ETF Radar Magazine (Q3/2010) by ETF Radar

News • Market Intelligence • Rankings

3 Quarter 2010

etfRADAR M

Issue No. 7 ISSN 2150-9166

Insights&Strategy

BELLA FIGURA FOR ETFS IN ITALY BUILDING EFFICIENT PORTFOLIOS USING ETPS Marketplace

Coverstory

INVESTING IN EUROPEAN COUNTRY ETFS WITHOUT THE HASSLE

AMERICAS, EUROPE AND ASIA-PACIFIC AT A GLANCE Research

HOW MANY PI(I)GS ARE IN YOUR ETF? Structuring

FIRST ETF LISTED IN THE EMIRATES

Contents 3 EDITORIAL 13 MARKET PLACE

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

6 SECTOR MAP

Global ETF news and selected market statistics at a glance.

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

14 AMERICAS

7 COVERSTORY

15 EUROPE

Investing in European Country ETFs without the hassle. Why Switzerland and Spain are charming investment targets.

16 MIDDLE EAST & ASIA-PACIFIC

9 INSIGHTS &

ALLOCATOR SECTOR UPDATE

STRATEGY

17 PORTFOLIO Golden times for tactical investors: SPDR Gold ETF.

Bella Figura for ETFs in Italy. Latest insights about the Italian market and its structure.

21 STRUCTURING First ETF listed in the Emirates

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

19 RESEARCH

11 Building efficient portfolios

How many “PI(I)GS” are in your ETF?

using ETPs. What are the key benefits of the Lipper’s optimal indices?

COMPANY AND INSTITUTIONS-INDEX (Name, page)

Abu Dhabi Stock Exchange AltaVista Research Amundi Barclays Capital Bellwether Investment Management BMO Fin. Grp. Borsa Italiana BP Claymore Comstage Cydinar Sdn Bhd DB x-trackers Dow Jones ETF Securities

ETF Radar Magazine | Issue 3rd Quarter 2010

21 16 5 14 14 5 9 4 5 5 16 5 6 14

Federal Financial Markets Service HSBC Lipper Lyxor NYSE Liffe Proshares S&P Societe Generale Source U.S. One UBS

15 5 11 5 15 5 7 5 15 4 5

Editorial CONTACTS & INFORMATION

More global than ever...

his issue of the ETF Radar Magazine is probably the most global focused issue ever. Most readers know that we cover a broad range of very interesting topics and try in each issue to refine our true global approach. In this issue we start in Europe, move forward to the Gulf region and finally we end in the US market. Our coverstory explains why you should consider to invest in Spain and Switzerland. (Just a short notice in case you are wondering about the European Union flag on our coverpage : No, Switzerland is not a part of the European Union...even if the EU joined the recent negotiations in Libya in order to liberate the Swiss hostage, Mr. Göldi.)

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 (USA) EUROPE, MIDDLE EAST and ASIA-PACIFIC eMail: europe.asiapacific@etf-radar.com Phone: +41 43 233 5658 Mailing address: Melchrütistr. 13 8304 Wallisellen (Switzerland)

Within our “Insights&Strategy” section you will get a brilliant insight about what’s going on in Italy’s ETF market. It seems that despite all negative media and press coverage about the Italian fiscal situation, the ETF market is booming in Europe’s south. There could also be a shift of Italian investors, which used in the past heavily leveraged structured products to participate on tactical market movements, from these products to leveraged ETFs or ETCs. Also you will learn about the advantages of “SmartGrowth Funds” could offer and how the Lipper optimal indices will work for better investment results.

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

Read also about the background and structure of the first ETF listed in the Emirates, which will becoming a very interesting region for the ETF business soon. Finally, you should not miss our current research article and the question “How many PI(I)GS are in your ETF?”

WEBSITE www.etf-radar.com ISSN 2150-9166

Enjoy reading,

a rti n

Ra a b

Global Publisher martinraab@etf-radar.com

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Snapshots THE WORLD’S LARGEST ETF INDEX PROVIDERS

NEWCOMER

(Sorted descending by Assets-under-Management; Data as of May 31, 2010)

MSCI, 23.1% S&P, 23% Barclays Capital, 9.7% Russell, 6.5% FTSE, 4.1% STOXX, 3.9% Dow Jones, 3.8% Markit, 3.5% Deutsche Boerse, 2.7% NASDAQ OMX, 2.5% Topix, 1.3% Hang Seng, 1.2% Nikkei, 1.1% EuroMTS, 1% NYSE Euronext, 0.8% SIX Swiss Exchange, 0.6% CAC, 0.6% WisdomTree, 0.5% Indxis, 0.4% Intellidex, 0.2% BNY Mellon, 0.2% Morningstar, 0.2% S-Network, 0.1% Zacks, 0.1% Value Line, 0% Other, 9% Sources: BlackRock ETF Research and Implementation Strategy Team and Bloomberg as of May 31, 2010

UP & DOWN

Lena Meyer-Landrut the winner of the 2010 Eurovision Song Contest presented with her song "Satellite" an upbeat, catchy pop song – and finally edging out the candidates from Turkey and Romania. Lena, who turned 19 during the competition in Norway, won 246 points in the voting by a panel of judges and telephone votes from fans in the 39 participating countries. The young girl is expected to earn € 250.000 from upcoming CD sales in the next months and further live events. Again, the big money will be done by German comedian and songwriter Stefan Raab. His music production company holds the intellectual property rights of the awardwinning song and will receive most of the sales revenues. Also remarkable, oil-rich Norway spent $31 million to host the elaborate songfest.

ETF Radar Magazine | Issue 3rd Quarter 2010

NEVADA ASSET MANAGER: ONE ETF IS ALL YOU NEED U.S. One Inc., a newcomer from the dusty desert of Nevada has popped up, offering a fund-of-fund ETF designed to offer exposure to global equity markets. The vehicle has been named “One Fund” (ONEF) and currently consists of five ETFs, including four Vanguard products and one iShares ETF. U.S. One, Inc. is a SEC registered investment advisor and the goal of its new ETF is to provide all of an investor's equity needs via a single fund-offunds ETF that holds approximately 5,000 global equities. They charge 35 bps for management and acquired fund costs of the underlying ETFs adds another 16 bps for a total expense ratio of 0.51%. As such, ONEF appears to be primarily geared towards buy-and-hold investors. U.S. One is expected to launch a second ETF within the next months. This one will – guess what – track fixed income assets within one ETF. We will stay tuned about One Star’s growing ETFfamily.

Tony

Hayward the Group Chief Executive of BP plc definitely still has the hottest chair on earth. It’s expected that he will get fired – or will resign by itself soon. The oil company and the owner of the exploded oil rig, Transocean Ltd., are blamed for the biggest natural catastrophe America has ever seen. Some days ago, oil spilled onto the shore of the Florida Panhandle, an indication that the BP oil spill is still a national threat. Animals and people along America’s South coast will suffer from this apocalypse at least 10 years or longer. The total amount of claims against BP is expected to reach 12 billions (or much more) by end of this year. Analysts expect that BP could become acquired by a competitor soon, as since the April 20 close the stock has lost an awesome $ 73 billion in market capitalization.

Market Summary

THE GLOBAL MARKETS AT A GLANCE GLOBAL TOP 10 BEST PERFORMING EXCHANGE TRADED PRODUCTS (Year-to-Date performace in percent, base currency USD, market capitalization in million USD)

Rank 1

Name UBS Nickel ETC

YTD

1 Year

Mkt. Cap.

Price

201.82

131.91

n/a

568.00

PowerShares DB Agri. Dbl. Short ETN

195.97

58.46

10.92

54.64

PowerShares DB Metals 2x Short ETN

160.33

-39.38

10.84

24.04

MarketVector Double Short Euro ETN

121.45

35.58

106.57

58.87

ProShares UltraShort Euro ETF

121.55

34.69

558.70

26.33

Direxion Daily Dev. Mkt. Bear 3x ETF

97.49

-33.51

25.15

20.39

ZKB Gold EUR ETF

89.30

44.87

605.19

1,236.00

Direxion Daily 30Y Treasury Bull 3x ETF

88.28

26.68

12.07

40.10

Direxion Mtly. Dev. Mkts. Bear 2x ETF

86.15

-15.16

4.57

20.35

ProShares UltraShort MSCI Europe ETF

78.78

n/a

177.41

27.99

GLOBAL EXCHANGE TRADED FUND FLOWS

GLOBAL TOP 10 MOST ACTIVE ISSUERS

(Net New Flows by region in USD bn.)

(Launched ETFs/ETCs in May and June 2010)

}

Rank

+5.5 +4.4 +2.6 â&#x20AC;&#x201C;0.8

+14.1 billions Net New Flows YTD

+2.4

YTD-FEB 2010

Name

Fund Type

Sector

BMO Fin. Grp.

ETF

Various

Claymore

ETF

Various

DB x-trackers

ETC

Commodities

Lyxor

ETF

Equity Indexes

Proshares

ETF

Equity Indexes

Comstage

ETF

Various

Societe Generale

ETC

Commodities

Amundi

ETF

Various

HSBC

ETF

Equity Indexes

UBS

ETF

Various

2009 -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

Sources: Bloomberg, BlackRock, ETF Radar Global Research | Data as of June 7, 2010.

