THE MAGAZINE FOR ETF INVESTORS Report/2015/11... · ETF Report and Brown Brothers Harriman have once again teamed up to conduct the Annual ... Direxion Daily Pharma/Medical Bull 2X

PowerShares QQQ

• Invests in 100 of the world’s most innovative companies• Provides visibility of holdings throughout the day• Established 15-year track record

PowerShares QQQ was incepted on March 10, 1999 and is based on the Nasdaq-100 Index.® The Index includes 100 of the largest domestic and international nonfi nancial companies listed on the Nasdaq Stock Market based on market capitalization.

There are risks involved with investing inExchange-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. Ordinarybrokerage commissions apply.

Shares are not FDIC insured, may lose value and have no bank guarantee.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.

ALPS Distributors, Inc. is the distributor for PowerShares QQQ which is a unit investment trust. Invesco PowerShares Capital Management LLC is not affi liated 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 carefullybefore investing.

QQQNASDAQ100

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PowerShares QQQ

• Invests in 100 of the world’s most innovative companies• Provides visibility of holdings throughout the day• Established 15-year track record

PowerShares QQQ was incepted on March 10, 1999 and is based on the Nasdaq-100 Index.® The Index includes 100 of the largest domestic and international nonfi nancial companies listed on the Nasdaq Stock Market based on market capitalization.

There are risks involved with investing inExchange-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. Ordinarybrokerage commissions apply.

Shares are not FDIC insured, may lose value and have no bank guarantee.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.

ALPS Distributors, Inc. is the distributor for PowerShares QQQ which is a unit investment trust. Invesco PowerShares Capital Management LLC is not affi liated 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 carefullybefore investing.

QQQNASDAQ100

pwr.sh/QQQ | @PowerShares

Is it a match?forRobos

Is it a match?forRobos

CHECK OUT THE ANNUAL ADVISOR SURVEY

CATCH UP ON COMMODITIES

TECHNOLOGY: LAGGARD OR FUTURE STAR?

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FEATURES

VOLUME 15 | NO. 1 1 Contents

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37

4 New ETF Launches John Hancock debuts multifactor ETFs. Plus: Our monthly look at launches and closures.

6 ETF Explainer: MINT Our ETF Explainer delves into the movements of the largest actively managed ETF on the market.

36 Why I Own: CRBN Gregg Lessard of Aspen Leaf Partners talks about what iShares’ low-carbon ETF offers his clients.

42 Sectors In Review September was another rough month, with few bright spots.

44 ETF Data Our monthly databank breaks down ETF returns for every market segment.

DEPARTMENTS

Subscribe by going to etf.com/subscribe or emailing [email protected]

Activate Your FREE SubscriptionGO

The Odd Couple: Advisors & RobosRobo advisors and human advisors aren’t a natural fit in the eyes of many, yet they could have a lot to offer each other. Is it true love?

Commodity SupplementETF Report looks into the performance of key commodities, outlooks on the price of oil and the virtues of commodity equities.

Annual Advisor SurveyETF Report and Brown Brothers Harriman have once again teamed up to conduct the Annual Advisor Survey in order to discover how financial advisors’ approaches to ETFs are evolving.

Smart-Beta SupplementScott Mullen of Miracle Mile Advisors discusses how his firm uses smart-beta ETFs, and we look at the most recent smart-beta launches and closures.

Sector Strategies SupplementTech hasn’t done that great, so why are investors so enamored of it? Plus, the latest on ProShares’ new sector funds.

4 ETF.com/ETF Report

4% ALTERNATIVES

John Hancock Multifactor Financials ETF Index fund giant rolls out its first passively managed muni fund

reasons. For one thing, it’s part of a grow-ing trend toward large, primarily active fund providers entering the ETF market, not with actively managed or plain-vanilla index products, but with quasi-active smart-beta ETFs. Also, as sector funds, JHMF and its sister ETFs are a first for the factor-based ETF space, which has previ-ously focused on countries and regions.

Finally, the fact that DFA both designed the indexes and is managing the funds is a watershed moment for the ETF industry. The famed firm has tradition-ally used passive—but not index-based—management, relying on an approach that buys and holds large swaths of what-ever market it is targeting, tilting the portfolio based on established factors.

Source: ETF.com, Data and information as of 9/30/2015. ETF Filings sidebar covers launches and filings for the month of September.

ETFLaunches

FEATURED ETF

NEW FUNDS By Heather Bell

John Hancock laun-ched its first funds on Sept. 28. The underlying index methodology, devel-oped by Dimensional Fund Advisors, over-weights holdings based on smaller size,

higher relative profitability and lower relative price.

The six funds include four U.S. sec-tor ETFs, among them the John Hancock Multifactor Financials ETF (JHMF). JHMF tracks the John Hancock Dimensional Financials Index and comes with an expense ratio of 0.50%.

The fund is important for a number of

10% LEVERAGED

24%US EQUITY

40% INT’L EQUITY

9% US FIXED INCOME

3% INT’L FIXED INCOME

0.5% COMMODITIES

3% ASSET ALLOCATION

6% INVERSE

ETF FILING ACTIVITY

LAUNCHES

U.S. EQUITY

Cambria Value and Momentum

FlexShares U.S. Quality Large Cap

Goldman Sachs ActiveBeta US Large Cap

John Hancock Multifactor Cons Discr

John Hancock Multifactor Financials

John Hancock Multifactor Healthcare

John Hancock Multifactor Large Cap

John Hancock Multifactor Mid Cap

John Hancock Multifactor Technology

JPMorgan Diversified Return US Equity

Reaves Utilities

S&P 500 Ex-Energy

S&P 500 Ex-Financial

S&P 500 Ex-Health Care

S&P 500 Ex-Technology

INT’L EQUITY

EGShares EM Core ex-China

Goldman Sachs ActiveBeta Emerging Mkts

iShares MSCI Saudi Arabia Capped

ProShares MSCI Europe Dividend Growers

SPDR MSCI Intl Real Estate Currency Hdgd

SPDR S&P Intl Div Currency Hedged

U.S. FIXED INCOME

FlexShares Credit Scored US Long Corp Bond

iShares Dec 2021 AMT-Free Muni Bond

iShares Dec 2022 AMT-Free Muni Bond

ASSET ALLOCATION

Credit Suisse Multi-Asset High Inc ETN

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SELECTED CLOSURESEGShares Blue Chip

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Global X Central Asia & Mongolia

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JHMF Quick View

ISSUER John Hancock

SEGMENT Equity: U.S. Financials

EXPENSE RATIO 0.50%

STRUCTURE Open-ended fund

DATE LAUNCHED 9/28/2015

COMPETING FUNDS XLF, IYF, VFH, RYF, RWW

ETFs214YEAR-TO-DATE

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Vanguard Total Stock Market ETFBuilding a solid foundation means having the right pieces in place.

VTI

Helping your clients meet their goals starts with an approach rooted in long-term planning. VTI can help build a solid foundation for your clients’ portfolios by exposing them to over 3,000 stocks. And with one of the lowest expense ratios in its category, Vanguard Total Stock Market ETF is one more low-cost option from the industry’s low-cost leader.*

Build a stronger foundation for your clients at advisors.vanguard.com/VTI today. 800 684-8553

Are you Vanguarding® your clients’ portfolios?

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All investing is subject to risk, including the possible loss of the money you invest.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in Creation Unit aggregations. Instead, investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor will incur brokerage commissions and 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/VTI, call 800 684-8553, 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.

*Source: Morningstar as of 05/01/2015. Based on 2015 industry average expense ratio for total stock market ETFs of 0.30% and Vanguard VTI expense ratio of 0.05%.

© 2015 The Vanguard Group, Inc. All rights reserved. U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and 8,417,623. Vanguard Marketing Corporation, Distributor.


Pimco Enhanced Short Maturity Strategy ETF

Each month, we look at an ETF selected by ETF.com based on its performance and the factors driving that. In this issue of ETF Report, we consider the Pimco Enhanced Short Maturity Strategy ETF (MINT|B), which looks to maintain a similar level of risk as a money market fund but also to provide greater returns. The fund is a good fit for investors looking to invest in something other than cash while waiting to re-enter the equity and commodity markets.

Source: Bloomberg. Data for 9/4/2014 to 9/4/2015.

ETF Explainer: MINT

OCT The S&P 500 closes at its lowest level since mid-April 2014 on investor fears of a global economic slowdown after flirting with a correction.

16MAY The S&P 500 inches to a new high and its YTD peak on

optimism around the second quarter and the housing markets, and despite mixed economic data.

21

DEC The Fed signals that it could raise rates in the coming months when it ceases to indicate that short-term interest rates will stay near zero for a “considerable time.”

