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ETF Deathwatch For September 2015: 13 Members Recently Died

Seventeen new names joined ETF Deathwatch this month, but the overall membership roll dropped by five as 13 members died and nine left due to improved health. The current count stands at 325 (233 ETFs and 92 ETNs). The number of actively-managed funds on the list declined from 41 to 39. All newly-launched products are granted an exclusion from ETF Deathwatch for the first six months of their life. This gives them an opportunity to attract investor interest either in the form of sufficient assets to achieve profitability or enough trading activity to spur asset growth in future months. For September, the 149 new products launched between March 1 and August 31 are excluded. This leaves 1,619 eligible ETFs and ETNs. From a percentage viewpoint, ETFs have lower representation on Deathwatch than ETNs. Within the ETF classification, passively-managed funds are currently faring better than actively-managed ones. The overall ETF representation comes in at 16.3% of the eligible funds, with 14.8% of the 1,307 eligible passively-managed funds and 32.0% of the 122 eligible actively managed ETFs on the list. Even though the quantity of listed ETNs has shrunk by more than 10% this year, nearly half of their remaining population is on Deathwatch. For September, 48.4% of the 190 eligible ETNs are on the list. Day traders have been migrating from 2X to 3X leveraged ETFs to get the biggest bang for their buck. As a result, 2X funds are falling out of favor, and four more of them were added to ETF Deathwatch this month. Six of the other September additions are from sponsors with little or no name recognition among retail ETF investors. ETFs from Arrow, EGShares, GreenHaven, KraneShares, Lattice, and Sit are new members. BlackRock closed 18 of its iShares ETFs in August. Twelve of these closed ETFs make up the bulk of the ETFs that came off of Deathwatch this month. Perhaps what is more interesting is the fact that six of the iShares ETF closures were not on Deathwatch. For example, iShares FTSE China (NASDAQ: FCHI ) had more than $37 million in assets and iShares MSCI Emerging Markets Eastern Europe (NYSEARCA: ESR ) had nearly $31 million, keeping them both off the list. The current criteria for ETF Deathwatch states that funds with more than $25 million in assets are automatically removed from the list. So far this year, eleven products with more than $25 million in assets have closed. It may be time to raise that threshold. The average asset level of products on ETF Deathwatch held steady at $6.8 million, and the quantity of products with less than $2 million also remained constant at 62. The average age increased from 49.7 to 50.1 months, and the number of products more than five years old was unchanged at 110. Here is the Complete List of 325 Products on ETF Deathwatch for September 2015 compiled using the objective ETF Deathwatch Criteria. The 17 ETPs added to ETF Deathwatch for September: Arrow QVM Equity Factor (NYSEARCA: QVM ) Direxion Daily Basic Materials Bull 3x (NYSEARCA: MATL ) EGShares Brazil Infrastructure (NYSEARCA: BRXX ) ETRACS CMCI Silver TR ETN (NYSEARCA: USV ) GreenHaven Coal Fund (NYSEARCA: TONS ) Guggenheim S&P High Income Infrastructure (NYSEARCA: GHII ) iPath US Treasury Flattener ETN (NASDAQ: FLAT ) KraneShares FTSE Emerging Markets Plus (BATS: KEMP ) Lattice Emerging Markets Strategy (NYSEARCA: ROAM ) ProShares Russell 2000 Dividend Growers (NYSEARCA: SMDV ) ProShares S&P MidCap 400 Dividend Aristocrats (NYSEARCA: REGL ) ProShares Ultra Gold Miners (NYSEARCA: GDXX ) ProShares Ultra Junior Miners (NYSEARCA: GDJJ ) ProShares UltraShort Gold Miners (NYSEARCA: GDXS ) ProShares UltraShort Junior Miners (NYSEARCA: GDJS ) RevenueShares Global Growth Fund (NYSEARCA: RGRO ) Sit Rising Rate ETF (NYSEARCA: RISE ) The 9 ETPs removed from ETF Deathwatch due to improved health: Columbia Large Cap Growth (NYSEARCA: RPX ) PowerShares KBW Capital Markets (NYSEARCA: KBWC ) PowerShares KBW Insurance (NYSEARCA: KBWI ) ProShares Short FTSE China 50 (NYSEARCA: YXI ) ProShares Ultra S&P Regional Banking (NYSEARCA: KRU ) ProShares UltraShort Technology (NYSEARCA: REW ) QuantShares U.S. Market Neutral Anti-Beta (NYSEARCA: BTAL ) SPDR BofA Merrill Lynch Emerging Markets Corp Bond (NYSEARCA: EMCD ) SPDR S&P International Consumer Discretionary (NYSEARCA: IPD ) The 13 ETPs removed from ETF Deathwatch due to delisting: AdvisorShares Accuvest Global Long Short (NYSEARCA: AGLS ) iShares Asia Developed Real Estate (NASDAQ: IFAS ) iShares Financials Bond (NYSEARCA: MONY ) iShares Industrials Bond (NYSEARCA: ENGN ) iShares MSCI All Country Asia Information Technology (NASDAQ: AAIT ) iShares MSCI All Country Asia x-Japan SmallCap (NASDAQ: AXJS ) iShares MSCI Australia Small-Cap (BATS: EWAS ) iShares MSCI Canada Small-Cap (BATS: EWCS ) iShares MSCI Emerging Markets Growth (NASDAQ: EGRW ) iShares MSCI Emerging Markets EMEA (NASDAQ: EEME ) iShares MSCI Emerging Markets Consumer Discretionary (NASDAQ: EMDI ) iShares MSCI Emerging Markets Energy Sector (NASDAQ: EMEY ) iShares MSCI Singapore Small-Cap (NYSEARCA: EWSS ) ETF Deathwatch Archives Disclosure covering writer: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