NUMBER CRUNCHER

200

Number of ETFs currently filed with the SEC

73.000.000.000 Estimated market capitalization in US Dollars, BP plc lost since April 20, 2010

64% of adults in Germany would support a reintroduction of the German Mark

Sources: Bloomberg, BusinessWeek, ETF Global Research | Data as of June 7, 2010.

ETF Radar Magazine | Issue 3rd Quarter 2010

Sector Map

THE GLOBAL SECTOR TITANS AT A GLANCE DOW JONES SECTOR TITANS INDEXES (Sector performace in percent – Year-to-date in USD)

Official Index Partner SM

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 –16.65%

Financial Services

–7.32%

–13.39%

Automobiles & Parts –6.87%

Oil&Gas –17.43%

Banks –17.67%

Insurance –15.96%

Health Care

–14.26%

Real Estate

Basic Resources –18.01%

Utilities –18.45%

Chemicals –14.36%

Telecommunications –14.30%

Food & Beverage

Technology –8.07%

–9.56%

Personal & Household Goods

Industrial Goods & Services

–5.78%

Retail

–5.71%

–4.90%

Media

Source : Dow Jo nes Ind exes a s of

–3.71%

Travel & Leisure

26 Feb ruary 2 010.

+5.25%

BEST PERFORMING SECTORS Index Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones Dow Jones

3 Month Utilities Titans 30 Index Price Return (USD) Basic Resources Titans 30 Index Price Return (USD) Banks Titans 30 Index Price Return (USD) Oil & Gas Titans 30 Index Price Return (USD) Construction & Materials Titans 30 Index Price Return (USD) Insurance Titans 30 Index Price Return (USD) Chemicals Titans 30 Index Price Return (USD) Telecommunications Titans 30 Index Price Return (USD) Financial Services Titans 30 Index Price Return (USD) Health Care Titans 30 Index Price Return (USD) Food & Beverage Titans 30 Index Price Return (USD) Technology Titans 30 Index Price Return (USD) Real Estate Titans 30 Index Price Return (USD) Automobiles & Parts Titans 30 Index Price Return (USD) Personal & Household Goods Titans 30 Index Price Return (USD) Industrial Goods & Services Titans 30 Index Price Return (USD) Retail Titans 30 Index Price Return (USD) Media Titans 30 Index Price Return (USD) Travel & Leisure Titans 30 Index Price Return (USD)

-13.01% -17.95% -17.25% -14.92% -13.52% -15.50% -13.76% -9.75% -13.32% -13.24% -8.57% -6.68% -6.73% -5.17% -9.87% -9.96% -7.87% -5.45% -0.21%

YTD -18.45% -18.01% -17.67% -17.43% -16.65% -15.96% -14.36% -14.30% -14.26% -13.39% -9.56% -8.07% -7.32% -6.87% -5.78% -5.71% -4.90% -3.71% 5.25% Source: DJ Indexes as of June 7, 2010

ETF Radar Magazine | Issue 3rd Quarter 2010

Coverstory

Market volatility and sharp price declines in European securities have led to some investment opportunities. Exchange Traded Funds may be the best way to gain direct investment exposure to certain countries that are viewed as attractive. The latest top-picks are NonEU-Member Switzerland and “PI(I)GS”-state Spain.

INVESTING IN EUROPEAN COUNTRY ETFS WITHOUT THE HASSLE

BY KENNETH M. LEON, CPA | VICE PRESIDENT | S&P EQUITY RESEARCH | NEW YORK CITY, NY

uch has been written about Europe's financial dilemma, with several countries having uncertain economic and financial outlooks. On May 11, 2010, the European Union (EU) — agreed by the EU finance ministers, ECB central bankers, and International Monetary Fund officials— put up bailout money of up to € 750 billion that may be used for problem debt securities, specifically for Greece and potentially for some other publicized fiscally troubled countries like Portugal, Ireland, Spain and maybe Italy. This combination of troubled EU-countries has become well-known under the abbreviation “PI(I)GS”-states within the financial community and the international media.

Country Exchange Traded Funds as part of the tactical asset allocation It is appropriate to put an international country ETF security into the tactical or satellite part of a portfolio in order to provide focused exposure based on an investment theme such as geography, size, style or industry sector. A growing number of investors are looking to Exchange Traded Funds (ETFs) for selections in their portfolios. The investment appeal of ETF securities is generally their transparency, intraday liquidity and relatively low costs. Generally, ETF securities replicate market indices based on size, style and region.

The ETF Screener Clearly, monetary centralization by the EU backed by one What constitutes a quality ETF security is often times in currency, the euro, has not been able to restrain the fiscal the eye of the beholder, but using S&P's ETF Screener policies for many of its member countries. And some allows an investor to drill down for selections based on doomsday observers believe the c reation of the EU and defined criteria, which in this case included equity ETFs its backed euro may be for developed and emerging coming apart like the security markets in Europe under all system at Jurassic Park. In “There were two country ETFs with S&P Overall ETF Ranking our opinion, however, the an Overall Ranking of Overweight: categ ories (Overweight, capital markets sometimes iShares MSCI Switzerland Index Fund Marketweight, Underweight, overreact and rational minds Not Ranked). may see that policymakers and iShares MSCI Spain Index Fund.” are working to stabilize the The S&P ETF Screener EU currency and trade position at large. As ETF analyst identified 14 country ETFs and two emerging market with Standard & Poor's, I believe that market volatility ETFs for Europe. As of May 26, 2010, there were two and sharp price declines in European securities have led ETFs with an Overall Ranking of Overweight; the to some investment opportunities. In my opinion, ETF iShares MSCI Switzerland Index Fund (EWL $ 20 securities may be a way to gain investment exposure to Overweight) and iShares MSCI Spain Index Fund (EWP certain countries that are viewed as attractive using S&P's $ 31 Overweight). There were also 11 ETFs with an Overall Ranking of Marketweight, zero ETFs with » ETF holdings-based methodology. ETF Radar Magazine | Issue 3rd Quarter 2010

Coverstory

Underweight rankings, and three Exchange Traded Funds with rankings not available from S&P. Switzerland as investment opportunity EWL seeks to track the price performance of the underlying holdings in the MSCI Switzerland Index. S&P uses three broad input categories (Performance Analytics, Risk Considerations and Cost Factors) to calculate the S&P Overall ETF Ranking for EWL. This ETF recently had a dividend yield of 1.4%, below the S&P 500 Index, which had an indicated yield of about 1.8%. The inception date for EWL is March 12, 1996, and it has 17.75 million shares outstanding and a 52-week price range of $17 to $23. Total assets were $380 million as of May 26, 2010.

“Market volatility and sharp price declines in EU securities have led to some investment opportunities.” I believe EWL's top holdings will benefit from improving economies in developed markets as well as from faster-growing economies in emerging markets, since many of the ETF's holdings are multi-national companies that derive revenue and profits from outside the U.S. market. S&P GIC Sectors: EWL has high industry sector concentrations in Health Care (30.3% as of March 31, 2010), Consumer Staples (20.2%) and Financials (20.9%). These three GICS Sectors were 71.4% of the ETF's total assets. Top 10 ETF Holdings:

EWL has a high concentration of multi-national companies in its holdings, with three stocks ranked 5STARS (Strong Buy) by S&P, three ranked 4-STARS (Buy), and four ranked 3-STARS (Hold). The Top 10 ETF Holdings comprised 72.8% of the ETF's total assets. EWL would be an attractive ETF as a defensive selection in a stock portfolio that offers industry concentration in some stable businesses. Spain’s charm For investors that also want a country ETF for exposure to Europe, but with a higher yield, iShares MSCI Spain Index (EWP) may fit the bill. This ETF recently had a dividend yield of 5.1%, with high industry concentrations in Financials (43.2% of assets as of March 31, 2010), Telecom Services (18.4%), Utilities (12.3%), and Industrials (11.1%). Total assets were $189 million as of March 31 and the Exchange Traded Fund had a March 12, 1996 inception date. EWP's Top 10 ETF Holdings comprised 75.5% of the ETF's total assets. Its top 2 holdings are multi-national leaders in their respective industries Banco Santander SA (STD $10 *****), which accounted for 22.7% of the ETF's total holdings as of March 31, and Telefonica SA (TEF $56 ****), which accounted for 18.3%. In addition, EWP's Top 10 Holdings had a composite S&P Quality Rank of B+ (average), which assesses the growth and stability of a company's earnings and dividends. As with all investments, investors should look to make selections that are suitable for their investment objectives and risk profile. 