17AUG The S&P 500 falls dramatically, landing in correction territory,

something it hasn’t done since 2011. Meanwhile, volatility spikes to a four-year high.

24

FEB Government bond prices fall sharply and yields rise on a strong jobs report and increasing expectations that the Federal Reserve will raise rates in June.

6SEP Citing below-target inflation numbers and concerns about an

economic slowdown abroad, the Federal Reserve leaves rates unchanged, as expected.

17

IN DETAIL By Heather Bell

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

2015 MINT ETF

0.6

0.5

0.4

0.3

0.2

0.1

0.0

-0.1

-0.2

%

RETURN

0.26%

MINT Quick View

ISSUER PIMCO

SEGMENT FI: US - Brd Mkt Inv Grade Sht Trm

EXPENSE RATIO 0.35%

AUM $4.3 Billion

COMPETING FUNDS NEAR, FLTB, HOLD

DEC17

FEB6

MAY21

AUG24

SEP17

OCT16

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RAVI

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Liquidity doesn’t have to water down your returns.

BUILT BY INVESTORS, FOR INVESTORS

Before investing visit www.fl exshares.com/prospectus to obtain a prospectus that includes the investment objectives, risks, fees, expenses and other information you should read carefully and consider carefully. Foreside Fund Services, LLC, distributor.

Investment in FlexShares Ready Access Variable Income Fund (RAVI) is subject to numerous risks including possible loss of principal. Highlighted risks: active management; interest rate/maturity (value of underlying assets may fall due to changing interest rates); debt extension & prepayment (an issuer may exercise its right to pay principal on an obligation later or sooner than expected); concentration (may invest more than 25% of assets into securities of a single developed market). See prospectus for full description of risks.

FlexShares Ready Access Variable Income Fund is actively managed and does not seek to replicate a specifi ed index. Additionally, the Fund may invest without limitation in the fi xed income and debt securities of foreign issuers in both developed and emerging markets. The Fund is at increased credit and default risk, where there is an inability or unwillingness by the issuer of a fi xed income security to meet its fi nancial obligations; debt extension risk, where an issuer may exercise its right to pay principal on an obligation later than expected; as well as interest rate/maturity risk, where the value of the Fund’s fi xed income assets will decline because of rising interest rates. The Fund may also be subject to increased concentration risk as it may invest more than 25% of its assets into the securities of a single developed market. The Fund may invest without limitation in mortgage- or asset-backed securities, which puts it at increased risk for interest rate/maturity risk, debt extension risk, and prepayment (or call) risk. The Fund is “non-diversifi ed” under the Investment Company Act of 1940, and may invest more of its assets in fewer issuers than diversifi ed funds. Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Assets that can be easily bought or sold are known as liquid assets.

Looking for greater return potential from your short-duration fi xed income investments? FlexShares® RAVI ETF

can help you build a portfolio strategy that provides opportunity for meaningful return without undue volatility.

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BEDFELLOWSSTRANGE ROBOS &

ADVISORS

There’s much soul searching in the financial advice industry these days. What will its future look like?

Thanks to a leap in financial technology, largely at the hands of robo advisors, traditional advisors today are faced with a changing relationship with investors, who have come to expect—if not demand—more for less.

They are also faced with a business model anchored on spreadsheets, faxed paperwork and quarterly reports that are starting to look more and more obsolete in the era of high-tech investment solutions, particularly in the eyes of younger generations of investors.

The robo phenomenon, or the technology advance-ment it represents, is indeed pushing many advisors out of their comfort zone in order to adapt.

To quote Dean Zayed, founder and CEO of Brook-stone Capital Management—one of the fastest-growing RIAs today, with some 300 advisors on its platform, “We know we want to embrace technology; we can’t ignore it. Technology is a common thread of all of our strategic planning today.”

So what are advisors doing exactly? The answer to that question is taking many interesting shapes.

RATHER THAN DRAWING LINES IN THE SAND, THE LINES ARE BECOMING MORE BLURRED

By Cinthia Murphy


NOVEMBER 2015 9

POSSIBLE OUTCOMES OF THE ROBO REVOLUTION

IF YOU CAN’T BEAT THEM, JOIN THEM

Some advisors are joining forces with robos in partner-ships that delegate investment management entirely to an automated solution, but preserve the human ele-ment of financial advice.

For example, consider what Sophia Bera has created. A registered investment advisor herself, she built her firm centered on two beliefs. First, that many investors need or want financial guidance. Secondly, that bells and whistles and expensive portfolio solutions seldom deliver the goods at the end of the rainbow. Instead, she believes, low-cost passive investing with ETFs is the bet-ter way to go.

The result is Gen Y Planning, a Minneapolis-based RIA she launched in 2013 that blends what Bera consid-ers the best of both worlds. The firm charges a monthly subscription fee for financial planning services, and del-egates portfolio construction and management to Bet-terment, which charges 25 bps.

“The platform is a game changer for our profession when it comes to serving next-generation clients,” Bera said. “I’m a big fan of passive investment approaches. Even if I would have had the resources to hire an amaz-ing fund manager to run portfolios for me, I’m not swayed by the research I’m seeing that that would be the best idea for my clients.”

The partnership benefits both sides, really. It allows Bera—and advisors like her—to deliver what

her clients need in terms of portfolio management, and to meet their financial planning needs as well, which is her strength. We are talking about needs that go beyond investment management, such as life insurance, estate planning, student loan repayment, etc.

Betterment has been a particularly good fit for this type of model because the firm is not built as an advisor sitting on top of someone else’s broker-dealer. Better-ment is also the broker-dealer, which means as a part-ner, it’s offering the entire solution, handling all aspects involved with investment management.

THE NEED FOR SCALE

To Betterment, partnerships with advisors such as Bera are a great way to more quickly scale their business. Robos may be the cool kids on the block right now, but they too have to spend time and marketing effort to attract clients like any other RIA. And that’s not an easy task.

“Partnerships enable as many people as possible to use our platform,” said Joe Ziemer, business develop-ment and communications head at Betterment. “One of the benefits is scale.”

Scale to a pure-robo is critical if you consider that the primary target audience in the robo space—the younger generation of investors—isn’t exactly where the bulk of the wealth is.

As Michael Kitces, partner and director of research for Pinnacle Advisory Group, who publishes the finan-cial planning industry blog Nerd’s Eye View put it, “Technology is not unique to millennials at all. Robos went after millennials because if they went after baby boomers, they’d go against 1,000 other firms that are already competing in the space.”

“There’s not that much competition in millennials because accounts are so small, so it’s not really that profitable,” Kitces said. “They need scale.”

There are already 200 advisors partnering with Better-ment’s institutional platform, which is barely 1 year old.

And the path to scale has been an interesting one to the extent that each of these advisor partners has found their own versions of a perfect balance between the human and robo worlds.

1 TRADITIONAL RIAs ARE PROBABLY ‘GOING TO DIE’

If your business model doesn’t adapt to the demand for better tools, better technology and better transparency, your days may be numbered.

“If you’re an RIA stuck in the mud, not getting efficient, not getting better technology, you’re just going to die,” Gray said. “You have to have a better value proposition, and you have to move with the times. You have to have to some element of a robo in your practice because every-one’s going to have one. That’s the future.”

That said, smaller shops unable to catch up might sur-vive, although with a lot less.

“There’s always going to be a space for advice, but the fee clients pay for talking to a person is going to be com-pressed over time,” Gray said. “We hear this all the time from unsophisticated advisors who readily admit, ‘I’m just a sales guy.’ It’s fine to be a sales guy, but the days of charg-ing 1% for a relationship are coming to an end. Clients want to pay 1% for investment advice, not a paid friend.”

Wesley Gray is CEO and CIO of asset manager Alpha Architect


DIFFERENT USES OF A ROBO

“There are larger firms that use this as a segmentation strategy that allows them to take clients with smaller assets,” Ziemer said. “There are also firms that use this for lifestyle implementa-tion—people who want the high-tech experience. And there are those who are using it for everything, putting all clients in it.”

If nothing else, some advisors have even found that joining forces with a robo is a great way to recruit new advisor talent to their firms.

“This is an aging industry,” Ziemer said. “The average age of advisors today is 54 or 55, and we are at record lows of people entering the space. Some advisors are telling us that to attract young good talent, good technology makes sense.”

CREATING YOUR OWN SOLUTION

Many advisors are going a different route. They’re looking to replicate the user-friendly, low-cost experience robos are known to provide in-house. This means developing their own types of digital investment solutions to make online-type advice and online investing a reality in their own shops.

