the magazine for etf · PDF filethe magazine for etf advisors ///// OCTOber ... These effects may be more pronounced in funds with larger or inverse multiples and in funds ... a Social

O C T O b e r 2 0 1 3t h e m a g a z i n e f o r e t f a d v i s o r s ///////////////////////////////////////////////////////

p u b l i s h e d bywww.indexuniverse.com/etf report

G l o b a l F i x e d i n c o m e | H e d G e S t r a t e G i e S | G e a r e d | i n F l a t i o n a n d V o l a t i l i t y

ETF Opportunitiesas Bonds Fall

ProShares Inverse Bond ETFs give you the opportunity to hedge against or seek profit from falling bond prices. Each is designed to go up on a day when bond prices go down. And vice versa. TBF, TBX, IGS and SJB each seek -1x the daily return of its index (before fees and expenses). ProShares Inverse Bond ETFs, with over $6 billion in assets, also include -2x and -3x choices. Call 888.776.3894 or visit ProShares.com to learn more.

These ProShares seek returns that are -1x, -2x or -3x the return of an index or other benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings consistent with their strategies, as frequently as daily. For more on correlation, leverage and other risks, please read the prospectus.Investing involves risk, including the possible loss of principal. These ProShares are non-diversified and entail certain risks, including risks associated with the use of derivatives (swap agreements, futures contracts and similar instruments), imperfect benchmark correlation, leverage and market price variance, all of which can increase volatility and decrease performance. Short ProShares should lose money when their benchmarks or indexes rise. Bonds will decrease in value as interest rates rise. High-yield bonds may involve greater levels of interest rate, credit, liquidity and valuation risk than for higher rated instru-ments. Narrowly focused investments typically exhibit higher volatility. Please see the summary and full prospectuses for a more complete description of risks. Carefully consider the investment objectives, risks, charges and expenses of ProShares before investing. This and other information can be found in their summary and full prospectuses. Read them carefully before investing. Obtain them from your financial advisor or broker/dealer representative or visit ProShares.com. There is no guarantee any ProShares ETF will achieve its investment objective.ProShares are distributed by SEI Investments Distribution Co., which is not affiliated with the funds’ advisor. © 2013 PSA 2013-4232

TBF ShorT 20+ YEar TrEaSurY

TBX ShorT 7-10 YEar TrEaSurY

IGS ShorT InvESTmEnT GradE CorPoraTE

SJB ShorT hIGh YIEld

PS_ETFR_HYHG_AUG2013.indd 1 9/6/13 2:59 PM

Fixed Income & ETFs: a toxic relationship? Investors are pouring money into bond ETFs at record levels. But do they really know what they’re getting into?

Considering Nontraditional sources of incomeThe fixed-income market is vast and complex. Here’s a guide to some of its more obscure—but possibly rewarding—nooks and crannies.

a Social Media primer, part iiETF Report revisits the issues raised by the SEC’s recent decision regarding social media, and addresses how advisors should approach the different platforms and regulations.

101418

features

volume 13 | no. 10 Contents

© 2013 IndexUniverse LLC. All rights reserved. The text, images and other materials contained or displayed are proprietary to IndexUniverse LLC, except where otherwise noted, and constitute valuable intellectual property. No material from any part of any IndexUniverse LLC publication, product, service, report, email or website may be downloaded, transmitted, broadcast, transferred, assigned, reproduced or in any other way used or otherwise disseminated in any form to any person or entity, without the explicit written consent of IndexUniverse LLC. For permission to photocopy and use material electronically, please contact [email protected] or call 415-659-9029.

2 new etf launches First Trust launches a non-U.S. multi-asset-class income fund. Plus: Our monthly look at new ETF offerings and filings.

4 etf explainer: emb We examine key inflection points in the emerging markets bond ETF’s volatile decline.

6 profile Rob Arnott, founder of Newport Beach, Calif.-based Research Affiliates, discusses his firm’s success.

22 Q&a: tad rivelle TCW’s chief investment officer discusses possible scenarios stemming from the inevitable QE exit.

25 Why i own: gmf Mill Creek Capital Advisors’ Tom Chapin explains the qualities that make the SPDR S&P Emerging Asia Pacific ETF stand out.

26 sectors in review August was pretty dismal for U.S. sectors, with faint bright spots in basic materials, energy and tech.

28 etf data Our monthly databank breaks down ETF returns for every market segment.

Subscribe by contacting Lauren Paisley at [email protected]

or by calling 415-659-9029. The annual subscription rate is $99.

SUBSCRIBE TODAY

Publisher, Director of sales Foster Wright, 646-867-4481

[email protected]

Global heaD of contentMatt Hougan

[email protected]

eDitor Drew Voros

[email protected]

ProDuction eDitor Heather Bell

coPy eDitor Lisa Barr

creative Director Jeannine Gaubert Pamoukdjian

GraPhic DesiGner Patrick Hamaker

inDexuniverse llc201 Mission St., Ste. 720San Francisco, CA 94105www.IndexUniverse.com

founDer, ceo Jim Wiandt

coo, executive vP Don Friedman

departments

2 IndexUniverse.com/ETF Report

S&P Dow Jones Indices LLC is a part of McGraw Hill Financial. Standard & Poor’s, S&P and S&P 500 are registered trademarks of Standard & Poor’s Financial Services LLC, a part of McGraw Hill Financial. Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). All Trademarks have been licensed to S&P Dow Jones Indices LLC. It is not possible to invest directly in an index. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (collectively “S&P Dow Jones Indices”) do not sponsor, endorse, sell, or promote any investment fund or investment vehicle that seeks to provide an investment return based on the performance of an index. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices does not have the necessary licenses. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties.

Copyright © 2013 by S&P Dow Jones Indices LLC, a part of McGraw Hill Financial, and/or its affiliates. All rights reserved.

Constructing a strong core is simpler with the S&P 500®, 400 and 600—the market’s building blocks.

We’re serious about you.Play with allocation at spdji.com/get-core

Now dear, that’s not a core portfolio...try again.First Trust launched a non-U.S.-focused diver-sified income ETF, the International Multi-As-set Diversified Income Index Fund (YDIV).

The new fund has come along at a time when investors are

scouring the universe of securities for ways to generate income, and the ETF market is increasingly crowded with funds designed to meet the income need by cast-ing a wide, multi-asset-class net. YDIV is unique in that it is the first of these ETFs to focus specifically on the ex-U.S. space, although there are other funds, like the

ETf fIlIng ACTIvITY

lAUnCHES

U.S. EqUITy

Global X MLP & Energy Infrastructure

Nashville Area

Schwab Fundamental U.S. Broad Market

Schwab Fundamental U.S. Large Company

Schwab Fundamental U.S. Small Company

INTErNaTIoNal EqUITy

EGShares EM Dividend High Income

KraneShares CSI China Internet

Schwab Fundamental EM Small Company

Schwab Fundamental Int’l Large Company

Schwab Fundamental Int’l Small Company

WisdomTree EM Dividend Growth

CoMModITIES

iShares DJ-UBS Roll Select Commodity

alTErNaTIvES

First Trust Mstar Managed Futures Strategy

aSSET alloCaTIoN

First Trust Int’l Multi-Asset Diversified Income

SElECTED fIlIngSAdvisorShares YieldPro

Alerian Energy Infrastructure

iShares Interest Rate Hedged Corporate Bond

iShares Interest Rate Hedged High Yield Bond

ProShares Short Term USD EM Bond

ProShares Inv Gr - Interest Rate Hedged

Robo-Stox Global Robotics and Automation

Schwab TargetDuration 12-Month



SPDR MSCI Beyond BRIC

40-APPSArrow Investments

Cambria Investment Management

Emerging Global Advisors

RevenueShares

U.S. Global Investors

First Trust Int’l Multi-asset diversified Income Index Fund (ydIv)ex-us etf invests in a range of equities and fixed-income securities

iShares Morningstar Multi-Asset Income Index Fund (IYLD) and the Arrow Dow Jones Global Yield ETF (GYLD), which offer a global perspective. First Trust also pre-viously launched a U.S.-focused comple-ment to YDIV, the Multi-Asset Diversified Income Index Fund (MDIV).

YDIV’s holdings include a 15 percent allocation to the iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB | B-N/A)and the fund carves out 25 percent of its portfolio for dividend-paying securities. It divides up the remaining 60 percent equally between REITs, preferred securi-ties and infrastructure companies.

The new fund is listed on the Nasdaq exchange and tracks a Nasdaq index.

ydIv quick viewISSUER First Trust

SEgmEnT Asset Allocation – Target Outcome

ExPEnSE RATIO 0.70%

STRUCTURE Open-Ended Fund

DATE lAUnCHED August 22, 2013

COmPETIng fUnDS N/A

Source: IndexUniverse. Data and information as of 8/31/2013. ETF Filings sidebar covers launches and filings for the month of August.

neW funds

ETFlaunches

FEaTurEd ETF

5% LEvERAGED

5% COMMODITIES

15%US FIXED INCOME

5%INvERSE

2%CURRENCY

9% INTL FIXED INCOME

27% INTL EqUITY

30% US EqUITY

1% ALTERNATIvES

1% ASSET ALLOCATION

ETFs100

YEAR-TO-DATE


➤ Gold exposure through companies that own the mines

➤ Two gold equity ETFs covering different dynamics of the gold market

➤ Potential for income and tax-advantaged capital gains treatment versus bullion*

Gold exposure through companies that own the mines

Two gold equity ETFs covering different dynamics of the gold market

Potential for income and tax-advantaged capital gains treatment versus bullion*

Market VectorsGold Mining ETFs

CHOOSE YOUR GOLD VECTOR GDX® Market Vectors Gold Miners ETF

GDXJ® Market Vectors Junior Gold Miners ETF

marketvectorsetfs.com888.MKT.VCTR

* Long-term capital gains tax rate is 28% for bullion and 15% for equities. For investments held less than a year, ordinary income tax rates apply.

Gold- and silver-related investments are subject to risks, including bullion price volatility, changes in world political developments, competitive pressures and risks associated with foreign investments. In times of stable economic growth, the value of gold, silver and other precious metals may be adversely affected. Mining companies are subject to elevated risks, which include, among others, competitive pressures, commodity and currency price fl uctuations, and adverse governmental or environmental regulations. In particular, small- and mid-cap mining companies may be subject to additional risks, including inability to commence production and generate material revenues, signifi cant expenditures and inability to secure fi nancing, which may cause such companies to operate at a loss, greater volatility, lower trading volume and less liquidity than larger companies. Investors should be willing to accept a high degree of volatility and the potential of signifi cant loss.

Fund shares are not individually redeemable and will be issued and redeemed at their NAV only through certain authorized broker-dealers in large, specifi ed blocks of shares called “creation units” and otherwise can be bought and sold only through exchange trading. Creation units are issued and redeemed principally in kind. Shares may trade at a premium or discount to their NAV in the secondary market. You will incur brokerage expenses when trading Fund shares in the secondary market. Past performance is no guarantee of future results. Returns for actual Fund investments may differ from what is shown because of differences in timing, the amount invested, and fees and expenses.

Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 888.MKT.VCTR or visit marketvectorsetfs.com. Please read the prospectus and summary prospectus carefully before investing.

V A N E C K S E C U R I T I E S C O R P O R A T I O N , D I S T R I B U T O R ■ 3 3 5 M A D I S O N A V E N U E ■ N E W Y O R K , N Y 1 0 0 1 7

55871_VEG_GDX/J_ETFR_Oct13.indd 1 8/23/13 9:56 AM

ishares J.p. morgan usd emerging markets bond etf

Each month, we look at an ETF with a particularly interesting chart and explain the market forces behind its performance. This month we look at the iShares J.P. Morgan uSd Emerging Markets Bond ETF, with more than $4 billion in assets under management, which has fallen into a downtrend.

Source: Bloomberg. Data for 8/23/2012 to 8/23/2013.

in detail

ETF Explainer: emb

The Indonesian government announces the issuance of $726 million worth of short- and long-term bonds as part of the $174 billion bond offering spelled out in the 2013 budget.

The Turkish lira hits a record-low versus the greenback, while the country’s sovereign bond yields climbed above 10% for the first time in 2013.

The Philippine stock market continues its rally, and bond yields ease as Standard & Poor’s upgrades the country from “stable” to “positive.”

The Brazilian government announces measures to cut billions in spending to stem the tide of inflation, which hit 6.7% in June.

The Asian Development Bank reports that corporate bond issuance in the region was outpacing sovereign issues, while July and August yields edged up in China, Indonesia and Vietnam.

Polish President Bronislaw Komorowski announces he and Prime Minister Donald Tuck believe the country should fulfill its euro adoption requirements by 2015.

sep

10feb

27

deC

20Jul

23

Jan

15aug

23

13.33%

8

6

4

2

0

-2

-4

-6

-8

-10

%

RETURN

EMB ETF

SEP OCT NOv DEC JAN FEB MAR APR MAY JUN JUL AUG

2013

sep10

deC20 Jan

15

feb27

Jul23

aug23

ISSUER BlackRock

SEgmEnT Fixed Income: Emerging Markets - Sovereign

ExPEnSE RATIO 0.60%

AUm $4.2 Billion

COmPETIng fUnDS EMLC, EBND, PCY, LEMB, PFEM, vWOB

EMB quick view

6 OctOber 2013 7IndexUniverse.com/ETF Report

ProFIlE

in a world of increasingly commoditized index prices, rob arnott believes the growth of his fundamental index concept is fueled by the added value.

By Olly Ludwig

When you talk about “jumbo public funds,” are you talking about the CalPers of the world? I can’t specify names, but CalPers is one illustra-tive example. But of the 20 largest public funds in the world, I would hazard a guess that half of them have pilot programs in Fundamental indexing. And for most of them, a pilot program means $1 billion or more.

Is that consistent with the institutional space perhaps being out in front on the indexing revolution per se?Right. But we’re also seeing the retail space. Retail investors have been big adopters of indexing. Why? Because they’re tired of trying to chase this or that active manager and failing. And yet they’re also tired of cap-weighted indexes sucking them into one bubble after another and breaking them on market crashes. Something that intui-tively will contra-trade against those extremes just makes sense, so we’re seeing that the biggest adopters are public funds and retail.

So what’s the pie-in-the-sky scenario in terms of adoption here? Do you envisage a future where the fundamentally weighted indexes of the world will have a place at the same table as the cap-weighted crowd? Or will it always be something of an insurgency?I think we’re already no longer seen as an insur-gency. We’re already seen as a credible, respected alternative to cap-weighted indexing. There are few forces at work in the investing arena that are more powerful than inertia, so this achieve-ment of going from no assets to $100 billion in the space of eight years is remarkable.

But when you look at cap-weighted indexing, what’s the total size of U.S. equity cap-weighted indexation? Maybe $4 trillion? And it took how long to get to this size? About 40 years. And in how many of the 40 years did cap-weighting beat the average active manager?

So you can see that inertia has impeded the growth of an extraordinarily powerful idea—cap-weighted indexation—such that active manage-ment is still dominant. If you want to view it as a battle between cap-weighted and Fundamental Indexes, it’s a battle we’re going to be losing for at least the coming decade, and probably the coming two decades. That doesn’t bother me.

Let’s segue to the state of indexing. A lot has happened in the past year—Vanguard’s October 2012 move to jettison MSCI indexes in favor of CRSP and FTSE on 22 funds; iShares saying it was pulling the name of index providers from some ETF names. This all points to a kind of commoditization of the business. Can you offer general comments about that?Sure. I think any time an idea gains wide acceptance, fee pressures are a natural part of the landscape. And you have to either demonstrate sufficient product superiority to justify the fee difference, or respect the demand for fee concessions—or a bit of both. Our approach has been very simple: Make sure our products amply deserve the fee dif-ferential many times over. And offer compet-itive fees. And that’s just what we do.