ETF Radar Magazine | Issue 3rd Quarter 2010

SUCCESS IS A QUESTION OF USING THE RIGHT TOOLS. The ETF Radar Magazine is now offering various advertising and direct marketing solutions. Make your hole-in-one today! Call 239 384-6090 or send an email to magazine@etf-radar.com

Insights&Strategy

A Deloitte survey of European institutional investors found Italy, the UK and Switzerland have the highest appetite for index related investments with 61% of respondents in Italy showing a preference for ETFs. Recently, the total ETF turnover in Italy crossed the mark of 24 bn. EUR and investors' growing demand is luring issuers, index providers and asset managers. © Tom Benson

BELLA FIGURA FOR ETFS IN ITALY

BY MARCO CIATTO | MANAGING DIRECTOR | ETF CONSULTING | MILAN

ccording to the Federation of European Securities Exchanges and London Stock Exchange Group data, at the end of April 2010 Borsa Italiana was still the third ETF Exchange in Europe in terms of traded countervalue and the first in terms of negotiated contracts. At the end of May 2010, there are 420 ETFs and 67 ETCs listed on ETFplus, the market of Borsa Italiana where all Exchange Traded Products are traded since Aprile 2007 (the first 3 ETFs were launched on September 30, 2002, however). As of April 30, 2010, according to ETF Consulting, 133 ETFs (32%) use a complete or sampling physical replication (cash based fund) while 285 ETFs (68%) use a synthetic replication (swap based fund), but in terms of total European assets cash based ETFs own € 50,65 billion (47%) and swap based ETFs own € 57,94 billion (53%). How the Italian market is structured All listed ETFs are UCITS III compliant and traded in Euro, at present, and are listed on the “ETF Structured” segment if linked at short, double short and leveraged benchmarks or covered call/protective put benchmarks, otherwise they are allocated on the “ETF Standard” segment. There are 10 different ETF providers on ETFplus, whose one (ETF Securities) is also the only ETCs provider, that will rise at 11 very soon (UBS AG is about to debut with 16 new ETFs), and 14 are the authorized market makers and liquidity providers.

Depository for all financial instruments – at the end of April 2010 comes to € 16 billion and € 1.44 bln respectively, according to Borsa Italiana, that are about the 9% and 11% of the total European ETFs and ETCs AuM. In the first four months of the year, the total AuM rise was already impressive, about 18.8%, and year-to-year was about 31,6%. As of April 2010, the ETFs AuM was mainly concentrated on equity developed markets (35.9%), bonds (31.2%) and equity emerging markets (22.7%), that gained about 80% of market share in one year, in spite of bond ETFs that decreased by 27%, while equity developed markets were flat. The leading ETF providers in terms of AuM were: Lyxor, iShares and Deutsche Bank, with 85, 97 and 96 ETFs listed, respectively. Retail Investors dominate the ETF market The ETFs Italian market is clearly dominated by retail investors, who produce 85% of the trades but just about 25% of the turnover on Exchange as the average contract is 21,495 Euros, according to Borsa Italiana data from May 2009 to April 2010, while the average ETFs contract on Deutsche Börse AG, NYSE Euronext and London Stock Exchange during the same period is € 90,011, € 42,755 and € 59,628 respectively. That is why ETF providers are always more looking at Borsa Italiana to cross-list their funds, because even small trades, when many, help the market liquidity to grow and to tighten the spreads. For over an year, year and half, in the top five traded ETFs – both in terms of »

“The current ETF AuM in Italy comes to € 16 billion – and will still grow.”

The ETFs and ETCs assets under management (AuM) held by Monte Titoli – the Italian Central Securities ETF Radar Magazine | Issue 3rd Quarter 2010

Insights&Strategy

contracts and turnover – there are at least two or three leveraged or double short funds permanently. In 2009, according to Société Générale, short, double short and leveraged ETFs that amounted to more than a third of the whole ETFs Italian market, produced yearly the 39% of the trades and the 35% of the turnover, and Lyxor was the first provider of this ETFs segment with a 76% market share. Lyxor, iShares and Deutsche Bank In the first four months of 2010, 8 of the top 10 traded ETFs in terms of turnover are issued by Lyxor and three of those are leveraged or double short funds linked to the Italian and German blue chip indexes, FTSE MIB and DAX, the other two are iShares ETFs linked to Euro Stoxx 50 and S&P 500 indexes. The other Lyxor ETFs are linked to FTSE MIB, Hang Seng China Enterprise, EuroMTS Eonia, MSCI India and Euro Stoxx 50 indexes. In April 2010, Lyxor ETFs gained the 65% of trades and the 58% of turnover, followed by iShares ETFs and Deutsche Bank ETFs with the 24% and 8% of trades and the 25% and 14% of turnover, respectively.

“The average spread of the Top-10 traded ETFs was as small as 9.5 bps.” These 278 of 419 ETFs listed on Borsa Italiana gained the 96% of both the total trades and total turnover. Well known institutions acting in the Italian market The liquidity of all ETFs listed on the ETFplus market is guarantee by at least one Specialist (a market maker designated by the issuer) that must be compliant at the rules of minimum securities exposed (Exchange market size) and maximum spread bid/ask fixed for each ETF by Borsa Italiana and that varies depending from the benchmarks components. The leading ETF Radar Magazine | Issue 3rd Quarter 2010

Specialists are UniCredit Bank, Banca Imi, Société Générale and Deutsche Bank/x-trackers, and the main liquidity providers besides UniCredit and Banca Imi are Susquehanna International Securities, Flow Traders and Madison Tayler Europe. According to Borsa Italiana, in the first four months of 2010 the average

warrants and certificates linked to Italian and foreign indexes listed on SeDeX market of Borsa Italiana, that reached a total turnover of € 3.39 billion while 418 ETFs listed on ETFplus reached a total turnover of € 21.67 billion, about seve times more with less of a third of products. There is just one only occasion where I

TURNOVER AND TRADE VOLUME (MILAN STOCK EXCHANGE) (in EUR bn.)

20,000

350

18,000

315

16,000

280

14,000

245

12,000

210

10,000

175

8,000

140

6,000

105

4,000

2,000

35 0

0 2005

2006

2007

2008

Turnover Daily Average (EUR million)

2009

2010

Daily Trades

Sources: ETF Consulting, Borsa Italiana/LSE Group, ETF Radar Global Research as of June 4, 2010.

spread1 of the Top-10 traded ETFs was as small as 9.5 basis points. Still growing demand for passive index investments It is clear from the reading of AuM and turnover data that in Italy the users of ETFs are growing month by month, from both the institutional (fund of funds managers, asset managers, hedge funds, private banks) and retail side, that includes independent financial advisors, who are still waiting for the IFA register and that can give a strong acceleration at the diffusion of ETFs in the Italian market.

should use a certificate instead than an ETF: if I have to compensate some capital loss resulted from equities trading, because it is not allowed to do with ETFs (except for the least part), as they are funds.  1) Calculated by ETF Consulting as the arithmetic average of the spreads. Spreads are calculated by Borsa Italiana and obtained from 5 minutes snapshots of the trading book (5 levels) as the difference between bid and ask prices divided by the mid quote at which it was possible to buy and sell simultaneously an amount equal to € 25,000; spreads are than weighted on the Aum deposited in Monte Titoli.

Finally, ETFs seem to have no real competitors after more than 7 years of strong growth. At the end of April 2010, there were 1,509 covered

Coverstory Insights&Strategy

Meanwhile investors have the ability to invest nearly in all regions of the world. The only challenge is to choose the right asset allocation framework – but it seems that there is a suitable solution for this issue.

BUILDING EFFICIENT PORTFOLIOS USING ETPS

BY KEVIN D. MAHN | CHIEF INVESTMENT OFFICER | HENNION & WALSH ASSET MANAGEMENT | PARSIPPANY, NJ

n extreme test like the one that we were presented with in 2008 shows just how well a target-risk methodology using exchange-traded products can hold up when downside volatility is at its fiercest. However, in my opinion the main reason for this downside protection ability is not just due to an efficient target-risk methodology but is also attributable to the evolution of the Exchange Traded Products marketplace itself. For example, we now have Exchange Traded Products (ETPs) that allow an investor to go long or short a given asset class or sector on a leveraged or unleveraged basis. Through ETPs, we now also have the ability to access different commodity markets and different foreign currency markets. We have the ability to access the fixed income markets both on a taxable and tax-free basis through Exchange Traded Products. Finally, we now have the ability to look overseas and access developed markets and emerging markets. Within these international markets, we can even go further to access different sectors within those international markets through different ETPs. What an evolution indeed! Packaged product solution Consider that back in 1995, there were only two Exchange Traded Products even in existence, and now, according to the Investment Company Institute as of April 2010, there are over 865 that allow investors to access virtually any asset class or sector within the market that they want on a transparent, tax-efficient and relatively low-cost basis. The question then becomes, for individual and professional advisers, how best to assemble the various ETPs to meet each of their client objectives. In this regard, I encourage ETF Radar Magazine | Issue 3rd Quarter 2010

each of these advisers, or individual investors to consider our SmartGrowth Mutual Funds, which could provide them with a packaged product solution to access the different ETPs available in the U.S. markets. The SmartGrowth Mutual Funds pursue an investment strategy that utilizes exchange-traded funds (ETFs) and exchange-traded notes (ETNs) in an asset allocation framework to provide investors with opportunities for risk-adjusted returns based upon their own appetite or tolerance for risk. The SmartGrowth Mutual Funds consist of a conservative fund (LPCAX), a moderate fund (LPMAX), and a growth fund (LPGAX). Within those strategies are different combinations of ETFs and ETNs

“A target-risk methodology using exchange-traded products can hold up when downside volatility is at its fiercest.” that are arranged to provide for optimal growth while staying within a certain band of risk that is measured by standard deviation. We, at Hennion & Walsh Asset Management, do not pick the Exchange Traded Products for the portfolios but rather track the ETPs that are in the associated Lipper Optimal Indices. You see, the SmartGrowth Mutual Funds are essentially index-tracking funds in that they attempt to track the Lipper Optimal Indices. Lipper, a Thomson Reuters company, is one of the most recognized mutual fund and ETPs research companies in the world and we at Hennion & Walsh Asset Management have an exclusive arrangement with Lipper such that no other company in North America can launch a mutual fund based on the Lipper Optimal Indices. »

Insights&Strategy

PERFORMANCE COMPARISON (in USD)

LPCAX SmartGrowth Lipper OPT Cnsrv Index A LPMAX SmartGrowth Lipper OPT Moderate Index A

0% -10% -20%

-30% -40%

-50%

2010

2009

2008

2007

S&P 500

-60%

Source: Bloomberg as of June 8, 2010.

