New Leveraged Rydex ETFs Among Lastest ETF Offerings

A lot of news on the web on regarding Rydex Investments’ filing last week for 96 ETFs. Plans are for three ETFs to track each of the 32 benchmark U.S. indices. Like the ProShares line of ETFs managed by ProShare Advisors, there will be:

· An ETF that seeks to track double the return of the index

· An ETF that seeks to track the inverse return of the index

· An ETF that seeks to track double the inverse return of the index

Essentially, with the first ETF you have a long position in the index and would hope to get double the return of the underlying index. With the other two, you essentially have short exposure to the index through a long position in the ETF.

You would think that Rydex will have to be competitive on price as ProFunds has had several months of edge in terms of being “first to market”. No news on fees but according to the various sources on the web, the ETFs will be linked to various S&P and Russell US equity indices with the usual style tilts (growth/value, small/mid/large cap and combinations thereof).

Rydex was actually first in the market of leveraged long and short index funds. These mutual funds still exist today and I recall in a previous life managing accounts that was based on their Rydex (long 150% S&P 500) and Ursa (short 100% S&P 500) funds. ProFunds was built from some Rydex defectors and they are the two main providers in this unique space. Rydex is clearly playing catch up now.

I suppose there’s a market out there for the inverse ETFs, although I would have hoped for more international exposure. Luckily, there’s word of State Street Global Advisors bringing on some new ETFs and in this case the focus is on various international equity indices as well as a global REIT index. However, these ETFs don’t have the leverage and shorting available with Rydex and ProShares.

On top of this, there's news on new ETFs as well from:

· WisdomTree: An additional 31 ETFs that like previous launched funds are based on fundamental weights rather than market cap weights.

· PowerShares: An additional 35 ETFs focused on international equities including country based funds.

· Barclays Global Investors: No word on the number of ETFs but a spread among bonds, commodities, and currencies.

More fuel for those saying that there are too many ETFs. According to Deb Fuhr of Morgan Stanley in her latest ETF Global Quarterly Review, there are 669 ETFs worldwide with 926 listings all totaling US$504.5 billion. For the US, the numbers are 303 ETFs at US$362.9 billion (all numbers as of the end of Q3 2006).

I think these numbers are fine, with assets under management well below mutual fund and hedge fund numbers. It’s the growth rate in the number of product offerings in the past couple of years that is of concern -- and whether this is the beginning of a significant growth trend that could lead to similar problems found in both the mutual fund and hedge fund industries.

Comments

[BrendanByrne]

In a post on ETF's on the site, conservativecapital.co..., Jim Kramer states that ETF's are for hedging only.

[Richard Kang]

Couldn't find the specific posting. Please provide url. But is JK suggesting a stock selection strategy on the long side with an overlaid ETF short program to offset the beta, leaving you with (hopefully positive) alpha? Makes sense if the investor is confident in their stock picking abilities. But some investors may be more confident in broad asset allocation decisions rather than stock picking decisions.