We don’t control the end-fee that our licens-ees charge, but those fees are very competitive. When Jack Bogle criticizes the fees of Funda-

fIRm Research Affiliates LLC

fOUnDED 2002

lOCATIOn Newport Beach, CA

advisor quick view

rob arnott is, Without a doubt, one of the big minds in the World of investing and indexing. And his plan to serve up an option to capitalization-weighted benchmarks in the form of fundamentally weighted indexation that avoids the pernicious “Cisco effect” of buying high and selling low is, after 10 years, morphing from insurgency to a real trend.

The splashy launch in August of six Schwab ETFs that use indexes from his Newport Beach, Calif.-based firm Research Affiliates was as clear a sign as any that inves-

tors are increasingly keen on explor-ing rules-based ways to enhance the pursuit of maximizing expected returns while not paying eye-popping fees of active funds.

Apart from expressing his obvious pride in what his firm has achieved

so far, Arnott spoke to ETF Report’s Olly Ludwig about the broader challenges in indexing, arguing that notwith-standing the obvious fee compression his firm and oth-ers are grappling with, he’s confident that investors will readily offset any extra costs that come with his indexes with outsized returns.

tractionGaining

CEO and Chairman Rob Arnott founded Research Affiliates in 2002

The launch of the Schwab Fundamental ETFs recently put you in the limelight. What kind of legs does this phenomenon have?The best answer to that is that we began the year with $76 billion in assets linked to Research Affiliates’ indexes. We finished July with $98 bil-lion. It’s gaining traction fast. The idea resonates.

Does the increasing popularity of it imply that a growing piece of the investing public has the sophistication to systematize this notion of maximizing expected returns?I think so. Basically, people get it. They just know that as human beings, we’re conditioned to chase what goes up, and we’re conditioned to shun what’s gone down. Something that mecha-nizes a discipline—and does so in a fashion that’s rigorous, that’s rooted in fundamentals, that’s objective—it just resonates. The largest growth worldwide has been jumbo public funds. These typically are not path-breakers; they tend to be slow to adopt. And yet they’ve been early adopters on Fundamental indexing.

SoMEThINg ThaT INTUITIvEly wIll CoNTra-TradE agaINST ExTrEMES jUST MakES SENSE


All investing is subject to risk, including the possible loss of the money you invest. Bond funds are subject to the risk an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

To buy or sell Vanguard ETF Shares, contact a broker. Usual commissions may apply. An investor may pay more than net asset value when buying and receive less than net asset value when selling.

For more information about Vanguard ETF Shares, visit advisors.vanguard.com/BND, call 800 523-0664, or contact your broker to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.

© 2013 The Vanguard Group, Inc. All rights reserved. U.S. Pat. No. 6,879,964 B2; 7,337,138; 7,720,749; 7,925,573; 8,090,646. Vanguard Marketing Corporation, Distributor.

Follow us @Vanguard_FA for important insights, news, and education.

BNDVanguard Total Bond Market ETFBuild a balanced foundation that helps meet your clients’ needs.

There are a lot of investment factors to worry about when you’re trying to keep your clients headed in the right direction. But with the BND ETF, cost won’t be one of them. As a low-cost leader for over 35 years, Vanguard will continue to have options that can help lower risks and lower costs.

Build a stronger foundation for your clients at advisors.vanguard.com/BND today. 800 523-0664

Are you Vanguarding® your clients’ portfolios?

ProFIlE

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mental Index products, I challenge him on that. I point out that our fees are one-fourth that of the typical active manager, and our value added is vastly greater than the typical active manager.

So which is cheaper, an index fund that charges near zero and adds slightly negative alpha, or a Fundamental Index fund—a quasi-index fund—that charges a skinny fee and adds a pretty meaningful increment to returns?

Are the fees you draw too modest, and is the fee pressure in the industry enough such that you have anxiety about the viability of the business plan as you conceived it when you launched Research Affiliates almost a decade ago?Well, the short answer to the question is that we absolutely charge way too little for the product, given the value that’s added. The fee pressures are greater than I would have expected. But it’s a perfectly good business. Given the assets drawn to the product, it’s a profitable business.

Let’s look a bit more at the downward pressure on margins in the indexing business. Perhaps there’s no example more salient to growing price pressures than the affiliated indexing trend. WisdomTree is traveling in similar traffic as you are, though we can certainly parse your two indexing methodologies very tangibly. But do they have an advantage to be riding that self-indexing wave? They started as an indexing

firm, and then segued into the fund business. Do they have the best of both worlds? And do you ever dream that Research Affiliates would have a fund arm? The short answer is that there’s nothing wrong with what they’re doing. There’s nothing wrong with what we’re doing. And we have zero aspira-tions to have a fund arm.

Now, our fee share on Schwab and Power-Shares strategies is a handful of basis points that have to be part of the fee. If our products aren’t superior by some multiple of that fee difference, then our affiliates don’t have an incentive to work with us. And that’s fine.

Are you distinguishing yourself from that fee-compression issue because, in some sense, the cap-weighted world is much more commoditized than your world of fundamentally weighted indexing is or may ever be? I can’t separate myself from it, because it’s all one big marketplace. Commoditization of prod-uct is endemic in every industry on the planet.

If our ideas are at 200 basis points and some-body else’s are at 150 basis points, and we charge a 50 basis point licensing fee, our correct market share is zero.

If we charge 40 basis points, and if people aren’t 100 percent certain we’re going to have 50 basis points more than the other guy every time, our correct market share is pretty small.

But if we charge a handful of basis points, and our product is 50 basis points better than anybody else’s, then we should have dominant market share.

Going back to the idea that the indexing world is sort of transitioning perhaps to the more commoditized competitive environment, you’re telling me the devil’s in the details; is that fair?I think that’s accurate. And I don’t think any-one in the business sweats the details to the extent we do.

wE aBSolUTEly ChargE way Too lITTlE For ThE ProdUCT, gIvEN ThE valUE ThaT’S addEd

11OctOber 201310 IndexUniverse.com/ETF Report

Bloomberg. Data covers 2/4/2009-6/26/2013.

2009 2010 2011 2012 2013

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hyd Premiums vs. Flows

as the market vectors high-yield

municipal index etf (hyd) saw greater

outflows in 2013, its premium shifted to

a discount.

Why Bonds?Before digging into some of the flies in the oatmeal in fixed-income ETFs, it’s worth considering why people are investing in bonds in the first place. Historically, investors turn to fixed income for one of two reasons.

The first is the simplest—income. The very nature of a bond makes it ideal for someone who wants to take a sum of money and turn it into both more money and a stream of payments. If you buy a single 10-year bond with a face value of $1,000 and an annu-al coupon of $10, you’re promised that $10 check every year and all that money back at the end. If you manage to buy the bond for $900 instead of $1,000, you’ll even make a gain on that face value. All of this, of course, assumes the bond issuer doesn’t go belly up.

The second reason people buy bonds is for portfolio diver-sification. Historically, bonds have low correlations with other asset classes, so they provide something of a safe haven when equity markets go to pot. After all, if you own your 10-year bond and the market goes south, it has absolutely no impact on those $10 payments or the $1,000 you’ll get in 10 years—again, assuming the bond issuer doesn’t default.

There’s no ambivalence about ETF price movements. To get your capital investment out of a bond ETF, you “have” to sell it, and that price can be higher or lower than what you paid getting in.

The Pricing ProBlemThe second big problem with pooled bonds is that they require a lot of guesswork on pricing. When you buy your bond for $900, you go into the bond market (through your broker or even directly through a service like TreasuryDirect.gov) and you participate in the price discovery for that bond, eventually settling on the $900 price you’re willing to pay, and which the issuer or bond dealer is willing to sell at.

When you buy a bond ETF, you’re buying a pre-existing portfolio of bonds. While some of those bonds are quite liquid, many of them don’t trade frequently after their initial issuance. Ten-year Treasurys, for instance, are sold every month by the federal government. The constant influx of “new” bonds means that investors don’t actually need to trade the “old” bonds between themselves all that often to adjust their exposures. They simply buy the bonds they need and hold them for a long period of time.

So how do you know what the bond ETF is actually worth? To answer this question, the portfolio manager (and the fund

accountant, who calculates the net asset value of the ETF each day) has to rely on bond pricing services. These services make up a “best guess” price for what every bond that’s ever been issued would be worth if you sold it right now, even if the actual issue hasn’t traded in years. They do this with complex models, but ultimately they’re just guesses.

In reality, however, very few investors buy individual bonds. Most people buy bond funds—whether mutual funds or ETFs—and that leads to the first problem.

Pooling BondsIn theory, buying a bond ETF that targets, say, any bond with a maturity of longer than 10 years, like Vanguard’s Long Term Bond ETF (BLV | C-75), is a fantastic idea. You spread the risk that one of the issuers defaults across almost 1,500 bonds. But what happens when one of the bonds in the portfolio ticks under 10 years to maturity? Well, the portfolio manager will have to sell it.

In fact, bond funds have to do a lot of selling, which is why in 2012, fixed-income ETFs were among the few categories of ETFs to make capital gains distributions. If you’re in BLV, there’s no way to “hold it until maturity,” because the fund is always going to be buying long bonds and selling them when they get within 10 years of maturity. That means that as an ETF investor, you’re directly exposed to the price movements of the underlying bonds: If the bond happens to be “cheap” when it ticks under that 10-year mark, you don’t get all your money back; you get some smaller portion. You still receive the in-come stream from the underlying bonds, but the price swings in bonds can be (and have been, recently) enormous.

Of course, if you hold an individual bond, you’re also affect-ed by that price swing. The bond you paid $900 for last week could only be worth $800 today. But if your intention is to hold it until it matures, you should truly be ambivalent. You’ll get your $1,000 in the end.

Fixed income

it’s not that bond etfs aren’t good or useful products, but investors might not be aware of all of their drawbacks and pitfalls.

Why

&

AlWAys A Good FITeTFs

By dave Nadig

etfs have revolutionized investing, and giv-en investors access to all sorts of interesting new asset classes—currencies, commodi-ties, alternatives. In the outer corners of the market, skepticism toward these products runs high. do leveraged ETFs really work? Should investors have access to VIX ETNs? Investor concerns abound.

But while these areas get all the attention, the “new” asset class attracting real assets is fixed income. ETF investors now have more than $250 billion invested in fixed-income ETFs, or about 20% of total ETF auM. and here, confidence reigns supreme: Most inves-tors just take for granted that ETFs holding plain-old boring bonds will get the job done.

That’s a mistake.The 240-plus ETFs offering exposure to

fixed income come with some real wrinkles, and merit close due diligence before you buy.

FLOWSPREMIUM

Figure 1


To download a copy of the prospectus, visit http://pwr.sh/CUp | http://pwr.sh/DBVp The funds are not mutual funds or any other type of Investment Company within the meaning of the Investment Company Act of 1940 and are not subject to its regulation. DB Commodity Services LLC, a wholly owned subsidiary of Deutsche Bank AG, is the managing owner of the funds. Certain marketing services may be provided to the funds by Invesco Distributors, Inc. or its affiliate, Invesco PowerShares Capital Management LLC (together, “Invesco”). Invesco will be compensated by Deutsche Bank or its affiliates. ALPS Distributors, Inc. is the distributor of the funds. Invesco, Deutsche Bank and ALPS Distributors, Inc. are not affiliated. Commodity futures contracts generally are volatile and are not suitable for all investors. An investor may lose all or substantially all of an investment in the funds.

Currency ETFsPowerShares DB

US Dollar Bullish Fund

US Dollar Bearish Fund

G10 Currency Harverst Fund

UUP UDN DBV

That guesswork nature is one problem. The other is the way those prices are presented—they’re worst-case fire-sale prices. When you value a stock in your portfolio, you generally use the last price it traded at; or for an illiquid stock, the mid-point between the bid and the ask at any given point in time. With bonds, it’s just the bid—what they’ll buy it from you for.

Of course, if you’re trying to buy into an ETF, that’s the wrong price to use. If everyone wants to buy into BLV, autho-rized participants will have to go make new shares by buying a big basket of bonds—they’ll have to pay the asking price, not the bid price!

In the ETF world, this leads to volatility in the actual price you’ll pay versus the advertised fair value of the portfolio—when money flows into a particular ETF consistently, it will generally trade at a premium to its advertised NAV. When money flows out, that premium can disappear. (See Figure 1.)

This uncertainty in pricing on the ETF is actually just a reflection of the inherent inefficiency in the bond market. The ETF just makes it blindingly apparent for investors, and that can make investors uncomfortable.

The liquidiTy TraPThat leads to the last problem bond investors looking to ETFs can face—liquidity. With the only real exception being the large block-issued debt of nations, individual bonds are shockingly illiquid compared to equities. Where Citibank shares trade millions of times a day, an individual Citibank bond might not trade for weeks. ETFs, because they trade like stocks, provide an enormous liquidity advantage over owning individual bonds.

For example, the iShares high-yield corporate bond ETF, HYG (HYG | B-64), trades more than $350 million most days. This creates the illusion that there’s abundant liquidity in high-yield bonds.

On an average ho-hum news day, this isn’t a problem. The ETF will in fact trade with tight spreads and prices consistent with a rational assessment of portfolio value. But when the fixed-income market hits a crisis point, as we’ve seen several times in the last decade in high-yield and municipal bonds, the scarce liquidity of the underlying can cause the ETFs (which will generally still trade in large volumes) to swing wildly from dis-counts (as panicked holders head for the exits) to premiums (as speculators look to buy depreciated assets) and back to discounts (as speculators exit).

For example, on a high-volume day, when investors are rushing into a muni bond ETF, it could take a while for APs to secure the ETF’s underlying basket in the less liquid underly-ing market. In this case, the delay and lack of liquidity in the underlying market frequently cause the ETF to trade at a pre-mium. When investor sentiment turns, similar problems pre-vail, causing the fund to swing from a premium to a discount.

In the words of Robert Heinlein, there ain’t no such thing as a free lunch. In the case of fixed-income ETFs, the on-screen liquidity of the ETF can come at a significant cost. Unfortu-nately, it can be a cost you never see until it’s too late.

any alTernaTive?Does this mean investors should avoid fixed-income ETFs at all costs? Of course not. The problem is with the fixed-income market itself, and each potential way of accessing it presents its own problems.

Buying individual bonds forces you to deal with limited liquidity head-on. You suffer from the same liquidity-driven swings in values that you get with bond ETFs, without the diversification that ETFs offer.

Bond mutual funds are no picnic either. Bond mutual funds have the salutary benefit of allowing investors to buy and sell at exactly the net asset value every day. If there is a rush of selling in the fixed-income market, bond mutual funds will not trade to a “discount.” All else equal, they will likely fall less and rise less on big market days.

The problem is what happens if you don’t sell. Let’s say a bond mutual fund strikes a NAV at $10, but the bonds inside of it are actually valued at $9. If someone redeems the fund, they’ll make out great, getting paid the full $10 in value. But the mutual fund will have to sell more than its fair share of bonds to raise cash to pay that shareholder, effectively diluting everyone else in the fund.

You’ve got to choose the devil you want to dance with. For most corners of the fixed-income market, ETFs deliver solid ex-posure in a package much more convenient than individual bonds. But they aren’t perfect, and it pays to understand where they can stumble.


the beginner’s guide to bank loans, vrdos and other crazy corners of the fixed-income market

Combine the current low-interest-rate environment with an ever-growing fear of rising rates, and you’ll understand why investors have been piling into fringe cor-ners of the fixed-income market recently. From bank loans to VRDOs, ETFs have packaged up strategies that promise high yields and strong performance, even if rates begin to rise.

If you’re like most of us, however, you probably don’t even know what a bank loan really is. How do you separate the wheat from the chaff?