“Lipper uses a very interesting approach to selecting the ETPs for the portfolio each quarter.” Lippers’ Optimal Indices The Optimal Indices, and by default the SmartGrowth funds that track them, rebalance, or rather reposition, themselves each calendar quarter. The quarterly repositioning is one of the main premises behind the indices, as the Lipper methodology contends that a portfolio designed for diversified growth should be repositioned at least four times a year. Following this quarterly rebalancing mandate, the Lipper Optimal Indices use the last six months' worth of historical returns, the last six months' worth of correlations and the last six months' worth of standard deviation data to build a portfolio that they believe will provide an optimal blend of risk and return for the next three-month period for each associated range of risk. The best way to look at this strategy, I believe, is to think of it as a threemonth portfolio that is consistently rebuilt four times a year.

ETF Radar Magazine | Issue 3rd Quarter 2010

Lippers´ approach of portfolio selection With respect to portfolio composition, Lipper uses a very interesting approach to selecting the ETPs for the portfolio each quarter. They start by looking at ETPs that meet certain initial screening criteria, such as those ETPs that have been trading in the U.S. marketplace for at least six months. They then look for those ETPs that have a good amount of liquidity, which is currently defined as those ETPs with at least $1.5 million traded each day based upon an average of the three-month and six-month trailing volume averages. They also take into consideration those ETPs that have a high correlation to their underlying benchmark/index. In so doing, they are basically trying to find the passive vehicles that most closely track their underlying index. Finally, if Lipper comes across multiple ETPs for the same asset class or sector in the portfolio creation process, they will look to select the one with the lowest relative expense ratio after all other factors are considered. After the initial screening process has been completed, the field of ETPs, which, as stated previously, amounts to roughly 865 total ETPs right now, according to the Investment Company Institute, is narrowed down to approximately 250 to 260 ETPs. Lipper then runs a statistical routine called "factor analysis," which in layman's terms attempts to identify the smallest number of ETPs that explain the day-to-day behavior of the larger pool of remaining Exchange Traded Products. In turn, this narrows down the pool of ETPs to somewhere between 50 and 60 ETPs. Finally, following a modern portfolio theory (MPT) approach, Lipper runs a mean variance optimization (MVO) routine to arrive at three different distinct target risk-oriented portfolios actually five since they have five Optimal Indices to stay within a certain band of risk that they believe will help to provide for optimal risk adjusted return potential over the next threemonth period. While there is a case to be made for adding active managers in certain asset classes and sectors with a diversified portfolio strategy, I believe that it is now fair to say that an efficient portfolio can also be constructed and managed with ETPs alone. 

Marketplace

Global

TOP 25 ETF PROVIDER WORLDWIDE MAY 2010 PROVIDER

YTD CHANGE

#ETFs

AUM (BN)

%TOTAL

iShares

442

$481.2

46.1%

7.0%

-$7.7

-1.6%

-1.1%

State Street Global Advisors

110

$149.0

14.3%

2.8%

-$12.0

-7.4%

-1.3%

$104.4

10.0%

0.0%

$12.3

13.4%

1.1%

135

$42.9

4.1%

8.0%

-$3.5

-7.4%

-0.4% -0.3%

Vanguard Lyxor Asset Management

#PLANNED

#ETFs

%ETFs AUM (BN)

%AUM %MARKET SHARE

db x-trackers

154

$35.0

3.3%

27.3%

-$2.4

-6.4%

PowerShares

135

$34.6

3.3%

8.0%

$0.0

-0.1%

0.0%

$24.3

2.3%

26.9%

$1.1

4.7%

0.1%

ProShares Van Eck Associates Corp

$14.6

1.4%

8.7%

$2.1

16.8%

0.2%

Nomura Asset Management

$13.2

1.3%

0.0%

-$0.2

-1.2%

0.0%

Credit Suisse Asset Mgnt.

$10.0

1.0%

51.9%

$0.3

3.4%

0.0%

$8.8

0.8%

0.0%

$0.2

2.3%

0.0%

Bank of New York Zurich Cantonal Bank ETFlab Investment

$8.4

0.8%

75.0%

$1.7

25.0%

0.2%

$8.2

0.8%

6.5%

$1.2

16.4%

0.1%

WisdomTree Investments

$6.6

0.6%

-10

-19.2%

$0.1

2.1%

0.0%

Commerzbank

$6.3

0.6%

17.7%

$0.0

0.8%

0.0%

Claymore Securities

$6.3

0.6%

5.3%

$0.1

1.4%

0.0%

Direxion Shares

$5.6

0.5%

136

30.8%

$0.6

12.2%

0.1%

Amundi Investment Solutions

$5.6

0.5%

22.2%

$0.8

16.3%

0.1%

Hang Seng Investment Mgnt.

$5.6

0.5%

0.0%

$0.3

4.9%

0.0%

Nikko Asset Management

$5.4

0.5%

30.0%

-$0.3

-5.7%

0.0%

EasyETF

$5.2

0.5%

0.0%

-$0.6

-10.9%

-0.1%

Daiwa Asset Management

$5.2

0.5%

0.0%

$0.2

4.5%

0.0%

$4.9

0.5%

100.0%

$4.9

100.0%

0.5%

Harvest Fund Management UBS Global Asset Management

$4.4

0.4%

21.4%

$0.9

25.2%

0.1%

$3.7

0.4%

0.0%

$0.0

-0.8%

0.0%

China Asset Management

TOP 10 ETFS WORLDWIDE (ADV)

TOP 10 ETFS WORLDWIDE (TOTAL AUM)

(sorted descending by Average Daily Volume, in USD)

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

ADV ADV (US$ MN) ('000 Shares)

ETF

AUM (US$ MN)

ETF

AUM ADV (US$ MN) ('000 Shares)

ADV (US$ MN)

$41,717.6

370,707

$71,537.9

SPDR S&P 500

71,538

$370,707.4

iShares Russell 2000 Index Fund

$7,315.2

108,083

$13,677.0

iShares MSCI Emg. Mkts. Index Fund

33,628

$131,753.2

$5,090.2

PowerShares QQQ Trust

$6,856.0

147,641

$18,522.3

iShares MSCI EAFE Index Fund

32,193

$42,553.9

$2,119.5

iShares MSCI Emerging Markets Index Fund

$5,090.2

131,753

$33,628.3

Vanguard Emerging Markets

24,313

$22,777.2

$879.3

Financial Select Sector SPDR Fund

$2,591.1

170,376

$7,121.4

iShares S&P 500 Index Fund

21,791

$6,329.0

$713.5

ProShares UltraShort S&P500

$2,390.6

72,379

$3,441.7

iShares Barclays TIPS Bond Fund

20,131

$1,213.1

$128.7

iShares MSCI Brazil Index Fund

$2,264.0

35,407

$9,200.3

PowerShares QQQ Trust

18,522

$147,641.0

$6,856.0

SPDR DJ Industrial Average ETF

$2,162.4

20,647

$8,150.1

Vanguard Total Stock Market ETF

13,896

$2,814.8

$160.9

iShares MSCI EAFE Index Fund

$2,119.5

42,554

$32,193.0

iShares Russell 2000 Index Fund

13,677

$108,082.9

$7,315.2

Direxion Daily Financial Bull 3x Shares

$1,832.4

67,708

$1,536.8

iShares iBoxx $ Investment Grade CB Fund

12,461

$964.2

$102.3

SPDR S&P 500

$41,717.6

Sources: BlackRock ETF Research and Implementation Strategy Team, Bloomberg, World Federation of Exchanges as of May 31, 2010

In association with

ETF Radar Magazine | Issue 3rd Quarter 2010

BlackRock | ETF Research and Implementation Strategy Team Deborah Fuhr, Managing Director Murray House, 1 Royal Mint Court, London EC3N 4HH Tel +44 20 7668 4276 | deborah.fuhr@blackrock.com

Marketplace

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

Exchange

April-2010

Americas NYSE Euronext (US) NASDAQ OMX TSX Group Mexican Exchange BM&FBOVESPA Santiago SE Lima SE

# of ETFs Turnover YTD Trades YTD 1,085 1,310,140.9 69,417.9 71 365,699.3 11,768.0 160 38,349.2 3,512.5 284 27,539.3 81.3 7 1,180.6 43.3 25 4.1 0.1 4 0.6 0.0

