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ETF Update: A Look Back At November And 9 Funds To Kick Off December

Summary Every week, Seeking Alpha aggregates ETF updates in an effort to alert readers and contributors to changes in the market. There were 9 launches last week and a total of 21 in November. Have a view on something that’s coming up or a new fund? Submit an article. Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community, and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.) Every weekend, or every other weekend (depending on the reader response and submission volumes), we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. There were 21 launches in November, with just 2 closures, so a net gain of 19 funds. Taking a look back, we see a continuing focus on Smart Beta ETFs. These are funds that hope to capitalize on the perceived systematic biases or inefficiencies in the market, rather than the traditional index construction around market capitalization or sectors. This has been a growing trend in the industry and I expect to see more before the end of the year. November Total Launches Fund Name Ticker iShares Currency Hedged MSCI ACWI Minimum Volatility ETF HACV iShares Currency Hedged MSCI EAFE Minimum Volatility ETF HEFV iShares Currency Hedged MSCI EM Minimum Volatility ETF HEMV iShares Currency Hedged MSCI Europe Small-Cap ETF HEUS iShares Currency Hedged MSCI Europe Minimum Volatility ETF HEUV BlueStar TA-BIGITech Israel Technology ETF ITEQ First Trust SSI Strategic Convertible Securities ETF FCVT PowerShares Russell 1000 Low Beta Equal Weight Portfolio USLB PowerShares FTSE International Low Beta Equal Weight Portfolio IDLB AlphaClone International ETF ALFI Goldman Sachs ActiveBeta International Equity ETF GSIE FlexShares Currency Hedged Morningstar DM ex-US Factor Tilt Index Fund TLDH FlexShares Currency Hedged Morningstar EM Factor Tilt Index Fund TLEH Global SmallCap Dividend Fund GSD iShares Core International Aggregate Bond ETF IAGG First Trust Heitman Global Prime Real Estate ETF PRME WisdomTree Global Hedged SmallCap Dividend ETF HGSD Etho Climate Leadership U.S. ETF ETHO Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF DEEF Deutsche X-trackers Russell 1000 Enhanced Beta ETF DEUS FlexShares Real Assets Allocation Index Fund ASET Fund launches for the week of November 30th, 2015 SPDR Fossil Fuel Free ETF opens for business (12/1): Among the top holdings of the SPDR S&P 500 Fossil Fuel Free ETF ( SPYX ) are Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), GE (NYSE: GE ), J&J (NYSE: JNJ ), Wells Fargo (NYSE: WFC ), Amazon (NASDAQ: AMZN ), Berkshire Hathaway (NYSE: BRK.A ), JPMorgan (NYSE: JPM ), Facebook (NASDAQ: FB ), and Alphabet (NASDAQ: GOOG ). The gross expense ratio is 0.25%, the net 0.20%. Alpha Architect launches a new active ETF (12/2): The MomentumShares U.S. Quantitative Momentum ETF (BATS: QMOM ) picks its holdings with a quantitative model designed to find positive momentum firms. As detailed by the company’s whitepaper on QMOM, “We consider the term momentum to mean a continuation of past returns-past winners tend to be future winners, while past losers tend to be future losers.” State Street launches 3 new factor-focused SPDR funds (12/4): State Street’s (NYSE: STT ) new funds all select high-value, high-quality and low-size firms from within the Russell 1000. However, each tracks a different fourth factor as well, included in the name of the funds: The SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ), the SPDR Russell 1000 Low Volatility Focus ETF (NYSEARCA: ONEV ) and the SPDR Russell 1000 Yield Focus ETF (NYSEARCA: ONEY ). These 3 funds all fall into SPDR’s growing selection of Smart Beta ETFs. Direxion launches a new fund and brings 2 back from the dead (12/4): The Direxion Daily S&P Biotech Bear 1X Shares (NYSEARCA: LABS ) offers inverse exposure to the S&P Biotechnology Select Industry Index, which is the index of choice for the SPDR S&P Biotech ETF (NYSEARCA: XBI ). If the Direxion Daily Natural Gas Related Bear 3X Shares (NYSEARCA: GASX ) and the Direxion Daily Healthcare Bear 3X Shares (NYSEARCA: SICK ) sound familiar, it’s because we have seen them before. GASX and SICK were shut down in Q3 2014 and Q3 2014 respectively. SICK’s bull counterpart, the Direxion Daily Healthcare Bull 3x Shares ETF (NYSEARCA: CURE ), had been seeing strong growth until May, which may have been when Direxion decided to give SICK another chance. The first ETF focused on Latin American REITs (12/4): The Tierra XP Latin America Real Estate ETF (NYSEARCA: LARE ) offers investors access to real estate investment trusts (REITs) and real estate operating companies (REOCs) in Latin America. According to a press release at the launch, this ETF was a big team effort: “The ETF was introduced by a partnership between Tierra Funds, ETF Managers Group, ISE ETF Ventures, and XP Gestão de Recursos, an XP Group company.” This is the first ETF targeting Latin American REITs specifically. There were no fund closures for the week of November 30, 2015 Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article .

