Global X Launches MLP ETF, RBS Debuts China Trendpilot ETN (MLPA, AMLP, AMJ, TCHI, FXI, GXC)
Eric Dutram: After a short quiet period in the ETF industry, it appears as though a host of issuers are back at the product development front again. In fact, the year-to-date fund launches looks to break 100 by the end of the quarter as over 90 new products have hit the market in 2012 alone.
In continuing with this trend, a few more funds launched on Thursday, led by the Global X MLP ETF (NYSEARCA:MLPA) and the RBS China Trendpilot ETN (NYSEARCA:TCHI). While these funds are unique, they look to face severe competition in their respective industries and should have a tough battle in their quest for AUM. Nevertheless, investors who are focused on these market segments should definitely be aware of these two new products which could offer a distinct way to tackle their respective markets:
Global X MLP ETF (NYSEARCA:MLPA)
This ETF looks to track the Solactive MLP Composite Index which is a benchmark of master limited partnerships engaged in the transportation, storage, processing, refining, marketing, exploration, production, and mining of natural resources.
Currently, the MLP ETF holds 30 firms in its basket and charges an ultra-low expense ratio of 45 basis points. This low fee is important, as it makes MLPA the cheapest ETF in the increasingly popular MLP space (see more on ETFs in the Zacks ETF Center).
Beyond this, investors should also note that the MLP ETF is well spread out between natural gas pipelines and petroleum transportation firms as these two segments combine to make up 80% of the portfolio. The rest of MLPA consists of; exploration & production (7%), and refining/distribution (6.9%) and coal producers (5.3%) giving the product a nice mix of companies.
Another important distinction of this product is its structure as an ETF. Due to this, the product is built as a C-Corporation which takes care of the K-1 headache for investors. However, before shareholders get paid out, the C-Corp has to pay taxes, reducing the size of distributions but eliminating the tax disclosure issue (also read Oil Bull Market Is No Place For MLP ETF Investors).
MLP ETF Competition
In terms of competitors, the MLP space has a great deal of funds vying for investor dollars. As of now, there are 10 ETPs in the space, including two billion dollar funds from Alerian.
These products trade more than a million shares a day as well, suggesting tight bid ask spreads on both of these popular instruments. However, both (NYSEARCA:AMJ) and (NYSEARCA:AMLP) charge investors 85 basis points a year in fees, nearly double what investors will see in the new Global X MLP ETF suggesting that cost conscious investors might see a benefit from cycling into this new fund.
RBS China Trendpilot ETN (NYSEARCA:TCHI)
The other launch came from RBS and its innovative Trendpilot note that targets the Chinese market. This note looks to use a systematic trend-following strategy to provide exposure to either the BNY Mellon China Select ADR Total Return Index or the yield on a 3-month U.S. Treasury Bill investment, depending on observed trends (see Three Unlucky Equity ETFs).
In other words, when the stock index is in a positive trend over three business days, TCHI will invest in the stock benchmark. However, when markets are sliding and the stock benchmark is in a negative trend, the product will shift to the T-bill return, a strategy that looks to reduce volatility in down markets but still allow for upside potential when markets are surging.
This technique could be popular among investors who like the idea of China ETF investing but are concerned about the shaky state of the Chinese market. However, investors should note that the product will have an outsized expense ratio, charging 1.1% when the stock benchmark is being followed and 50 basis points when the T-bill rate is being used (read Are The Trendpilot ETNs Better Than Broad Market ETFs?).
China ETF Competition
Much like the MLP ETF space, China has a slew of products that are available to investors. Currently, there are 18 other funds that target China without leverage, including products that focus in on various Chinese market sectors. Among the most popular are the six billion dollar (NYSEARCA:FXI) and SPDR’s S&P China ETF (NYSEARCA:GXC).
In addition to having an enormous amount of assets, both of these ETFs are very popular among traders, suggesting tight bid ask spreads. This combines with fees that are far lower than what investors see in TCHI, suggesting cost conscious investors should stay away from RBS’ new ETN unless they are especially scared of volatility hitting the Chinese market in the near term.
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