This is your guide to get started …

Income StrategiesAlternative

Spread Bets: Long High Yield/Short TreasuryGoing long high-yield bonds and shorting Treasurys offers exposure to credit while dampening the impact of rising interest rates. The level of interest-rate sensitivity ranges from trying to eliminate interest-rate risk altogether to actively managing the exposure; most spread ETFs hedge some, but not all, of the duration risk. The cost of implementation can hinder the efficacy of these strategies. Shorting can be a costly proposition.

Floating Rate Notes Floating rate notes (FRNs), as the name suggests, are a class of bonds whose rate “floats” with overall interest rates (typically Libor). Generally speaking, the level of the coupon is reset quarterly, so you’re not exposed to rate spikes. One risk is that FRNs are almost exclusively issued by financial companies, and therefore have sector concentration risks. The securities are rated investment grade (BBB- or better).

Variable-Rate Demand Obligations Variable-rate demand obligations (VRDOs) are floating-rate municipal bonds. Many of the securities issued have decades to maturity, but the interest rates reset on a daily, weekly or monthly basis through an auction process. As a failsafe measure, investors have the option to “put” (or return) the bonds back to the issuer at par, thus limiting both the interest rate and credit risk of the bonds. Note: This safety and flexibility places a cap on the securities’ ability to generate yield.

Commercial Mortgage-Backed Securities Commercial mortgage-backed securities (CMBSs) derive their income from proceeds paid on the loans made to build and maintain commercial properties, like malls and office buildings. The good: An improving economy means the tenants pay rent on time. In turn, the securities’ likelihood of default decreases. At the same time, the prepayment risk isn’t as high as that of residential mortgages due to more restrictive loan covenants. The bad: Rising interest rates don’t bode well for CMBSs, which mostly have fixed-coupon payments.

Bank Loans/Senior LoansBank loans solve both the need for yield and protection against rising interest rates. Rather than paying a fixed coupon, these high-yield securities’ interest payments are tied to a floating rate (typically three-month Libor) plus a spread. As rates rise, the securities pay a higher coupon, dampening the negative effect of rising rates on the bonds’ principal. One risk? Rising rates may increase the likelihood of default, because borrowers are burdened with higher costs. These are subinvestment-grade credits, after all.


Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

Investment in FlexShares Morningstar Global Upstream Natural Resources Index Fund (GUNR) is subject to numerous risks including possible loss of principal. Highlighted risks: concentration (more than 25% of assets in a single industry); global natural resources (risk associated with global natural resources); foreign securities (fund typically invests at least 80% of assets in ADRs and GDRs); emerging markets (countries potentially less liquid and subject to greater volatility). See prospectus for full description of risks.

GUNR is subject to the global natural resource industry. As the demand for or prices of natural resources increase, the Fund’s equity investment generally would be expected to also increase. Conversely, declines in demand for or prices of natural resources generally would be expected to cause declines in value of such equity securities. Such declines may occur quickly and without warning and may negatively impact your investment in the Fund.

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nt1215_ETFR_8.75x10.75.indd 1 9/11/13 11:31 AM

International Locally Denominated USD Hedged BondsHedged exposure to locally denominated international debt is the newest option in an already-diverse landscape of international debt strategies. Hedging exposure to local currency fluctuations limits the volatility from the currency moves while still providing diversification benefits. Investors holding a marketlike portfolio will bear heavy exposure to Japanese and various European governments’ debt; those seeking higher yields can look to emerging-market portfolios, but the risks there are significant.

Convertible DebtPart equity and part debt, convertible debentures offer equity upside, while maintaining a level of protection from the debt. Convertibles behave like any other debt instruments, with the added bonus of being able to convert the debt to equity at a predetermined stock price. The debt serves as a buffer from equity losses. However, rising interest rates can serve up a double whammy if a drop in the stock value is accompanied by a drop in the debt value. Business Development

Companies Business development companies (BDCs) can serves as a strong source of yield in a portfolio. These private equity firms lend to or invest in high-credit-risk companies. Proceeds from the investments (after hefty management fees) are then paid back to investors. As a result, investing in BDCs can be a costly affair: The only pure-play BDC-focused ETF, the Market Vectors BDC Income ETF (BIZD | C-0), has more than 7 percent in acquired fund fees. The high yield and significant upside come with substantial credit risk due to the speculative nature of the borrowers.

Gene Koyfman is ViCe PResiDenT

of ReseaRCH aT inDexUniVeRse.

He Can be ReaCHeD aT

[email protected].

19OctOber 2013

the financial regulators allow it, and at this point, it’s clear that social media is not a fad; rather, it’s a critical communication and networking tool. for the financial advisory community, social media has become an extension of the networking that advisors have done for years through civic groups and clubs.

“social media is the most effective networking tool in history,” said James mcdonald, Ceo of index strategy advisors, an investment advisory firm in houston. social media can help advisors work with clients, stay up-to-date on the latest thought leader-ship, and find new career opportunities, he added.

but for some advisors, the move to social media has been a slow transition, or one that hasn’t even been begun. and like many new endeavors, just get-ting started can be daunting.

[Editor’s note: This is the second part of a two-part series on social media in the ETF space. The article in last month’s issue focused on ETF issuers and social media.]

ple questions about what he should ask a person who he was interviewing or about an issue that concerned them.

“He was using it to build his own brand recognition as a star news reporter, and it was also helping him in his work,” Lud-wick said. That became the model for Lud-wick’s own social media activities.

By contrast, Russ Thornton, a certified divorce financial advisor with Wealthcare Capital Management in Atlanta, took up social media because it seemed like fun. “I’m a bit of a self-professed technology nerd, so I took a personal interest early on,” he said. He found that it was useful for business, too. He posts market com-mentaries as well as pictures of his dog, and clients seem receptive.

Other social networks, such as Insta-gram and Pinterest, are less applicable to the work of financial planning, although they may have advantages for some prac-tices and some client bases. Thornton, for example, has been experimenting with Pinterest as a way to get in front of the divorcées and widows who make up his cli-ent base. “I don’t spend the majority of my time there, but I always pin my blog posts to Pinterest,” he noted.

Finally, there are some platforms to simplify the task. HootSuite is a free application that makes it easy to post to Facebook, LinkedIn and Twitter from one place. Other vendors operate closed networks to address the specific needs of advisors. Finect, for example, allows financial companies to post to the Big Three and be compliant. It also allows ad-visors to set up closed discussion groups for their own clients and employees. The Financial Planning Association also has a social network for its members—FPA Con-nect—that’s designed to be a place where members can share ideas.

Compliance ConcernsFinancial regulators look at social media as marketing material, and advisors should be familiar with the basics. The Securi-ties and Exchange Commission published

Different Venues, Different Purposes What you want to do determines platform and strategy. In general, Facebook is per-sonal, LinkedIn is professional and Twitter is a news feed. There’s plenty of overlap between the three.

“All have value, but none of these was designed for the financial industry,” said Jennifer Openshaw, president of Finect, a financial social media platform company based in Greenwich, Conn. This means advi-sors need to think about what they want to do first. For example, building a client list requires a different strategy than building a brand. The former takes a friendly, more interactive approach that may be better for Facebook, while the latter involves getting in front of influencers and sharing ideas with them—which fits into Twitter’s strengths.

LinkedIn is known as the professional social media network, but it allows for less social interaction than the other platforms. Openshaw describes it as an alternative to a cold call. Prospective clients, employees or business partners can be checked out before a meeting, and it’s a way for people to find out what their peers are discussing.

McDonald is a huge proponent of Face-book as a way to build a client book, and advisors at his firm are required to use it. He says that it’s part of the advisor’s per-sonal narrative that helps build trust with a prospective client, and it helps the client determine if the advisor would be a good fit. “You need at least six interactions with people before you can even introduce the idea of managing their money,” he said.

Twitter is a way to build brands and distributed content, but it doesn’t engen-der personal interaction. After all, posts are limited to 140 characters. It can work, though. One of Jim Ludwick’s clients is a prominent news correspondent who started using Twitter in 2008 for his job. Ludwick, a certified financial planner with MainStreet Financial Planning in Odenton, Md., followed him to see how he used it. He noticed that his client’s colleagues, competitors and fans were also following him; on occasion, the client would ask peo-

by ann C. logue

Social Advice

Pros and Cons of Social Media

Great for engagement and

creating a sense of warmth

Some people over-share; you

can’t have two profiles (although you

can have one under a company name

and one under your personal name)

Everyone uses it, so everyone

can receive your newsletter

Everyone gets so much of it that

messages are often deleted without

being read

Great for following news stories

and sharing your ideas

Feeds move fast; tweets are

limited to 140 characters

Present your professional

credentials and see those of others

Neither warm nor fuzzy

Especially popular with women;

very friendly and upbeat

Difficult for professional

engagement

Understanding the different platforms and the regulations regarding advisor use are

the first two steps before jumping into social media.

18 Indexuniverse.com/etf report

Facebook

LinkedIn

Twitter

Pinterest

Email

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its new social media guidelines in January 2012, and they are an extension of exist-ing marketing rules. “Obviously, you can’t promote performance or post testimoni-als,” says Tom Balcom, CFP, of 1650 Wealth Management in Lauderdale-by-the-Sea, Fla.

That means if a client posts a testimonial, it has to be removed. Many firms have social media policies advisors must adhere to. Some enforce it by requiring everyone to use the same platforms; others rely on spot checks. At Index Strategy Advisors, employees scrub their personal Facebook pages to remove con-troversial content—political posts, religious references, off-color jokes and other infor-mation that might put off a client. Then, the only investment-related material that they can share is information that’s first posted to the firm’s Facebook page.

Beyond that, it’s a matter of following company policies and common sense. “The regulators aren’t worried about political stuff,” Balcom explained, but just because something is allowed doesn’t mean it’s a good idea.

“People have to like you before they have any interest in working with you,” Index Strategy Advisors’ McDonald said. At his firm, advisors are prohibited from post-ing controversial materials. Grandmoth-ers, babies and animals are fair game.

Social media activities need to be re-tained in a documented, unalterable ar-chive in order to satisfy regulators that marketing requirements have been met. Although children are warned over and over again that the Internet is a perma-nent record and that future employers will see all the stupid things they posted when they were 13, that’s not enough for the SEC.

In fact, not everything online is perma-nent. Timelines can be scrubbed, Twitter only stores tweets for a few months, and who knows what future technologies will emerge? Several companies provide ar-chiving services, and it’s a must. “If you’re going to be on social media, you definitely need to have a compliance structure in place,” Wealthcare Capital Management’s Thornton noted.

Openshaw cites the archiving as one of Finect’s advantages. “Everything is record-ed and time-stamped,” she said, which is a huge advantage for many advisors, especially those that are already stretched for time. Thornton uses a service called Arkovi, which creates a compliant record of his activities across several platforms.

Making It Work For YouThe precise payoff to using social media will vary by advisor. For some, it’s a way to get clients; Index Strategy Advisors’ McDonald says that $40 million of his firm’s $58 mil-lion in AUM came in through Facebook. For others, it’s a way to generate speaking opportunities and media mentions, while still others use it to vet potential employees.

Balcom of 1650 Wealth Management says that sharing information through social media is part of the service he offers. Sharing information on his Facebook and LinkedIn pages shows clients he cares about their financial lives and wants them to be knowledgeable. “There are some clients who aren’t on Facebook, but those that are appreciate the useful information we put out there,” he said. Most of what he shares is already published by a recognized media source, such as Yahoo Finance, and he’s able to bring it to a client’s attention.

Ludwick regularly updates his blog, Ad-viceOnlyMusings.blogspot.com. He distrib-utes the posts through both Twitter and an email newsletter, set up via MailChimp. The monthly newsletter also includes a roundup of some of the best tweets of the month to bring them to the attention of people who may not have seen them, giv-en how fast Twitter moves. “There’s lot of cross-pollination going on,” he noted. “Twitter and MailChimp have been really good at extending my influence.”

No matter how people use it, social media is a reality for the financial services industry. “Four percent of advised social media users currently connect with their advisors on social media. Fifty-two percent would like to,” Finect’s Openshaw says. If that 52 percent includes your clients, it may be time to dip in.

SEC Guidance on Social Media

In the Jan. 4, 2012 issue of the National Examination Risk Alert (vol. II, Issue 1), the SEC gave registered investment advisors some guidance on social media. Among other points:

• Firms should have policies and procedures in

place that look specifically at social media,

including usage guidelines, content standards,

monitoring, training and information security.

These should include addressing personal and

professional sites.

• Testimonials should not be allowed, and that

may include “like” buttons for certain types of

content, including biographies.

• The same record-keeping rules apply to

social media as they do to any form of client

communication. Records of activities must be

available for inspection.

20 Indexuniverse.com/etf report


backdrop of continuing weak economic growth, and it’s possible they’ll eventually cause some type of double-dip recession that we’ve feared for a number of years.

Under those circumstances, there aren’t many places for investors to hide. Probably one of the better ones would be non-agency mortgages, because they represent claims against real estate. Part of this scenario incor-porates the idea that while economic times may be tough, real estate may end up being OK in that environment. But credit-sensitive securities will do badly and rate-sensitive securities like Treasurys will also do badly.

There is a third possible outcome, which is a sort of a muddling-through. There’s a 25 percent chance that what we have is a sce-nario in which the Fed acts in a way where it doesn’t rapidly withdraw from QE because it’s not forced to, but on the other hand, they’re not attempting to bring about an economic recovery, so it’s a muddle-through scenario—rates are higher, economic growth is unimpressive, and it’s not catas-trophe, but it’s a form of economic malaise.

In that environment, again, short-duration, credit-sensitive, non-agency mortgages are all reasonable places to make capital allocations.

What would force the fed’s hand to withdraw from Qe, in your most likely scenario?

Let me digress for a moment. If you look at the speeches Bernanke has made over the years, you’ll notice that the justifica-tion for QE has changed dramatically over the last four or five years. When we were looking at the first round of QE, the mis-sion statement was to rescue the economy from systemic risk—save the banks, save the capital markets.

Somewhere around QE2, the Fed started to talk less about systemic risk and more about lowering real interest rates, by which they meant that with rates already near zero, they were look-ing at raising inflation. So QE became a tool to raise inflation. Late last year, they started to talk about QE as a tool to spur hiring and fix the job market.

The way I would characterize it is that QE is safe and effective for treating systemic risk. It worked really well in 2009. QE is ef-fective—although it’s not clear whether it was safe—for lifting inflation and inflation expectations. QE3 hasn’t proven safe or ef-fective for solving the employment problem.

But what will drive the Fed out of QE3 is a realization that its medicine 1) is not effec-tive to get the job done, and 2) is having some ill-considered side effects like excesses in as-set markets, real estate, high-yield bonds or a lot of capital flowing into emerging markets; in other words, if there’s a sense that there’s growing financial instability as a result of their financial policies.

in your view, bernanke hasn’t succeeded in getting the economy back on the right track?

He’s the one who said that monetary policy is not a panacea. I think that’s his way of saying that perhaps they haven’t succeeded. He probably hoped QE3 would lift the pros-pects of the job market and the economy, but he hasn’t succeeded in taking a weak recovery and making it a strong recovery.

He did succeed years ago with respect to preventing disaster. If you were giving him a report card, in the class of avoiding disaster and systemic risk, he gets an A. If you look at it from a standpoint of promot-ing the long-term health and development of the economy, it’s a C at best.

shouldn’t he see this tapering and Qe exit through? his strategy so far seems to be

to retire before it all goes down. I think it’s somewhere in between a “retire” and a “tire.” The president made a statement a few months ago where he made reference to the next Fed chairman, implicitly expressing the view that Bernanke would not be reappointed. So, how much of that is Bernanke and how much of that is the administration is not clear. It’s not for us to say what he should or shouldn’t do, but the truth is that he will be exiting the Fed before the Fed will be exiting QE.