International Small-Cap Equity: 3 Options And 2 Theories

Summary SCZ has a much higher expense ratio than SCHC or VSS. SCZ also has a smaller volume of holdings than either of the other companies. Despite those drawbacks, it thoroughly outperformed the peers over the last several years. When using daily numbers, it appears that SCZ is a riskier investment. If investors switch to using monthly numbers, SCZ becomes less volatile than the other two. When investors are considering adding some international small-cap equity exposure to their portfolio, three of the first names to come up may be the iShares MSCI EAFE Small-Cap ETF (NYSEARCA: SCZ ), the Schwab International Small-Cap Equity ETF (NYSEARCA: SCHC ), and the Vanguard FTSE All-World ex-US Small-Cap ETF (NYSEARCA: VSS ). These three ETFs all have well over a thousand international small-cap holdings to offer investors to a less developed part of the equity market that may be expected to have decent returns on the basis of limited analysis in foreign small-cap equity markets leading to companies trading at low valuations due to higher risk premiums. If the investor can diversify away a significant portion of the risk and rely on those markets to become more developed, it could be expected that the companies will trade at higher valuations when lower risk premiums are demand. That can make this exposure fairly attractive for an investor that is using ETFs to establish very large amounts of diversification within their portfolio. Expense Ratio The first metric for comparing these ETFs is simply looking at the amount of value that will flow out of the fund to pay for the management expenses. When it comes to expense ratios SCHC and VSS are extremely similar but SCZ struggles with a dramatically higher expense ratio. If investors assumed that markets were fairly efficient the lower expense ratios would make SCHC and VSS very easy picks over SCZ. However, if the investor assumed that markets were that efficient, it is unclear why they would also believe that international small-cap equity was going to warrant much higher risk premiums and therefore be expected to outperform over a long time period. It would simply be contrary to only look at the expense ratio and argue for efficient markets while selecting the sector on the basis of inefficient markets. Holdings A larger volume of holdings can reduce idiosyncratic risk by reducing the importance of each individual holding. The following chart shows the number of holdings within each ETF. It might be reasonable to think that the number of holdings would be correlated with the expense ratio, but that assumption would be faulty. With less holdings and higher expense ratios, it would seem that SCZ should be riskier and produce lower returns. However, that concept is about to be challenged. Portfolio Test I ran a portfolio test using returns since early 2010 through Investspy: (click to enlarge) Looking from left to right, everything appears to be about right. SCZ has the highest annualized volatility and the greatest risk contribution of the three international ETFs. To adjust for the fact that it would be absurd for an investor to only hold international small-cap equity, I used a 70% allocation to the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) as the core of the portfolio. SCZ also suffers from a higher beta than the other funds, but when investors look at the total return it should seem very curious that SCZ substantially outperformed the other two ETFs. It appears that SCZ actually beat the costs of more expensive management and more portfolio volatility by delivering materially stronger returns. Switching to Monthly I changed the strategy for comparing the ETFs to running the numbers through my own spreadsheets to test monthly data. By switching to monthly data it is possible to get a different picture from looking at longer term data which may do a better job of showing the volatility in the value of the underlying holdings rather than focusing on swings in the share price on a single day. When I run correlation on the monthly numbers the resulting data is very similar but it shows SCHC as having a slightly high correlation. Of course, the numbers are still within a reasonable margin of error. The more interesting numbers come when I run standard deviation on the monthly numbers. When the numbers are ran on a monthly basis the volatility of returns for SCZ are actually lower than for the other two funds. Given that the correlations appear to be fairly similar, the natural conclusion is that perhaps the required return on SCZ should be slightly lower rather than the slightly higher assumption made from the previous conclusion of a higher beta being assigned to SCZ. Conclusion SCHC and VSS appear to be the natural choices, but SCZ has done very well and assuming that the performance is simply luck and that expense ratios will drive the long term performance may be assuming that markets are too efficient. If the markets are that efficient, what is the point of investing in this segment? When I’m covering the mREIT sector my goal is to rapidly spot market failures and those seem to occur most frequently with smaller companies. When those smaller companies also have investors that are less familiar with how the company works, they are prime candidates for deviating from intrinsic value. If SCZ is able to deliver superior performance through paying for some high quality analysis to determine where to allocate more of their money, it may be possible for them to continue delivering strong performance. On the other hand, it could simply be a matter of choosing to make larger allocations (by luck) to the right areas or the right sectors within those areas which would be less likely to lead to stronger performance in the future. This is an area where investors may want to look deeper in determining which small-cap ETF is the best fit for their portfolio. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.

