning to rise, but the PER still is low. Here one can find share price potential. Not at all useful is an average PER calculated on a shares index. Here, two different things are mixed. A shares index contains companies, which receive different earnings, the shares of which have different PER, of course. The PER in this respect means earnings achieved by the companies. A share index itself shows share price gains or losses. These are two completely different things. It does not make sense to calculate an average PER on those companies being contained in the shares index and one is of the opinion, then, the concerning shares are all cheap or expensive, in average. Such an opinion is wrong, in any case. It has to be distinguished between the different PER of the different companies. It has to be avoided, strictly, to put all into one pot. 

Marketplace

Global

TOP 10 GLOBAL EXCHANGES BY TURNOVER

TOP 25 ETF PROVIDER WORLDWIDE

(Total Value of ETF Trading; YTD figures in USD millions)

(sorted descending by Assets-under-Management, in USD bn.)

70341,8 111641,1 171034,8

75073,8 101851,8

59250,4 41534,6

186898,2

1047947,2

4.112.130,7

NYSE Euronext (US) TSX Group Shanghai SE SIX Swiss Exchange

NASDAQ OMX London SE Borsa Italiana

Deutsche Börse NYSE Euronext (Europe) Hong Kong Exchanges

Source: WFE, ETF Radar Global Research| Data as of 31 December 2009.

TOP 10 ETFS WORLDWIDE (TOTAL AUM) (sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

SSGA SPDR S&P 500 SPY US ISHARES MSCI EMGING MKTS INDEX FUND EEM US ISHARES MSCI EAFE INDEX FUND EFA US ISHARES S&P 500 INDEX FUND IVV US ISHARES BARCLAYS TIPS BOND FUND TIP US VANGUARD EMGING MKTS ETF VWO US POWERSHARES QQQ TRUST QQQQ US ISHARES IBOXX USD INVSTM. GRD. CORP. BND FD LQD US VANGUARD TOTAL STOCK MARKET ETF VTI US ISHARES MSCI BRAZIL INDEX FUND EWZ US

AUM 72,245 37,453 35,095 21,172 18,245 17,885 16,886 13,224 12,921 11,482

ADV          

19,639 3,416 1,056 457 113 423 4,110 88 107 1,321

NR. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

                        

PROVIDER iShares State Street (SSGA) Vanguard Lyxor Asset M anagement db x-trackers PowerShares ProShares Nomura Asset Mgmt. Van Eck Associates Corp Credit Suisse AM Bank of New York Zurich Kantonalbank ETFlab Investment WisdomTree Investment Easy ETF Claymore Securities Commerzbank Nikko Asset Management Hang Seng Inv. Mgmt. Direxion Shares Credit Agricole AM Daiwa AM China Asset Management UBS Global Asset Mgmt. Rydex

         

# of ETFs 411 106 47 125 121 125 78 30 23 24 1 4 30 51 64 59 62 10 3 22 63 23 2 13 31

AUM (US BN) 471.60 142.44 87.96 44.87 36.57 32.11 23.71 13.72 11.94 7.94 7.77 7.22 6.17 6.10 5.80 5.63 5.56 5.50 5.26 5.12 4.68 4.56 3.67 3.27 2.83

% TOTAL 48.0% 14.5% 9.0% 4.6% 3.7% 3.3% 2.4% 1.4% 1.2% 0.8% 0.8% 0.7% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.5% 0.5% 0.5% 0.5% 0.4% 0.3% 0.3%

Source: Blackrock | Data as of 30 November 2009.

Source: Blackrock| Data as of November 30, 2009.

TOP 10 ETFS WORLDWIDE (CHANGE IN AUM)

TOP 10 ETF PRODUCT-PIPELINE WORLDWIDE

(sorted descending by largest change in Assets-under-Management, in USD mn.)

(sorted descending by number of planned ETFs)

ETF NAME

TICKER

SSGA SPDR S&P 500 ISHARES MSCI EMERGING MARKETS INDEX FUND VANGUARD EMERGING MARKETS ETF ISHARES BARCLAYS TIPS BOND FUND ISHARES MSCI BRAZIL INDEX FUND ISHARES IBOXX USD INVSTM. GRD. CORP. BND FD ISHARES S&P 500 INDEX FUND POWERSHARES QQQ TRUST ISHARES FTSE/XINHUA CHINA INDEX FUND ISHARES CDN LARGCAP 60 INDEX FUND

SPY US EEM US VWO US TIP US EWZ US LQD US IVV US QQQQ US FXI US XIU CN

AUM

CHNGE.

NR.

PROVIDER

72,245 37,453 17,885 18,245 11,482 13,224 21,172 16,886 10,213 9,768

–21,660 +17,980 +12,848 +9,343 +7,937 +5,986 +5,548 +4,365 +4,213 +4,150

1 2 3 4 5 6 7 8 9 10

DIREXION SHARES PROSHARES RYDEX WISDOM TREE INVESTMENTS INDEXIQ ADVISORS POWERSHARES XSHARES ADVISORS STATE STREET GLOBAL ADVISORS FACTOR ADVISORS SOURCE

Source: Blackrock| Data as of November 30, 2009.

ETF Radar Magazine • 1st Quarter 2010

# OF PLANNED ETFS 112 96 82 68 38 38 34 27 22 21

Source: Blackrock| Data as of November 30, 2009.

Marketplace

Americas AMERICAN EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange

Total Turnover

# of ETFs October

November

October

# of Trades

November

October

November

BM&FBOV ESPA

308.3

199.1

7.4

Lima SE

1.7

8.8

0.1

0.2

234

235

4,138.8

4,111.4

20.9

15.9

Mexican Exchange NA SDA Q OMX NYSE Euronext (US) TSX Group

5.3

99,622.3

80,153.3

3,261.0

2,594.0

1032

1051

352,831.8

287,250.2

21,929.4

18,271.6

128

132

14,418.8

11,018.2

1,247.1

1,076.1

Source: World Federation of Exchanges| Data as of 30 November 2009.