What are some of the potential macroeconomic scenarios you see unfolding in the near

future, and what should investors do in these possible scenarios?Everyone understands that the pricing in the capital markets is reflective of the fi-nancial repression, quantitative easing, zero rates and everything else that goes with that. The big issue of the day is, When quantitative easing ends, what’s going to happen in the bond market, and in the capital markets, generally? In a sense, this is a two-part question because it largely depends on how you think quantitative easing is going to end.

For instance, according to the Fed’s hopes and dreams, QE is going to end in a strong, robust economic prosperity, lots of job creation, etc. Under those types of con-ditions, investors should be limiting inter-est-rate exposure, and favoring the credit side of the fixed-income markets, which is to say corporate bonds, bank loans, maybe some high-yield paper. Non-agency mort-gages work pretty well in that scenario too.

There’s another way that QE can end, and that’s not the way the Fed intends it to, but in our estimation it’s more probable. To put a number to that probability, let’s say there’s a 25 percent chance it ends the way I just described—in a good way—and there’s a 50 percent chance it’s going to end badly.

Ending badly essentially means that the side effects of the medication are caus-ing more harm than ostensible benefits. Rather than seeing much in the way of labor market improvement, what we are actually seeing is a rather substantive run in pricing in asset markets, and to a certain degree we’re also seeing significant chang-es with respect to the issuance of high-yield bonds—the lower-quality ranges are being issued, toggle structures are coming to market again. Basically, we’re seeing conditions we haven’t seen since 2006, be-fore it [the financial crisis] all began.

Under a bad ending, the Fed is essen-tially forced to withdraw from QE with-out the economic recovery, and that will lead us to see higher rates. Those higher rates are going to be occurring against a

do you have any strong feelings about who will be the fed’s next chairman and what

that person will mean for policies? It’s still very unclear. Janet Yellen is a long-time Fed hand, and she is believed to be extraordinarily knowledgeable of the inner workings of the Fed. She has expressed her belief that the Fed should continue quantita-tive easing until it sees recovery in the labor market. That strikes one as “she is a dove.”

Whether or not she’s an ideological dove, and whether she would cling to zero rates even in the face of financial imbal-ances, is unknown. It’s not really clear what Yellen would do as the next Fed chairwoman, although it’s probably fair to say that, at least for the moment, she’d continue the Fed policies we’ve seen.

Larry Summers is another candidate, and he’s expressed some skepticism about the efficacy of QE, but whether he’d actually have the authority and the will to change direction is unclear. But in general, if you’re trying to handicap where the Fed is going, it seems that if it can continue the current policy regime, it will. It’ll abandon that regime when outside circumstances force that abandonment.

how are fixed-income portfolios changing? It’s up to each individual investor

to make those allocation decisions, but one obvious direction that investors are supposed to move in is to reduce duration and be defensive.

The end of QE will come before zero rates—the Fed has made that very clear—and that will presumably be associated with a steeper yield curve. That points to another adjustment investors should make, which is in the maturities they own, as in more “bulletized”-type portfolios and shorter maturities as opposed to the 30-year-type securities.

A third adjustment relates to the pro-portion of the portfolio that should be allocated to mortgage-backed securities, credit and Treasurys—those adjustments also, to a great degree, depend on each

q&a Tad rIvEllE

Tad RivellebuCkle up: bumpy road ahead

The Federal reserve has been signaling that it’s prepared to begin tapering its quantitative-easing programs, but what happens when QE ends is anyone’s guess. Tad rivelle, TCW’s chief investment officer and managing director of the firm’s fixed-income group, argues that while there are a few possible scenarios that might unfold here, the most likely one does not involve a happy ending. Instead, rivelle, who oversees more than $80 billion in fixed-income assets, told ETF report’s Cinthia Murphy that the u.S. is more likely to be headed into a double-dip recession, albeit not severe, than into an economic boom in the near future.

rivelle will be a keynote speaker at Indexuniverse’s Inside Fixed Income Conference Oct. 18 in San Francisco.

tad rivelle, Cio of tCW, sees the end of the fed’s quantitative easing as likely the start of a mild recession.

By Cinthia Murphy


rate bonds are. It’s not entirely clear what’s driving that, but I think part of what’s driving it must be headline concerns about Detroit, Stockton and other high-profile concerns in that universe. The rate rise also probably spooked a lot of retail investors who may have lost their appetite for fixed income in general, and that led to selling in the muni space as well.

Can you tell us more about your portfolio? What are some things you’re investing in right now?

There’s a variety of activities in place. One is an outright defensiveness in the face of the rate environment for the reasons we’ve laid out. Maturities have been adjusted along the lines of what we’ve described—portfo-lios that focus more on shorter-maturity instruments.

Where we can, we’ve bought insur-ance in the swaps market against higher rates to build optionality into the portfolio as opposed to selling optionality into the portfolio. That’s the key to operating suc-cessfully in what may come to be a market deleveraging at some point in 2014.

We don’t know what’s going to occur as deleveraging unfolds, so what you need is the ability to be opportunistic, and have degrees of freedom to manage your way through it. And the way to manage your way through it is to purchase the option-ality rather than sell it; in effect, allow other actors who have less freedom to be put into more difficult circumstances where, in many cases, they’ll be selling securities on a forced basis. That’s the opportunity that’s created for those who

investor’s own handicapping of the poten-tial outcomes of what the Fed is doing. In our view, there’s material risk of QE not ending well. It’s not certain, but since an investor has to underwrite that risk, that calls for a direction of caution in terms of credit risk-taking.

We’re hearing projections of 3.5% rates by next year, 4.5% by 2015. What happens if the

bond market decides to rush there at once rather than to gradually arrive at those levels? Could it derail the economic recovery? Yes. In fact, that’s precisely what we saw when we had that taper tantrum back in May and June. It was catalyzed by Bernan-ke’s statement to the effect that the Fed was carefully considering an initiation of a taper late this year, and the bond market sold off horrifically in a very short period of time. It was a generalized deleveraging. I think it frightened the Fed, and consequently they walked those comments back.

The conflict here is that the Fed tends to approach things from a model-driven academic perspective—what’s supposed to happen in theory versus the realities of the marketplace. When people are looking to front-run one another to offload risk before the next guy does, these models basically go out the window.

How the bond market will respond is absolutely unknown, but it’s more typical for the bond market to move very rapidly, to gallop to what it believes is the next point of equilibrium and not to sell off gradually. I’ve never seen that happen.

What about the muni space? The muni space has gotten interest-ing, from our point of view. We’ve

actually added exposure in that direction, particularly in taxable munis, and not the tax-exempt, because our clients are already tax-advantaged in things like pension funds, endowments and so forth.

The spreads have widened and are much more competitive with where corpo-

have cash and flexibility within their port-folios, and that’s what we’re doing.

do etfs fit in that strategy? We don’t use ETFs within our port-folios in any meaningful way. When

the individual investor finds an asset class they want to have exposure to, and can also capture a discount to the net asset value, the ETF can be most interesting.

As conditions change and preferences shift, if the individual is operating on that basis, obviously there needs to be a presump-tion of some amount of active management. I don’t know that I’m personally an advocate of the idea that any asset class works forever, but there are times when higher allocations to a particular part of the bond market make sense, and the ETF can be a cheap way to enter it if you’re buying it at a discount.

in general, do you think etfs and fixed income are a good mix? or do we still need a lot

of product innovation in that space? My first feeling is that the competition from ETFs vis-à-vis the active manager should be welcomed because the prolifera-tion of new strategies is very healthy for the industry. What will ultimately become apparent to investors is that ETFs will find their place in the fixed-income market. In that context, they will carve out a niche, and for the time being, they will co-exist side by side with active management.

The reason for that is because the bond market has not become nearly as commod-itized as the equities market. There are lit-erally millions of bond contracts that exist out there, and the ability to have specific knowledge based on proprietary analysis of what these contracts represent may not exist within the ETF space.

Be that as it may, if what I’m saying is so, the active managers will produce the alpha that justifies their incremental fees. I think that is the case, and to the extent to which ETFs offer a cheaper passive form, let the two knock heads together and see what comes out of it.

The Fed tends to approach things

from a model-driven academic perspective

q&a Tad rIvEllE

What’s your favorite ETF?The SPDR S&P Emerging Asia Pacific fund (GMF | C-85).

When did you move into GMF as an investment?We made our initial investments at the end of last year, but we just put more money into it in late July and early August.

What motivated that increase?It was a combination of factors. As we looked at clients’ equity allocations, and where we think the best relative total return opportunities might be right now, emerging Asia stands out. At the time when we first increased our stake in GMF, U.S. equity markets had continued to defy all expectations, with returns of 18-20 percent year-to-date.

Emerging markets, which generally had a terrible second quarter, have now trailed U.S. equities by more across the last three years than at any point since 1999. So in both an absolute sense and a relative sense, emerging market equities have performed poorly. But as we looked at and evaluated where there’s likely to be continuing good economic growth and good growth in corporate profits, we decided that the emerging markets of Asia are the fastest-growing portion of the emerging market universe. And these markets are now trading at a relatively low valuation.

What did you do for emerging markets Asia exposure before moving into GMF?From the inception of the firm seven years ago, we’ve always had an above-average ex-posure to emerging-market equities. We have increased our emerging market exposure over time, investing in a mix of actively managed mutual funds and passive ETFs. Until the end of last year, we had used the Vanguard FTSE Emerging Markets ETF (VWO | B-85) to get low-cost exposure to emerging markets, and to complement our actively managed emerg-ing market funds.

When Vanguard announced it was switching the benchmark for VWO last year, that change caused us to take another look at how we were approaching client investments in emerging market equities.

Tell me how GMF stands out from its competition, like the iShares MSCI Emerging Markets Asia fund (EEMA | C-95),which is seemingly a better fit to the segment.The iShares fund, EEMA, is relatively smaller. As of Aug. 22, GMF had $354 million in assets, while EEMA had only $49 million, making GMF the somewhat more liquid option.

In addition to that, GMF is a pure play on the region that we wanted. If you look at EEMA, it differs a little bit from GMF because it has a large allocation to Korea, and we wanted to get exposure to the other emerg-ing Asian markets, ex-Korea. GMF is pegged to an S&P index, which does not include an allocation to Korea, unlike EEMA’s MSCI index.

How does an emerging markets Asia fund complement other investments for your clients?We’ve always had large allocations to passive investment strategies in our U.S., non-U.S. developed and emerging market equity portfolios. With the prospect of other in-dex providers also recategorizing Korea in the future, we moved most of our passive non-U.S. investments into the SPDR MSCI ACWI ex-U.S. fund (CWI | C-95), and decided to complement that allocation with investments in GMF to overweight the specific-country markets within Asia that we think are the best value currently.

What’s appealing about a fund focused specifically on Asian ex-Korea emerging markets?We believe that the rates of economic growth in most —if not all—of the emerging market economies should continue to be greater than in the U.S. and the rest of the developed world.

GmFSPDR S&P Emerging

Asia Pacific

I ownWHY

fIRm: Mill Creek Capital Advisors

lOCATIOn: Conshohocken, Pa.

fOUnDED: 2003

AUm: $3.2 Billion

All ETfs? No

ToM ChaPINChief investment officer

SPdr S&P Emerging asia Pacific (gMF)

EqUITY: Emerging Asia-Pacific

ISSUER: SSgA

lEgAl STRUCTURE: Open-Ended Fund

ExPEnSE RATIO: 0.59%

AUm: $353.7 Million

AD$v (30-DAY): $2.86 Million

Avg. SPREAD: 0.15%

COmPETIng fUnDS: FNI, EEMA, ASDR

Sources: Bloomberg, IndexUniverse. Data from 8/22/2012-8/21/2013.

20

15

10

5

0

-5

RETURN

4.65%

S O N D J F M A M J J A2013

%

strategy


TAKE A NEW LINE WITH YOUR EQUITY

Potential benefi ts of adding Sector SPDR ETFs to your

portfolio include:

• Undiluted exposure to a specifi c sector of the S&P 500

• The all-day tradability of stocks

• The diversifi cation of mutual funds

• Total transparency

• Liquidity

Visit www.sectorspdrs.com or call 1-866-SECTOR-ETF

Time For A Stock Alternative

Potential benefi ts of adding Sector SPDR ETFs to your

• Undiluted exposure to a specifi c sector of the S&P 500

• The diversifi cation of mutual funds

Consumer Discretionary - XLY Consumer Staples - XLP Energy - XLE Financial - XLF Health Care - XLV Industrial - XLI Materials - XLB Technology - XLK Utilities - XLU

An investor should consider investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information, call 1-866-SECTOR-ETF or visit www.sectorspdrs.com. Read the prospectus carefully before investing.

The S&P 500, SPDRs, and Select Sector SPDRs are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use. The stocks included in each Select Sector Index were selected by the compilation agent. Their composition and weighting can be expected to differ to that in any similar indexes that are published by S&P. The S&P 500 Index is an unmanaged index of 500 common stocks that is generally considered representative of the U.S. stock market. The index is heavily weighted toward stocks with large market capitalizations and represents approximately two-thirds of the total market value of all domestic common stocks. Investors cannot invest directly in an index. The S&P 500 Index fi gures do not refl ect any fees, expenses or taxes. Ordinary brokerage commissions apply. ETFs are considered transparent because their portfolio holdings are disclosed daily. Liquidity is characterized by a high level of trading activity.

Select Sector SPDRs are subject to risks similar to those of stocks, including those regarding short-selling and margin account maintenance. All ETFs are subject to risk, including possible loss of principal. Funds focusing on a single sector generally experience greater volatility. Diversifi cation does not eliminate the risk of experiencing investment losses.

ALPS Distributors, Inc. a registered broker-dealer, is distributor for the Select Sector SPDR Trust.

month for equity investors, as all of the 10 headline sectors finished in the red. A mix of flagging housing data, geopolitical tension and uncertainty weighed heavily on all sectors, but the weakness was most acute in the financial sector. The broad financial ETF (XLF | A-83) fell more than 5% during August, but it was the real estate sector that showed the most weakness: the iShares U.S. Real Estate ETF (IYR | A-91) and the Vanguard REIT ETF (VNQ | A-88) both finished the month down more than 6%. The threat of tapering and the recent upward pressure it has put on rates have impacted even those sectors seemingly immune to the effects of monetary stimulus. Despite their reputations as defensive sectors, telecoms, utilities and consumer non-cyclicals fell more than their pro- cyclical counterparts. This action may fly in the face of conventional market logic, but it aligns with our recent issue on the perils of minimum-volatility ETFs. Thanks to a strong rebound in gold prices and improved manufacturing data, the basic materials sector managed to finish the month roughly unchanged, making it the best performer of the pack. Meanwhile, the metals and mining space was the strongest-performing subsector last month, finishing August up 80 bps.

August proved to be an extremely challenging

BASiC MATeriALS CONS. CYCL. CONS. NON-CYCL. eNergY FiNANCiAL HeALTH CAre iNDuSTriAL reAL eSTATe TeCH TeLeCOM uTiLiTieS

broaDXLB

-0.03%

broaDXLY

-2.85%

broaDXLP

-4.39%

broaDXLe

-0.95%

broaDXLF

-5.02%

broaDXLV

-3.46%

broaDXLI

-2.32%

broaDIYR

-6.34%

broaDXLk

-0.94%

broaDIYZ

-3.98%

broaDXLU

-4.96%

MininGXMe

0.80%

hoMeblDXHB

-5.19%

fooDPBJ

-3.85%

eQuiPIeZ

0.20%

banKskBwB-5.22%

biotechIBB

-2.06%

DefensePPa

-1.12%

broaDVnq

-6.85%

internetFdn

0.78%

broaDVoX

-4.46%

broaDVPU

-5.21%

MeDiaPBs

-2.26%

exPlorXoP

-0.58%

banK & inIaI

-3.28%

MeD DevIHI

-3.14%

transPoIYt

-3.24%

seMisXsd

-4.37%

retailXRt

-4.66%

insurancekBwI

-4.24%

PharMaIHe

-2.80%

enGineerPkB

-3.08%

softwareIgV

0.16%

leisurePeJ

-0.37%

servicesIYg

-4.98%

eQuiPMentXHe

-2.56%

servicesIHF

-2.31%

Sector Performance AUGUST 2013

///////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////

≤-5

.0-3

.0 ≤

-4.9

-1.0

≤-2

.9-0

.1 ≤

-0.9 0

0.1

≤ 0

.91.