Making The Case For Liquid Alternative Strategies

Hedge funds may make sense for some investors, especially when the opportunities are unique and the allocation is small. Because of their typically high fee structure, lack of transparency, illiquidity, capacity limits, and challenging due diligence process, hedge funds may not be the best choice for institutional investors. That accounts for the growing popularity of liquid alternative investments (LAIs), systematic investment strategies that employ similar return sources as traditional hedge funds. By Wei Ge, Senior Researcher Hedge funds may make sense for some investors, especially when the opportunities are unique and the allocation is small. Hedge funds also offer great potential alpha opportunities for accredited investors or investors with access to information, opportunities, and investment acumen who can extract favorable fee terms from hedge fund managers. Hedge funds are historically organized as limited partnerships, limited liability companies, or similar vehicles that are sold through private channels, allow only a limited number of accredited investors, and typically have minimum investment thresholds in the millions of dollars. Because of their typically high fee structure, lack of transparency, illiquidity, capacity limits, and challenging due diligence process, hedge funds may not be the best choice to be used en masse by the majority of institutional investors. As our understanding of investment returns grows, however, hedge fund returns that were traditionally attributed as manager alpha can now be explained by exposure to alternative beta, and it is increasingly common for analyses of hedge fund returns to be divided into: traditional beta, alternative beta, and finally, “true manager alpha.” True manager alpha is usually elusive, temporary, limited in capacity, expensive, and hard to capture for most investors. In response to these challenges, liquid alternative investments (LAIs) have been growing in popularity and variety. LAIs are systematic investment strategies that employ similar return sources as traditional hedge funds, including: managed futures, event driven trading, carry, liquidity, momentum, value and volatility selling, and others. Because many LAI funds are designed to help investors capture the unique risk-return characteristics of hedge funds, it is not surprising then that such investments are experiencing rapid growth with an increasing array of choices being offered. Today, LAIs come in the form of separate account portfolios, mutual funds, closed-end funds, or ETFs. LAIs have some limitations, too, many of which caused by their shorter and less familiar histories in the market. Because the underlying investments of LAIs need to remain liquid and scalable, they cannot take advantage of the same limited, illiquid, transitory, or more elusive opportunities exploited by hedge funds. Similarly, LAIs cannot replicate many of the highly leveraged strategies used by hedge funds. Nonetheless, investors who are dissatisfied with hedge funds may find LAIs more attractive in terms of reasonable cost, greater transparency, liquidity, a more user-friendly format, and simpler due diligence. Lower Fees – LAI funds usually charge a flat fee, which is much lower than the sliding fee structure of hedge funds. Lower fees leaves a greater share of the return in the investor account, and can represent a significant saving over time compared to hedge fund fees. Higher Transparency – In contrast to hedge funds that have undisclosed strategies and often focus shifts in search of investment opportunities, LAIs typically attempt to monetize on defined strategies and risk premiums, and is fully transparent with its investment objective. A clearly defined investment focus may help investors to construct a portfolio that includes different potential sources of return. Improved Liquidity – LAIs can also be much more liquid than hedge funds, many of which have limits on withdrawals or redemptions. Since LAIs predominantly invest in exchange-traded instruments, they are by design easier to liquidate than hedge fund investments, and can provide reliable daily pricing information. Easier Accessibility – There are several features that make it potentially easier for investors to use LAIs. Because of no limits on the timing or size of withdrawals, and less stringent limits on the number of investors, LAIs may provide more investors access to the alternative asset class. The straight forward construction of LAIs may also create a more even playing field by providing liquid and standardized formats, with a large enough capacity to be available to more investors. Within a diversified portfolio, investors may utilize the core-satellite framework to make asset allocation decisions for the alternative asset segment. They can invest a large portion of the alternative allocation to a core set of LAI funds, utilizing different investment styles, risk exposures, and hedge fund betas as return sources, with generally lower costs and the benefit of transparency and liquidity. The rest of the alternative assets may be invested in high-conviction traditional hedge funds (satellites) that may supply true after-cost alpha and give investors a chance to enhance returns. The core-satellite framework is flexible and comprehensive, easily adjusted to suit the needs of different investors under a wide range of circumstances, especially with the complex decisions regarding liquid alternative investments versus hedge funds.