ON THE RADAR +++ SELECTED ETF NEWS

TOP 10 ETFS IN THE U.S. (TOTAL AUM) (sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM 72,245 37,453 35,095 21,172 18,245 17,885 16,886 13,224 12,921 11,482

USA: GOLDMAN SEEKS TO LAUNCH ETFS

ADV          

19,639 3,416 1,056 457 113 423 4,110 88 107 1,321

         

Source: Blackrock| Data as of Data as of November 30, 2009.

TOP 10 ETFS IN THE U.S. (CHANGE IN AUM) (sorted descending by largest change in Assets-under-Management, in USD mn.) ETF NAME

TICKER

SPY US EEM US VWO US TIP US EWZ US LQD US IVV US QQQQ US FXI US VTI US

AUM

CHNGE.

72,245 37,453 17,885 18,245 11,482 13,224 21,172 16,886 10,213 12,921

–21,660 +17,980 +12,848 +9,343 +7,937 +5,986 +5,548 +4,365 +4,213 +3,827

Source: Blackrock| Data as of Data as of November 30, 2009.

Goldman Sachs is looking to launch ETFs tracking market indexes, Bloomberg News reports. The U.S. investment bank is seeking approval from the Securities and Exchange Commission for the same. Goldman will roll out a variety of funds, including equity, fixed-income and blended portfolios. The index for Goldman’s initial ETF will track the top 85% of companies by market value in China, Korea, Brazil and India, according to the filing. The index will be created by a company not affiliated with Goldman. USA: BLACKROCK LAUNCHES SELF-LIQUIDATING MUNI BOND ETFS BlackRock’s iShares brand launched six ETFs that liquidate at a planned date. Like most ETFs, these funds try to ape the performance of a benchmark index. The only difference is that instead of continuing indefinitely, the funds close down and return all the money to shareholders at the target date. The fund will pay monthly dividends like any exchange-traded fund. As the bonds the fund owns mature, the ETF will stash the money in money market funds, short-term notes, commercial paper or other cash-like instruments. At the end of August 2017, the fund will distribute all the money to shareholders and terminate. USA: NEW REGIONAL ETFS LAUNCHED Geary Advisors started trading TXF Large Companies (TXF), which tracks 87 companies headquartered in the Lone Star state. Based on the SPADE Texas Index, the ETF weights energy at 63%, followed by technology 9%, telecom 6% and consumer 4%. TXF charges 0.2% in expense ratios. It's the second state-specific ETF, following Oklahoma ETF (NYSEArca:OOK - News), which started trading in October. Recently, Xshares Advisors also announced to launch several regional ETFs.

ETF Radar Magazine • 1st Quarter 2010

Marketplace

Europe EUROPEAN EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange A thens Exchange

Total Turnover

# of ETFs October

November

October

# of Trades

November

October

November

9.5

12.2

428.7

748.1

401

403

9,442.9

8,042.3

307.4

1.2

0.1

518

542

23,248.0

21,686.8

179.7

157.3

Irish SE

12.7

3.5

0.1

Istanbul SE

761.9

743.4

22.2

21.6

Johannesburg SE

324.8

259.3

6.9

7.1

0.0

342

369

12,126.6

10,429.3

109.4

93.5

BME Spanish Exchanges Borsa Italiana Budapest SE Deutsche Börse

Ljubljana SE London SE NA SDA Q OMX Nordic SE NYSE Euronext (Europe) Oslo Børs SIX Swiss Exchange Wiener Börse

0.3 n/a

0.3 n/a 253.2

1,999.9

1,948.1

64.3

53.0

487

489

11,445.9

13,136.2

188.8

170.0

2,316.9

2,259.2

79.1

71.2

194

255

5,940.9

4,868.4

50.0

52.2

8.0

9.2

0.3

0.2

Source: World Federation of Exchanges| Data as of 30 November 2009.

TOP 10 ETFS IN EUROPE (TOTAL AUM)

ON THE RADAR +++ SELECTED ETF NEWS

(sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM

LYXOR DJ EURO STOXX 50 ISHARES DJ EURO STOXX 50 (DE) ISHARES S&P 500 ISHARES FTSE 100 ISHARES DJ EURO STOXX 50 ZKB GOLD ETF ISHARES CORP. BOND FUND LYXOR CAC40 XMTCH ON SMI ISHARES DAX (DE)

MSE FP SX5EEX GY IUSA LN ISF LN EUN2 GY ZGLD SW IBCS GY CAC FP XMSMI SW DAXEX GY

7,387 6,310 6,261 5,788 5,675 5,660 4,729 4,473 3,898 3,707

ADV          

87 58 43 70 55 23 22 59 20 126

         

Source: Blackrock| Data as of November 30, 2009.

TOP 10 ETFS IN EUROPE (CHANGE IN AUM) (sorted descending by largest change in Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM

DB X-TRACKERS II EONIA TR INDEX ZKB GOLD ETF ISHARES CORP. BOND. ISHARES MSCI EMERGING MARKETS ISHARES FTSE 100 ISHARES DJ EURO STOXX 50 (DE) DB X-TRACKERS MSCI EMGNG. MKTS. TR INDEX DB X-TRACKERS EURO STOXX 50 ETF ISHARES S&P500 LYXOR ETF EURO CASH (EONIA)

XEON GY ZGLD SW IBCS GY IEEM LN ISF LN SX5EEX GY XMEM GY XESX GY IUSA LN CSH FP

2,810 5,660 4,729 2,913 5,788 6,310 3,169 3,551 6,261 2,057

CHNGE. –4,131 +2,924 +2,518 +1,944 +1,867 +1,719 +1,691 +1,619 +1,467 +1,322

THE NETHERLANDS: FIRST DUTCH ETF-ISSUER STARTED SUCCESSFULLY The Dutch newcomer, Think Capital Asset Management B.V., an Amsterdam based financial company, has become the latest ETF issuer to enter the European market, with the debut of five new Exchange Traded Funds on the NYSE Euronext in Amsterdam in mid December 2009. The asset management company’s new ETFs (called ”Tracker”) are tied to the Dutch broad-market AEX index, the Dutch midcap AMX index, a defensive balanced basket of equities, bonds and real estate (20%/70%/10%), a neutral balanced basket of equities, bonds and real estate (45%/45%/10%) and an aggressive allocated basket of equities, bonds and real estate (70%/20%/10%). According the press release, Think Capital plans to issue more ETFs in the near future.