Atlanta-based Wela Strategies, for instance, did its home-work, raised some capital and upgraded its offering to a new digital unit designed to tap in to this growing demand for tech-savvy solutions. The result was the creation of yourwela.com.

“You can log in and use Wela for free, aggregate your accounts, digest our content, use our tools, etc., but if you want to invest with us, it’s the same fee schedule [as before],” Mitch Reiner, managing partner at Wela Strategies, said. Fees here range from 0.75% to 1% depending on the account size. The larger the account, the smaller the fee, and anything above $1 million is on a per-case basis, according to the company’s website.

To Reiner, creating a solution instead of partnering up with a robo made sense given the market he serves. In Atlanta and surrounding areas, he says, few clients, if any, have heard of Betterment or Wealthfront—the big robos today. Meanwhile, Reiner, and Wela, have a strong following—and even a radio presence—in the region.

“There was an opportunity here for us,” he said.

TO COMPLEMENT, NOT TO COMPETE

One of the challenges of this evolving business model is mak-ing sure that robolike solutions don’t undermine advisors within a practice.

That fine line is exactly what Brookstone’s Zayed has been focusing on. His firm is looking to develop something in-house that would “complement and not compete” with their 300-or-so advisors.

“To be perfectly honest, we haven’t made any final deci-sion on how we’re going to roll it out. But we know we want to embrace technology, we can’t ignore it,” Zayed said. “Robo is code for technology. You need to have technology that enables you to be able to provide online-type advice today.”

To make it work, he’s serious about having a clear value proposition that goes beyond robolike portfolio manage-ment solutions. That value comes in the form of a network of advisors that are fiduciaries first and foremost. Moreover, Brookstone is also bringing to the table a “unique investment philosophy” that involves a blend of different risk-managed strategies, a tactical sensibility, if you will.

“Not to knock on current robos, but they typically offer plain-vanilla asset allocation models,” Zayed noted. “We believe we have more of the pieces that are more sustainable long term, i.e., we marry the technology with the live fiduciary advisor and more sophisticated investment portfolios.”

“We’re not quite sure how to do it yet, but we know it’s going to be a lower-cost offering, and it will be done in a way that com-plements our advisor and not competes with them,” he added.

ETF ISSUERS IN THE MIX

It’s unclear how large advisory shops/ETF issuers are pulling off this delicate balance.

Think of Schwab. That’s a firm that has a vast network of advi-sors—and a quickly growing one, too. But now, Schwab also offers robo services that target retail customers as well as advisors.

If the Schwab Institutional Intelligent Portfolios is a custom-izable robo platform that puts high-tech portfolio management solutions at advisors’ fingertips, the Schwab Intelligent Portfolios platform is a bona fide robo advisory vying for retail client assets.

The platform builds and manages portfolios for individual investors with no fees or commissions. It’s a do-it-yourself solu-tion that goes head-to-head with the likes of Wealthfront and Betterment’s retail platform—the same robos that have often been portrayed as a threat to the traditional advisory business.

Is it a contentious relationship between Schwab advisors and Schwab’s retail-focused robo? Probably so, although Schwab isn’t talking about it.

2 ME-TOO ROBO ADVISORS IN LINE OF FIRE

ETF portfolios are quickly becoming a commodity, and as such, merely offering ETF portfolios is hardly enough to dif-ferentiate your business.

“In many respects, generic robo advisors are just adding a layer of expenses on top of underlying commodity prod-ucts,” Gray said. “The robo advisor movement is here to stay, but without a differentiated product offering or a unique business model, running a profitable, plain-vanilla passive allocation robo advisor will be challenging.”

NOVEMBER 2015 11

SELF COMPETITION?

“It’s a little bit contentious,” Kitces, who studies the space, offered. “But it’s always been. Schwab is building private cli-ent services, and it also has advisors. They are competing with their own advisors.”

The reason it all works, in the end, is that Schwab is also building products. It’s an ETF issuer. So creating robo channels is a way of creating an additional distribution channel for its ETF products.

Whether it’s through its advisors, its retail robo or its insti-tutional robo as partner to their advisors, the end result is largely the same: Schwab ETFs are being sold.

That’s probably the same impetus behind BlackRock’s recent move to acquire FutureAdvisor for $150 million this past summer—to use it as yet another distribution channel for iShares’ ETFs.

FutureAdvisor’s co-founder and CEO Bo Lu said that at the time of transaction his firm’s mission would remain the same, and it would continue to offer investors automated portfolio solutions centered on the “best products available.” BlackRock, in turn, said it plans to have FutureAdvisor become a robo unit within the company, targeting institutional investors and advi-sors specifically.

“For years, we’ve used BlackRock’s iShares ETFs together with products from other fund families,” Lu said on the com-pany’s website. “We will continue to have an open platform that uses products from a range of providers. As always, we will make the best choices for you, our clients, in our role as a fidu-ciary of your assets.”

The ink is still drying on the deal, which should close in the fourth quarter. But many in this industry are already anticipat-ing BlackRock’s newly acquired robo unit will be yet another distribution platform for the company’s products.

VANGUARD: THE REAL ‘CYBORG’ THREAT

Let’s also not forget what Vanguard has been doing. In true Van-guard fashion, the firm is pioneering in a pioneer space, offer-ing a unique take on the technology theme with an offering that’s part robo, part human.

The robo initiative here, Personal Advisor Services, includes an office staffed with 100-or-so financial professionals, but the interaction is done virtually, not in person. And portfolio manage-ment is high tech. They are using a lot of technology solutions, but are still offering human-based advice customized to clients.

“Vanguard is the most disruptive of all of these solutions because it competes with human advisors, and it does it at a

robo price point of 0.3 percent,” Kitces said. “They are frankly the biggest threat to both worlds—they offer more value than a robo for the robo price, and offer as much value as a finan-cial advisor at a fraction of the price.”

“But [Vanguard] is not really a robo even though it’s been characterized that way,” he added. “They’re really a hybrid—I like to call them cyborgs—and cyborgs are doing much better than either robos or advisors.”

WHY THIS ALL MATTERS: TECHNOLOGY

At the core of the transformation taking hold across the advi-sory industry is a realization that in order to attract new—younger—clients, there needs to be a change in the delivery mechanism of advice and investment solutions.

But pursuing innovation can’t be done by losing sight of the fact that there’s no such thing as a generational divide when it comes to better technology. Everyone wants better tools and everybody uses technology.

The largest pure-robo advisors combined have total assets of maybe $6 billion—a miniscule fraction of the overall invest-ment universe today.

“The need for face-to-face consultative relationships is not going to go away,” said Steve Blumenthal, head of CMG Capital Management Group. “To focus on creating a robo platform to capture the millennial generation is ignoring the 98% of where the wealth is.”

“The technology within the robo construct is what’s valu-able to all advisors,” he said. “Our industry needs to get simpli-fied that way, and make that experience better. The future is technology; it’s not robo.”

3 ETF ISSUERS WELL-PLACED TO WIN THE RACE

ETF portfolios are commodities, those producing the pieces that go into those portfolios—and then selling them—have a clear advantage over those simply offering portfolios. Distribution is a key factor. Firms like Vanguard and Charles Schwab come to mind.

“The winner in this sort of market goes to the producer with extreme operational efficiency and economies of scale,” Gray said. “If you charge 1% as an advisor, and you turn around and buy and hold Vanguard funds, you lack a clear value proposition. Vanguard has greater scale, and can offer advisor services for 30 bps.”

“We currently see firms placating RIAs, because they serve as a distribution channel for asset managers, but there’s a chance we see a leapfrog event where Vanguard—and oth-ers like it—displace RIAs,” he added.

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13NOVEMBER 2015

A STATUS CHECK ON A STRUGGLING ASSET CLASS

COMMODITIESSUPPLEMENT

2015

13


PHIL FLYNN Analyst

Price Futures Group

Over the past year, oil has been having a rough and ugly ride. From a peak of more than $106 a barrel last June to a trough of less than $38 this August, oil prices faced one of their worst declines in mod-ern history in 2014 and 2015. Oil compa-nies responded by sharply reducing their investments in new U.S. wells, but is it enough to finally stabilize the market?

ETF Report sat down with three experts to answer that question and get their insights on other key issues fac-ing the oil market heading into 2016: Phil Flynn, an analyst at futures broker-age Price Futures Group; Michael Cohen, head of energy markets research at Bar-clays; and Fadel Gheit, managing direc-tor and senior analyst covering the oil and gas sector at Oppenheimer & Co.

