Advisor friendly ETFs

Many advisors who work on commission likely haven’t thought of rolling exchange-traded funds into their clients’ portfolios. After all, why sell a product you don’t get paid for? But these structures are changing. As proof, look no further than Claymore Investments, set to introduce advisor-friendly ETFs. In August, seven new Claymore-run ETFs will start trading […]

By Mark Brown | July 25, 2006 | Last updated on July 25, 2006
4 min read

But clearly, ETFs are evolving. By Howard Atkinson’s count, Canada is entering phase three of the natural development of these products. As the head of business development at Barclays Global Investors Canada, Atkinson says the first phase was all about indexing, and in the second phase, money managers started creating a family of ETFs as an alternative to mutual funds.

We’re now into phase three, which means companies are trying to carve out new spaces for themselves rather than compete head-to-head. “Most of the major indices are spoken for so what do you do next, you launch sub-indices and sub-sectors,” Atkinson says. “How many S&P 500 ETFs does the world need?”

In the U.S., some companies are putting this structure to the test — call them über-niche ETFs, if you will. For instance, PowerShares Capital Management already divides the health-care space into biotechnology and pharmaceuticals.

Ferghana-Wellspring, a newly sprung affiliate of Ferghana Partners, an American firm specializing in life-science mergers and acquisitions, divestitures and private placements, will soon dissect the market even further. HealthShares autoimmune inflation index, HealthShares infectious disease index and HealthShares urology GI gender health index are just some of the 12 ETFs Ferghana-Wellspring will have trading in the U.S. this summer.

Will companies try to create über-niche ETFs in Canada? Doubtful. At least not at to the extent it is happening in the U.S. With most of the Canadian market wound up in three sectors — energy, financials and services — the other sectors are just too small to compress them further.

Atkinson and Seif are both critical about developing ETFs that are too specialized.

Atkinson says that Barclays has looked at niche products but that isn’t in the cards right now. “As more niche ETFs are launched, you will see more niche ETFs killed in time. They will run their fad and that will be it,” he says.

“Our philosophy from the beginning • • • has been to really make sure we offer the core asset classes and the core sectors, because those are the ones that have the greatest appeal to investors and have staying power.”

Instead, Claymore’s new ETFs have a more international flavour. Their new ETFs include the Claymore global fundamental index, Claymore US fundamental index Canadian dollar hedged, Claymore Japan fundamental index Canadian dollar hedged, Claymore oil sands sector, Claymore BRIC ETF and Claymore Canadian dividend & income achievers. These funds will be added to the firm’s current ETF offering, the lightly-traded ClaymorETF FTSE RAFI Canadian index fund, launched in February.

All of these changes to the ETF space can help advisors, regardless of how they get paid. “The vast majority of advisors have an inventory problem, almost like a store with too many goods on the shelf,” explains Atkinson. “They don’t know enough about them and they have a very messy store.”

Atkinson believes ETFs give advisors a simple way to gain exposure to an asset class. Once that’s in place, they try to add value by sprinkling in niche managers. But he stresses that ETFs are not meant to replace mutual funds. “It is a great addition to anybody’s book but I don’t think it is the only way to manage money,” he says. “Mix passive and active, you end up with a far more efficient portfolio.”

To that, Seif would add that the changes in this space are a good thing. Advisors are starting to see more thought in the ETF strategies. “This is no different than an active manager who sits there at his desk who charges 1.5% for his management fee and picking stocks that are more value or undercovered.”

Quantitative strategies, or rules-based investing, provide a glimpse of the next phase in the evolution of ETFs, as they begin to adopt active investment strategies. But before that can happen, the attitude that ETFs equal an index must change, as will commission-based advisors who don’t consider ETFs for their clients.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(07/25/06)

Mark Brown

Many advisors who work on commission likely haven’t thought of rolling exchange-traded funds into their clients’ portfolios. After all, why sell a product you don’t get paid for? But these structures are changing. As proof, look no further than Claymore Investments, set to introduce advisor-friendly ETFs.

In August, seven new Claymore-run ETFs will start trading on the TSX. What makes this interesting is that they each offer advisor-class units that pay a 0.75% trailer to advisors in addition to the regular fees, which range from 0.6% to 0.65%. The development of Claymore’s advisor-class units is the clearest sign yet that ETF manufacturers recognize the value of advisors.