June, 14 2010

+++NEWSRADAR+++

TOP 10 ETFS IN THE U.S. (TOTAL AUM)

+++NEWSRADAR+++

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

ETF

AUM ADV (US$ MN) ('000 Shares)

SPDR S&P 500

$71,537.9

370,707

iShares MSCI Emerging Markets Index Fund $33,628.3

ADV (US$ MN)

CANADA: Bellwether Adds “archerETF”

$41,717.6

131,753

$5,090.2

iShares MSCI EAFE Index Fund

$32,193.0

42,554

$2,119.5

Vanguard Emerging Markets

$24,313.0

22,777

$879.3

iShares S&P 500 Index Fund

$21,790.6

6,329

$713.5

iShares Barclays TIPS Bond Fund

$20,131.3

1,213

$128.7

PowerShares QQQ Trust

$18,522.3

147,641

$6,856.0

Vanguard Total Stock Market ETF

$13,895.7

2,815

$160.9

iShares Russell 2000 Index Fund

$13,677.0

108,083

$7,315.2

iShares iBoxx $ Investment Grade CB Fund

$12,460.8

964

$102.3

TOP 10 ETFS IN THE U.S. (ADTV)

Canada’s Bellwether Investment Management has added archerETF to its boutique investment management offering. Vikash Jain, a registered portfolio manager, will head archerETF, which will become a division of Bellwether. The new division will be able to leverage the scale of the Bellwether platform and its portfolio management team. Jain uses a proprietary tactical asset allocation model to decide a client’s asset mix, which is implemented using ETFs. USA: ETFS Physical Gold ETCs Rise To $11 billion

(sorted descending by Average Daily Trading Volumes, in USD) ADV ADV (US$ MN) ('000 Shares)

ETF SPDR S&P 500

AUM (US$ MN)

$41,717.6

370,707

$71,537.9

iShares Russell 2000 Index Fund

$7,315.2

108,083

$13,677.0

PowerShares QQQ Trust

$6,856.0

147,641

$18,522.3

iShares MSCI Emerging Markets Index Fund

$5,090.2

131,753

$33,628.3

Financial Select Sector SPDR Fund

$2,591.1

170,376

$7,121.4

ProShares UltraShort S&P500

$2,390.6

72,379

$3,441.7

iShares MSCI Brazil Index Fund

$2,264.0

35,407

$9,200.3

SPDR DJ Industrial Average ETF

$2,162.4

20,647

$8,150.1

iShares MSCI EAFE Index Fund

$2,119.5

42,554

$32,193.0

Direxion Daily Financial Bull 3x Shares

$1,832.4

67,708

$1,536.8

ETF Securities’ physical gold ETCs holdings have increased to $11 billion, Commodity Online reports. The commodities have seen a $186 million rise in inflows in the previous week. The total inflows received by the ETCs over the past two months have risen to $1.5 billion. Europeanlisted ETFS Physical Gold has received maximum weekly net inflows of $160 million, making it the largest gold ETC/ETF holding in Europe and second largest in the world. USA: Barclays Capital Will Launch Commodities ETNs iPath, the ETN-unit of Barclays Capital will launch a total of 19 commodities-related exchange-traded notes (ETNs) soon. The funds will focus on investment in agriculture, aluminum, cocoa, coffee, copper, cotton, energy, grains, industrial metals, lead, livestock, natural gas, nickel, platinum, precious metals, softs, sugar and tin.

Sources: BlackRock ETF Research and Implementation Strategy Team, Bloomberg, World Federation of Exchanges, ETF Radar Global Research as of May 31, 2010

ETF Radar Magazine | Issue 3rd Quarter 2010

Marketplace

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

April-2010 Europe # of ETFs Turnover YTD Trades YTD Deutsche Börse 651 77,378.8 661.5 NYSE Euronext (Europe) 529 47,214.5 691.2 London SE 444 43,193.5 362.3 Borsa Italiana 485 32,791.2 1,110.1 SIX Swiss Exchange 331 20,413.9 210.8 NASDAQ OMX Nordic Exchange 34 7,050.2 179.7 Oslo Børs 6 5,772.6 179.2 BME Spanish Exchanges 32 3,241.9 0.0 Athens Exchange 2 40.6 1.1 W iener Börse 22 30.0 0.6 Irish SE 14 7.8 0.3 Budapest SE 1 1.8 0.3 Ljubljana SE 3 0.1 0.0

June, 14 2010

+++NEWSRADAR+++

TOP 10 ETFS IN EUROPE (TOTAL AUM)

+++NEWSRADAR+++

(sorted descending by Assets-under-Management, in USD) AUM ADV (US$ MN) ('000 Shares)

ETF

4,418

ADV (US$ MN)

Lyxor DJ Euro STOXX 50

$7,117.8

iShares DAX (DE)

$7,009.8

3,885

$266.1

iShares S&P 500

$6,750.8

9,112

$101.0

ZKB Gold ETF (CHF)

$6,123.1

$48.2

iShares FTSE 100

$4,673.2

17,084

$129.3

iShares EURO STOXX 50

$4,262.4

5,873

$193.8

iShares Markit iBoxx Euro Corporate Bond

$4,127.7

165

$24.9

ETFlab DAX

$4,047.2

195

$14.0

iShares DJ EURO STOXX 50 (DE)

$3,957.9

3,526

$116.4

iShares MSCI Emerging Markets

$3,586.7

1,340

$47.8

TOP 10 ETFS IN EUROPE (ADTV) (sorted descending by Average Daily Trading Volumes, in USD) ADV ADV (US$ MN) ('000 Shares)

ETF

FRANCE: NYSE Liffe has unveiled options on five ETFs

$146.0

AUM (US$ MN)

iShares DAX (DE)

$266.1

3,885

iShares EURO STOXX 50

$193.8

5,873

$7,009.8 $4,262.4

Lyxor DJ Euro STOXX 50

$146.0

4,418

$7,117.8

iShares FTSE 100

$129.3

17,084

$4,673.2

iShares DJ EURO STOXX 50 (DE)

$116.4

3,526

$3,957.9

db x-trackers Euro Stoxx 50 ETF

$116.4

3,392

$2,663.0

db x-trackers DJ EURO STOXX 50 Sht. ETF

$115.8

2,530

$677.9

iShares S&P 500

$101.0

9,112

$6,750.8

Lyxor ETF XBEAR CAC 40

$92.3

1,372

$245.5

db x-trackers DAX ETF

$90.9

1,218

$2,179.3

NYSE Liffe, which is the global derivatives business of the NYSE Euronext group, has launched options on the Lyxor ETF Stoxx 600 Banks, Lyxor ETF Stoxx 600 Oil & Gas, Lyxor ETF Stoxx 600 Basic Resources, Lyxor ETF Stoxx 600 Telecommunications and Lyxor ETF China Enterprise. The options are being launched on the Paris derivatives market. RUSSIA: Regulator’s approval for ETFs expected soon Investors are looking forward to a plan by the Russian government to lift its ban on exchange traded funds next year, according to Russian business daily Vedomosti. The head of the Federal Financial Markets Service, Vladimir Milovidov, has confirmed to the newspaper that the regulator has drafted legislation to permit forming ETFs and trading in them. “We expect that not only index ETFs but also funds with other instruments will be traded in the Russian market,” he said. UK: Source ETCs crossed €500 million AuM The total assets in Source’s exchange-traded commodities (ETCs) platform have crossed €500 million since its launch in April last year. The size of the platform has doubled since the start of this year. Source listed 27 U.S. Treasury-Bill secured ETCs on Deutsche Börse’s Xetra and one physical gold physically secured ETC on the London Stock Exchange in 2009. The Treasury ETCs are designed to track the S&P GSCI family of commodity indices.

Sources: BlackRock ETF Research and Implementation Strategy Team, Bloomberg, World Federation of Exchanges, ETF Radar Global Research as of May 31, 2010

ETF Radar Magazine | Issue 3rd Quarter 2010

Marketplace

Middle East & Asia-Pacific (ex Japan) MIDDLE AND FAR EAST EXCHANGES AT A GLANCE (sorted descending by total turnover, in USD mn.)