Where do you see oil prices going in 2016? PHIL FLYNN We’ll see prices rebound

because you’re going to see a massive cut in capital spending that’s already started to take its toll on supplies. One of the worst things that happened is that little double dip that we had in oil prices. Prices recovered in July and they brought back all these oil rigs and everybody thought the worst was over, but then prices crashed again because of China and Europe and Iran. Now everybody’s going to be afraid to bring production back on, which means

they’re probably not going to act quickly enough when prices come back up.

Low prices will stimulate demand at a time when production is cut back. I think we’ll average $57 next year, but see a spike as high as $80.

MICHAEL COHEN We don’t think the cur-rent price levels are sustainable for medium-term growth of supply in order to meet the demand that’s been spurred on by these lower prices. Therefore, we expect we’ll see an adjustment back up into the $60 range in the second half of next year, and that that price level is going to be required to have enough supply to meet demand.

FADEL GHEIT We expect oil price volatility to continue in a narrow range below $50.

What’s your outlook for supply? Is the recent drop in U.S. production something that’ll continue?

FLYNN It will drop by 1 million barrels per day. I think most people are behind the curve on those estimates. We’re already seeing evidence of the decline in Cush-ing, Oklahoma, where supplies are falling faster than anticipated.

COHEN Over the next two to three months, we’re likely to see supply con-tinue to decline. However, once the market

MICHAEL COHEN Head, Energy Markets Research

Barclays

FADEL GHEIT Managing Director, Senior Analyst

Oppenheimer & Co.

COMMODITY SUPPLEMENT

OIL IN 2016:WHAT’S IN STORE

15NOVEMBER 2015

COHEN If China grows much slower than the 5 to 7% the market expects, that could have ramifications for other Asian econo-mies and other economies that trade with China. That’s the kind of scenario in which we could see another dip in prices below where we are even right now. That’s not part of our base case, but it’s a possibility.

GHEIT Demand growth is expected to remain anemic because of slower eco-nomic growth and conservation.

Do you see geopolitical risks from these low oil prices?

FLYNN The biggest risk is the Syrian war spreading. This thing could get out of con-trol; it really could.

COHEN Certain countries are able to weather these prices. Russia and Saudi Arabia are some of those that fall on the spectrum of being best prepared for this kind of environment. Then there are other countries on the complete other side of the spectrum—like Libya, Nigeria, Iraq—that are much worse prepared for a lower-for-longer price environment.

GHEIT Eventually, oil exporting coun-tries will have to get used to the low oil price, as it’s likely to be the new normal. They have to live within their means,

diversify their economies to be less depen-dent on oil export revenues, and gradually reduce fuel subsidies.

Anything else you’d like to add?FLYNN The downside risk for prices is if

the global economy really falls apart next year. It’s obvious the Fed is concerned about the lack of inflation, so it will likely err on the side of being more accommoda-tive, which is supportive for prices.

COHEN The market is struggling now, try-ing to understand how much incremental oil Iran can sell to the market when it begins to export again. The forward curve and the price of oil reflect that Iran will likely add around 500,000 to 700,000 bar-rels a day from current levels to the mar-ket. If we see a slip in when implemen-tation of the Joint Comprehensive Plan of Action [nuclear deal] occurs, then the market would likely have to readjust the assumptions about incremental exports from Iran.

GHEIT Continued low oil prices are likely to lead to industry consolidation, resulting in bigger and much stronger companies both operationally and financially that are more resilient to low oil prices.

realizes it needs U.S. shale output to con-tinue to grow at a decent pace of 100,000 or 200,000 barrels a day per year, there will be a price impact later on in 2016.

Once that happens, you could get U.S. crude output back up to 9.6 million or 9.7 million barrels a day. We don’t really see a scenario in which U.S. production declines steeply, because there will be a market impact from that. Most of the U.S. produc-ers that are sitting on a backlog of wells that they want to complete and bring on will do so at higher prices. By doing that, they’ll support overall output and miti-gate the decline from existing fields, and there won’t be a steep trajectory down.

GHEIT We expect flat to small declines in supply as capital-expenditure cuts will be largely offset by efficiency gains and better allocation of capital. Production from new major project startups will offset shale pro-duction declines.

Demand is growing faster this year thanks to lower prices, but will the slow-down in China and emerging markets derail that next year?

FLYNN China definitely is slowing, but we haven’t really seen that in its energy demand as of yet. The stimulative actions by the government will provide support to demand, and it could surprise to the upside.

OIL IN 2016:WHAT’S IN STORE

WE ASK 3 OIL EXPERTS WHAT THEY SEE HAPPENING WITH OIL PRICES NEXT YEAR

By Sumit Roy


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COMMODITY PERFORMANCE2015

GLD & SLV START YEAR OFF RIGHT

GLD and SLV start the year with a big rally. The two precious metal ETFs are up double-digit percentage points in January, but that marked the peak for 2015. Despite numerous economic concerns throughout the year, precious metals haven’t been able to get any traction.

OIL PRICES BOUNCE BACK

Oil prices bounce back hard in February after hitting six-year lows in the previous month. Prices rise for the next few months, peaking in the $60s. Oil-linked ETFs USO and BNO follow suit before tanking again in the fall.

COFFEE DROPS

Coffee drops to its lowest point in a year, near $1.25/lb. This wipes out the huge rally in 2014, which was due to a record-breaking drought in Brazil. JO, the top commodity ETF of last year, has turned out to be a big loser this year.

COTTON AND BAL HIT HIGH

Cotton and BAL hit their highest level of the year amid news that U.S. farmers would plant the least amount of cotton since 1983. However, the gains don’t last, as China slowdown concerns and sales from the country’s official reserves weigh on the market.

2015 HAS SO FAR BEEN ANOTHER LOUSY YEAR FOR COMMODITIES. Energy prices sagged, led by oil, which hit six-year lows. At the same time, platinum and palladium were big losers in the precious metals space. For agriculture, the story was mixed. Cocoa was the only commodity to rise through the first nine months of the year. On the other hand, coffee was the worst performer in the period.

17NOVEMBER 2015

JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER

JO

SGG

USOBNO

PPLTWEAT

PALL

UNG

SOYB

CORN

SLV

GLD

BAL

NIB

PRECIOUS METALS

GLD - SPDR GOLD

SLV - iSHARES SILVER TRUST

PPLT - ETFS PHYSICAL PLATINUM

PALL - ETFS PHYSICAL PALLADIUM

ENERGY

USO - UNITED STATES OIL

BNO - UNITED STATES BRENT OIL

UNG - UNITED STATES NATURAL GAS

AGRICULTURE

JO - iPATH BLOOMBERG COFFEE SUBINDEX TOTAL RETURN ETN

NIB - iPATH BLOOMBERG COCOA SUBINDEX TOTAL RETURN ETN

SOYB - TEUCRIUM SOYBEANS

CORN - TEUCRIUM CORN

BAL - iPATH BLOOMBERG COTTON SUBINDEX TOTAL RETURN ETN

SGG - iPATH BLOOMBERG SUGAR SUBINDEX TOTAL RETURN ETN

WEAT - TEUCRIUM WHEAT

STABILITY FOR PPLT & PALL

This was the last month of stability for PPLT and PALL, before prices drop like a rock in the following months. Sharply slowing car sales in the No. 1 auto market, China, take a toll on underlying platinum and palladium prices, which are used as autocatalysts.

FURIOUS RALLY

WEAT, CORN and SOYB stage a furious rally, as heavy rains in the growing regions fuel fears that crops could be damaged. Those concerns turn out to be unfounded, and prices give back all their gains in subsequent months.

COCOA HITS HIGH

Cocoa hits its highest level since 2011. The only ETF up on this list, NIB benefits from strong demand for chocolate, particularly in emerging markets.

OIL BREAKS DOWN

Oil breaks below the lows set in January, sending USO and BNO to record lows. WTI oil falls as low as $37.75, while Brent falls as low as $42.23. However, prices rebound quite significantly.

NATURAL GAS TUMBLES

Natural gas tumbles its way to a three-year low below $2.50/mmbtu, pushing UNG down with it. Despite a hot summer, inventories remain at elevated levels, leaving no worries about supplies ahead of the peak-demand winter season.

Source: Bloomberg, 12/31/2014-9/30/2015



By now, it’s not really news that oil prices are in the dumper. From investors to producers to consumers, everyone is well-aware that oil has come down quite a bit from the lofty levels of recent years.

That said, not a lot of people expect these low prices to last. There is a strong consensus among analysts that oil will rebound significantly in the coming quarters. From a current price around $45/bar-rel, the median forecast is for WTI crude oil to aver-age $59 in 2016 and $65 in 2017.