Seventy percent of individual investors go to an advisor for assistance when choosing investment products, says Som Seif, president of Claymore Investments. He adds that Claymore’s new dual unit class of ETFs simply gives advisors another tool. “For the advisor it takes the commission structure out of the decision of whether they should use an ETF or a mutual fund.”

That should pooh-pooh one of the major reasons advisors have shunned this product. Of course, there are still brokerage fees and other barriers for investors to drip money into the investment without incurring said fees.

But clearly, ETFs are evolving. By Howard Atkinson’s count, Canada is entering phase three of the natural development of these products. As the head of business development at Barclays Global Investors Canada, Atkinson says the first phase was all about indexing, and in the second phase, money managers started creating a family of ETFs as an alternative to mutual funds.

We’re now into phase three, which means companies are trying to carve out new spaces for themselves rather than compete head-to-head. “Most of the major indices are spoken for so what do you do next, you launch sub-indices and sub-sectors,” Atkinson says. “How many S&P 500 ETFs does the world need?”

In the U.S., some companies are putting this structure to the test — call them über-niche ETFs, if you will. For instance, PowerShares Capital Management already divides the health-care space into biotechnology and pharmaceuticals.

Ferghana-Wellspring, a newly sprung affiliate of Ferghana Partners, an American firm specializing in life-science mergers and acquisitions, divestitures and private placements, will soon dissect the market even further. HealthShares autoimmune inflation index, HealthShares infectious disease index and HealthShares urology GI gender health index are just some of the 12 ETFs Ferghana-Wellspring will have trading in the U.S. this summer.

Will companies try to create über-niche ETFs in Canada? Doubtful. At least not at to the extent it is happening in the U.S. With most of the Canadian market wound up in three sectors — energy, financials and services — the other sectors are just too small to compress them further.

Atkinson and Seif are both critical about developing ETFs that are too specialized.

Atkinson says that Barclays has looked at niche products but that isn’t in the cards right now. “As more niche ETFs are launched, you will see more niche ETFs killed in time. They will run their fad and that will be it,” he says.

“Our philosophy from the beginning • • • has been to really make sure we offer the core asset classes and the core sectors, because those are the ones that have the greatest appeal to investors and have staying power.”

Instead, Claymore’s new ETFs have a more international flavour. Their new ETFs include the Claymore global fundamental index, Claymore US fundamental index Canadian dollar hedged, Claymore Japan fundamental index Canadian dollar hedged, Claymore oil sands sector, Claymore BRIC ETF and Claymore Canadian dividend & income achievers. These funds will be added to the firm’s current ETF offering, the lightly-traded ClaymorETF FTSE RAFI Canadian index fund, launched in February.

All of these changes to the ETF space can help advisors, regardless of how they get paid. “The vast majority of advisors have an inventory problem, almost like a store with too many goods on the shelf,” explains Atkinson. “They don’t know enough about them and they have a very messy store.”

Atkinson believes ETFs give advisors a simple way to gain exposure to an asset class. Once that’s in place, they try to add value by sprinkling in niche managers. But he stresses that ETFs are not meant to replace mutual funds. “It is a great addition to anybody’s book but I don’t think it is the only way to manage money,” he says. “Mix passive and active, you end up with a far more efficient portfolio.”

To that, Seif would add that the changes in this space are a good thing. Advisors are starting to see more thought in the ETF strategies. “This is no different than an active manager who sits there at his desk who charges 1.5% for his management fee and picking stocks that are more value or undercovered.”

Quantitative strategies, or rules-based investing, provide a glimpse of the next phase in the evolution of ETFs, as they begin to adopt active investment strategies. But before that can happen, the attitude that ETFs equal an index must change, as will commission-based advisors who don’t consider ETFs for their clients.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(07/25/06)

Many advisors who work on commission likely haven’t thought of rolling exchange-traded funds into their clients’ portfolios. After all, why sell a product you don’t get paid for? But these structures are changing. As proof, look no further than Claymore Investments, set to introduce advisor-friendly ETFs.

