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S&P Introduces Risk-Controlled Indexes S&P rolled out two new strategy indexes in mid-May designed for risk-weary investors that are alternate versions of two of its bestknown benchmarks—the S&P 500 and the S&P/ASX 200, which tracks the Australian market. The S&P 500 Risk Control 10% Index and the S&P/ASX 200 Risk Control 15% Index target different levels of volatility—10 percent and 15 percent, respectively, as the indexes’ names would imply. The indexes adjust their exposure to match their volatility levels, either decreasing exposure when volatility of the original index is too high or using leverage to increase exposure when the volatility of the original index is too low. The index provider already offered risk-controlled versions of its benchmark indexes covering the BRIC countries, Southeast Asia, Latin America and the global infrastructure sector. Barclays Unveils Global Target ‘Exceed’ Index May saw the launch of a new strategy index from Barclays Capital via its “Exceed” family of indexes. The Barclays Capital Global Target Exceed Index, like all the indexes in the Exceed series, according to Barclays, “aims to extract alpha from term premium in the short end of the yield curves in a fully transparent and liquid way by trading libor futures contracts.” Barclays already has a few indexes of this nature tracking the yield curves of the U.S dollar and the euro, alone and in combination, but the new index provides exposure to the yield curves of four currencies:― the U.S. dollar, the euro, the British pound and the Japanese yen. Barclays says the index’s performance can be accessed via a range of investable products including swaps, options and principal-protected notes, among others. News FTSE And Renaissance Capital Launch IPO Indexes Index provider FTSE Group has partnered with research house Renaissance Capital to launch a series of indexes tracking the performance of initial public offerings in the U.S. The launch of the flagship index, the FTSE Renaissance IPO Composite Index, was announced in mid-April. IPOs are added to the index on their first day of trading and remain for two years, or about 500 trading days. According to FTSE, IPOs often must wait three months before joining most standard benchmarks, causing investors to miss out on what can be a very strong performance period. Renaissance Capital focuses its research on IPOs, and previously calculated its own index tracking the U.S. IPO market. MSCI Launches ‘Tilt’ Indexes In late March, MSCI announced the launch of the first indexes of a new series. The MSCI Factor indexes are designed to maximize their exposure to a single source of risk— identified as a “factor” in the Barra risk models—while controlling their exposure to other sources of risk and seeking to track the original benchmark equity index as closely as possible. The first two members of the new index family include the MSCI Europe Momentum Tilt Index and the MSCI Europe Value Tilt Index, which are derived from the benchmark MSCI Europe Index. According to MSCI, the new indexes are designed for use in portfolio analysis and construction and also to underlie investable products. Markit And BlueNext Create Emissions Indexes Markit, a firm known for its fixedincome and CDS indexes, is teaming up with carbon-trading exchange BlueNext in a partnership that includes the creation of a new set of carbon emission credit indexes. The first two benchmarks to be launched under the joint venture are the Markit BlueNext EUA 1 Spot Index and the Markit BlueNext CER Spot Index. The former tracks the performance of European Union allowances (EUAs) under the EU Emission Trading System, while the latter tracks the performance of certified emission reductions (CERs), which are defined by the Kyoto Protocol. Both an EUA and a CER are equal to one tonne of carbon dioxide. The announcement from Markit and BlueNext implied that more products—indexes and otherwise—would be forthcoming, but it did not specify what might be down the road. DJI Suspends Distressed Securities Hedge Index Dow Jones temporarily suspended publication of its Dow Jones Hedge Fund Distressed Securities Strategy Benchmark in early May. The suspension is open-ended until further notice, according to the company. Dow Jones said the decision was made jointly with the investment manager of the managed account platform that supports the Dow Jones hedge fund index family and was made due to market conditions. Previously, on Jan. 2, the index provider halted publication of the Dow Jones Hedge Fund Convertible Arbitrage Strategy Benchmark. That index remains suspended. However, Dow Jones noted that its remaining strategies—Equity Long/Short, Equity Market Neutral, Event Driven and Merger Arbitrage—will continue to be published on an end-of-day basis. FTSE And Borsa Italiana Debut Index Family It was announced earlier this year that FTSE would take over the calculation of the indexes for the Borsa Italiana from S&P, and the index provider unveiled a preliminary index lineup in April. The indexes are constructed based 46 July/August 2009