ALL ABOUT SUPPLY AND DEMANDFor oil, like any com-modity, pricing ulti-mately comes down to supply and demand. It was surging supply and slowing demand that pushed oil down during the last 15 months. If oil rebounds, it will be a reversal of those trends that sends it back up again.

While nothing is certain, the latest data does seem to suggest that analysts may turn out to be right in their call for higher prices.

Both supply and demand are quickly moving in a bull-ish direction.

According to the International Energy Agency, demand this year may rise by 1.7 million bar-

rels per day, the fastest pace in five years. On the supply side, the IEA expects produc-

tion from non-OPEC producers to drop by 0.5 million barrels per day in 2016

on the back of tumbling U.S. drill-ing and output.

PLAYING THE REBOUNDIn a world where oil demand

is growing by more than 1.5 million barrels per day annually, supply must also grow. Ulti-mately, prices will need to rebound to a level that compels oil companies to invest in new wells and

drill again. What that level is, no

one knows for sure. But if we use the analyst consensus as a

guide, it’s somewhere in the $60s. If oil rises to $65 by 2017, as ana-

lysts expect, that would equal a gain of more than 44% from current prices.

For investors, the question is, what is the best way to take advantage of a big jump like that in oil prices?

OIL ETFs,EQUITIESFUTURES

WITH

BEAT

ROLL COSTS IN A CONTANGO

ENVIRONMENT DEVOUR RETURNS

By Sumit Roy


19NOVEMBER 2015

YEAR-TO-DATE RETURNS ON OIL ETFs

UNITED STATES OIL FUND (USO)Unfortunately, there’s no way to precisely capture the increase in spot oil prices. There are no physical oil exchange-traded funds available on the market, and even if there were, transaction and storage costs would significantly reduce the returns for such a fund.

The closest thing investors have to a spot oil ETF are the handful of futures-based ETFs that are out there. The most popular of these is the United States Oil Fund (USO|B-100), with nearly $2.5 billion in assets.

and buying the second-month contract is called “the roll.” If the second-month contract is the same price as the front-month contract during the roll, USO’s posi-tion size won’t change, and its returns will closely mir-ror those of spot prices.

In reality, front- and second-month contract prices for oil are rarely the same. Due to the cost of storage, it’s common for oil to be priced higher the further out along the futures curve you go, a situa-tion called “contango.”

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DBO - POWERSHARES DB OIL


HOW IT WORKSAn oil futures contract is an agreement to buy or sell the commodity for a given price at a specified date in the future. USO holds front-month futures contracts, which typically have a delivery date of one month or so in the future.

Spot oil prices and front-month oil futures are highly correlated, and for the most part, they’ll track each other closely. However, futures contracts have an expi-ration date. Anyone holding oil futures contracts on the expiration date must take physical delivery of the com-modity. To avoid this, USO must roll its position over into the next-nearest futures contract before expiration.

This process of selling the front-month contract

In such a scenario, USO will end up selling its front-month contracts and be able to buy less of the higher-priced second-month contracts. This is called a “roll cost,” and it’s the reason the ETF has drastically underperformed spot oil prices in 2015, falling 27.9% versus 15.4% for spot oil.

It’s worth mentioning that the opposite situation from contango is possible. It’s called “backwardation”; that’s when front-month futures contracts are priced above second-month futures contracts. In that case, USO will actually outperform spot oil prices. There have been periods when oil has been in backwardation, but it’s been much less common to see than contango during the past decade.


http://etf.com/uso

http://etf.com/uso


To obtain a copy of the prospectus, call 1-800-920-0259 or to download a copy,visit http://www.unitedstatescommodityindexfund.com/prospectus-usci.php

or write to ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.Fund distributed by ALPS Distributors, Inc.

United States Commodity Index Fund

NYSE: USCI

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UNITED STATES BRENT OIL (BNO)USO is, of course, not the only option for investors wanting exposure to oil futures. Another one that takes a slightly different tack is the United States Brent Oil Fund (BNO|C-61).

Unlike USO, which holds contracts for West Texas Intermediate (WTI) crude—a grade of oil sold in the United States—BNO holds Brent, a type of oil sold in Europe.

Historically, both WTI and Brent were priced similarly, and have largely moved tick for tick. But during the past five years, the two have sometimes diverged substan-

tially. At one point in 2011, WTI was trad-ing at a $28 discount to Brent due to infra-structure bottlenecks in the U.S.

That discount has since narrowed to around $3, but remains volatile. BNO slightly outperformed WTI through the first nine months of 2015, with a loss of 26.7%.

POWERSHARES DB OIL (DBO)Of course, roll costs are still a potential issue for a front-month-rolling fund like

BNO. Aiming to minimize the effect of contango is the PowerShares DB Oil Fund (DBO|B-88), which uses next-generation roll strategies.

Instead of mechanically rolling into the near-month oil futures contract, DBO selects the contract from the one-year futures curve that minimizes contango (or maximizes backwardation). Over time, this strategy has proven to aid returns. Since inception in 2007, DBO is down 51.2%, compared with 69.4% for USO.

However, through the first nine months of 2015, the differential is less:

DBO is down 27.7% versus down 27.9% for USO.

ENERGY SELECT SPDR (XLE)Up until now, the ETFs discussed have all been tied to oil futures. These are great products for capturing short- or medium-term movements in oil prices, but not for creating long-term value. USO, BNO and DBO all hit record lows earlier this year, clearly illustrating that these aren’t buy-and-hold investments.

For investors with a longer-term hori-zon, the best way to play any oil bounce is through oil equities.

There’s a host of oil equity ETFs avail-able today, but none is simpler than the Energy Select SPDR (XLE|A-92).

XLE holds a market-cap-weighted bas-ket of stocks making up the energy sector within the S&P 500. These include compa-nies like Exxon Mobil, Schlumberger and EOG Resources.

For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based ETFs mentioned earlier,

for several reasons: 1) an investor doesn’t have to worry about roll costs; 2) the com-panies can grow their oil production, creat-ing value for shareholders even in a flat oil price environment; 3) they often pay divi-dends. XLE currently has a yield of more than 3.3%.

Year-to-date, XLE is down by 21%, less than the futures-based ETFs. Over the past five years, XLE is up 20.4%, compared with losses ranging from 40-58% for the other three ETFs.

5-YEAR RETURNS ON OIL ETFs

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DBO - POWERSHARES DB OIL



http://etf.com/bno

http://etf.com/bno

http://etf.com/dbo

http://etf.com/dbo

http://etf.com/xle

ADVERTISEMENT

To obtain a copy of the prospectus, call 1-800-920-0259 or to download a copy,visit http://www.unitedstatescommodityindexfund.com/prospectus-usci.php

or write to ALPS Distributors, Inc., 1290 Broadway, Suite 1100, Denver, CO 80203.Fund distributed by ALPS Distributors, Inc.

United States Commodity Index Fund

NYSE: USCI

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The World’s Leading Authority on Exchange-Traded Funds

SMART

23NOVEMBER 2015

SMARTBETA

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returns without paying excessive fees, or taking additional risk.

Can you deviate from the market in search of outsized returns without taking on additional risk? Aren’t smart-beta ETFs inherently riskier?Not necessarily, in my opinion. There are several risks associated with smart beta, but take a low-volatility strategy, for exam-ple. Risk is measured in multiple param-eters; the most common being standard deviation. If you have a smart-beta prod-uct—such as an ETF that encompasses low volatility—you may find that in a market where volatility is high, a typical cap-weighted ETF may show a higher standard deviation or increased risk than the com-parable smart-beta ETF in low vol.

How are you using smart-beta ETFs to capture outsized returns and manage risk? Based upon a client’s risk parameters, we build ETF portfolios over your standard asset allocation. But we also have a tactical sleeve. For example, with the recent vola-tility going on in the markets, we’ve used some of the lower-vol and equal-weighted smart-beta ETFs to decrease the volatil-ity on the overall portfolio. We’re really

Miracle Mile is known as an active indexer. What is “smart beta” to you? Smart beta is really difficult to define, and it means a lot of things to a lot of differ-ent people. The simplest way to explain it is smart beta is any weighting meth-odology that is an alternative to the tra-ditional market capitalization. This can include something simple, such as equal weighting, or it could place an emphasis on specific market factors like we see in dividends. Low volatility is a big smart-beta product. It also can include different rev-enue models, or momentum.

Conceptually, smart beta is designed to add value to investors and potentially increase their chances to get above-market

S M A R T B E TA & N E X T- G E N E R AT I O N I N D E X I N G S U P P L E M E N T

MIRACLE MILE ADVISORS is an active indexer by design. The firm, started in 2007 by Brock Moseley, relies on the investing expertise of its several Wall Street veterans to deliver on one simple goal: protecting portfolios on the downside. As Scott Mullen, managing director at the firm, puts it, it is not a “buy and hope” shop.