Source: Blackrock| Data as of November 30, 2009.

ETF Radar Magazine • 1st Quarter 2010

Marketplace

Middle East & Asia-Pacific MIDDLE AND FAR EAST EXCHANGES AT A GLANCE (sorted descending by total turnover, in EUR mn.) Exchange A ustralian SE

Total Turnover

# of ETFs October

November

October

# of Trades

November

October

November

610.7

481.8

0.0

Bombay SE

0.5

1.0

0.5

0.4

Bursa Malaysia

1.5

4.6

389.0

571.0

4,955.7

5,544.9

206.0

190.8

0.0

Korea Exchange

2,206.7

2,139.5

504.6

468.4

National Stock Exchange India

107.5

138.9

105.3

131.8

5.4

5.0

0.5

1,854.8

1,687.1

0.0

5,793.8

8,296.7

631.0

885.0

Hong Kong Exchanges Indonesia SE

New Zealand Exchange Osaka SE Shanghai SE Shenzhen SE

2,193.7

3,392.2

Singapore Exchange

261.5

317.1

Taiwan SE Corp.

534.3

448.6

95.1

15.0

10.8

12.5

2,101.0

1,356.3

The Stock Exchange of Thailand Tokyo SE

243.9

n/a

0.0

388.2

n/a 81.0 11.2

n/a

Source: World Federation of Exchanges| Data as of November 2009.

TOP 10 ETFS IN ASIA-PACIFIC (TOTAL AUM)

ON THE RADAR +++ SELECTED ETF NEWS

(sorted descending by Assets-under-Management, in USD mn.) ETF NAME

TICKER

AUM

ISHARES FTSE/XINHUA A50 CHINA TRACKER TSE TOPIX ETF OSE NIKKEI 225 ETF TRACKER FUND OF HONG KONG LISTED INDEX FUND TOPIX CHINA 50 ETF HANG SENG INDEX ETF DAIWA ETF-NIKKEI 225 HANG SENG H-SHARE INDEX ETF DAIWA ETF TOPIX

2823 HK 1306 JP 1321 JP 2800 HK 1330 JP 510050 CH 2833 HK 1320 JP 2828 HK 1305 JP

6,414 6,400 5,885 5,016 3,262 3,191 3,160 2,137 2,070 1,923

ADV          

173 21 60 29 23 282 2 13 29 2

         

SINGAPORE: ASIA’S FIRST “SAMBA ETF” LAUNCHED BY DEUTSCHE BANK

Deutsche Bank AG’s ETF unit, x-trackers, recently launched six new exchange-traded funds on the Singapore Exchange, including Asia's first ETF tracking the performance of the Brazilian equities market. Deutsche Bank now has a total of 16 ETFs listed on the Singapore Exchange and is expected to increase its market presence in Asia-Pacific soon.

Source: Blackrock | Data as of November 30, 2009.

TOP 10 ETFS IN ASIA-PACIFIC (CHANGE IN AUM) (sorted descending by largest change in Assets-under-Management, in USD mn.) ETF NAME ISHARES FTSE/XINHUA A50 CHINA TRACKER CHINA 50 ETF HANG SENG INDEX ETF SPDR S&P/ASX 200 FUND HANG SENG H-SHARE INDEX ETF TRACKER FUND OF HONG KONG E FUND SI100 INDEX FUND BANKING INDEX BENCHMARK BEES INDIA WOORI CREDIT SUISSE KOSPI 200 FUBON MSCI TAIWAN

TICKER 2823 HK 510050 2833 HK STW AU 2828 HK 2800 HK 159901 CH BBEES IN 069660 KS 159902 CH

AUM 6,414 3,191 3,160 1,837 2,070 5,016 1,308 29 211 496

CHNGE. +2,794 +2,624 +1,408 +1,232 +1,022 +777 +771 –707 –480 +477

Source: Blackrock| Data as of November 30, 2009.

ETF Radar Magazine • 1st Quarter 2010

Portfolio Allocator Sector Update

Back in BUSINESS again U.S. Real estate, which sparked the global economic downturn, struggled to recover in 2009. Now, the sharply fallen prices lure investors and homebuyers. It’s time to think about getting back in business with the iShares DJ U.S. Real Estate Index Fund (IYR).

BY DAVID COHNE | COHNE INVESTMENT GROUP | BOSTON

tactical sector allocation can benefit an investor’s portfolio by providing exposure to sectors that are currently in up trends. I've developed an ETF sector allocation model that looks for sectors that offer the most potential for capital appreciation each month. To achieve this, I wrote proprietary momentum algorithms that rank sectors based on trends in their performance over different time periods. This takes the emotional aspect out of making sector picks. In addition to the ten S&P GICS sectors, I have also included gold, real estate and natural resources. In each upcoming issue, the ETF Radar Magazine will present a list of my top ten ranked sectors, while highlighting one top ranked sector ETF.

TACTICAL ETF RANKING RANK SYMBOL ETF 1

IYR

iShares DJ U.S. Real Estate

XLK

SPDR Technology

XLY

SPDR Consumer Discretionary

IYZ

iShares DJ U.S. Telecomm

XLB

SPDR Materials

XLU

SPDR Utilities

XLI

SPDR Industrial

IGE

iShares Goldman Sachs Natural Res.

XLV

SPDR Health Care

XLE

SPDR Energy

HIGHEST OPPORTUNITY

Source: Cohne Investment Group | December, 31 2010 Ranking.