0 ≤

2.9

3.0

≤ 4

.9≥

5.0

KEY:

+

Source: Bloomberg. Data from 07/31/2013 to 08/31/2013. ETFs chosen to represent each sector based on the most liquid ETF in each segment of the IndexUniverse ETF Classification System.

-

in revieW

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Top Outflows

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Top InflowsTICKER nET flOwS AUm ($m)

Alerian MLP AMLP 209.16 6,731.41 Energy

Technology Select SPDR XLK 173.81 11,344.57 Technology

Vanguard Information Technology vGT 125.99 3,497.06 Technology

Vanguard Industrials vIS 120.09 1,103.81 Industrials

Industrial Select SPDR XLI 119.01 5,653.59 Industrials

TICKER nET flOwS AUm ($m)

Energy Select SPDR XLE -403.01 7,715.35 Energy

SPDR S&P Retail XRT -407.66 720.52 Cons. Cyclicals

Consumer Discretionary Select SPDR XLY -814.50 6,016.24 Cons. Cyclicals

Financial Select SPDR XLF -1,049.44 14,889.63 Financials

Consumer Staples Select SPDR XLP -1,070.86 5,407.63 Cons. Non-Cycl.


U.S. EqUITY: TOTAl mARKET

Fidelity NASDAq Composite ONEq 0.22 250.0 19.99 20.57 9.72

FlexShares Mstar US Market Factor Tilt TILT 0.27 402.4 18.30 - -

SPDR Russell 3000 THRK 0.10 516.1 17.24 18.66 7.63

vanguard Total Stock Market vTI 0.05 33,818.6 16.75 18.88 7.81

Schwab U.S. Broad Market SCHB 0.04 2,254.2 16.65 18.85 -

iShares Russell 3000 IWv 0.20 4,698.5 16.52 18.64 7.45

iShares Core S&P Total US Stock Market ITOT 0.07 853.9 16.28 - -

iShares Dow Jones U.S. IYY 0.20 756.0 16.27 18.49 7.45

iShares MSCI USA EUSA 0.15 189.2 15.67 18.18 -

WisdomTree Total Dividend DTD 0.28 353.1 14.19 17.95 7.67

iShares MSCI USA Minimum volatility USMv 0.15 2,127.7 13.52 - -

U.S. EqUITY: TOTAl mARKET gROwTH

iShares Russell 3000 Growth IWZ 0.25 424.3 16.22 19.21 8.22

U.S. EqUITY: TOTAl mARKET vAlUE

iShares Russell 3000 value IWW 0.26 519.1 17.08 17.90 6.51

U.S. EqUITY: ExTEnDED CAP

PowerShares FTSE RAFI US 1500 Small-Mid PRFZ 0.39 720.6 21.60 20.86 12.37

vanguard Extended Market vXF 0.14 2,585.0 20.08 20.84 9.43

U.S. EqUITY: lARgE CAP

First Trust NASDAq-100 Equal Weighted qqEW 0.60 195.8 21.72 19.45 10.88

ALPS Sector Dividend Dogs SDOG 0.40 366.9 20.83 - -

RevenueShares Large Cap RWL 0.49 175.0 19.77 19.94 8.69

iShares Morningstar Large-Cap JKD 0.20 398.2 19.25 19.85 7.86

iShares MSCI KLD 400 Social DSI 0.50 239.7 18.93 17.61 7.24

Guggenheim S&P 500 Equal Weight RSP 0.40 4,832.2 18.71 19.44 9.74

PowerShares FTSE RAFI US 1000 PRF 0.39 2,272.9 18.69 18.90 10.19

First Trust Large Cap Core AlphaDEX FEX 0.70 534.2 18.50 17.90 8.67

ProShares Credit Suisse 130/30 CSM 0.45 182.9 18.06 18.63 -

PowerShares S&P 500 High Beta SPHB 0.25 473.9 17.24 - -

PowerShares S&P 500 High quality SPHq 0.29 271.7 17.10 19.39 3.61

vanguard Russell 1000 vONE 0.12 225.8 16.52 - -

PowerShares qqq qqq 0.20 36,901.6 16.51 21.43 11.26

iShares MSCI USA ESG Select KLD 0.50 219.0 16.49 16.55 6.36

iShares Russell 1000 IWB 0.15 8,007.4 16.39 18.53 7.46

vanguard Large-Cap vv 0.10 4,223.7 16.37 18.53 7.52

Schwab U.S. Large-Cap SCHX 0.04 1,843.5 16.22 18.38 -

SPDR S&P 500 SPY 0.09 141,328.8 16.04 18.28 7.21

iShares Core S&P 500 Ivv 0.07 44,759.6 15.98 18.25 7.23

vanguard S&P 500 vOO 0.05 11,101.7 15.94 - -

vanguard Mega Cap MGC 0.12 606.0 15.67 18.32 7.10

SPDR Dow Jones Industrial Average DIA 0.17 11,641.2 14.98 16.78 7.96

RBS US Large Cap Trendpilot ETN TRND 1.00 206.7 14.87 - -

iShares S&P 100 OEF 0.20 3,862.1 14.61 17.82 6.70

WisdomTree LargeCap Dividend DLN 0.28 1,665.3 13.96 18.07 7.34

Guggenheim Russell Top 50 Mega Cap XLG 0.20 526.1 13.07 17.16 6.38

PowerShares S&P 500 Low volatility SPLv 0.25 4,359.0 12.80 - -

Barclays S&P veqtor ETN vqT 0.95 579.3 7.77 - -

PowerShares S&P 500 BuyWrite PBP 0.75 180.4 4.21 7.61 1.83

U.S. EqUITY: lARgE CAP gROwTH

Guggenheim S&P 500 Pure Growth RPG 0.35 602.1 22.09 21.90 12.41

First Trust Large Cap Growth AlphaDEX FTC 0.70 173.2 18.71 16.21 6.46

PowerShares Dynamic Large Cap Growth PWB 0.59 232.1 16.64 20.04 6.35

Schwab U.S. Large-Cap Growth SCHG 0.07 871.6 16.54 19.17 -

iShares Russell 1000 Growth IWF 0.20 20,658.5 15.55 19.00 8.18

vanguard Russell 1000 Growth vONG 0.15 165.5 15.45 - -

SPDR S&P 500 Growth SPYG 0.20 285.6 14.99 19.58 8.33

iShares S&P 500 Growth IvW 0.18 7,741.0 14.93 18.82 8.21

vanguard Growth vUG 0.10 11,657.9 14.48 19.20 8.00

iShares Russell Top 200 Growth IWY 0.20 388.0 14.03 18.63 -

vanguard Mega Cap 300 Growth MGK 0.12 1,073.2 13.74 19.15 7.93

iShares Morningstar Large-Cap Growth JKE 0.25 445.5 12.72 19.03 7.05

U.S. EqUITY: lARgE CAP vAlUE

Guggenheim S&P 500 Pure value RPv 0.35 313.8 24.43 23.73 13.27

vanguard value vTv 0.10 11,441.3 18.09 17.69 6.89

First Trust Large Cap value AlphaDEX FTA 0.70 486.5 18.01 18.84 10.09

vanguard Mega Cap value MGv 0.12 626.5 17.79 17.49 6.29

PowerShares Dynamic Large Cap value PWv 0.59 655.1 17.75 19.24 9.66

iShares Russell 1000 value IWD 0.21 19,122.9 17.21 17.93 6.55

iShares S&P 500 value IvE 0.18 6,049.4 17.02 17.57 6.04

Schwab U.S. Large-Cap value SCHv 0.07 721.4 15.99 17.54 -

iShares Morningstar Large-Cap value JKF 0.25 442.8 14.22 15.39 5.19

U.S. EqUITY: mID CAP

WisdomTree MidCap Earnings EZM 0.38 315.1 20.04 21.90 12.86

Schwab U.S. Mid-Cap SCHM 0.07 636.5 19.11 - -

vanguard Mid-Cap vO 0.10 5,838.1 18.85 19.35 9.08

iShares Russell Mid-Cap IWR 0.22 8,400.7 18.73 19.51 8.92

WisdomTree MidCap Dividend DON 0.38 781.5 18.27 19.05 10.43

First Trust Mid Cap Core AlphaDEX FNX 0.70 493.8 18.01 19.87 10.81

vanguard S&P Mid-Cap 400 IvOO 0.16 215.3 17.07 - -

iShares Core S&P Mid-Cap IJH 0.15 17,539.6 16.97 19.45 9.30

SPDR S&P MidCap 400 MDY 0.25 13,961.7 16.71 19.31 9.11

iShares Morningstar Mid-Cap JKG 0.25 224.9 16.07 20.57 9.47

U.S. EqUITY: mID CAP gROwTH

iShares Russell Mid-Cap Growth IWP 0.25 4,175.0 19.26 19.98 8.91

iShares Morningstar Mid-Cap Growth JKH 0.30 178.7 18.67 19.44 7.68

vanguard Mid-Cap Growth vOT 0.10 1,716.2 18.12 19.50 7.94

vanguard S&P Mid-Cap 400 Growth IvOG 0.20 190.5 15.68 - -

iShares S&P Mid-Cap 400 Growth IJK 0.25 4,044.7 15.67 19.82 9.60

Guggenheim S&P MidCap 400 Pure Growth RFG 0.35 650.8 14.58 21.30 14.01

U.S. EqUITY: mID CAP vAlUE

vanguard Mid-Cap value vOE 0.10 1,879.9 19.77 18.96 9.92

iShares S&P Mid-Cap 400 value IJJ 0.27 3,259.3 18.38 19.02 8.86

iShares Russell Mid-Cap value IWS 0.28 5,138.6 17.82 18.88 8.74

U.S. EqUITY: SmAll CAP

PowerShares DWA SmallCap Technical Leaders DWAS 0.60 335.0 31.24 - -

WisdomTree SmallCap Earnings EES 0.38 260.9 23.01 21.23 13.24

RevenueShares Small Cap RWJ 0.54 180.7 21.93 23.51 12.92

iShares Core S&P Small-Cap IJR 0.17 11,805.8 21.36 22.60 9.48

SPDR S&P SmallCap 600 SLY 0.23 376.4 21.05 22.53 11.01

Schwab U.S. Small-Cap SCHA 0.08 1,505.4 20.58 21.75 -

First Trust Small Cap Core AlphaDEX FYX 0.70 316.5 20.43 22.06 10.31

vanguard Russell 2000 vTWO 0.21 269.0 20.09 - -

iShares Russell 2000 IWM 0.24 25,621.1 19.91 20.52 7.98

vanguard Small-Cap vB 0.10 7,299.1 19.71 21.29 9.80

WisdomTree SmallCap Dividend DES 0.38 843.3 18.60 19.24 10.08

iShares Morningstar Small-Cap JKJ 0.25 176.0 18.57 19.48 8.38

FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %

u.s.-listed etfs by asset Class and year-to-date return

› Data as of 08/30/2013› Exp Ratio is annual expense ratio› AUM is net assets in $US millions› YTD is year-to-date› 3YR and 5YR returns are annualized› Includes all U.S.-listed ETFs and ETNs