That active-ETF-indexing style lends itself well to the use of smart-beta ETFs, which Mullen tells us help the firm in its pursuit of outsized returns. Miracle Mile currently manages about $500 million in assets.

ScottMullen

LESSENING RISK WITH SMART BETA

By Cinthia Murphy

25NOVEMBER 2015

about lessening the risk of losing money over the long haul. It’s about managing the downside.

We’ve seen a proliferation of smart-beta ETFs in the last few years. Is having more vehicles to choose from good, or is it just diluting the concept of smart beta so that navigating the space is more difficult?We have to be constantly aware of new trends in this space, because the market is growing greatly in this area. I read the other day that the use of smart-beta products is exceeding $500 billion in 2015—it was around $200 billion just in 2011. And approximately 53% of all insti-tutional investors now use some sort of smart-beta product.

Being in the investment manage-ment business, it’s certainly in our best interest to be up on the product. But you’re right: Just because an area such as smart-beta ETFs is proliferating doesn’t necessarily make it good for the general investment landscape. Investors really need to have a clear, basic understand-ing of expected return, volatility in their portfolio and other types of risks associ-ated with smart beta.

Is there an approach to smart beta that you prefer, such as factor-based or alternatively weighted? How do you find the right smart-beta ETF?I like to use smart beta when I think a certain trend is going to last for a while. Take for example momentum, which encompasses a variety of different smart-beta products. If we have momentum in, say, small-cap stocks over large-cap stocks, or if we have momen-tum in growth stocks over value stocks, I might add some extra juice and try to attain some extra alpha through those strategies.

Conversely, in a market such as the one we’re in—where you have a lot of volatil-ity—I may use an equal-weight or a low-volatility product. In fact, for several years, I’ve used the Guggenheim S&P 500 Equal Weight ETF (RSP|A-83) versus the SPDR S&P 500 (SPY|A-99). If you graph that over

three years, you’ll see incredible outperfor-mance by just that simple allocation.

That said, recently that has turned, and SPY is outperforming RSP. So you have to keep an eye on this, just like any other type of investment approach.

Is there a smart-beta fund you bought in 2015 you didn’t own before? What are some of your favorites right now? Right now growth is outperforming value, so we’ve used the iShares S&P 500 Growth ETF (IVW|A-93). We’ve also used the iShares MSCI USA Minimum Volatility ETF (USMV|A-72). These are two funds we typi-cally use in the large growth area.

opportunity cost. When we substitute a smart-beta strategy for a market-cap index ETF, for example, there’s an opportunity cost with that. And that’s going to be per-formance. You’re either going to outper-form or underperform.

The time frame in which you employ that strategy is going to be of consequence, too. If you’re greatly underperforming, then maybe you have to reconsider. Or maybe you don’t, because you have further conviction that, over time, you’ll be right.

The other way we look at whether a smart-beta strategy is working is in terms of volatility. If you find that a traditional mar-ket-cap-weighted ETF you use is displaying volatility that’s so great it’s having a nega-tive bias on the overall performance of your portfolio, you might want to use a smart-beta strategy instead to maintain exposure to that asset class but manage volatility.

Performance and volatility are two of the things we measure in using a smart-beta strategy.

What are the biggest drawbacks to using smart-beta ETFs? There are different types of risks. I’d say that the No. 1 issue is you have to have real-istic expectations. Just because it’s called smart beta doesn’t mean it’s smart all the time, or that it actually encompasses beta. Investors really need to expect that smart-beta strategies are going to go through poor return periods, and they’re not the end-all for all. You must have realistic expectations.

Another issue is tracking. Some of these exchange-traded products tracking indices may be thinly traded and have wide bid/ask spreads, which makes these smart-beta ETFs more costly to trade. Excessive turn-over and implementation costs will also impact returns.

Another risk in smart beta is liquid-ity. Smart-beta strategies, by their very nature, tend to display increased exposure to value and small-cap stocks relative to the cap-weighted index. That could potentially increase liquidity risk due to the generally less liquid stocks in those particular segments.

In the international segment—where it’s been crazy in terms of volatility—we’ve used the iShares MSCI EAFE Minimum Volatility ETF (EFAV|A-61). We’ve also held a small position in the EGShares Emerging Markets Consumer ETF (ECON|C-45) for emerging markets, which are even more volatile.

Again, at Miracle Mile, we’re not day traders by any stretch of the imagination. We try to figure out long-term trends, and that enables us to employ smart-beta strat-egies in that.

How do you measure if your smart-beta picks are right? Is it solely based on performance? There’re two things we look at. When we employ smart-beta ETFs, I look at it as an

Just because it’s called smart

beta doesn’t mean it’s smart

all the time

http://etf.com/rsp

http://etf.com/rsp

http://etf.com/spy

http://etf.com/spy

http://etf.com/ivw

http://etf.com/ivw

http://etf.com/usmv

http://etf.com/usmv

http://etf.com/efav

http://etf.com/efav

http://etf.com/econ

http://etf.com/econ


EWRE QUICK VIEW

ISSUER Guggenheim

SEGMENT Equity: U.S. Real Estate

EXPENSE RATIO 0.40%

STRUCTURE Open-ended fund

DATE LAUNCHED 8/13/2015

COMPETING FUNDS FREL, VNQ, IYR

Source: ETF.com, Data and information as of 10/1/15.

Smart-Beta Launches

25 SMART BETA

29 OTHER FUNDS

GO

For the latest smart-beta listings, visit:

www.ETF.com/channels/smart-beta-etfs

ONLINE

S M A R T B E TA & N E X T- G E N E R AT I O N I N D E X I N G S U P P L E M E N T

FUNDS LAUNCHED

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FEATURED ETF PROFILETOP 10 SMART-BETA ETFs BY AUM

SMART BETA VS. OTHER ETF LAUNCHES

SMART-BETA LAUNCHES

Guggenheim S&P 500 Equal Weight Real Estate ETF (EWRE) GUGGENHEIM ADDS TO ITS LINEUP OF EQUAL-WEIGHTED S&P 500 SECTOR FUNDS

In mid-August, Guggenheim rolled out the Guggen-heim S&P 500 Equal Weight Real Estate ETF (EWRE), which tracks the brand-new real estate sector that was added to the Global Industry Classification Stan-dard used by S&P Dow Jones Indices and MSCI.

The equal-weighted index covers all of the real estate management and development companies and all REITs—except for mortgage REITs—that are included in the S&P 500. Real-estate-related equities have traditionally generated above-average income, and that’s something investors have been seeking in earnest given the low-rate environment.

The addition means that Guggenheim now has a full suite of equal-weighted ETFs covering 10 sec-tors of the S&P 500. Like the Select Sector SPDRs, the Guggenheim family does not have a separate ETF for the telecommunications sector.

EWRE currently holds 25 companies in its port-folio, such as Iron Mountain Inc., Welltower Inc. and Kimco Realty Corp., which are its three largest components. Nearly 44% of the fund is invested in commercial REITs, while another 36% is in special-ized REITs; the remainder of the portfolio is in resi-dential REITs and real estate services companies.

EWRE has a 0.40% expense ratio.