In August, seven new Claymore-run ETFs will start trading on the TSX. What makes this interesting is that they each offer advisor-class units that pay a 0.75% trailer to advisors in addition to the regular fees, which range from 0.6% to 0.65%. The development of Claymore’s advisor-class units is the clearest sign yet that ETF manufacturers recognize the value of advisors.

Seventy percent of individual investors go to an advisor for assistance when choosing investment products, says Som Seif, president of Claymore Investments. He adds that Claymore’s new dual unit class of ETFs simply gives advisors another tool. “For the advisor it takes the commission structure out of the decision of whether they should use an ETF or a mutual fund.”

That should pooh-pooh one of the major reasons advisors have shunned this product. Of course, there are still brokerage fees and other barriers for investors to drip money into the investment without incurring said fees.

But clearly, ETFs are evolving. By Howard Atkinson’s count, Canada is entering phase three of the natural development of these products. As the head of business development at Barclays Global Investors Canada, Atkinson says the first phase was all about indexing, and in the second phase, money managers started creating a family of ETFs as an alternative to mutual funds.

We’re now into phase three, which means companies are trying to carve out new spaces for themselves rather than compete head-to-head. “Most of the major indices are spoken for so what do you do next, you launch sub-indices and sub-sectors,” Atkinson says. “How many S&P 500 ETFs does the world need?”

In the U.S., some companies are putting this structure to the test — call them über-niche ETFs, if you will. For instance, PowerShares Capital Management already divides the health-care space into biotechnology and pharmaceuticals.

Ferghana-Wellspring, a newly sprung affiliate of Ferghana Partners, an American firm specializing in life-science mergers and acquisitions, divestitures and private placements, will soon dissect the market even further. HealthShares autoimmune inflation index, HealthShares infectious disease index and HealthShares urology GI gender health index are just some of the 12 ETFs Ferghana-Wellspring will have trading in the U.S. this summer.

Will companies try to create über-niche ETFs in Canada? Doubtful. At least not at to the extent it is happening in the U.S. With most of the Canadian market wound up in three sectors — energy, financials and services — the other sectors are just too small to compress them further.

Atkinson and Seif are both critical about developing ETFs that are too specialized.

Atkinson says that Barclays has looked at niche products but that isn’t in the cards right now. “As more niche ETFs are launched, you will see more niche ETFs killed in time. They will run their fad and that will be it,” he says.

“Our philosophy from the beginning • • • has been to really make sure we offer the core asset classes and the core sectors, because those are the ones that have the greatest appeal to investors and have staying power.”

Instead, Claymore’s new ETFs have a more international flavour. Their new ETFs include the Claymore global fundamental index, Claymore US fundamental index Canadian dollar hedged, Claymore Japan fundamental index Canadian dollar hedged, Claymore oil sands sector, Claymore BRIC ETF and Claymore Canadian dividend & income achievers. These funds will be added to the firm’s current ETF offering, the lightly-traded ClaymorETF FTSE RAFI Canadian index fund, launched in February.

All of these changes to the ETF space can help advisors, regardless of how they get paid. “The vast majority of advisors have an inventory problem, almost like a store with too many goods on the shelf,” explains Atkinson. “They don’t know enough about them and they have a very messy store.”

Atkinson believes ETFs give advisors a simple way to gain exposure to an asset class. Once that’s in place, they try to add value by sprinkling in niche managers. But he stresses that ETFs are not meant to replace mutual funds. “It is a great addition to anybody’s book but I don’t think it is the only way to manage money,” he says. “Mix passive and active, you end up with a far more efficient portfolio.”

To that, Seif would add that the changes in this space are a good thing. Advisors are starting to see more thought in the ETF strategies. “This is no different than an active manager who sits there at his desk who charges 1.5% for his management fee and picking stocks that are more value or undercovered.”

Quantitative strategies, or rules-based investing, provide a glimpse of the next phase in the evolution of ETFs, as they begin to adopt active investment strategies. But before that can happen, the attitude that ETFs equal an index must change, as will commission-based advisors who don’t consider ETFs for their clients.

Filed by Mark Brown, Advisor.ca, mark.brown@advisor.rogers.com

(07/25/06)