with assets of $165 million and above› Source: IndexUniverse

ETFDaTa

U.S. EqUITY: SmAll CAP gROwTH

iShares Russell 2000 Growth IWO 0.25 5,750.3 23.82 22.64 9.04

iShares S&P Small-Cap 600 Growth IJT 0.26 2,446.2 22.40 23.56 10.04

SPDR S&P SmallCap 600 Growth SLYG 0.31 264.4 22.27 24.31 11.58

vanguard Small-Cap Growth vBK 0.10 3,260.2 21.13 23.26 10.43

U.S. EqUITY: SmAll CAP vAlUE

SPDR S&P SmallCap 600 value SLYv 0.31 206.5 20.43 20.42 10.81

iShares S&P Small-Cap 600 value IJS 0.30 2,652.3 19.62 21.48 8.76

vanguard Small-Cap value vBR 0.10 3,353.0 17.99 19.16 8.93

iShares Morningstar Small-Cap value JKL 0.30 303.7 17.09 19.56 11.22

iShares Russell 2000 value IWN 0.36 5,624.3 16.23 18.20 6.78

U.S. EqUITY: mICRO CAP

iShares Micro-Cap IWC 0.72 767.8 23.48 21.32 7.37

U.S. EqUITY: BASIC mATERIAlS

Materials Select SPDR XLB 0.18 3,105.1 8.97 12.32 2.98

vanguard Materials vAW 0.14 827.9 8.06 13.96 3.78

First Trust Materials AlphaDEX FXZ 0.70 295.7 7.66 14.83 6.80

iShares U.S. Basic Materials IYM 0.46 586.6 3.46 8.67 1.00

SPDR S&P Metals and Mining XME 0.35 637.8 -19.71 -8.38 -11.84

U.S. EqUITY: COnSUmER CYClICAlS

PowerShares Dynamic Media PBS 0.63 231.3 30.78 26.62 13.72

SPDR S&P Retail XRT 0.35 886.0 25.33 31.02 21.01

First Trust Consumer Discr AlphaDEX FXD 0.70 778.4 24.51 24.23 14.32

vanguard Consumer Discretionary vCR 0.14 1,057.0 23.18 26.67 15.71

Consumer Discretionary Select SPDR XLY 0.18 6,321.6 22.34 26.08 15.48

iShares U.S. Consumer Services IYC 0.46 438.2 20.58 25.33 13.79

SPDR S&P Homebuilders XHB 0.35 1,987.4 7.52 27.99 9.12

iShares U.S. Home Construction ITB 0.46 1,643.4 -2.80 23.99 5.39

U.S. EqUITY: COnSUmER nOn-CYClICAlS

First Trust Consumer Staples AlphaDEX FXG 0.70 610.0 27.56 21.80 13.56

PowerShares Dynamic Food & Beverage PBJ 0.63 235.3 25.72 18.64 10.84

iShares U.S. Consumer Goods IYK 0.46 460.9 17.62 18.43 10.68

vanguard Consumer Staples vDC 0.14 1,492.9 16.03 18.18 10.79

Consumer Staples Select SPDR XLP 0.18 5,232.2 14.50 17.60 10.20

U.S. EqUITY: EnERgY

JPMorgan Alerian MLP ETN AMJ 0.85 5,604.0 20.47 17.77 -

iShares U.S. Oil & Gas Exploration/Prod IEO 0.46 441.6 19.69 17.94 2.93

iShares U.S. Oil Equipment & Services IEZ 0.46 440.1 17.44 16.31 -1.46

Morgan Stanley Cushing MLP High Inc ETN MLPY 0.85 2,498.4 16.98 - -

SPDR S&P Oil & Gas Exploration/Prod XOP 0.35 889.0 15.36 18.41 3.34

SPDR S&P Oil & Gas Equipment & Services XES 0.35 290.2 15.30 15.73 -0.25

Energy Select SPDR XLE 0.18 7,949.6 15.27 18.82 3.60

iShares U.S. Energy IYE 0.46 1,465.7 14.08 17.81 2.96

vanguard Energy vDE 0.14 2,317.5 13.96 17.57 2.80

Alerian MLP AMLP 4.85 6,838.4 13.62 11.63 -

First Trust Energy AlphaDEX FXN 0.70 230.1 12.12 14.33 -0.59

First Trust North Amer Energy Infrastructr EMLP 0.95 409.7 11.82 - -

First Trust ISE-Revere Natural Gas FCG 0.60 466.5 11.28 5.61 -6.02

Credit Suisse Cushing 30 MLP ETN MLPN 0.85 588.1 11.28 - -

Yorkville High Income MLP YMLP 0.82 231.7 11.03 - -

ETRACS Alerian MLP Infrastructure ETN MLPI 0.85 1,247.2 5.95 - -

U.S. EqUITY: fInAnCIAlS

SPDR S&P Regional Banking KRE 0.35 2,047.4 26.51 20.63 4.14

SPDR S&P Bank KBE 0.35 2,462.4 26.46 13.31 -0.01

SPDR S&P Insurance KIE 0.35 357.3 24.67 16.66 6.76

iShares U.S. Regional Banks IAT 0.46 514.5 22.65 15.57 1.36

First Trust Financials AlphaDEX FXO 0.70 419.6 22.57 17.26 10.06

iShares U.S. Financial Services IYG 0.46 600.5 22.54 16.11 0.66

Financial Select SPDR XLF 0.18 15,475.0 19.49 14.59 0.02

iShares U.S. Financials IYF 0.46 1,278.7 18.11 15.10 1.58

vanguard Financials vFH 0.19 1,516.7 17.65 14.82 1.64

PowerShares KBW High Div Yld Financial KBWD 1.48 236.4 10.11 - -

U.S. EqUITY: HEAlTH CARE

Market vectors Biotech BBH 0.35 403.4 44.93 - -

PowerShares Dynamic Biotech & Genome PBE 0.63 209.1 44.15 23.28 10.96

iShares Nasdaq Biotechnology IBB 0.48 3,847.5 41.25 35.60 17.93

SPDR S&P Biotech XBI 0.35 1,071.0 35.79 31.64 13.29

SPDR S&P Pharmaceuticals XPH 0.35 516.3 35.05 25.14 18.77

First Trust NYSE Arca Biotechnology FBT 0.60 789.3 32.99 24.08 19.15

PowerShares Dynamic Pharmaceuticals PJP 0.63 679.2 32.03 34.61 21.53

First Trust Health Care AlphaDEX FXH 0.70 1,079.6 27.19 25.75 16.63

iShares U.S. Healthcare Providers IHF 0.46 389.1 25.46 25.79 11.98

vanguard Health Care vHT 0.14 1,975.0 25.37 23.89 11.45

iShares U.S. Healthcare IYH 0.46 1,681.0 25.26 23.43 11.14

Health Care Select SPDR XLv 0.18 7,382.3 24.51 22.99 10.78

Guggenheim S&P Equal Weight Health Care RYH 0.50 171.1 23.93 23.93 12.61

iShares U.S. Pharmaceuticals IHE 0.46 499.5 23.05 24.84 16.77

iShares U.S. Medical Devices IHI 0.46 406.4 18.81 19.21 5.51

U.S. EqUITY: InDUSTRIAlS

First Trust Industr/Prod Durables AlphaDEX FXR 0.70 255.2 21.45 19.08 6.33

iShares Transportation Average IYT 0.46 631.7 18.95 15.82 5.50

vanguard Industrials vIS 0.14 1,175.7 18.11 19.72 6.73

iShares U.S. Industrials IYJ 0.46 1,349.6 17.97 20.13 7.18

Industrial Select SPDR XLI 0.18 5,996.1 17.30 18.54 7.02

U.S. EqUITY: TECHnOlOgY

First Trust Dow Jones Internet FDN 0.60 1,469.4 27.23 23.67 17.86

PowerShares S&P SmallCap InfoTech PSCT 0.29 179.1 24.39 21.71 -

iShares PHLX Semiconductor SOXX 0.48 230.7 20.58 15.86 5.92

Guggenheim S&P Equal Weight Technology RYT 0.50 244.6 20.56 16.76 8.60

First Trust Technology AlphaDEX FXL 0.70 338.8 18.95 14.58 7.44

iShares North American Tech-Software IGv 0.48 829.9 16.60 16.00 8.40

Market vectors Semiconductor SMH 0.35 299.6 14.88 - -

iShares North American Tech IGM 0.48 606.3 14.25 17.41 8.35

SPDR Morgan Stanley Technology MTK 0.50 191.0 13.20 15.20 7.40

vanguard Information Technology vGT 0.14 3,644.7 12.39 17.31 8.62

Technology Select SPDR XLK 0.18 11,728.9 9.84 16.80 8.40

iShares U.S. Technology IYW 0.46 2,527.2 9.18 15.10 7.72

iShares North Amer Multimedia Networking IGN 0.48 264.6 3.98 5.39 0.53

U.S. EqUITY: TElECOmmUnICATIOnS

iShares U.S. Telecommunications IYZ 0.46 456.7 12.14 13.44 5.78

vanguard Telecommunication Services vOX 0.14 518.3 12.06 14.53 8.02

U.S. EqUITY: UTIlITIES

First Trust Utilities AlphaDEX FXU 0.70 225.2 12.80 12.28 7.03

iShares U.S. Utilities IDU 0.46 1,174.5 10.00 11.71 4.19

vanguard Utilities vPU 0.14 1,349.9 9.91 11.94 4.77

Utilities Select SPDR XLU 0.18 5,314.2 8.83 11.00 4.02

U.S. EqUITY: REAl ESTATE

vanguard REIT vNq 0.10 17,012.1 -0.29 12.64 5.50

First Trust S&P REIT FRI 0.50 165.6 -0.62 12.26 4.57

Schwab U. S. REIT SCHH 0.07 547.1 -1.04 - -

SPDR Dow Jones REIT RWR 0.25 2,105.9 -1.05 12.22 4.50

iShares Residential Real Estate Capped REZ 0.48 306.5 -1.84 12.09 6.25

iShares U.S. Real Estate IYR 0.46 4,037.6 -2.05 11.00 4.22

iShares Cohen & Steers REIT ICF 0.35 2,663.1 -2.57 11.29 3.10

iShares Mortgage Real Estate Capped REM 0.48 971.7 -6.31 6.00 2.33

U.S. EqUITY: AlPHA-SEEKIng

Guggenheim Spin-Off CSD 0.65 305.5 28.24 26.58 13.31

PowerShares Buyback Achievers PKW 0.71 1,421.5 25.68 24.24 12.24

Market vectors Wide Moat MOAT 0.49 338.7 16.07 - -

PowerShares DWA Technical Leaders PDP 0.74 943.8 15.29 19.93 6.89

U.S. EqUITY: HIgH DIvIDEnD YIElD

Schwab US Dividend Equity SCHD 0.07 1,164.9 17.95 - -

PowerShares HiYld Equity Div Achievers PEY 0.57 334.7 16.46 15.83 6.15

SPDR S&P Dividend SDY 0.35 12,329.3 16.41 16.67 10.13

vanguard High Dividend Yield vYM 0.10 6,576.7 16.22 19.28 8.34

First Trust value Line Dividend FvD 0.70 713.2 15.13 16.97 9.28

iShares Select Dividend DvY 0.40 12,476.7 15.02 17.80 8.11

iShares High Dividend HDv 0.40 2,983.8 14.32 - -

WisdomTree Dividend Ex-Financials DTN 0.38 1,098.0 14.28 19.33 10.04

WisdomTree Equity Income DHS 0.38 721.0 14.15 17.81 8.03

vanguard Dividend Appreciation vIG 0.10 17,113.4 14.05 16.73 7.87

First Trust Morningstar Dividend Leaders FDL 0.45 638.6 14.04 17.08 9.61

FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr % FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr % FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %


FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr % FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %

PowerShares Dividend Achievers PFM 0.58 317.0 13.48 16.47 6.24

glOBAl EqUITY

iShares Global 100 IOO 0.40 1,336.0 9.32 11.59 3.36

iShares MSCI AC World Minimum volatility ACWv 0.34 1,028.5 8.86 - -

vanguard Total World Stock vT 0.19 2,600.8 8.18 11.92 4.26

iShares MSCI ACWI ACWI 0.34 4,067.9 7.60 11.62 3.55

glOBAl EqUITY Ex-U.S.