LAUNCHES

Cambria Value and Momentum

Compass EMP Intl 500 Volatility Weighted

Compass EMP Intl High Div 100 Volatility Wtd

Deutsche X-trackers Japan JPX-Nikkei 400 Hdgd

Deutsche X-trackers MSCI AW ex US HiDivYld Hdgd

Deutsche X-trackers MSCI EAFE HiDivYld Hdgd

Deutsche X-trackers MSCI EM HiDivYld Hdgd

Deutsche X-trackers MSCI Eurozone HiDivYld Hdgd

FlexShares Credit Scored US Long Corporate Bond

FlexShares US Quality Large Cap

Goldman Sachs Active Beta US Large Cap Equity

Goldman Sachs ActiveBeta Emerging Mkts

Guggenheim S&P 500 Equal Weight Real Estate

John Hancock Multifactor Cons Discr

John Hancock Multifactor Financials

John Hancock Multifactor Healthcare

John Hancock Multifactor Large Cap

John Hancock Multifactor Mid Cap

John Hancock Multifactor Technology

JPMorgan Diversified Return US Equity

O'Shares FTSE Asia Pacific Quality Dividend

O'Shares FTSE Asia Pacific Quality Dividend Hdgd

O'Shares FTSE Europe Quality Dividend

O'Shares FTSE Europe Quality Dividend Hedged

ProShares MSCI Europe Dividend Growers

CLOSURES

Market Vectors MSCI EM Quality

Market Vectors MSCI EM Quality Div

Market Vectors MSCI Intl Quality

Market Vectors MSCI Intl Quality Div

1 iShares Russell 1000 Growth

TICKER: IWF ER: 0.20% AUM: $29.0B

2 iShares Russell 1000 Value

TICKER: IWD ER: 0.20% AUM: $25.2B

3 Vanguard Growth

TICKER: VUG ER: 0.09% AUM: $19.6B

4 WisdomTree Europe Hedged Equity

TICKER: HEDJ ER: 0.58% AUM: $19.3B

5 Vanguard Dividend Appreciation

TICKER: VIG ER: 0.10% AUM: $19.1B

6 Vanguard Value

TICKER: VTV ER: 0.09% AUM: $18.0B

7 WisdomTree Japan Hedged Equity

TICKER: DXJ ER: 0.48% AUM: $16.3B

8 iShares Select Dividend

TICKER: DVY ER: 0.39% AUM: $13.3B

9 iShares S&P 500 Growth

TICKER: IVW ER: 0.18% AUM: $12.65B

10 SPDR S&P Dividend

TICKER: SDY ER: 0.35% AUM: $12.5B

OUR BIMONTHLY LOOK AT THE LAUNCHES, CLOSURES AND TOP FUNDS IN THE SMART-BETA SPACE

Note: List covers launches in August and

September 2015

Note: List covers launches and closures in August and September 2015.

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Ted Samulowitz, CAIAVice President & Portfolio Manager

Invesco PowerShares Capital Management LLC

Momentum In Emerging Markets The power of contrarian investing

With just two months remaining in 2015, it’s time to take a look back at investment performance this past year and, heading into the New Year, begin thinking about investment opportunities ahead. At the time of writing, correlation—the degree to which two investments have historically moved in relation to each other—has crept back into the picture along with uncertainty, even pessimism, over Fed indecision on rates, sending global markets lower.

There are opportunities, however, for investors—especially those with contrarian views. Momentum in emerging markets may present an appealing opportunity, and may allow investors to ignore the “noise” in Washington and nuances of other fundamental or value strategies.

As we approach 2016, many contrarian investors may want to consider recent emerging market weakness as a buying opportunity. To put this year’s sell-off into perspective, as of Sept. 30, the MSCI Emerging Markets Index is down more than 15% year-to-date, while the S&P 500 is off just 5% year-to-date. Further, in emerging markets, we recently witnessed outflows of about $40 billion, the biggest amount since the fourth quarter of 2008, according to the Institute of International Finance.

Considering this bifurcated market environment, momentum strategies may create a considerable emerging market buying opportunity for contrarians. Fundamentals in emerging markets, on the other hand, may be difficult to discern in such an environment, which may reallocate or increase flows into momentum products.

MomentumConsidering the divergent global environment, there are three key market themes that lay the foundation for momentum in emerging markets as an attractive investing opportunity—especially in the wake of outflows potentially resulting from Fed indecision at home:

Contrary opportunity after outflow• Looking for opportunities to go against the crowd and invest in

areas that are under-owned or those with overdone selling may benefit investors. The recent large outflows potentially present a good opportunity at these levels.

Looking to rebound• The return on the MSCI EM Index has lagged the S&P 500 Index

over the last year, which is an unusual period of underperformance. We may see faster growth and outperformance in emerging markets going forward.

Relative valuation• Emerging market valuations have become more attractive

compared with the S&P 500, and emerging market economies typically have stronger demographics and growth potential.

Further, momentum stocks may perform well during what quantitative analysts refer to as “periods of dispersion.” These are periods when the market can clearly focus on stocks with strong and weak performance (price action), and discriminate between winners and losers. Dispersion contrasts with periods where stocks are moving up and down together in high correlation. This type of environment—such as we are experiencing in the U.S. currently—is sometimes referred to as “risk-on/risk-off.” The weak employment report released on Oct. 2 has pushed many investors to doubt whether an interest-rate hike will take place at all in 2015. In light of that market sentiment, correlation has increased domestically, but opportunities for contrarian momentum investing remain in emerging markets.

After heavy selling and recent highly correlated markets, we should look for correlations to lessen. On the other hand, momentum uses price action or relative strength to dictate country and sector allocation, which may be an attractive strategy, as investors may have trouble understanding fundamental country drivers.

Emerging Market ThemesCommodities• Commodity producers like Russia, Brazil and South Africa have

been hurt by the sharp drop in commodity prices. Russia also faces political uncertainty as it becomes more aggressive with its military and seems to be reverting back to cold war policies.

• Commodity prices can have a mixed impact on emerging market countries, with low prices hurting producers and benefiting consumers. Relative-strength investing can rotate to capture the intermediate trend in macro drives.

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Political Uncertainty• Brazil recently reshuffled its government in an attempt to boost

investor confidence and solve economic problems, but the outcome remains uncertain.

• Geopolitical aggressiveness of Russia may create further uncertainty for the investment landscape.

• Actions in Syria could take two significantly different turns—potentially stiffer sanctions and increasingly damaged relations with the West; or more cooperation and eventually a lifting of sanctions and increasing capital flow back to Russia.

Bubble Overhang• China is working off its real estate and stock market bubbles and

faces a high level of debt, but the government has cut taxes on cars and made it easier to buy homes. It is also spending a lot on infrastructure, with a number of rail projects announced recently.

These themes, among others, are contributing to global uncertainty for investors, but I would argue that dramatic outflows witnessed recently in emerging markets may have been reinvested in U.S. markets in anticipation of the Fed increasing rates. Yet as labor market data disappointed earlier in October, some investors may be concerned that the Fed will hold off on increasing rates at all this year. In that scenario, it’s very possible we will see flows back into emerging markets as momentum opportunities there may produce higher returns for contrarians.

So, assuming these themes play out over the next few months, what strategy or exposure might best position investors for longer-term returns?

Momentum In Emerging MarketsAs mentioned, we are experiencing a confusing and cloudy market where momentum may provide a way for contrarians to gain exposure in oversold emerging markets. Momentum strategies let price dictate allocation to country and sector instead of using difficult-to-predict fundamentals.

Before 2009, we generally saw emerging market countries move in tandem—up and down together. Today the emerging market themes mentioned earlier are creating more dispersion between countries as they each face unique challenges and opportunities.

For that reason, I believe one of the best strategies for investors looking to gain momentum exposure in emerging markets is the PowerShares DWA Emerging Markets Momentum Portfolio (PIE).

Consider that PIE is investing in the top 100 momentum stocks, selected from approximately 1,000 stocks in the Nasdaq Emerging Markets Index that possess powerful relative strength

characteristics and are domiciled in emerging market countries. Every quarter, PIE is reconstituted with the 100 stocks that meet Dorsey Wright’s relative strength criteria, which plots price against changes in direction. That criterion reflects both near-term and longer-term favorable relative-strength characteristics as defined by Dorsey Wright. It’s also important to note that the index is weighted by momentum, with the strongest names and regions getting the most weight.

Given its momentum underpinnings, PIE currently has less than 1% allocation to Russian stocks, while its weight to Taiwan, China and South Korea is about 10%, 16% and 18%, respectively.

If you’re an advisor or investor looking for contrarian ideas or emerging markets exposure, PIE may be just the right sweetener for your portfolio.

About RiskThere are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund’s return may not match the return of the Underlying Index. The fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the fund.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Stocks of small and midcapitalization companies tend to be more vulnerable to adverse developments, may be more volatile and may be illiquid or restricted as to resale than large companies.

The fund may engage in frequent trading of its portfolio securities in connection with the rebalancing or adjustment of the Underlying Index.

The momentum style of investing is subject to the risk that the securities may be more volatile than the market as a whole, or that the returns on securities that have previously exhibited price momentum are less than returns on other styles of investing.

Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments.

About Dorsey, Wright & Associates, LLC (DWA)Dorsey, Wright & Associates is a registered investment advisory firm based in Richmond, Virginia. Since 1987, Dorsey Wright has been a leading advisor to financial professionals on Wall Street and investment managers worldwide. Dorsey Wright offers comprehensive investment research and analysis through their Global Technical Research Platform and provides research, modeling and indexes which apply Dorsey Wright’s expertise in Relative Strength to various financial products including exchange trade funds, mutual funds, UITs, structured products, and separately managed accounts. Dorsey Wright’s expertise is technical analysis. The Company uses Point & Figure Charting, Relative Strength Analysis, and numerous other tools to analyze market data and deliver actionable insights. In 2015, Dorsey Wright was acquired by Nasdaq, Inc. allowing Dorsey Wright to work towards even greater innovative solutions for its clients. PowerShares® is a registered trademark of Invesco PowerShares Capital Management, LLC, investment advisor. Invesco PowerShares Capital Management, LLC (Invesco PowerShares) and Invesco Distributors, Inc., ETF distributor, are indirect, wholly owned subsidiaries of Invesco Ltd.