I will also occasionally highlight some of the top performing industry ETFs within each sector. The most recent top ranked sectors based on our proprietary rankings (see table), include the iShares DJ U.S. Real Estate ETF (IYR), the SPDR Technology ETF (XLK), the SPDR Consumer Discretionary ETF (XLY) and the iShares DJ U.S. Telecommunications ETF (IYZ). There are various strategies that one can implement using these rankings. For more aggressive investors, they could choose just the top ranked ETF each month. The models I've created hold a more diversified allocation with a few of the top ranked sectors. This issue, I'm going to focus on the iShares DJ U.S. Real Estate ETF (IYR), which returned 6.9% last month and 30.6% for 2009. The ETF tracks the performance of the Dow Jones U.S. Real Estate Index giving you exposure to the U.S. real estate sector. The fund which was launched on June 12th, 2000, holds 76 securities and boasts an expense ratio of 0.48%. IYR has an average trading volume of 19 million shares with net assets close to USD ETF Radar Magazine • 1st Quarter 2010

2.5 billion. Securities that you're likely to find include Office REITs, Specialty REITs, Retail REITs, Residential REITS, Mortgage REITs, Hotel REITs and other Real Estate developments and services. Office, Specialty, Retail and Residential REITS alone currently make up over 80% of the fund. Top holdings which make up 40% of the fund, include Simon Property Group, Vornado Realty Trust, Public Storage, Annaly Capital Management, Boston Properties, Equity Residential, HCP, Host Hotels & Resorts, Ventas and Prologis. There are many other Exchange Traded Funds that offer you exposure to the real estate sector. In fact, there are currently over 25 different U.S. listed ETFs. Some others include the Vanguard REIT ETF (VNQ), the iShares Cohen & Steers Realty ETF (ICF) and the SPDR Dow Jones Wilshire REIT ETF (RWR). iShares also offers a couple of focused real estate funds such as the iShares FTSE NAREIT Mortgage REITs ETF (REM) and the iShares FTSE NAREIT Residential ETF (REZ). 

Portfolio Allocator Sector Update

ISHARES DJ U.S. REAL ESTATE INDEX FUND EXCHANGE TRADED FUND | TICKER: IYR | SECTOR: REAL ESTATE

Sector

Total Net Assets

2.807.153.118

Retail REITs Industrial & Office REITs Specialty REITs Mortgage REITs Industrial & Office REITs Residential REITs Specialty REITs Hotel & Lodging REITs Specialty REITs Residential REITs Industrial & Office REITs Specialty REITs Specialty REITs Retail REITs Retail REITs Specialty REITs Industrial & Office REITs Industrial & Office REITs Industrial & Office REITs Industrial & Office REITs Retail REITs Real Estate Services Specialty REITs Real Estate Holding & Development Retail REITs Hotel & Lodging REITs Industrial & Office REITs Specialty REITs Industrial & Office REITs Industrial & Office REITs Residential REITs Retail REITs Real Estate Holding & Development Residential REITs Real Estate Services Residential REITs Mortgage REITs Retail REITs Industrial & Office REITs Industrial & Office REITs

Currency

USD

Expense Ratio

0,48%

Shares Outstanding

61.050.000

Total Holdings

Inception Date

6/12/2000

Related Index

DJUSRET

RISK-REWARD-ANALYSIS High

(based on an investment horizon of 12 months)

RETURN

IYR Moderate Low

Moderate

High

RISK

2010

2008

PERFORMANCE 2007

SIMON PROPERTY GROUP INC VORNADO REALTY TRUST PUBLIC STORAGE ANNALY CAPITAL MANAGEMENT BOSTON PROPERTIES INC EQUITY RESIDENTIAL HCP INC HOST HOTELS&RESORTS INC VENTAS INC AVALONBAY COMMUNITIES INC PROLOGIS PLUM CREEK TIMBER CO HEALTH CARE REIT INC KIMCO REALTY CORP FEDERAL REALTY INVS TRUST NATIONWIDE HEALTH PPTYS INC SL GREEN REALTY CORP AMB PROPERTY CORP LIBERTY PROPERTY TRUST DIGITAL REALTY TRUST INC MACERICH CO/THE CB RICHARD ELLIS GROUP INC-A RAYONIER INC BROOKFIELD PROPERTIES CORP REGENCY CENTERS CORP HOSPITALITY PROPERTIES TRUST ALEXANDRIA REAL ESTATE EQUIT SENIOR HOUSING PROP TRUST MACK-CALI REALTY CORP DUKE REALTY CORP CAMDEN PROP TR REALTY INCOME CORP THE ST JOE COMPANY UDR INC JONES LANG LASALLE INC ESSEX PROPERTY TRUST INC CHIMERA INVESTMENT CORP WEINGARTEN REALTY INVESTORS HIGHWOODS PROPERTIES INC CORPORATE OFFICE PROPERTIES

% Net Assets 8.97 4.97 4.13 3.78 3.67 3.65 3.5 2.91 2.7 2.64 2.56 2.43 2.15 2.15 1.63 1.56 1.53 1.48 1.41 1.39 1.34 1.34 1.3 1.24 1.23 1.15 1.1 1.1 1.09 1.08 1.07 1.07 1.05 1 0.98 0.97 0.96 0.94 0.93 0.84

Low

SPG VNO PSA NLY BXP EQR HCP HST VTR AVB PLD PCL HCN KIM FRT NHP SLG AMB LRY DLR MAC CBG RYN BPO REG HPT ARE SNH CLI DRE CPT O JOE UDR JLL ESS CIM WRI HIW OFC

PROFILE

Name

2006

Symbol

2009

HOLDINGS

100

SECTOR BREAKDOWN  Industrial & Office REITs

25,49%

 Specialty REITs

21,03%

 Retail REITs

20,18%

 Residential REITs

13,30%

 Mortgage REITs

6,36%

 Hotel & Lodging REITs

5,58%

 Real Estate Holding & Development

3,21%

 Real Estate Services

2,41%

 Diversified REITs

1,78%

 S-T Securities

0,14%

 Other/Undefined

0,55%

Quarter-end YTD 1 Month 3 Months 6 Months

Total Returns Total (%) Returns (%) IYR Index 30.15 30.81 6.84 6.91 8.76 8.94 44.27 44.74

Please note that the ETFs presented in the Portfolio Allocator Sector Update have been selected independently. This section is not sponsored by an ETF issuer or associated with an ETF issuer and its products or an ETF distributor. Investors act on their own risk. The value of the products presented within this section could increase and decrease. For further information please see the magazine’s disclaimer page.

ETF Radar Magazine • 1st Quarter 2010

Research

A new dangerous COCKTAIL The mixtur of too much liquidity and a shortage of good-quality investment opportunities resulted in the development of various bubbles. Now, the massive, liquidity driven ralley could come to an end a lot faster than most investors might think.