vanguard FTSE All-World ex-US Small Cap vSS 0.25 1,523.4 3.18 7.93 -

iShares MSCI ACWI ex U.S. ACWX 0.34 1,904.2 1.69 6.69 0.60

SPDR MSCI ACWI ex-US CWI 0.34 479.2 1.50 6.93 1.82

vanguard Total International Stock vXUS 0.16 1,943.5 1.12 - -

vanguard FTSE All-World ex-US vEU 0.15 10,211.6 0.84 6.94 1.59

InTERnATIOnAl EqUITY: BlEnDED DEvElOPmEnT

iShares Asia 50 AIA 0.50 253.5 -6.92 7.23 5.22

iShares MSCI All Country Asia ex Japan AAXJ 0.69 2,355.6 -8.84 2.05 3.66

InTERnATIOnAl EqUITY: DEvElOPED

WisdomTree Japan Hedged Equity DXJ 0.48 10,512.3 19.49 9.91 1.13

iShares MSCI Japan EWJ 0.53 11,199.1 11.96 6.86 0.66

iShares MSCI Switzerland Capped EWL 0.53 934.7 11.83 13.42 7.34

iShares MSCI Netherlands EWN 0.53 277.5 11.41 10.81 1.26

iShares MSCI Kokusai TOK 0.25 522.6 11.16 14.27 4.71

iShares MSCI EAFE Small-Cap SCZ 0.40 2,499.3 10.99 12.87 5.35

WisdomTree Intl SmallCap Dividend DLS 0.58 641.5 9.72 13.35 5.51

iShares MSCI Sweden EWD 0.53 461.3 9.39 13.46 8.96

WisdomTree Japan SmallCap Dividend DFJ 0.58 274.7 8.43 8.80 5.04

iShares MSCI France EWq 0.53 569.9 8.24 9.40 -0.75

iShares MSCI EAFE Growth EFG 0.40 1,564.6 7.25 9.94 1.89

PowerShares FTSE RAFI Dev Mkts ex-US PXF 0.45 589.7 7.23 7.36 1.56

iShares MSCI EAFE Minimum volatility EFAv 0.20 775.1 7.16 - -

iShares Europe IEv 0.60 1,749.4 7.08 9.98 1.34

vanguard FTSE Europe vGK 0.12 8,902.6 7.05 10.44 1.41

SPDR S&P International Small Cap GWX 0.59 791.2 6.93 9.18 4.12

vanguard FTSE Developed Markets vEA 0.10 15,643.8 6.66 9.23 1.78

WisdomTree Europe Hedged Equity HEDJ 0.58 335.7 6.65 7.84 -

iShares Core MSCI EAFE IEFA 0.14 926.0 6.63 - -

Schwab International Small-Cap Equity SCHC 0.20 294.5 6.43 9.91 -

FlexShares Mstar Dev Mkts ex-US Factor Tilt TLTD 0.42 199.3 6.31 - -

iShares MSCI EMU EZU 0.53 4,238.9 6.17 7.83 -2.18

iShares MSCI EAFE EFA 0.34 44,331.4 6.15 9.20 1.66

WisdomTree DEFA DWM 0.48 487.8 6.08 9.24 1.42

Vanguard FTSE Pacific vPL 0.12 2,423.0 5.98 7.93 2.92

iShares MSCI EAFE value EFv 0.40 2,122.1 5.73 8.23 1.17

iShares MSCI Germany EWG 0.53 4,875.0 5.70 12.64 1.39

iShares MSCI United Kingdom EWU 0.53 2,807.9 5.49 11.07 2.83

WisdomTree Intl LargeCap Dividend DOL 0.48 241.2 5.28 8.76 0.95

SPDR S&P World ex-US GWL 0.34 674.0 5.01 8.95 -6.27

SPDR Euro STOXX 50 FEZ 0.29 3,022.3 4.43 6.90 -2.48

Schwab International Equity SCHF 0.09 1,570.2 4.43 8.62 -

iShares MSCI Spain Capped EWP 0.53 493.9 2.58 -0.01 -3.76

iShares MSCI Hong Kong EWH 0.53 2,193.5 -0.88 8.65 6.95

iShares MSCI Italy Capped EWI 0.53 762.1 -1.06 -1.31 -8.71

iShares MSCI Canada EWC 0.53 3,540.1 -2.43 3.82 0.01

iShares MSCI Pacific ex Japan EPP 0.50 3,138.3 -4.00 8.60 5.87

iShares MSCI Australia EWA 0.53 1,997.1 -4.41 9.08 5.64

iShares MSCI Singapore EWS 0.53 1,168.2 -7.74 4.84 6.17

iShares MSCI South Korea Capped EWY 0.61 3,715.9 -9.66 6.94 6.77

InTERnATIOnAl EqUITY: EmERgIng

PowerShares Golden Dragon China PGJ 0.70 250.6 32.91 4.59 2.49

iShares MSCI Taiwan EWT 0.61 2,775.6 -1.03 6.43 4.21

Guggenheim China Small Cap HAO 0.75 192.3 -2.21 -1.80 6.29

iShares MSCI Malaysia EWM 0.53 808.2 -3.19 7.06 12.87

SPDR S&P China GXC 0.59 860.6 -4.04 2.26 3.59

SPDR S&P Emerging Asia Pacific GMF 0.59 402.9 -6.89 2.27 4.36

SPDR S&P Emerging Markets Small Cap EWX 0.65 776.7 -7.36 -0.93 3.49

iShares MSCI Poland Capped EPOL 0.61 335.5 -7.63 3.14 -

iShares MSCI China MCHI 0.61 955.8 -7.82 - -

iShares MSCI Emerging Mkts Minimum vol EEMv 0.25 2,614.2 -8.02 - -

PowerShares S&P Emerging Mkts Low vol EELv 0.29 197.8 -8.51 - -

iShares MSCI Philippines EPHE 0.61 285.0 -9.06 - -

WisdomTree Emerging Mkts SmallCap Div DGS 0.63 1,645.3 -10.04 2.04 6.49

SPDR S&P BRIC 40 BIK 0.50 236.5 -10.20 -0.84 -0.60

iShares China Large-Cap FXI 0.74 5,878.9 -10.85 -1.20 -1.47

SPDR S&P Emerging Markets GMM 0.59 202.2 -11.34 0.63 1.56

Guggenheim BRIC EEB 0.64 229.0 -11.38 -4.70 -3.08

iShares MSCI Mexico Capped EWW 0.53 2,507.7 -12.07 9.98 4.83

iShares Core MSCI Emerging Markets IEMG 0.18 2,005.8 -12.27 - -

BLDRS Emerging Markets 50 ADR ADRE 0.30 242.3 -13.07 -2.89 -3.12

iShares MSCI Emerging Markets EEM 0.69 38,312.8 -13.17 0.22 0.88

Market vectors Russia RSX 0.62 1,096.2 -13.68 -3.61 -6.30

vanguard FTSE Emerging Markets vWO 0.18 50,375.9 -14.04 -0.04 1.09

iShares MSCI Russia Capped ERUS 0.61 262.4 -14.09 - -

Schwab Emerging Markets Equity SCHE 0.15 870.1 -14.10 -0.62 -

iShares MSCI BRIC BKF 0.69 516.5 -14.66 -5.19 -2.88

PowerShares FTSE RAFI Emerging Markets PXH 0.49 360.8 -16.00 -2.46 -0.47

iShares MSCI Thailand Capped THD 0.61 596.7 -17.48 9.28 15.35

iShares MSCI South Africa EZA 0.61 611.3 -17.69 3.13 4.58

iShares Latin America 40 ILF 0.50 1,099.1 -18.77 -5.64 -2.99

PowerShares India PIN 0.81 321.4 -20.55 -12.34 -5.72

iShares MSCI India INDA 0.67 267.0 -22.16 - -

Market vectors Indonesia IDX 0.59 245.7 -22.66 -2.97 -

iShares MSCI Brazil Capped EWZ 0.61 6,058.5 -22.76 -11.42 -6.59

iPath MSCI India ETN INP 0.89 318.1 -22.91 -10.77 -3.51

iShares MSCI Indonesia EIDO 0.61 438.0 -22.98 -1.75 -

iShares India 50 INDY 0.93 399.8 -23.75 -9.91 -

iShares MSCI Chile Capped ECH 0.61 476.7 -24.27 -9.96 2.61

iShares MSCI All Peru Capped EPU 0.61 327.2 -24.75 0.73 -

iShares MSCI Turkey TUR 0.61 483.2 -26.13 -5.11 0.89

WisdomTree India Earnings EPI 0.83 860.5 -28.04 -15.04 -5.48

Market vectors Brazil Small-Cap BRF 0.60 253.4 -30.27 -10.57 -

InTERnATIOnAl EqUITY: fROnTIER

iShares MSCI Frontier 100 FM 0.79 281.8 12.06 - -

Market vectors vietnam vNM 0.76 328.9 -4.17 -8.68 -

glOBAl EqUITY: SECTOR

Guggenheim Solar TAN 0.70 191.5 73.66 -24.00 -34.35

PowerShares WilderHill Clean Energy PBW 0.70 197.4 36.31 -11.79 -21.56

iShares Global Healthcare IXJ 0.48 881.1 20.32 20.58 9.57

iShares Global Consumer Discretionary RXI 0.48 206.0 18.86 20.98 11.35

Market vectors Pharmaceutical PPH 0.35 234.4 18.70 - -

Market vectors Oil Services OIH 0.35 1,807.5 16.39 - -

PowerShares Listed Private Equity PSP 2.19 462.1 15.98 15.49 -3.41

First Trust Nasdaq Technology Dividend TDIv 0.50 194.3 15.28 - -

iShares Global Industrials EXI 0.48 250.8 11.92 14.34 4.65

iShares Global Financials IXG 0.48 307.4 10.82 9.66 -0.34

Guggenheim Timber CUT 0.70 240.8 10.23 10.63 5.90

PowerShares Global Water PIO 0.75 212.6 9.48 8.02 1.08

iShares Global Consumer Staples KXI 0.48 557.6 9.33 15.30 9.69

iShares Global Telecom IXP 0.48 483.9 8.16 9.28 5.05

PowerShares Water Resources PHO 0.62 909.8 7.58 15.76 0.98

iShares Global Tech IXN 0.48 561.2 7.48 14.27 5.80

Guggenheim S&P Global Water CGW 0.70 265.3 7.39 14.32 -2.92

iShares North American Natural Resources IGE 0.48 2,116.9 7.31 10.26 0.32

iShares Global Energy IXC 0.48 1,035.0 6.11 12.09 0.72

iShares Global Timber & Forestry WOOD 0.48 326.8 4.38 8.96 0.95

iShares Global Utilities JXI 0.48 217.0 4.36 3.08 -2.70

iShares Global Infrastructure IGF 0.48 569.1 1.56 8.17 1.29

SPDR Dow Jones Global Real Estate RWO 0.50 970.7 -2.86 11.20 3.50

Market vectors Agribusiness MOO 0.55 4,649.4 -7.28 5.04 0.35

iShares Global Materials MXI 0.48 410.5 -8.16 2.13 -2.05

SPDR Global Natural Resources GNR 0.40 404.6 -8.57 - -

FlexShares Mstar Glb Upstream Natural Res GUNR 0.48 2,600.4 -9.40 - -

iShares MSCI Glb Metals/Mining Producers PICK 0.39 243.0 -20.23 - -

Market vectors Coal KOL 0.59 179.7 -25.99 -15.71 -15.48

Global X Silver Miners SIL 0.65 255.1 -32.32 -0.69 -

Market vectors Junior Gold Miners GDXJ 0.55 1,642.9 -39.16 -22.12 -

Market vectors Gold Miners GDX 0.52 6,330.9 -39.36 -18.81 -5.24

glOBAl Ex-U.S. EqUITY: SECTOR

SPDR Dow Jones International Real Estate RWX 0.59 3,854.4 -4.25 10.31 3.26

vanguard Global ex-U.S. Real Estate vNqI 0.32 835.6 -4.38 - -

InTERnATIOnAl EqUITY: DEvElOPED SECTOR

iShares MSCI Europe Financials EUFN 0.48 231.9 8.68 4.08 -

iShares International Developed Property WPS 0.48 174.8 -2.19 10.77 4.05

iShares International Developed Real Estate IFGL 0.48 695.0 -3.89 10.14 3.10

InTERnATIOnAl EqUITY: EmERgIng SECTOR

Global X China Consumer CHIq 0.65 168.8 -3.77 -6.36 -

EGShares Emerging Markets Consumer ECON 0.85 1,123.5 -7.77 - -

glOBAl EqUITY: HIgH DIvIDEnD YIElD

First Trust Dow Jones Global Select Dividend FGD 0.60 348.7 2.94 10.59 5.90

Global X SuperDividend SDIv 0.58 705.7 2.73 - -

glOBAl Ex-U.S. EqUITY: HIgH DIvIDEnD YIElD

PowerShares International Div Achievers PID 0.56 971.2 6.13 10.43 2.62

SPDR S&P International Dividend DWX 0.45 1,324.6 -4.37 2.87 -0.26

InTERnATIOnAl EqUITY: HIgH DIvIDEnD YIElD

WisdomTree DEFA Equity Income DTH 0.58 240.5 6.82 9.33 -8.17

iShares International Select Dividend IDv 0.50 2,470.5 4.65 11.37 5.13

WisdomTree International Div ex-Financials DOO 0.58 339.7 3.30 6.95 0.18

WisdomTree Emerging Markets Equity Inc DEM 0.63 5,035.9 -13.55 2.07 3.95

iShares Emerging Markets Dividend DvYE 0.49 170.1 -16.28 - -

SPDR S&P Emerging Markets Dividend EDIv 0.59 514.9 -17.36 - -

InTERnATIOnAl EqUITY: AlPHA SEEKIng

PowerShares DWA Dev Mkts Technical Ldrs PIZ 0.80 351.9 11.69 9.73 3.51

PowerShares DWA Emrg Mkts Technical Ldrs PIE 0.90 304.3 -10.32 3.50 -0.43

U.S. fIxED InCOmE: BROAD mARKET - BROAD mATURITIES

Schwab US Aggregate Bond SCHZ 0.05 438.5 -2.64 - -

iShares Core Total US Bond Market AGG 0.08 14,043.7 -3.08 2.23 4.64

vanguard Total Bond Market BND 0.10 16,708.5 -3.11 2.32 4.75

SPDR Barclays Aggregate Bond LAG 0.17 664.9 -3.37 2.30 4.86

U.S. fIxED InCOmE: gOvERnmEnT/CREDIT - SHORT-TERm

vanguard Short-Term Bond BSv 0.10 13,245.1 -0.40 1.44 3.07

U.S. fIxED InCOmE: gOvERnmEnT/CREDIT - InTERmEDIATE

iShares Intermediate Govt/Credit Bond GvI 0.20 1,193.3 -1.78 2.07 4.02

vanguard Intermediate-Term Bond BIv 0.10 3,627.1 -4.53 3.35 6.37

U.S. fIxED InCOmE: gOvERnmEnT/CREDIT - lOng-TERm

vanguard Long-Term Bond BLv 0.10 579.8 -9.39 3.78 7.78

U.S. fIxED InCOmE: gOvERnmEnT

vanguard Short-Term Government Bond vGSH 0.12 306.4 -0.05 0.64 -

U.S. fIxED InCOmE: TREASURY - SHORT-TERm

Schwab Short-Term U. S. Treasury SCHO 0.08 402.9 0.08 0.55 -

iShares 1-3 Year Treasury Bond SHY 0.15 8,465.8 0.01 0.56 1.58

iShares Short Treasury Bond SHv 0.15 3,836.5 -0.01 0.05 0.26

SPDR Barclays 1-3 Month T-Bill BIL 0.13 1,557.0 -0.02 -0.03 0.07

U.S. fIxED InCOmE: TREASURY - InTERmEDIATE

iShares 3-7 Year Treasury Bond IEI 0.15 5,113.2 -2.28 1.86 4.06

Schwab Intermediate-Term US Treasury SCHR 0.10 297.7 -3.01 2.08 -

iShares 7-10 Year Treasury Bond IEF 0.15 3,911.9 -5.72 2.65 5.31

U.S. fIxED InCOmE: TREASURY - lOng-TERm

iShares 10-20 Year Treasury Bond TLH 0.15 278.8 -7.12 2.72 6.22

iShares 20+ Year Treasury Bond TLT 0.15 2,972.7 -11.14 2.52 6.15

U.S. fIxED InCOmE: AgEnCIES

iShares Agency Bond AGZ 0.20 374.2 -1.68 1.15 -

U.S. fIxED InCOmE: AgEnCY mBS

vanguard Mortgage-Backed Securities vMBS 0.12 409.9 -2.39 1.91 -

iShares MBS MBB 0.27 5,448.8 -2.79 1.56 4.07

U.S. fIxED InCOmE: TIPS

Vanguard Short-Term Infl-Protected Sec vTIP 0.10 897.7 -1.78 - -

iShares 0-5 Year TIPS Bond STIP 0.20 612.0 -1.89 - -

FlexShares iBoxx 3-Yr Target Duration TIPS TDTT 0.20 1,888.1 -2.24 - -

PIMCO 1-5 Year U.S. TIPS STPZ 0.20 1,275.6 -2.44 1.96 -

FlexShares iBoxx 5-Yr Target Duration TIPS TDTF 0.20 517.1 -5.40 - -

iShares TIPS Bond TIP 0.20 14,007.9 -8.09 3.51 3.95

Schwab U.S. TIPS SCHP 0.07 407.5 -8.42 3.38 -

SPDR Barclays TIPS IPE 0.18 617.8 -8.93 3.45 3.95

U.S. fIxED InCOmE: mUnICIPAl - BROAD mARKET

iShares California AMT-Free Muni Bond CMF 0.25 246.7 -6.16 2.13 4.14

iShares National AMT-Free Muni Bond MUB 0.25 3,101.0 -6.37 1.50 3.62

SPDR Nuveen Barclays Municipal Bond TFI 0.23 949.5 -7.00 1.48 4.04

PowerShares Insured National Muni Bond PZA 0.28 599.7 -9.92 1.45 3.85

U.S. fIxED InCOmE: mUnICIPAl - SHORT-TERm

iShares Short-Tm Natl AMT-Free Muni Bond SUB 0.25 680.7 0.10 0.96 -

SPDR Nuveen Barclays Short Tm Muni Bond SHM 0.20 1,971.4 -0.78 0.89 -0.76

Market vectors Short Municipal SMB 0.20 225.3 -1.27 1.00 2.87

U.S. fIxED InCOmE: mUnICIPAl - InTERmEDIATE

PIMCO Intermediate Municipal Bond Strat MUNI 0.35 190.0 -4.58 1.52 -

Market vectors Intermediate Municipal ITM 0.24 586.6 -7.14 1.71 4.28

U.S. fIxED InCOmE: mUnICIPAl - HIgH YIElD

Market vectors High-Yield Municipal HYD 0.35 801.0 -11.18 2.63 -

SPDR Nuveen S&P High Yield Muni Bond HYMB 0.45 192.1 -11.29 - -

U.S. fIxED InCOmE: mUnICIPAl - BUIlD AmERICA BOnDS

PowerShares Build America Bond BAB 0.28 705.1 -6.91 5.69 -

U.S. fIxED InCOmE: mUnICIPAl - vRDO

PowerShares vRDO Tax-Free Weekly PvI 0.25 213.7 -0.02 0.28 0.66

U.S. fIxED InCOmE: CORPORATE - InvESTmEnT gRADE - BROAD mATURITIES

iShares Credit Bond CFT 0.20 925.6 -4.14 3.41 6.31

iShares Aaa - A Rated Corporate Bond qLTA 0.15 380.2 -4.34 - -

iShares iBoxx $ Inv Grade Corp Bond LqD 0.15 17,053.6 -4.52 4.26 7.17

U.S. fIxED InCOmE: CORPORATE - InvESTmEnT gRADE - SHORT-TERm

Guggenheim BulletShares 2015 Corp Bond BSCF 0.24 387.4 0.95 3.55 -

Guggenheim BulletShares 2014 Corp Bond BSCE 0.24 356.2 0.68 2.43 -

Guggenheim BulletShares 2016 Corp Bond BSCG 0.24 359.3 0.59 4.21 -

iShares 1-3 Year Credit Bond CSJ 0.20 11,076.5 0.32 1.67 3.10

SPDR Barclays Short Term Corporate Bond SCPB 0.12 3,133.7 0.20 1.92 -

Guggenheim BulletShares 2013 Corp Bond BSCD 0.24 190.1 0.04 1.11 -

vanguard Short-Term Corporate Bond vCSH 0.12 6,750.6 -0.35 2.84 -

U.S. fIxED InCOmE: CORPORATE - InvESTmEnT gRADE - InTERmEDIATE

Guggenheim BulletShares 2017 Corp Bond BSCH 0.24 305.9 -1.07 4.43 -

iShares Intermediate Credit Bond CIU 0.20 5,800.1 -2.12 3.23 5.59

SPDR Barclays Intermediate Tm Corp Bond ITR 0.15 390.7 -2.39 3.72 -

vanguard Intermediate-Term Corp Bond vCIT 0.12 3,126.5 -4.17 4.46 -

U.S. fIxED InCOmE: CORPORATE - InvESTmEnT gRADE - lOng-TERm

vanguard Long-Term Corporate Bond vCLT 0.12 600.9 -8.34 4.45 -

iShares 10+ Year Credit Bond CLY 0.20 279.7 -9.90 4.15 -

U.S. fIxED InCOmE: CORPORATE - InvESTmEnT gRADE - flOATIng RATE

SPDR Barclays Inv Grade Floating Rate FLRN 0.15 295.9 1.04 - -

iShares Floating Rate Bond FLOT 0.20 3,145.6 0.44 - -

U.S. fIxED InCOmE: CORPORATE - HIgH YIElD - BROAD mATURITIES

AdvisorShares Peritus High Yield HYLD 1.35 314.6 7.22

iShares iBoxx $ High Yield Corporate Bond HYG 0.50 14,189.4 1.46 9.00 8.31

SPDR Barclays High Yield Bond JNK 0.40 8,800.1 0.98 8.94 8.63

PowerShares Fundamental HiYld Corp Bond PHB 0.50 625.6 0.63 7.47 3.99

U.S. fIxED InCOmE: CORPORATE - HIgH YIElD - SHORT-TERm

Guggenheim BulletShares 2016 HiYld Corp BSJG 0.42 221.3 3.45 - -

PIMCO 0-5 Year High Yield Corporate Bond HYS 0.55 2,889.9 3.35 - -

SPDR Barclays Short Term High Yield Bond SJNK 0.40 2,155.4 3.27 - -

Guggenheim BulletShares 2014 HiYld Corp BSJE 0.42 403.0 2.76 - -

Guggenheim BulletShares 2015 HiYld Corp BSJF 0.42 530.9 2.56 - -

Guggenheim BulletShares 2013 HiYld Corp BSJD 0.42 214.9 0.76 - -

U.S. fIxED InCOmE: CORPORATE - COnvERTIBlES

SPDR Barclays Convertible Securities CWB 0.40 1,522.0 11.46 10.29 -

U.S. fIxED InCOmE: CORPORATE - lOAnS

PowerShares Senior Loan BKLN 0.66 5,397.4 2.01 - -

U.S. fIxED InCOmE: CORPORATE - PREfERRED STOCK

iShares U.S. Preferred Stock PFF 0.48 9,543.9 -1.62 4.50 7.58

PowerShares Financial Preferred PGF 0.64 1,504.5 -1.77 5.73 6.30

PowerShares Preferred PGX 0.50 2,192.0 -2.24 5.25 3.73

SPDR Wells Fargo Preferred Stock PSK 0.45 263.1 -4.40 3.46 -


October 18, 2013 Grand Hyatt • San FranciSco

Designed for Financial adviSorS and inStitUtional invEStorS

§§ Hear insight from industry thought leaders, including BlackRock and PIMCO, as well as leading practitioners