on FTSE’s rules and methodologies for the most part, but the FTSE MIB will be the same index as the existing S&P/MIB index, just rebranded. The new index regime will feature liquidity screens and minimum float requirements, among other modifications, and foreign-listed stocks will be excluded from all but the FTSE MIB and the all-share index. Other notable changes include the replacement of the mid-cap and allshare indexes by FTSE-designed indexes and replacement sector indexes based on FTSE’s ICB classification system. FTSE will also launch a small-cap index and a micro-cap index. Perhaps most interestingly, the blue-chip MIB 30 will be discontinued, along with a few other indexes. AROUND THE WORLD OF ETFs PowerShares Closes 19 Funds Invesco PowerShares closed 19 of its ETFs, a dozen of which are based on fundamental indexes created by Rob Arnott’s Research Affiliates. Their last day of trading was May 18. The 12 FTSE RAFI ETFs included nine U.S. sectors and three international portfolios. The group also included five of the firm’s “Dynamic”- branded ETFs, which are based on complex quantitative indexes calculated using fundamental, momentum and risk factors. The remaining two ETFs marked for termination cover high-dividend stocks and international private equity companies. PowerShares says it arrived at its decision based on asset levels, the funds’ lengths of time on the market and the potential for future growth, among other factors. Grail Enters ETF Arena With Active Fund Grail Advisors launched its first ETF in early May. The new fund is the first to use a team of active managers implementing traditional qualitative stock-picking processes. The Grail American Beacon Large Cap Value ETF (NYSE Arca: GVT) is News managed by a trio of veteran mutual fund and institutional subadvisers: Brandywine Global Investment, Hotchkis and Wiley Capital Management, and Metropolitan West Capital Management. Combined, the new ETF’s aim is to outperform the Russell 1000 Index. However, it won’t track any specific benchmark when selecting its names. GVT will publish its full portfolio on a daily basis, offering complete transparency into the fund holdings. Of course, because it uses multiple subadvisers, no single subadvisers will be giving away their full strategy; it will be mixed with the other positions. The fund charges 0.79 percent in annual expenses. Emerging Markets Currency ETF Debuts In early May, WisdomTree added another ETF to its lineup of actively managed currency funds. The WisdomTree Dreyfus Emerging Currency Fund (NYSE Arca: CEW) provides exposure to a wide range of emerging market currencies. Those include: the Brazilian real, Chinese yuan, Chilean peso, Indian rupee, Israeli shekel, Mexican peso, Polish zloty, South African rand, South Korean won, Taiwanese dollar and Turkish new lira. The firm already has eight currency ETFs, all but one of them marketed under the “WisdomTree Dreyfus” brand. This is the first of its funds to include multiple currencies bundled together. It charges an expense ratio of 0.55 percent. Van Eck Launches Brazilian Small-Cap ETF Van Eck Global expanded its suite of Market Vectors ETFs in mid-May with the launch of the Brazil Small-Cap ETF (NYSE Arca: BRF), the first Brazilian small-cap ETF available in the world. The fund invests in Brazil-listed companies with market capitalizations between $250 million and $3.8 billion. At launch, the BRF fund held 52 positions. On an industry basis, its heaviest weights were in household durables (15.6 percent), food products (9.2 percent), specialty retail (7.8 percent), and paper and forestry products (7 percent). The fund charges 0.73 percent in expenses. Direxion Rolls Out Treasuries Triple Plays Late April saw the launch of four leveraged and inverse ETFs tied to Treasuries. The four new DirexionShares 3x ETFs are leveraged bull and bear index-based portfolios that try to either provide 300 percent of the daily performance or 300 percent of the inverse of the daily performance of the NYSE Current 10- and 30-Year U.S. Treasury indexes. The new Direxion ETFs include the following: • Direxion Daily 10-Year Treasury Bull 3x Shares (NYSE Arca: TYD) • Direxion Daily 30-Year Treasury Bull 3x Shares (NYSE Arca: TMF) • Direxion Daily 10-Year Treasury Bear 3x Shares (NYSE Arca: TYO) • Direxion Daily 30-Year Treasury Bear 3x Shares (NYSE Arca: TMV) Each charges 0.95 percent in annual expenses. www.journalofindexes.com July/August 2009 47
Page 1 and 2: How to Kill a Black Swan Remy Brian
Page 3 and 4: www.journalofindexes.com Vol. 12 No
Page 6 and 7: FREE subscRiption oFFER! The Journa
Page 8 and 9: David Smith Publisher dsmith@fa-mag
Page 10 and 11: Editor’s Note Got Risk? Jim Wiand
Page 12 and 13: How To Kill A Black Swan Risk and a
Page 14 and 15: Figure 2 Comparison Of Asset Return
Page 16 and 17: Figure 5 Historical Real Returns Fo
Page 18 and 19: Figure 8 Subset Of A Multi-Asset Cl
Page 20 and 21: Benchmarking Policy Portfolios How
Page 22 and 23: investor has decided to benchmark 8
Page 24 and 25: An Interview With Susan Mangiero By
Page 26 and 27: How To Minimize Your Cost Of Tradin
Page 28 and 29: Figure 2 Offer NAV Proxy Bid Using
Page 30 and 31: ETF Trading Volume Is Huge, Growing
Page 32 and 33: Figure 5 Hypothetical ETF Limit Ord
Page 34 and 35: Gastineau continued from page 31 th
Page 36 and 37: Portable alpha approaches—which e
Page 38 and 39: to write the book “Portable Alpha
Page 40 and 41: sitated more routine adjustment in
Page 42 and 43: Bogle’s Corner The Fiduciary Prin
Page 44 and 45: at the direct expense of the invest
Page 46 and 47: Talking Indexes Managing The Risks
Page 48 and 49: News CVC To Buy iShares … Or Mayb
Page 52 and 53: News New SPDR Offers Twist On Mortg
Page 54 and 55: Global Index Data Selected Major In
Page 56 and 57: Morningstar U.S. Style Overview: U.
Page 58 and 59: Exchange-Traded Funds Corner Larges
Page 60: “For a strong foundation in my cl

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