BY MARTIN RAAB | ETF RADAR MAGAZINE | NAPLES (FL)/MUNICH

fter the worst recession since more than 60 years, the markets rebounded significantly thanks to the hundreds of billions of liquidity support from the major central banks. The massive rally, started in March 2009, happened in all sorts of assets equities, credit, energy and commodities. Probably the biggest boost took part in the emerging markets (equities and currencies) including the BRIC-countries. At the same time, the dollar has weakened sharply, while government bond yields have gently increased but stayed low and stable. So far, everyone who was part of the rally certainly enjoyed a bottle of champagne during New Year's Eve. Low does not necessarily mean cheap However, they party on the financial markets could come to an end a lot faster than most investors might think. The latest and probably most underestimated key negative effect of the central banks' policy measures is that meanwhile most of the asset prices are not longer fundamentally justified. Many investors just bought something in the market because the stock prices have become extremely low. Also the low-interest rates in the G7 economies fuel carry-trade activity (see page 18). Especially institutional investors took a large amount of debt in cheap USD and invested in higher yielding currencies or other promising instruments. In the past the Japanese Yen was a classic carry-trade currency, nowadays the USD seems to be its successor. At times when global liquidity expands, the USD tends to weaken and when global liquidity shrinks, the USD tends to appreciate. As long as the Federal Reserve will keep its “near zero interest rate”, the debt in dollars remain cheap and the investments in other currencies potentially will create a ETF Radar Magazine • 1st Quarter 2010

higher yield. It's like a perfect money spinner, but the risk that the first movers will start to liquidate its positions in order to make the achieved profits real, becomes more real each day. A dangerous combination In combination with the intention of central banks to withdraw the current liquidity, some asset bubbles may burst and triggering a serious storm - not an other financial meltdown - in overheated markets. Policy makers made a big bet that - as consequence of the massive interest rate cuts - the fundamentals will improve quick enough to justify the current valuations of equities, corporate debt and commodities. However, headwinds will impede growth in 2010. Future growth and the success of the stimulus packages will depend on the consumers in the G7 countries, which are currently tied - especially in the U.S. - by risk of joblessness, past indebtedness and the willingness (not to say the need) to increase the savings rate. Also the bigger picture for the European Union remains a little bit challenging, especially in the states like Greece, Italy and Hungary. The fiscal situation in both South-European states is in a bad condition, as both are heavily burden by public debt. In Hungary, currently hundred thousands of households and companies are fighting with the results of failed carry trades and an increasing number of nonperforming loans. Many Hungarians took in the past years Euro-denominated consumer credits and mortgage loans, as the interest rate was significantly lower (i.e. 3.75%) than in their domestic currency, the Forint (i.e. 8%) and the exchange rate versus the Euro was relative stable. In the beginning of the year 2009 the FX-rate »

Research

Nevertheless, the longer and deeper the interest rates in USD, EUR, GBP, CHF and JPY and the larger the potential asset bubble, the bigger will be the ensuing crash. Central bankers have to be carefully looking for a delicate balance between the risk of causing a major repricing in financial markets and that of creating another financial bubble. And no doubt, such a correction would force many investors to move back quickly into their home currencies and - since most of the boom in assets seen in 2009 was funded out of the USD the “Greenback” could appreciate accordingly. The upswing of the USD is expected to be not dramatically but noticeable.  ETF Radar Magazine • 1st Quarter 2010

+33.4%

OUTFLOWS In millions Country Canada Belgium Germany United Kingdom France South Korea Australia British Virgin Islands India

–9.3% –12.2%

–27.7% –28.9%

Amount $266,831,008 $6,645 $5,363 $3,348 $768 $627 $618 $536 $465

INFLOWS In millions

Pound

Euro

Australian Dollar

Brazilian Real

Back on track, for now... In the first two quarters in 2010, it will become clear if the central banks billions of liquidity support were enough to stabilize the economy and bring the crisis to a successful end or not. Most of the temporarily supporting initiatives, such as car purchase incentives subsidized by the government, will soon expire and the breathtaking expansion of central banks' balance sheets will definitely come to an end. The fatal thing from the central banks' perspective is that there is in most cases no real possibility to decrease the interest rates further, in case that the bet on the economic recovery failed and the global economy would need another push to come back on track.

CARRY TRADES (Performace of the US dollar versus selected currencies in percent, YTD)

New Zealand Dollar

EUR/HUF collapsed and most of the (unhedged and HUF salaries receiving) borrowers were unable to pay their credits back. Parallel foreign investments in Hungary has largely dried up, leaving it unclear whether banks with large debts in dollars and euros will be able to roll over short-term loans. Finally the International Monetary Fund (IMF) and the European Union must step in with a billion credit in order to prevent Hungary from a financial collapse.

Country Canada France China Switzerland Australia Israel Japan United Kingdom Netherlands Bermuda

Amount $10,768.30 $3,327.47 $2,325.35 $1,014.00 $832.13 $379.70 $367.76 $321.47 $296.63 $283.00

TOTAL VOLUME OF OUTSTANDING DEBT (in billions US dollar)

Domestic debt securities: 15,871 bn. including Asia-Pacific Governments: 11,754 bn. Financials: 2,684 bn. Corporates: 1,433 bn.

Intl. debt securities: 1,324 bn. including Asia-Pacific Governments: 74 bn. Financials: 1,111 bn. Corporates: 139 bn.

Domestic debt securities: 24,912 bn. including U.S. Government: 8,779 bn. Financials: 13,293 bn. Corporates: 2,840 bn.

International debt securities: 6,622 bn. including U.S. Government: 10 bn. Financials: 5,447 bn. Corporates: 1,163 bn.

Domestic debt securities: 17,461 bn. including European Governments: 8,978 bn. Financials: 6,319 bn. Corporates: 2,164 bn.

International debt securities: 16,163 bn. including European Governments: 1,645 bn. Financials: 13,529 bn. Corporates: 989 bn. Sources: ETF Radar Global Research, BIS, FRBNY, Natixis, Thomson Reuters | Data as of 22 December 2009.

Research BILLIONS OF DEBT

Global

(Selected Central Bank Liabilities)

Current balance sheet: (billions USD)

LIQUIDITY FLOWS

Assets 2,165 including Agncy. MBS 774 Lending 162 Liabilities including Banknotes Deposits

The liquidity situation at a glance.