Heading Into Winter, Propane Sales Look To Repeat 2014 Results

Summary Propane distributors like Suburban Propane and AmeriGas Partners count on the next few months for substantially all their income. With propane supply near all-time highs, wholesale prices have fallen through the floor. Consumers look to benefit this year, but pricing spreads indicate a repeat of 2014 results. The early indicative data for propane distributors such as Suburban Propane (NYSE: SPH ) and AmeriGas Partners (NYSE: APU ) is a mixed bag heading into the incredibly important winter season. This period running from November-March of each year is an incredibly stressful time for these propane distributors, who derive substantially all of their operating income during the winter heating season. The first hurdle for these companies is the weather. The chance of a deep winter chill currently looks decent for some areas of the United States and mediocre for the rest . Most meteorologists forecast above average temperatures for the Northeast, with below average temperatures for much of the Southeast and East Coast. As the South and Midwest form the largest markets for propane, these forecasts end up being a mixed bag and are hard to call as solidly favorable in one direction or another. (click to enlarge) * Source: EIA.gov From a market perspective, available supply of propane continues to peak well above long-term historical averages, due to the significant bounce in production of the commodity from ever-increasing domestic production. Shortages that were widespread in many markets in 2014 seem unlikely to repeat themselves this time around. This excessive supply has brought wholesale and residential propane prices down, yielding what should be solidly lower prices going into this year’s heating season for consumers. This is a bright spot for those that count on propane to heat their homes, but what does it mean for propane distributors? Fixed Margin Pressures Usually, low propane prices provide a boost for propane distributors like Suburban Propane and AmeriGas Partners. All else equal, low propane costs increase the demand for their products and protects against customers switching to alternatives, such as heating oil or electricity. With propane and other alternative heating fuels more commonly used among rural homes with lower annual incomes, these consumers are much more cost sensitive to price changes than the heating markets served by traditional utilities. Propane distributors, while keeping that fact in mind, still try to maintain a fixed spread between the wholesale and residential cost of propane. This is where they can derive their profit, and we can see the results of that in a comparison from 2014 to 2015 below. (click to enlarge) Trying to protect this fixed margin per gallon is why we see the current market situation in propane today with resiliently high residential propane prices. While wholesale propane prices are down 46% from a year ago according to EIA data, skirting along at $0.50/gallon in 2015 from $0.93 gallon in 2014. Residential prices have remained stubbornly high in the meantime, and are only down 19% year/year. In my opinion, wholesale prices in the U.S. cannot fall much further, so this year will be as good as it can get for propane consumers. At these prices, it is barely worth it for producers to ship, store, and market it for sale. Look for propane exports to increase, as unlike natural gas, propane is more easily shipped abroad for sale, and these price declines make exporting increasingly attractive. (click to enlarge) Heating oil, a chief competitor of propane, looks more profitable going into the winter of 2015/2016. The profit spread is up, but heating oil is primarily used in the Northeast , where it heats nearly 30% of all households. If we remember our 2015 weather forecast data, this area is at this point expected to be a little warmer than usual. The demand may not simply be there for the product compared to 2014. Conclusion With margin spreads down and supply up, propane producers are counting on a chilly winter to drive some additional demand to make up the difference. Without old man winter swirling up some unexpected cold, investors should expect operating income flat to slightly down from 2014 levels. Suburban Propane has the most opportunity for surprise earnings upside over 2014 due to its heating oil exposure, but only if the Northeast comes in much colder than expected. Heating oil is set up to be better currently year/year, and with supply running at long-term averages, a cold shock in the Northeast could drive significant demand for the company.