April-2010 Asia - Pacific # of ETFs Turnover YTD Trades YTD Shanghai SE 6 20,548.3 2,470.0 Hong Kong Exchanges 61 19,497.1 679.4 Korea Exchange 57 7,495.3 2,124.9 Shenzhen SE 3 7,064.6 869.9 Taiwan SE Corp. 14 1,905.6 254.3 Australian SE 31 1,366.4 n/a Singapore Exchange 62 984.7 n/a National Stock Exchange India 19 467.1 382.8 Bombay SE 21 45.1 50.9 The Stock Exchange of Thailand 3 41.0 29.6 New Zealand Exchange 6 21.6 521.5 Bursa Malaysia 3 6.0 1,298.0 Indonesia SE 2 0.2 0.2

June, 14 2010

TOP 10 ETFS IN ASIA-PACIFIC (TOTAL AUM)

+++NEWSRADAR+++

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

+++NEWSRADAR+++

ADV (US$ MN)

ADV AUM ('000 Shares) (US$ MN)

iShares FTSE/Xinhua A50 CN Index ETF

$222.8

144,776 $6,200.5

China 50 ETF

$212.0

746,146 $3,236.1

E FUND SI100 INDEX FUND

$120.6

249,116 $1,391.2

ETF

SHANGHAI SSE180 INDEX FUND

$74.5

Samsung Kodex200 ETF

$43.6

856,863

2,434 $1,260.1

$34.8

Tracker Fund of Hong Kong (TraHK)

$35.3

13,677 $5,023.4

Hang Seng H-Share Index ETF

$32.9

China SME ETF

$27.0

74,277

$507.6

Samsung KODEX Leverage ETF

$23.6

2,850

$107.6

Polaris Taiwan Top 50 Tracker

$21.4

2,206 $2,438.8

13,666 $1,474.6

TOP 10 ETFS IN ASIA-PACIFIC (ADTV)

Cydinar Sdn Bhd, provider of consulting, shariah advisory and system infrastructure, proposes the setting up of Islamic Gold ETF for Malaysia on Bursa Malaysia. According to chief executive officer Mohd Zahari Osman, the Islamic Gold ETF (Shariah compliant) would gain huge demand from investors in Malaysia, including Muslims from different nations in East Asia. AUSTRALIA: AltaVista Research will offer analysis and research data on ASX-listed ETFs

(sorted descending by Average Daily Trading Volumes, in USD) ADV (US$ MN)

ADV AUM ('000 Shares) (US$ MN)

iShares FTSE/Xinhua A50 China Index ETF

$222.8

144,776 $6,200.5

China 50 ETF

$212.0

746,146 $3,236.1

E FUND SI100 INDEX FUND

$120.6

249,116 $1,391.2

ETF

MALAYSIA: Cydinar Proposes Islamic Gold ETF

SHANGHAI SSE180 INDEX FUND

$74.5

Samsung Kodex200 ETF

$43.6

856,863

2,434 $1,260.1

$34.8

Tracker Fund of Hong Kong (TraHK)

$35.3

13,677 $5,023.4

Hang Seng H-Share Index ETF

$32.9

China SME ETF

$27.0

74,277

$507.6

Samsung KODEX Leverage ETF

$23.6

2,850

$107.6

Polaris Taiwan Top 50 Tracker

$21.4

2,206 $2,438.8

United States-based ETF analysis firm AltaVista Research has launched its services in Australia and aims to secure research contracts with local banks. The firm partnered with Independent Investment Research (IIR) to form ETF Research Centre Australia, a new website specifically aimed at local financial planners. The service provides advisers with fundamental analysis on Australian Securities Exchange (ASX) listed ETFs in addition to descriptions and performance data.

13,666 $1,474.6

Sources: BlackRock ETF Research and Implementation Strategy Team, Bloomberg, World Federation of Exchanges, ETF Radar Global Research as of May 31, 2010

ETF Radar Magazine | Issue 3rd Quarter 2010

Portfolio Allocator Sector Update

Gold – virtually indestructible, this precious metal has been the source of countless fables and has mobilized the growth of nations and financial infrastructures worldwide. The SPDR Gold Shares (GLD) is currently the top ranked sector in our tactical ETF ranking. Tactical investors should consider an investment accordingly. © Tom Benson

GOLDEN TIMES FOR TACTICAL INVESTORS

BY DAVID COHNE | PRESIDENT | COHNE INVESTMENT GROUP | BOSTON, MA.

his is the third article in a series of ETF product reviews based on my proprietary ETF sector rankings. In the previous two articles, the iShares DJ U.S. Real Estate ETF (IYR) was ranked #1 but after an uninspiring month, it was bumped down into the second spot by the SPDR Gold Shares ETF (GLD). The SPDR Consumer Discretionary ETF (XLY) which we covered in the previous issue dropped from the second position down into the fourth position this month. Rounding out the top three is the iShares DJ U.S. Telecommunications ETF (IYZ). This issue we will be covering our top ranked sector, the SPDR Gold Shares ETF (GLD).

TACTICAL ETF RANKING RANK

SYMBOL

ETF

GLD

SPDR Gold Shares

IYR

iShares DJ U.S. Real Estate

IYZ

iShares DJ U.S. Telecom.

XLY

SPDR Consumer Discretionary

XLI

SPDR Industrials

XLP

SPDR Consumer Staples

XLU

SPDR Utilities

XLK

SPDR Technology

XLF

SPDR Financial

XLV

SPDR Health Care

IN THIS ISSUE

Source: Cohne Investment Group | March 2010 Ranking.

This ETF gives investors access to the gold market by reflecting the performance of gold bullion. The volatility and drop in the market over the last month in no doubt helped the fund jump up the rankings. Investors typically look to gold to help hedge their portfolios against market downturns. The GLD ETF was up 3.1% last month and 10.8% for the year, while the S&P 500 experienced an 8.1% drop for the month and a 1.6 drop for the year. The ETF gives investors an easy and indirect way of investing in gold. This ETF differs from the previous two ETFs we covered in that it there are no equity holdings within the ETF since it tracks the performance of a commodity, not an equity index.

billion. There are also other ETFs that also offer you exposure to Gold such as the ETFS Physical Swiss Gold Shares (SGOL), the iShares COMEX Gold Trust (IAU) and the PowerShares DB Gold ETF (DGL). In addition, the Market Vectors Gold Miners ETF (GDX) offers exposure to gold mining stocks. You could also achieve leveraged and/or inverse returns in gold with the ProShares Ultra Gold ETF (UGL) and the ProShares UltraShort Gold ETF (GLL). 

The ETF tracks the price of gold. The fund which trades on the New York Stock Exchange, was launched on November 12th, 2004. It boasts an expense ratio of 0.40% and has an average daily trading volume of 17 million shares. As of May 27th, the fund had over 416 million shares outstanding with net assets over $49

ETF Radar Magazine | Issue 3rd Quarter 2010

Portfolio Allocator Sector Update

FACTSHEET

SPDR GOLD SHARES FUND EXCHANGE TRADED FUND | TICKER: GLD | SECTOR: COMMODITIES

RISK-REWARD-ANALYSIS GLD Gold price (spot)

CUSIP

78463V107

Marginable

Yes

Short Selling Allowed

Yes

RETURN

Ticker Symbol Primary Benchmark

High

(based on an investment horizon of 12 months)

Options Available

Yes

Gross Expense Ratio

0.40%

Inception Date

11/12/2004

Investment Manager

SSgA

Management Team

SSgA Team

Distributor

State Street Gbl. Mkts.

Exchange

NYSE

GLD

Moderate

The Trust's allocated gold bullion is kept in the form of London Good Delivery bars (400 oz.) and held in an allocated account. The gold bullion is held by the Custodian, HSBC Bank USA, in its London vault or in the vaults of sub-custodians.

FUND PROFILE

Low

HOLDINGS

Low

Moderate

High

RISK

3 months

+8.85%

6 months

+2.51%

1 year

+23.31%

Since inception

+19.44%

Risk Parameters Standard Deviation: Sharpe Ratio:

22.01 0.75

2010

+9.21% +2.37%

2009

Year to date May 31 2010 1 month

2008

PERFORMANCE USD

130

120

110

100

70 Sources: Cohne Investment Group, SSgA, Bloomberg as of June 11, 2010

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 | Issue 3rd Quarter 2010

Research

HOW MANY “PI(I)GS” ARE IN YOUR ETF?

Institutional and private investors meanwhile own a hughe portion of European Sovereign Bond ETFs. Despite the often cited debt problems of some EU member states, still many investors are not aware of the “PI(I)GS-rate” in their ETF.

BY SEBASTIAN STAHN | RESEARCH DIRECTOR | ETF RADAR MAGAZINE | NAPLES/ZURICH

n the past bonds and especially government bonds were a very secure and risk averse investment with low volatility. But times changed and investors should know about their bond ETFs´ allocation.In the last month the market price of European Sovereign Bond ETFs was very volatile. But what was the reason for this? Soaring national debt within the Euro-zone After the financial crisis the economy recovered and equity markets performed strong in 2009. One reason was the low interest rate policy of the central banks around the world followed by the flood of liquidity on the market that had to be invested. The second reason for the strong recovery of the economy was the huge emergency packages of the governments to help the economy and prevent a massive drop. It worked at least for the economy, but for what price?

from 99.2% in 2008. The new indebtedness rates aren't better. Only Finland and Luxemburg were able to stable their new indebtedness rates below 3% in 2009. All other countries within the Euro-zone violated this Maastricht Criterion. Especially Greece with a new indebtedness rate of -13.6% to its GDP is in trouble. But also Ireland (14.3%), Spain (-11.2%), Portugal (-9.4%) and Italy (-5.3%) have to solve huge new indebtedness rates. These countries also called “PIIGS” either spent too much within the last years or were too easy in collecting taxes as e.g. in Greece.