2,500

U.S. Treasury supplementary account

2,000

1,500

2,112

Reserve balances

Total liabilities

1,000

875 1,083

Total capital

500

Notes in circulation

Interest Rate: 0.25%

PULLING THE PLUG ON LIQUIDITY

Federal Reserve

Billions USD

0 2008

2009

(Liquidity Facilities of the Federal Reserve, YTD) 300,00

Current balance sheet: (billions EUR) 250,00

Assets 1,759 including LongTrmOps. 589 Gold 238

200,00

Liabilities including Banknotes Deposits

150,00

100,00

European Central Bank

Billions EUR

2,500

Other Euro liabilities

2,000

Total liabilities

1,500

2,040

Deposit facility 1,000

772 205

Total capital

Current accounts 500

Notes in circulation

Interest Rate: 1.00%

0 2008

50,00

0,00 2008

Current balance sheet: (billions GBP)

2009 All Liquidity Facilities Term Auction Credit Commercial Paper Funding Facility Central Bank Liquidity Swaps

Assets

2009

Bank of England

Billions GBP

300

Other liabilities

239

250 200

CENTRAL BANK RATE CUTS (in basispoints)

-40

Liabilities including Banknotes

239 50

100

Total capital

n/a

Total liabilities

Reserve balances Notes in circulation

Interest Rate: 0.50%

-595

-216

-225

-250

-275

-300

-325

-375

0 2008

2009

U.S. PRIVATE ASSETS ABROAD (millions of USD)

-500

-600

-550

-425

-400

-200

Short-term market operations

150

150,000 100,000 50,000

-800

0 –50.000 –100.000 08 20

-1025

-1000

2 .Q

08 20

3 .Q

4 .Q 08 20

0 20

1 09 20

2 .Q

. 09 20

3e Q

09 20

.U.S. purchase of foreign securities .U.S. direct investments abroad

ETF Radar Magazine • 1st Quarter 2010

Japan

China

Switzerland

India

Poland

Indonesia

Korea

Euro zone

Mexico

Russia

Brazil

S. Africa

Argentina

Hong Kong

Turkey

-1200

Sources: ETF Radar Global Research, FRBNY, Natixis, Thomson Reuters | Data as of December 2009.

Interview

Charles Schwab’s Jonathan de St Paer about the latest product launches, the workflows behind Schwab’s ETFs and the future strategy of the discount brokers’ new established ETF business.

BY SEBASTIAN STAHN AND MARTIN RAAB | ETF RADAR MAGAZINE | NAPLES (FL)/MUNICH

chwab, one of the largest online brokers worldwide, recently launched nine of its own ETFs. What is the basic intention/idea behind these new products? On November 2, 2009, Schwab announced the launch of 8 new Schwab ETFs. Four of them launched on November 3, two more launched on December 11, and two more will be launched on January 14.

Management, Inc. (CSIM). Throughout the development process and for the ongoing management of the Exchange Traded Funds, though, we have benefited from working closely with our industry leading service providers. State Street provides Fund Administration and Custody services, and SEI Investments Distribution Co. is the Distributor for the Exchange Traded Funds.

In order to take advantage of the scale that Schwab can offer, our ETF business has been broadly integrated into the existing Schwab business. Dustin Lewellyn, These Exchange Traded Funds are designed to provide Managing Director of ETFs joined Schwab this summer investors and investment advisors with high quality, low and leads a team that oversees Exchange Traded Funds cost exposure to the core asset classes that play important portfolio management. In addition to this new and roles in their portfolios. In addition, Schwab clients are specialized team, Exchange Traded able to trade the Schwab ETFs Funds expertise has been added and commission free online through VITA integrated into other functions within Schwab accounts. This combination of low expense ratios and no trade Jon is Vice President Product Schwab. commissions removes one of the last Development at Charles Schwab in San hurdles around Exchange Traded Francisco and responsible for Schwab’s How about the expenses (TER) of Funds growth, and enables investors newly established Exchange Traded Schwab's new ETF family? Which to dollar cost average as they re- Funds business. He started his career replication method(s) do your as Financial Analyst at Bear Stearns in engage with the market. ETFs use? Did you setup the ETF structures by yourself (in-house) or did you work together with a third-party provider, who took care of all development and administration issues? How is the organizational str ucture of Schwab's ETF business set up?

the year 1995 after completing his studies in Political Science at the University of California in San Diego. Before he moved to Charles Schwab in 2003, he was Associate at McKinsey & Company. Jon holds a MBA in Finance from University of Pennsylvania – The Wharton School. He lives in San Francisco.

The Schwab ETFs were developed by Schwab and are managed internally by Charles Schwab Investment ETF Radar Magazine • 1st Quarter 2010

The expense ratios are extremely competitive generally matching or beating the lowest cost Exchange Traded Funds in the industry. The information on each expense ratio is provided above.

Our Exchange Traded Funds offering makes use of both full replication and of sampling. The U.S. Large-Cap ETF, the U.S. Large-Cap Growth ETF and the U.S. Large-Cap Value ETF each use full »

Coverstory

replication, while the remaining five ETFs use a sampling approach. All of the products are designed to provide highly liquid exposure with very low tracking error.

“Schwab ETFs are designed to offer compelling value for investors seeking exposure to core asset classes.” What are the unique selling purposes of the Schwab ETFs, what should be the motivation for an investor to select Schwab's ETF instead of the products of your competitors?