VTWNX: This Is A Great Option For The Investor Nearing Retirement

Summary The Vanguard Target Retirement 2020 Fund has a simple construction and a low expense ratio. Despite being a very simple portfolio, they have covered exposure to most of the important asset classes to reach the efficient frontier. I would like a very slight modification to increase the allocation to higher credit quality bonds at the expense of lower quality bonds. This is quite simply one of the best constructed portfolios I’ve seen for a worker nearing retirement. Lately I have been doing some research on target date retirement funds. Despite the concept of a target date retirement fund being fairly simple, the investment options appear to vary quite dramatically in quality. Some of the funds have dramatically more complex holdings consisting with a high volume of various funds while others use only a few funds and yet achieve excellent diversification. My goal is help investors recognize which funds are the most useful tools for planning for retirement. In this article I’m focusing on the Vanguard Target Retirement 2020 Fund Inv (MUTF: VTWNX ). What do funds like VTWNX do? They establish a portfolio based on a hypothetical start to retirement period. The portfolios are generally going to be designed under Modern Portfolio Theory so the goal is to maximize the expected return relative to the amount of risk the portfolio takes on. As investors are approaching retirement it is assumed that their risk tolerance will be decreasing and thus the holdings of the fund should become more conservative over time. That won’t be the case for every investor, but it is a reasonable starting place for creating a retirement option when each investor cannot be surveyed about their own unique risk tolerances. Therefore, the holdings of VTWNX should be more aggressive now than they would be 3 years from now, but at all points we would expect the fund to be more conservative than a fund designed for investors that are expected to retire 5 years later. What Must Investors Know? The most important things to know about the funds are the expenses and either the individual holdings or the volatility of the portfolio as a whole. Regardless of the planned retirement date, high expense ratios are a problem. Depending on the individual, they may wish to modify their portfolio to be more or less aggressive than the holdings of VTWNX. Expense Ratio The expense ratio of Vanguard Target Retirement 2020 Fund Inv is .16%. That is higher than some of the underlying funds, but overall this is a very reasonable expense ratio for a fund that is creating an exceptionally efficient portfolio for investors and rebalancing it over time to reflect a reduced risk tolerance as investors get closer to retirement. In short, this is a very solid value for investors that don’t want to be constantly actively management their portfolio. This is the kind of portfolio I would want my wife to use if I died prematurely. That is a ringing endorsement of Vanguard’s high quality target date funds. Holdings / Composition The following chart demonstrates the holdings of the Vanguard Target Retirement 2020 Fund: This is a fairly simple portfolio. Only five total tickers are included so the fund can gradually be shifted to more conservative allocations by making small decreases in equity weightings and increases in bond weightings. The funds included are the kind of funds you would expect from Vanguard. The top 4 which carry almost all of the value are extremely diversified funds. The Vanguard Total Stock Market Index Fund is also available as an ETF under the ticker VTI . I have a significant position in VTI because it carries an extremely low expense ratio and offers excellent diversification across the U.S. economy. Volatility An investor may choose to use VTWNX in an employer sponsored account (if their employer has it on the approved list) while creating their own portfolio in separate accounts. Since I can’t predict what investors will choose to combine with the fund, I analyze it as being an entire portfolio. Since the fund includes domestic and international exposure to both equity and bonds, that seems like a fair way to analyze it. (click to enlarge) When we look at the volatility on VTWNX, it is dramatically lower than the volatility on SPY. That shouldn’t be surprising since the portfolio has some large bond positions. Over the last five years it has significantly underperformed SPY, but that should be expected given the much lower beta and volatility of the fund. Investors should expect this fund to retain dramatically more value in a bear market and to fall behind in a prolonged bull market. Opinions I find this to be a very solid fund, but if I could make two adjustments it would be to slightly increase the amount of domestic equity at the expense of international equity and to increase the percentage of long term government debt by adding a small position in the Vanguard Long-Term Government Bond Index Fund (MUTF: VLGSX ). The long term government bonds have a negative correlation to equity markets and a high level of volatility. Due to the strong negative correlation they make the resulting portfolio less volatile than it would be without them. The ideal allocation would be fairly small, but I would prefer to a small inclusion of that (say 5%, maybe as high as 10%) at the cost of total bond index funds that will hold more corporate debt. Corporate debt can be a great investment, but because it is has more credit sensitivity the diversification benefits are weaker. This inclusion would be expected to drop the annualized volatility a little further. Conclusion VTWNX is a great mutual fund for investors looking for a simple “set it and forget it” option for their employer sponsored retirement accounts. It is ideally designed for investors planning to retire around 2020, but can also be used by younger employees with lower risk tolerances or older workers with higher risk tolerances. Disclosure: I am/we are long VTI. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.