§§ Learn how to adjust your fixed-income exposure in a rising interest rate environment

§§ Earn up to 7 CFP Board and CIMA CE credits or 9 CFA credits

2nd annual

November 4, 2013 nEw york Stock ExcHanGE • ny

Designed for Financial adviSorS and inStitUtional invEStorS

§§ Implement successful tactical and strategic trading opportunities for today’s markets

§§ Gain real-world insight for achieving best execution on ETF trades across all asset classes

§§ Earn up to 8 CFP Board CE credits and 8.5 CIMA CE credits

January 26-29, 2014 wEStin diPloMat • Hollywood, Fl

the world’s largest EtF conference designed specifically for Financial adviSorS

§§ Participate in more than 30 informative sessions led by prominent financial experts covering topics such as QE tapering, income generation, managing volatility, hedging inflation and much more

§§ Attend our ETF University Seminar to learn the mechanics, tradability and strategies for delivering alpha using ETFs

§§ Network with more than 1,200 attendees

2nd annual

to rEGiStEr or viEw aGEndaS For all oUr conFErEncES, viSit:

www.indexUniverse.com/conferences

Presented by:

For Each conference, Earn cE credits for cFP, cFa & ciMa organizationsregister NOw!

nouriel roubini

Co-founder, Chairman Roubini Global Economics

tad rivelle

Chief Investment Officer, Fixed Income TCW

Stephanie link

Co-Portfolio Manager Jim Cramer’s Charitable Trust

(Action Alerts Plus)

tad rivelleCIO, Fixed Income Group Managing Director TCW

Stephanie linkCo-Portfolio Manager Jim Cramer’s Charitable Trust (Action Alerts Plus)

Pat rileyPresident Former Head Coach Miami Heat

7th annual

InsideETFs

UPcoMinG conFErEncES

FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr % FuND NAMe TiCker exP rATiO % AuM ($M) YTD % 3Yr % 5Yr %

glOBAl fIxED InCOmE

Guggenheim Enhanced Short Duration Bond GSY 0.27 456.0 0.84 - -

PIMCO Enhanced Short Maturity Strategy MINT 0.35 4,248.2 0.28 1.22 -

PIMCO Total Return BOND 0.55 4,021.4 -3.02 - -

SPDR Blackstone / GSO Senior Loan SRLN 0.90 525.3 - - -

InTERnATIOnAl fIxED InCOmE: BlEnDED DEvElOPmEnT

Market vectors International HiYld Bond IHY 0.40 268.0 -0.52 - -

SPDR Barclays Intl Corporate Bond IBND 0.55 187.8 -0.55 5.28 -

SPDR Barclays Intl Treasury Bond BWX 0.50 1,893.8 -5.89 1.64 3.24

SPDR DB Intl Govt Inflation-Protected Bond WIP 0.50 1,110.0 -8.83 4.44 2.52

WisdomTree Asia Local Debt ALD 0.55 496.7 -9.37 - -

vanguard Total International Bond BNDX 0.20 555.2 - - -

InTERnATIOnAl fIxED InCOmE: DEvElOPED

SPDR Barclays Short Term Intl Treasury Bond BWZ 0.35 232.5 -3.86 1.36 -

iShares International Treasury Bond IGOv 0.35 438.2 -4.32 1.35 -

InTERnATIOnAl fIxED InCOmE: EmERgIng

Market vectors Emrg Mkts High Yield Bond HYEM 0.40 218.5 -3.64 - -

iShares Emrg Mkts Local Currency Bond LEMB 0.60 632.3 -10.19 - -

iShares Emerging Markets High Yield Bond EMHY 0.65 213.9 -10.36 - -

iShares JPM USD Emerging Markets Bond EMB 0.60 3,781.6 -11.28 3.58 6.64

Market vectors Emrg Mkts Local Curr Bond EMLC 0.47 1,054.3 -12.52 1.43 -

WisdomTree Emerging Markets Local Debt ELD 0.55 1,456.3 -13.08 0.67 -

PowerShares Emrg Mkts Sovereign Debt PCY 0.50 1,704.8 -13.76 3.52 7.50

COmmODITIES: BROAD mARKET

ELEMENTS Rogers Intl Commodity ETN RJI 0.75 776.0 10.55 10.63 -11.81

iShares S&P GSCI Commodity GSG 0.62 1,300.1 2.32 6.49 -11.00

United States Commodity USCI 1.03 538.1 -2.98 4.29 -

PowerShares DB Commodity Tracking DBC 0.88 6,650.5 -4.03 6.29 -6.44

ETRACS CMCI Total Return ETN UCI 0.55 165.3 -5.39 3.86 -3.81

GreenHaven Continuous Commodity GCC 0.95 362.9 -6.83 0.83 -3.27

iPath Dow Jones-UBS Commodity ETN DJP 0.75 1,676.8 -6.99 -0.77 -7.94

COmmODITIES: AgRICUlTURE

ELEMENTS RICI Agriculture ETN RJA 0.75 284.2 -7.73 1.18 -4.64

PowerShares DB Agriculture DBA 0.96 1,509.9 -10.27 -1.17 -6.30

COmmODITIES: EnERgY

iPath S&P GSCI Crude Oil Total Return ETN OIL 0.75 418.9 16.89 7.17 -18.03

United States Oil USO 0.70 844.1 15.31 6.43 -16.16

PowerShares DB Oil DBO 0.74 372.1 6.09 5.03 -8.92

PowerShares DB Energy DBE 0.73 265.3 5.44 9.69 -7.46

United States Natural Gas UNG 1.00 908.4 0.26 -28.12 -42.21

COmmODITIES: InDUSTRIAl mETAlS

PowerShares DB Base Metals DBB 0.73 263.2 -13.95 -6.06 -5.45

COmmODITIES: PRECIOUS mETAlS

ETFS Physical Palladium PALL 0.60 526.4 1.73 12.16 -

ETFS Physical Platinum PPLT 0.60 820.1 -1.81 -0.69 -

iShares Gold IAU 0.25 7,779.8 -16.89 3.45 10.54

ETFS Physical Swiss Gold SGOL 0.39 1,303.7 -16.90 3.31 -

SPDR Gold GLD 0.40 40,029.0 -16.91 3.31 10.50

ETFS Physical Precious Metal Basket Shares GLTR 0.60 202.8 -17.30 - -

PowerShares DB Gold DGL 0.74 165.8 -17.87 2.03 9.01

PowerShares DB Precious Metals DBP 0.74 234.9 -19.09 2.76 9.42

ETFS Physical Silver SIvR 0.30 419.2 -22.96 6.29 -

iShares Silver SLv 0.50 7,919.1 -23.05 6.08 11.07

CURREnCY: DEvElOPED

CurrencyShares Euro FXE 0.40 210.1 -0.09 1.27 -2.00

CurrencyShares Swiss Franc FXF 0.40 267.6 -1.87 2.54 3.08

CurrencyShares Canadian Dollar FXC 0.40 360.1 -5.57 0.57 0.26

CurrencyShares Australian Dollar FXA 0.40 442.1 -13.20 3.21 3.92

CURREnCY: EmERgIng

WisdomTree Chinese Yuan CYB 0.45 215.3 2.47 2.99 1.70

WisdomTree Emerging Currency CEW 0.55 195.8 -6.82 -0.52 -

ASSET AllOCATIOn

Morgan Stanley S&P 500 Oil Hedged ETN BARL 0.79 2,498.4 36.23 - -

Guggenheim Multi-Asset Income CvY 0.77 1,143.8 9.60 14.37 8.50

iShares Aggressive Allocation AOA 0.32 177.0 9.53 14.22 -

First Trust Multi-Asset Diversified Income MDIv 0.62 487.8 6.63 - -

iShares Growth Allocation AOR 0.31 209.9 6.12 10.18 -

iShares Moderate Allocation AOM 0.31 186.4 3.46 7.27 -

PowerShares CEF Income Composite PCEF 1.73 451.7 -0.79 6.15 -

AlTERnATIvES: ABSOlUTE RETURn

Iq Hedge Multi-Strategy Tracker qAI 0.94 455.9 0.43 2.29 -

PowerShares DB G10 Currency Harvest DBv 0.81 218.9 -5.35 4.21 -0.67

AlTERnATIvES: TACTICAl TOOlS

iPath S&P Dynamic vIX ETN XvZ 0.95 166.4 -12.34 - -

ProShares vIX Short-Term vIXY 0.83 173.4 -46.09 - -

iPath S&P 500 vIX Short-Term Futures ETN vXX 0.89 1,393.7 -46.43 -63.53 -

lEvERAgED

Direxion Daily Small Cap Bull 3x TNA 1.02 641.5 63.32 45.71 -

Direxion Daily Financial Bull 3x FAS 1.10 1,345.9 56.73 28.06 -

ProShares UltraPro qqq Tqqq 0.95 252.6 51.44 60.14 -

Direxion Daily S&P 500 Bull 3X Shares SPXL 0.99 264.5 49.74 47.32 -

ProShares UltraPro S&P 500 UPRO 0.95 479.0 49.68 49.23 -

ETRACS 2X Lev Alerian MLP Infrastr ETN MLPL 0.85 180.6 43.25 37.56 -

ProShares Ultra Russell 2000 UWM 0.98 1,491.0 41.56 36.62 3.90

ProShares Ultra Financials UYG 0.95 805.4 36.49 24.80 -14.55

ProShares Ultra qqq qLD 0.95 517.3 33.49 41.23 14.31

ProShares Ultra S&P 500 SSO 0.91 1,468.1 32.00 34.40 6.15

ProShares Ultra Dow30 DDM 0.95 253.1 30.59 31.77 8.93

UBS AG FI Enhanced Big Cap Growth ETN FBG 0.60 883.7 29.44 - -

ProShares Ultra Real Estate URE 0.95 350.9 -5.56 17.71 -13.40

ProShares Ultra 7-10 Year Treasury UST 0.95 756.5 -11.58 4.21 -

PowerShares DB Gold Double Long ETN DGP 0.75 233.8 -23.10 -1.08 -8.35

ProShares Ultra Gold UGL 1.93 181.8 -33.94 0.39 -

Direxion Daily Emerging Markets Bull 3x EDC 1.14 324.1 -39.69 -18.48 -

ProShares Ultra Silver AGq 1.98 644.1 -45.92 -10.35 -

ProShares Ultra vIX Short-Term Futures UvXY 1.56 256.5 -77.54 - -

Direxion Daily Gold Miners Bull 3X NUGT 1.14 573.2 -86.14 - -

Barclays ETN+ FI Enhanced Europe 50 FEEU 1.00 869.8 - - -

Barclays ETN+ FI Enhanced Global High Yield FIGY 0.80 1,198.8 - - -

InvERSE

Direxion Daily Gold Miners Bear 3X DUST 1.01 179.5 74.17 - -

velocityShares Daily Inv vIX Short Term ETN XIv 1.35 369.9 41.09 - -

Direxion Daily 20 Year Plus Treasury Bear 3x TMv 0.98 609.6 28.87 -23.90 -

ProShares UltraShort Yen YCS 0.93 506.1 22.59 7.01 -

ProShares UltraShort 20+ Year Treasury TBT 0.92 4,262.0 20.96 -13.91 -21.72

ProShares Short MSCI Emerging Markets EUM 0.95 368.4 11.51 -7.39 -17.52

ProShares Short 20+ Year Treasury TBF 0.95 1,548.0 10.25 -6.38 -

ProShares UltraShort 7-10 Year Treasury PST 0.95 328.7 10.04 -8.47 -14.70

PowerShares DB US Dollar Index Bullish UUP 0.80 870.7 1.74 -2.74 -1.38

ProShares UltraShort Euro EUO 0.93 486.5 -2.00 -6.85 -

ProShares Short Dow30 DOG 0.95 317.7 -13.90 -17.16 -13.09

ProShares Short S&P 500 SH 0.89 2,118.1 -14.99 -18.49 -13.46

ProShares Short qqq PSq 0.95 190.2 -15.76 -21.26 -16.96

AdvisorShares Ranger Equity Bear HDGE 3.30 202.5 -16.43 - -

ProShares Short Russell 2000 RWM 0.95 512.0 -18.96 -22.86 -19.11

ProShares UltraShort Dow 30 DXD 0.95 271.2 -26.06 -32.48 -28.38

ProShares UltraShort S&P 500 SDS 0.89 1,948.9 -27.78 -34.86 -29.05

ProShares UltraShort qqq qID 0.95 435.3 -29.38 -39.50 -35.33

PowerShares DB Crude Oil Double Short ETN DTO 0.75 165.6 -30.54 -28.19 -1.08

ProShares UltraShort DJ-UBS Crude Oil SCO 0.93 478.1 -31.18 -29.77 -

ProShares UltraShort Russell 2000 TWM 0.95 303.3 -34.91 -43.28 -39.77

ProShares UltraPro Short S&P 500 SPXU 0.93 554.3 -39.39 -49.48 -

Direxion Daily S&P 500 Bear 3X Shares SPXS 0.98 198.9 -40.09 -50.27 -

ProShares UltraPro Short qqq Sqqq 0.95 216.8 -41.28 -55.01 -

Direxion Daily Financial Bear 3x FAZ 1.01 529.7 -45.33 -53.78 -

Direxion Daily Small Cap Bear 3x TZA 1.01 807.2 -48.88 -60.87 -

PowerShares QQQ is based on the Nasdaq-100 Index®. The Fund will, under most circumstances, consist of all stocks in the Index. The Index includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization.Market volatility and volume may delay system access and trade execution.There are risks involved with investing in Exchange-Traded Funds (ETFs) including possible loss of money. The funds are not actively managed and are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. Shares are not FDIC insured, may lose value and have no bank guarantee.Invesco PowerShares does not offer tax advice. Investors should consult their own tax advisors for information regarding their own tax situations.While it is not Invesco PowerShares’ intention, there is no guarantee that the PowerShares ETFs will not distribute capital gains to their shareholders.

Shares are not individually redeemable and owners of the shares may acquire those shares from the Funds and tender those shares for redemption to the funds in Creation Unit aggregations only, typically consisting of 50,000 shares.PowerShares® is a registered trademark of Invesco PowerShares Capital Management LLC. ALPS Distributors, Inc. is the distributor for QQQ. Invesco PowerShares Capital Management LLC is not affiliated with ALPS Distributors, Inc.

An investor should consider the Fund’s Investment objective, risks, charges and expenses carefully before investing. To obtain a prospectus, which contains this and other information about the QQQ, a unit investment trust, please contact your broker, call 800.983.0903 or visit www.invescopowershares.com. Please read the prospectus carefully before investing.

When it comes to investing, unexpected barriers can hinder your portfolio’s success. However, the transparency of PowerShares QQQ allows for complete visibility of its holdings throughout the day, so you know exactly what you own with no surprises. PowerShares QQQ keeps your investments accessible, cost and tax efficient, and most importantly, gives you the trading flexibility you want.

powershares.com/transparent | @PowerShares

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the magazine for etf · PDF filethe magazine for etf advisors ///// OCTOber ... These effects may be more pronounced in funds with larger or inverse multiples and in funds ... a Social