CHUCK’S COMPETITIVE PRODUCT RANGE (Exchange Traded Funds of selected ETF issuer)

SCHWAB ETF Domestic Equity

Schwab

Vanguard

iShares

SPDRs

Schwab U.S. Broad Market ETF

SCHB 0.08%

VTI 0.09%

IWV 0.21%

TMW 0.20%

Schwab U.S. Large-Cap ETF

SCHX 0.08%

VV 0.13%

IVV 0.09%

SPY 0.09%

Schwab U.S. Large-Cap Growth ETF

SCHG 0.15%

VUG 0.15%

IVW 0.18%

ELG 0.20%

Schwab U.S. Large-Cap Value ETF

SCHV 0.15%

VTV 0.15%

IVE 0.18%

ELV 0.20%

Schwab U.S. Small-Cap ETF

SCHA 0.15%

VB 0.15%

IJR 0.20%

DSC 0.25%

Schwab

Vanguard

iShares

SPDRs

Schwab International Equity ETF

SCHF 0.15%

VEA 0.16%

EFA 0.34%

CWI 0.34%

Schwab International Small-Cap Equity ETF

SCHC 0.35%

VSS 0.38%

SCZ 0.40%

GWK 0.59%

SCHE 0.35%

VWO 0.27%

EEM 0.72%

GMM 0.59%

International Equity

(Available on January, 14 2010)

Schwab ETFs are designed to offer compelling value for investors seeking exposure to core asset classes. Our competitive expense ratios, premier index providers and proven experience in managing index products make the Schwab ETFs an outstanding value proposition. When combined with the ability of Schwab clients and advisors to trade them commission free online through Schwab accounts; Our Exchange Traded Funds are a unique and highly compelling offering for both investors and investment advisors.

FUND SYMBOL AND EXPENSE RATIO

Schwab Emerging Markets Equity ETF (Available in January, 14 2010)

Please notice: Expense comparison data was obtained from the funds’ prospectuses as of 09/30/2009. Expense ratios are subject to change. Comparisons are made between each Schwab ETF and Exchange Traded Funds in the same asset class from the three largest ETF providers. ETFs in the same asset class may track different indexes, have differences in holdings, and show different performance.

Are there more ETFs to come this year? If yes, what do you intend to launch? Are there any plans to expand your offer for European (UCITS) or Asian investors?

Yes, we are always looking for ways to serve investors' needs and deliver compelling value. We are looking at additional opportunities in the Exchange Traded Funds space. Thank you for the interview! 

ETF Radar Magazine • 1st Quarter 2010

Career&Events

CAREER

Outlook CURRENT JOB OFFERS

ACTIVE EMPLOYERS

Total amount and global allocation of job offers within the ETF Industry

Top 10 Hiring Companies – incl. Recruiting Agencies – Worldwide

REGION North America United States Canada Latin-/South America Brazil Europe United Kingdom Germany Switzerland France Middle East UAE (Dubai) Asia-Pacific Singapore Hong Kong Australia Total

OFFERS 164 2 3 52 5 3 1

TREND

1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Mitchell Martin (US) Blackrock (US) J.P. Morgan (US) Charles Schwab (US) Bank of NY Mellon (US) Russel Investment (US) Morgan Stanley (US) Citifocus (UK) ProFunds Advisors (UK) ETF Securities (US)

3 2 2 6 243

Source: ETF Radar Global Research| Data as of December 31, 2009.

Canada 1% Brazil 1% United States 68% United Kingdom 21%

Job Offers sorted by State: New York 69 California 26 Massachusetts 3 New Jersey 28 North Carolina 2 Maryland 16 Illinois 16 Connecticut 2 Florida 2

ETF Radar Magazine • 1st Quarter 2010

Germany 2% 42% 16% 2% 17% 1% 10% 10% 1% 1%

Australia 3% Hong Kong 1%

Switzerland 1% France UAE (Dubai) 0% 1% Singapore 1% Source: ETF Radar Global Research| Data as of December 31, 2009.

Career&Events

EVENT

Calendar PREVIEW ON SELECTED EVENTS

JANUARY

FEBRUARY

MARCH

CEE Insurance & Pension Funds

FONDS10

The Art of Indexing Summit Europe

29 January 2010

3 – 4 February 2010

25 March 2010

Location

Warsaw (Poland), TBD

Zurich (Switzerland), Congress Center

Frankfurt/Main (Germany), TBA

Organizer information

www.easteurolink.co.uk

www.fonds-messe.ch

www.artofindexing.com

Registration Fee

TBA

Starting at 1,999 EUR,

India Investment Summit

available upon request!

discounts for ETF Radar Magazine readers

8 – 10 February 2010 Location

APRIL

Mumbai (India), Marriot Hotel

ETF & Indexing Investments USA

Organizer information

19 April 2010

www.terrapinn.com

Location

Registration Fee

New York City (USA), Millennium UN Plaza Hotell

TBA

Organizer information www.terrapinn.org

ETF 2010 New Investment Strategy

Registration Fee

18 February 2010

TBA

Location Paris (France), The Ritz Hotel

Indexing & ETF Investments China

Organizer information

20-21 April 2010

www.premiercercle.com

Location

Registration Fee

Shanghai (China), Sheraton HongQiao Hotel

390 EUR, Earlybird 299 EUR

Organizer information www.indexingetf.com

Asset Allocation Summit Australia

Registration Fee

22 – 25 February 2010

Starting at 1,888 USD

Location Sydney (Australia), Four Seasons Hotel Organizer information imn.org Registration Fee TBA

Is your upcoming event not listed? Just let us know. magazine@etf-radar.com

ETF Radar Magazine • 1st Quarter 2010

Global Players (Selection) E T F P rov ider

C ont act det ails (website/Headoffice)

(trading as)

R at ing s

M arket

L ist ed E T F s

F lag ship

(S&P /MDY S

R eg ulat ors

(global)

product s

M anag ement

/FTCH)

(Selection)

(Ticker)

(Trend)

-/A1/-

SEC, FSA (UK ),

Blackrock/BG I

www.ishares.com

iShares

London EC3N 4HH (UK )

S S g A Inc.

www.ssgafunds.com

StreetTracks

B oston, MA, 02111 (USA)

V ang uard

www.vanguard.com

Vanguard ETFs

Wayne, P A 19087 (USA)

S ociét é G énérale S A

www.lyx oretf.com

Lyx or ETFs

92987 P aris-La Défense (FR)

D eut sche Bank A G

www.dbx trackers.com

db x-trackers

60311 Frankfurt (GER)

Inv esco

www.invescopowershares.com

P owerShares ETFs

Wheaton, IL 60187 (USA)

BB+

P roS hares

www.proshares.com

P roShares

B ethesda, MD 20814 (USA)

N omura A M

www.nomura-am.co.jp

Nomura ETFs

Tokyo 103-8260 (Japan)