The consequences Rating agencies started to downgrade struggling countries like Greece, Spain and Portugal. Especially Greece was hit very hard. It is no longer rated within investment grade (AAA to BBB-). Standard and Poor's downgraded the country to BB+, which means that its bonds are junk from now. Also Spain and Portugal were downgraded. Their Governments pumped money into the markets, formed Standard and Poor's rating was reduced to AA with economic stimulus packages and so rose their national negative outlook in the case debts massively. Especially of Spain and A- in in the Euro-zone countries “Only Finland and Luxemburg were Portugal's case. These violated the convergence able to stable their new indebtedness downgrades led to a sudden criteria of Maastricht. The jump in credit spreads and criteria say that a country's rates below 3% in 2009.” to a price drop of European national debt doesn't have Government Bond ETFs. to be higher than 60% of its The yield of a one year Greek bond rose partly above 20%. GDP. The second criterion is to hold the new Investors more and more mistrusted the Euro-zone and indebtedness rate lower or equal 3% of a country's GDP. especially the Euro. The European currency lost in value But which countries were able to observe these within the last month. To stop this currency devaluation requirements in the last few years? National debts rose in and to help struggling countries the EU and the IMF each country within the Euro-zone and are e.g. in Greece formed a rescue package of € 750 Billion. It calmed the and Italy even higher than the GDP. In Greece the national markets but the main question still is: Will the » debt rate compared to the GDP rose in 2009 to 115.1%

ETF Radar Magazine | Issue 3rd Quarter 2010

Research

“PIIGS”-states ever be able to pay back their debts? Of ourse we all hope that this question would not lead somedays to a monetary reform in the European Union. Some inofficial sources already proclaimed an upcomig “Euro 2” which should be officially introduced by the ECB in early 2011. Clearly, such rumors are more or less unrealistic but show how much fear from a collapse of some Eurozone members is in the market. If people invest in European Government Bond ETFs, they should have an own opinion regarding this question. The IBOXX € Sovereigns Eurozone Indices for instance are replicated by many ETF issuers. They have a fairly high allocation in “PIIGS” countries. Depending on the duration the indices have a “PIIGS” quota of 30% to 45%. An investor should know about these facts and check his ETF allocation. If there are any doubts in the reliability of Southern Europe maybe a swap in a German Government Bond ETF would be an option. DEBTS OF EURO-ZONE COUNTRIES (based on an investment horizon of 12 months)

Selected EU-Zone Countries

National debt compared to the GDP

New indebtedness rate compared to the GDP

2009 Italy Greece Belgium France Portugal Germany Austria Ireland Netherland Spain Finland Slowenia Luxemburg

116,00% 115,00% 97,00% 78,00% 77,00% 73,00% 66,00% 64,00% 61,00% 53,00% 44,00% 36,00% 14,00%

Inline with the Maastricht criteria

-5,30% -13,60% -6,00% -7,50% -9,40% -3,30% -3,40% -14,30% -5,30% -11,20% -2,20% -5,50% -0,70%

Violates the Maastricht criteria

Sources: European Commission, ETF Radar Global Research

Pssst: “PIIGS”-bonds used in swap collaterals A last thing we explicitly exclude from our research but briefly want to mention is the “PIIGS”-quote in the swap collaterals used in synthetic replicated Exchange Traded Funds. Synthetic, or swap-based, ETFs use a different structure compared to physical replication (”just buy and manage the ETF underlyings in a basket”) to reduce the tracking error, although they come with their own costs. Instead of holding the securities in the underlying index, a swap-based ETF holds a basket of securities as collateral to provide some safety for shareholders, and exchanges the performance of these securities with an investment bank counterparty for the performance of the reference index ETF Radar Magazine | Issue 3rd Quarter 2010

(swap mechanism). This structure does introduce a more or less significant counterparty risk as fundholders rely on the investment bank for the promised returns, as well as to post collateral on a daily basis. These swap collaterals in many cases include Eurozone Government Bonds and subsequently prominent names like “Republic of Greece” or “Tresoro España”. Hence, as already mentioned in the last issue of the ETF Radar Magazine, there is a clear risk but each shaky and propping security used as collateral usually shall be replaced within one day by the relevant swap counterpart. Only if the swap counterpart couldn’t deliver an equal substitute for the defaulted or troubled bond (mostly because of the institution itself is in trouble), the ETF investor will face a potential loss. The risk of a counterparty failing to make good on its swap contracts due to financial distress has become a real concern since the fall of Lehman Brothers in September 2008. Typically, the large banks that serve as counterparties are stable institutions, but the 2008 financial crisis proved that no company is immune to failure. The collateral that swap counterparties provide go a long way towards mitigating this risk, but it does not eliminate it completely, especially since there can be little transparency of what collateral the ETF actually holds on a daily basis. Because different providers have different policies for swap agreements it is very important that investors research the particulars when looking at ETFs. For instance, while UCITS III (”Undertakings for Collective Investments in Transferable Securities”) funds limit counterparty risk from swaps to 10%, most providers like Deutsche Bank x-trackers or Source ETF go even further to reduce risk by including overcollateralisation or multiple counterparties in their swap agreements. For more sophisticated investors, hedging is an option to reduce this risk by either buying CDS protection or out-ofthe-money put options on the PIIGS-states as well as on the swap counterparty. By doing this, you could eliminate the PIIGS-risks as well as all hidden counterparty risks – but such high-end hedging activities may not be really useful for retail investors. The easiest way to prevent any risk for them is clearly to check the ETF composition on the issuer’s website or databases like etf-info.com 

Structuring

FIRST ETF LISTED IN THE EMIRATES

In March 2010, National Bank of Abu Dhabi established the first ETF listed in the Emirates. The listing is a clear signal that this region will become a new hot spot for the ETF business. Get a greater insight on the ETF itself and its investment strategy, the challenges in establishing the ETF and focuses on questions as to why the ETF is structured as a UCITS and why domiciled in Ireland.

BY BRIAN KELLIHER | PARTNER | DILLON EUSTACE | DUBLIN

Index reflects the broad view of the UAE in a single index although represented exchanges are the Dubai Financial Market, Abu Dhabi Securities Exchange and Nasdaq Dubai. The Index is weighted by free-float market capitalisation. The weights of the individual components are capped to eight per cent of the Index. Components with weights of five per cent or more are restricted in aggregate to 40 per cent of the Index. Facing some challenges Before an application for authorisation of a UCITS may be considered by the Irish Financial Regulator, the latter must be satisfied that the promoter of the UCITS is The anatomy of the new ETF acceptable to it. In this regard, NBAD had little difficulty The investment objective of the Exchange Traded Fund in gaining approval given its status as the No. 1 bank in is to provide long term capital appreciation through the the UAE, its credit rating, its financial resources and replication of the perfordemonstrable and relevant track FUND FACTS mance of the Dow Jones UAE record in the promotion of 25 Total Return Index (Local). funds. NBAD OneShare Dow Jones UAE 25 ETF The ETF synthetically Underlying: Dow Jones UAE Total Return Index replicates the performance of The UCITS Directive imposes Index Sponsor: the Index through a fully two principal requirements Dow Jones Indexes/CME Group Index Services LLC funded total return swap. The where the asset management of Listing: Index comprises the 25 a UCITS is delegated to a third Abu Dhabi Securities Exchange (ADX) largest, most frequently traded party investment manager. Market Cap (Millions): USD 16.354 and liquid equity securities on Firstly, only investment managIssuer: the stock exchanges of the ers, who are authorised or National Bank of Abu Dhabi UAE, excluding foreign-listed registered for the purpose of Domicile: stocks. To be eligible for asset management and who are Ireland (UCTIS III) inclusion in the Index, subject to prudential superviLaunch date: securities must have a minision (equivalent to that in the March 25, 2010 Source: ETF Radar Global Research mum average daily trading E U ) m ay b e a p p o i n t e d . volume of US$ 500,000. Secondly, where a non-EU Initially the ETF will gain exposure to heavy weights such investment manager is appointed, there must be a form as Emirates Telecommunications Corp, First Gulf Bank, of co-operation in place between the Irish Financial Emaar Properties, NBAD and Dubai Islamic Bank. The Regulator and the supervisory authorities of the third » he Exchange Traded Fund, titled NBAD OneShare Dow Jones UAE 25 ETF, is a sub-fund of an Irish domiciled open ended umbrella collective investment scheme authorised as a UCITS by the Irish Financial Services Regulatory Authority (the “Irish Financial Regulator”). The United Arab Emirates Dirham Class of the ETF is listed on the Abu Dhabi Securities Exchange (the “ADX”) which constitutes the Arab world's second largest bourse by market capitalisation. Consequently investors may buy shares of the ETF through brokers registered with the ADX.