V an E ck S ec. C orp.

www.vaneck.com

marketvector

New York, NY 10017 (USA)

N ikko A M

www.nikkoam.com

nikko ETFs

Tokyo, 107-6242, (Japan)

C redit S uisse A M

www.xmtch-etf.com

x mtch ETFs

8070 Zürich (CH)

BN P P aribas

www.easyetf.com

EasyETFs

75009 P aris (FR)

E T F L ab Inv mt .

www.etflab.de

etflab

80807 München (GER)

W isdomT ree Inv mt .

www.wisdomtree.com

WisdomTree ETFs

New York, NY 10017 (USA)

C ommerz bank A G

www.comstage.de

comstage ETFs

60311 Frankfurt (GER)

411

E x chang e L ist ing s

A sset s-under-

US, UK , GER, IT, CH, FR,

US$472 Bn

AT, HK , SG, AU



SP DR

US, FR, NL, SG, HK , AU

US$142 Bn US$88 Bn US$45 Bn

IWM, DAXEX,

AMF SEC

106

-/-/-

SEC

AA-/Aa2/-

AMF, FSA (UK )

125

LVC, CAC, MSE

GER, UK , IT, ES, CH, FR, AT, SG



121

XDAX, XEO D

GER, UK , IT, CH, FR, AT,

US$37 Bn



SEC

125

QQQQ

US$32 Bn

-/-/-

SEC

P SQ , Q LM,

US$23.7 Bn

-/B aa2/B B B

FSA (JP )

US$13.7 Bn

-/-/-

SEC

GDX, RSX

US$11.9 Bn

-/A1/-

 

A+/Aa1/AA- B aFIN, AMF, FSA (UK ) B B B +/A3/B

 

DDM

  -/-/-

SEC

US$5.5 Bn

A+/Aa1/AA-

FINMA

XMSMI

US$7.9 Bn

AA/Aa1/AA

AMF

CP ETDX5

GER, FR, IT, CH

US$5.8 Bn

A/-/Aa2

B AFIN

ETFL01,

GER

US$6.2 Bn

   

ETFL02 -/-/-

SEC

B AFIN

WTIND, WTDFA

US$6.1 Bn

CB DAX

GER

US$5.56 Bn

 A/Aa3/A+



Table sorted by Assets-under-Management. Please notice: SSgA rating equals STT Corp. rating. iShares ratings equals Blackrock's rating. Nomura AM equals Nomura Hlds' rating. ETFLab Invmt. equals Dekabank's rating. Source: ETF Radar Research, Dec 31, 2009.

ETF Radar Magazine • 1st Quarter 2010

Disclaimer

Important notice to our readers: The views and expectations presented in the analyses, data and product presentations in this publication should not be viewed as investment recommendations of and by the ETF Radar Magazine or any of its affiliates or associates. Investors should seek independent professional advice. Contributors of this publication and/or its affiliates may invest in or act as a market maker for the securities or indices or other products referred to in this publication for its own account or the account of a third party. Editorial contributors may also have a business relationship with issuers of such securities or providers of such indices or products and may represent members of such issuers' or providers' decisionmaking bodies. While the information in this publication has been obtained from sources believed to be reliable, neither the ETF Radar Magazine nor any contributor makes any representation as to its accuracy or completeness. The ETF Radar Magazine does not act as an registered investment advisor or fiduciary for anyone unless otherwise agreed. Any evaluations in this publication reflect only the author's opinion at the time of the analysis. The opinions, forecasts, assumptions, estimates, derived valuations and target price(s) contained in this material are as of the date indicated and are subject to change at any time without prior notice. This publication is general and for information only and does not constitute any form of recommendation, an offer to sell or a solicitation to buy any security or other financial instrument. Prospective investors should understand the risks associated with the products mentioned in this publication and should reach an investment decision on the basis of the information in the relevant offering circulars. Neither the staff of the ETF Radar Magazine nor any other person shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary loss or damages, including without limitation lost profits arising in any way from the information contained in the material. All designated trademarks and brands are the property of their respective owners. Additional Information and Disclaimers All figures are subject to market fluctuation and change. Investments that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than investments that are more diversified. An index is not managed and is unavailable for direct investment. Total returns assume reinvestment of all distributions, including dividends and capital gains. Reinvestment does not assure a profit or protect against a loss in declining markets. Total returns do not include commissions, fees, other transaction variables or the effects of taxation. Past performance does not guarantee or predict future results. The investment discussed may not be suitable for all investors. Investors must make their own decisions based on their specific investment objectives and financial circumstances. This communication is not an offer to sell or solicitation of offers to buy any securities mentioned herein. This report is not a complete analysis of every material fact in respect to any fund or fund type. The opinions expressed here reflect the judgment of the author as of the date of the report and are subject to change without notice. Statistical information has been obtained from sources believed to be reliable but its accuracy is not guaranteed. The ETF Radar Magazine does not render legal, accounting or tax advice. Please consult your tax or legal advisors before taking any action that may have tax consequences. The performance provided is past performance, which does not guarantee future results and current performance may be lower or higher than the performance data quoted. The investment return and principal value will fluctuate when sold and may be worth more or less than the original cost. This article on page 10 has been issued in Hong Kong by BlackRock Asset Management North Asia Limited and has not been reviewed by the SFC. This document is for informational purposes and does not constitute an offer or solicitation to purchase or sell units in any iShares funds, nor shall any units be offered or sold to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. Any opinions contained herein, which reflect our judgment at this date, are subject to change. No part of this document may be reproduced in any manner or distributed without the prior written permission of BlackRock. EXCHANGE TRADED FUNDS ARE SOLD BY PROSPECTUS. PLEASE CONSIDER THE INVESTMENT OBJECTIVES, RISK, CHARGES AND EXPENSES CAREFULLY BEFORE INVESTING. THE PROSPECTUS, WHICH CONTAINS THIS AND OTHER INFORMATION, CAN BE OBTAINED FROM THE ETF SPONSOR OR YOUR FINANCIAL ADVISOR. READ IT CAREFULLY BEFORE YOU INVEST OR SEND MONEY.

ETF Radar Magazine â&#x20AC;˘ 1st Quarter 2010

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