ETF Radar Magazine | Issue 3rd Quarter 2010

Structuring

country investment manager. Given NBAD, Asset Management Group was the first entity from the UAE seeking approval to act as an investment manager of Irish domiciled funds, it was inevitable that it would take some time before the Irish Financial Regulator became reasonably satisfied that NBAD was subject to prudential supervision equivalent to that of a credit institution in the EU. In addition, given it was proposed that NBAD, Financial Markets Division would act as the OTC counterparty to the fully funded total return swap entered into by the ETF, it was necessary to obtain the Irish Financial Regulator's approval for that entity to act as OTC counterparty. In this regard, the Irish Financial Regulator took comfort from » the facts that NBAD is the No. 1 bank in the UAE and from its rating of senior long term/short term A+/A-1 by Standard & Poor's, Aa3/P1 by Moodys and AA-/F1+ by Fitch giving it one of the strongest combined rating of any Middle Eastern financial institution. However, as a result of NBAD, Financial Markets Division acting as counterparty to the OTC swap, the ETF may not have any other direct exposure to NBAD or any related party of NBAD either through direct investments or through the receipt of collateral.

such equity share collateral represents 120% of the related counterparty risk exposure (i.e. a 20% “haircut”). Why Structure as a UCITS? 80% of Irish domiciled fund are UCITS. Todate all ETFs in Ireland have been set up under the UCITS regime. In this regard, NBAD followed in the footsteps of the major ETF providers such as iShares, db x-trackers, Lyxor, Source etc. in establishing the NBAD OneShare Dow Jones UAE 25 ETF as a UCITS fund. UCITS is a pan-European fund product which, once established in Ireland can be sold cross-border within the EU / EEA under a harmonised legislative framework without any requirement for additional authorisation. It is expected that the recently adopted UCITS IV Directive which is expected to be implemented into Irish law before July, 2011will dramatically simplify the cross-border notification process within the EU / EEA. In addition UCITS is a global brand recognised worldwide as a robust, wellregulated product attracting investment from within, and from a wide range of jurisdictions outside, the EU. For example, Hong Kong, Japan, Taiwan and many South American jurisdictions, as well as non-EU European jurisdictions such as Switzerland, readily accept UCITS

“National Bank of Abu Dhabi followed in the footsteps of the major ETF providers such as iShares, db x-trackers, Lyxor, Source etc. in establishing the NBAD OneShare Dow Jones UAE 25 ETF as a UCITS fund, domiciled in Ireland.” As stated above, the ETF gains exposure to the Index through a fully funded total return swap pursuant to which, the ETF delivered at inception an amount equal to the net asset value of the ETF to the OTC counterparty in return for which the ETF receives an equity amount based on the performance of the Index. However, in order to minimise the ETF's counterparty credit exposure to below 5% of the net asset value of the ETF, the OTC counterparty was required to transfer UCITS eligible collateral against the equity amount owed to the ETF. Acceptable collateral to the Irish Financial Regulator which may be posted with the ETF in order to reduce counterparty exposure includes cash; government or other public securities rated at least A by Standard & Poors; certificates of deposit issued by certain credit institutions where the certificates are rated at least with an “A” by Standard & Poors; and bonds/commercial paper issued by certain credit institutions and non-bank issuers where the issue and issuer are rated at least A by Standard & Poors; and equity securities traded on a stock exchange in the EEA, Switzerland, Canada, Japan, the United States, Jersey, Guernsey, the Isle of Man, Australia or New Zealand subject to an “add-on” such that the market value of any

ETF Radar Magazine | Issue 3rd Quarter 2010

for inward sale. As with any other UCITS product, NBAD OneShare Dow Jones UAE 25 ETF must comply with the various UCITS investment rules, including those relating to index replication. In this regard, the Index meets the applicable regulatory criteria on the basis that the weightings of the constituents of the Index are sufficiently diversified, the Index represents an adequate benchmark for UAE market and the Index is published in an appropriate manner. Why Ireland? Ireland is a major international fund domicile and administration centre, servicing assets worth €1.4 trillion in over 10,300 funds as of December 2009. Over 350 fund promoters from across five continents have chosen Ireland as their location to establish and service their investment funds. Irish funds are distributed to shareholders in over seventy countries, making Ireland a truly global hub for investment funds. In relation to ETFs, Ireland is a leading European fund domicile for internationally distributed ETFs. As of January 2010, total assets of European ETFs was Euro 157 billion of which Euro 44 billion represented Irish domiciled ETFs. 

Career&Events

GLOBAL RECRUITING SENTIMENT CURRENT JOB OFFERS

ACTIVE EMPLOYERS

(Total amount and global allocation of ETP relevant job offers)

(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 Africa South Africa

Rank

Offers

Trend

593 2



Country

Location(s)

BlackRock

USA

NYC/SFsco CA

Charles Schwab

USA

New York

Russell Investments

USA

SFsco CA

Morgan Stanley

USA

New York

Mitchell Martin

USA

New York

173 20 8 4

ETF Securities

USA

New York

2 2 2 3

JP Morgan Chase

USA

New York

Vanguard

USA

Pennsylvania

ProFunds Advisors

ENG

London

Citifocus

ENG

London

GLOBAL SALARY SCALE (Annual salary excl. bonus and additional incentives in USD)

TOTAL

Name

813

United States

NEW YORK METRO REGION $98,200 + 0%–25% Bonus Associate Exchange Traded Products Min. 77k – Max. 115k

$171,000 + 35–80% Bonus Vice President Exchange Traded Products Min. 91k – Max. 188k

CITY OF LONDON $92,700 + 0%–30% Bonus Associate Exchange Traded Products Min. 75k – Max. 113k

$139,000 + 20%–100% Bonus Vice President Exchange Traded Products Min. 87k – Max. 157k

GREATER ZURICH AREA $95,400 + 0%–30% Bonus Associate Exchange Traded Products Min. 78k – Max. 100k

$165,000 + 30%–90% Bonus Vice President Exchange Traded Products Min. 90k – Max. 177k

SINGAPORE $90,000 + 0%–40% Bonus Associate Exchange Traded Products Min. 65k – Max. 99k

$144,000 + 20%–100% Bonus Vice President Exchange Traded Products Min. 89k – Max. 155k

Canada

73%

Brazil United Kingdom Germany

United States

Brazil

Switzerland France UAE (Dubai)

21%

Singapore

United Kingdom

Hong Kong Australia South Africa

2% Germany Switzerland South Africa UAE (Dubai) Hong Kong Australia France Singapore

Sources: ETF Radar Global Research, eFinancialCareers, Michael Page Intl., Glassdoor Recruiting, Monster Inc., Robert Half Intl. as of May, 31 2010.

ETF Radar Magazine | Issue 3rd Quarter 2010

Career&Events

EVENT

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Calendar PREVIEW ON SELECTED EVENTS

JUNE

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The Art of Indexing Summit Asia

ETF Investments 2010

The Moneyshow

8 June 2010

12 – 15 July 2010

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Location

Singapore, The Fullerton Hotel

Singapore, Grand Copthorne Waterfront Hotel

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Organizer information

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Registration Fee

starting at 2,955 USD, discount for ETF Radar Magazine readers available upon request!

Complimentary for qualified investors

Multi-Asset Investing Conference

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SEPTEMBER ETF & Index Investment Summit Asia 21 September 2010 Location Hong Kong, JW Marriott Hotel

Organizer information

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http://www.wbresearch.com/etfs

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from 0 (as buy side visitor) ENDED

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from USD 895 (as sell side visitor)

Location Zurich, Hotel Baur au Lac

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OCTOBER ETF&Indexing Investments Europe 2010 11 – 13 October 2010 Location London, Marriott Hotel Grosvenor Square Organizer information www.terrapinn.com/2010/etf Registration Fee To be requested online, ENDED

EVEN

available upon request!

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

ETF Radar Magazine | Issue 3rd 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. 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 | Issue 3rd Quarter 2010

Over 100 Investors Confirmed.

F 10 Rad ET % a FR D r R M isc ea w ou de he nt rs n – bo ok in Buy-Side g te

–

Attend For Free If Register By 25 June

21 September, 2010 • JW Marriott Hotel, Hong Kong Hear key insights from some of the best in the business!

ETF & Index Investment Summit Asia Alexa Lam Deputy Chief Executive Officer, Policy, China and Investment Products, Securities and Futures Commission (Hong Kong)

Stuart Leckie Government Investment Advisor and Chairman, Stirling Finance

Douglas Eu CEO, Allianz Global Investors Asia Pacific

Leon Goldfeld CIO, HSBC Global Asset Management (Hong Kong)

Kevin Hardy, MD and Head of Global Investments, Asia Pacific, The Northern Trust Company

Leonardo Drago, Chief Investment Officer, AL Wealth Management

Deborah Fuhr, MD, Global Head of ETF Research and Implementation Strategy, BlackRock

Toshiaki Kamiya, Head of Product Development, Tokyo Stock Exchange

Joseph Ho, MD, Head of ETFs, Lyxor

Dan Draper, MD, Head of ETFs, Credit Suisse

Joseph Cavatoni, Managing Director, iShares Capital Markets, AsiaPacific, BlackRock

Andrew Crawford, Editor, ETFs Magazine

• • • • • •

Anson Su, President & Co-Founder, Shanghai Huarong Asset Management Hywel George, Partner, Integral Asset Management (UK) Gary Sum, Chairman & CEO, Swiss Capital Asia Ivan Woo, Trader, Algorithmic Trading Group, IMC Financial Markets Andrew Freyre-Sanders, Head of Client Electronic Execution, RBS Chris Choi, Senior Dealer, Prudential Asset Management

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Key Topics to be explored: • Analysis of recent developments from the leading investors and issuers – where are the buyers putting their money and why? • Chinese governments have recently permitted investment in foreign underlying ETFs for the first time. Will this sea-change in regulation open the floodgates and how do you ensure you are best positioned to maximize opportunities • Going beyond passive investment: Using ETFs as part of a Tactical Asset Allocation strategy • Sampling replication – challenges of using derivatives to re-create underlying baskets whilst avoiding tracking errors

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