Note: Not all products available through all firms. Before investing, investors should carefully read the prospectus/summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the Fund, call 800-983-0903 or visit invescopowershares.com for the prospectus/summary prospectus.


Our third annual ETF advisor survey comes

at a pivotal time in the ETF industry. This year

has seen a record number of launches so far, and

total assets continue to grow. In this continuing

atmosphere of expansion and development, we

have polled our sophisticated readership to learn

their opinions on the leading issues faced by

financial advisors today.

We’ve again partnered with Brown Brothers

Harriman—a leading provider of asset servicing

for the global ETF market, with $308 billion in

ETF assets under custody as of June 30, 2015—to

update the survey to reflect the most relevant

core topics and emerging new concerns, arriving

at a questionnaire of more than 35 questions.

We’ve gathered the results, and the following

is a summary of our findings. If you’re interested in

learning more about the survey, send us and Brown

Brothers Harriman a note at [email protected] with

the words “ETF Report Survey” in the subject line.

SELECTION CRITERIA

When it comes to selecting an ETF, the exact exposure of the underlying index was the most important factor to consider, by a wide margin, at 46%. The closest runner-up was expense ratio, at 20%. Meanwhile, the factors deemed least important by respondents were historical performance and tax efficiency, selected by 28% and 29% of those polled, respectively.

Rank the following in terms of importance in selecting an ETF (assuming they target the same general area of the market) 1 = most important

Ranking 1 2 3 4 5 6 7

ETF issuer 10.60 10.95 10.25 16.96 15.19 18.73 17.31

Exact exposure of the underlying index 46.29 10.95 11.66 9.19 8.13 8.48 5.30

Expense ratio 20.14 31.80 21.91 11.31 7.07 4.95 2.83

Tracking difference 6.01 20.49 17.31 19.43 15.55 13.43 7.77

Historical performance 10.60 10.60 12.37 12.72 13.78 12.37 27.56

Trading spreads 4.24 8.48 17.31 19.08 23.32 17.31 10.25

Tax efficiency 2.12 6.71 8.83 11.66 16.96 24.73 28.98Note: Percentages reflect amount of participants who selected that criteria for each ranking.

Exposure was also the most important factor when consid-ering a new ETF, claiming 51% of the No. 1 rankings via two categories—investment exposure and exact index exposure.

However, whether a new ETF is commission-free is a fac-tor that is markedly unimportant to the respondents, as 44% selected it as the least or second-least important factor. This dovetails neatly with our query on how important commis-sion-free trading is to participants when selecting ETFs.

Just over 77% said it had only moderate or no impact on their ETF trading decisions; the remainder said it was the most important factor or a significant factor in deciding on an ETF. Given how many trading platforms have launched commis-sion-free programs, that’s a particularly interesting finding.

What impact does commission-free trading of ETFs have on your decision-making?

Moderate impact: It’s one of many factors I consider 39.22%

No impact: I don’t consider it 37.81%

Significant impact: It significantly influences my decision-making process 16.96%

Enormous impact: I only buy commission-free ETFs 6.01%

ANNUAL INVESTOR SURVEY

By Heather Bell

31NOVEMBER 2015

Liquidity and assets under management remain important to respondents. Nearly half of respondents say that 10,000 shares traded per day is sufficient liquidity for an ETF priced at $50 per share, while another 31% said they would like to see 100,000 shares traded. Another 8% said they wanted to see more than 1 million shares traded.

In terms of AUM, 35% said $50 million was the sufficient min-imum, while another 37% preferred to see at least $100 million.

What is the minimum AUM you’d like to see in a new ETF before considering it?

$1 billion 6.48%

$100 million 36.84%

$50 million 34.82%

$10 million 17.00%

$0 4.86%

ACTIVELY MANAGED ETFs

Actively managed ETFs have been getting a lot of attention lately, mainly because, with a few glaring exceptions, they haven’t attracted a lot of AUM. However, with nontransparent active funds on the horizon, they’re getting more attention.

As it stands, a quarter of respondents said they didn’t invest in actively managed ETFs, but 26.5% said that perfor-mance history was the first thing they looked at, and another 26.5% said the reputation of the portfolio manager was what mattered most. Reputation of the offering firm, expense ratio and degree of transparency were each selected as the most important factor by roughly 6% of respondents.

What is the most important factor you use when evaluating an actively managed fund (excluding investment strategy)?

Performance history 26.53%

Reputation of the portfolio manager 26.53%

N/A: I don’t buy actively managed ETFs 25.31%

Degree of transparency 6.12%

Expense ratio 6.12%

Reputation of the firm offering the fund 5.71%

Other (please specify) 3.67%

With regard to asset classes, more than 29% said they would be most likely to buy an actively managed ETF if it

covered fixed income. Another 26% said the same for emerg-ing markets.

There’s a certain ambiguity around transparency. When asked if they would prefer an active fund that was overseen by a talented manager that either disclosed its holdings daily or disclosed them quarterly, 53% of respondents preferred daily disclosure over quarterly disclosure (47%).

ASSET CLASS CONCERNS

We asked a series of questions that focused on important issues for different asset classes that are particularly relevant to the current market environment.

For example, we asked how much of a concern bond liquid-ity is for investors when it comes to fixed-income ETFs. If you’ll recall, the 2008-2009 financial crisis saw bond liquidity evapo-rate for a time. Only about 8% of respondents feel that the issue of liquidity is unimportant, while 11% consider it the most important concern. In the middle range, 81% consider it to be a “somewhat important” to “important’ concern.

How much of a concern is liquidity in bond ETFs for you?

An important concern 52.26%

A somewhat important concern 29.22%

The most important concern 10.70%

Not a concern at all 7.82%

When it comes to income, however, we asked investors to indicate the areas where they would look for it, allowing for multiple answers. A total of 74% of respondents said they would look for income from dividend-yielding stocks, with another 56% saying they would invest in REITs. MLPs and high-yield debt were each selected by 47% of respondents.

Finally, we asked a few questions about currency-hedged ETFs, which have proliferated recently, with more than 40 launching in the first three quarters of 2015 alone. Although many of those have failed to gather significant assets yet, nearly 46% of respondents said they had bought a currency-hedged ETF in the past 12 months, while 54% said they hadn’t. Although a few currency-hedged funds have been around for several years, the trend has really only started to take off, so that’s quite a foothold.

Nearly 36% said they were likely or very likely to purchase a currency-hedged fund in the next 12 months; 20% said definitively they would not be buying such a fund; and 46% responded with a lukewarm “maybe.”


If you bought a smart beta ETF, which of the following did you do with it in your asset allocation?

Replaced a plain-vanilla index fund 32.23%

Did not purchase a smart-beta ETF 30.58%

Replaced an active fund 12.81%

Replaced a satellite alpha-seeking position 8.26%

Used incoming investment dollars to establish a new position 7.02%

None of the above 9.09%

INDEX PROVIDERS

With boutique index providers and customized benchmarks proliferating, there has been talk about the importance of the index provider decreasing. However, our results indicate index providers are still very important to ETF users.

Just 12% said the index provider was “very important” and more important than the ETF issuer. But another 32% said the index provider was just as important as the ETF issuer and 43% said the issuer was somewhat important and still mattered, despite being less important than the issuer. Just 13% said the index brand didn’t matter.

What is the impact of index brand when choosing an ETF?

Somewhat important: The index brand is less important than the ETF issuer’s brand, but it still matters 43.39%

Important: The index brand is of equal importance to the ETF issuer’s brand 31.82%

Not important: The index brand doesn’t matter to me at all 12.81%

Very important: The index brand is more important than the ETF issuer’s brand 11.98%

Most telling was the fact that the majority of respondents were willing to pay extra for a well-known brand name on their ETF’s underlying benchmark, to the tune of at least 10 basis points. When asked if they’d choose an ETF with a well-known index provider at 50 basis points over an ETF with a relatively unknown index provider at 40 basis points, 66% of respondents chose the more expensive ETF.

ISSUERS

Although the survey participants were decidedly ambivalent on the importance of ETF issuer when selecting an ETF (with just 12% deeming it the most important factor to consider),

While nearly 35% of respondents said none of their inter-national exposure was currency hedged, the remainder of respondents had at least some currency-hedged international investments. The largest percentage of those respondents, 35%, said that up to a quarter of their international invest-ments were currency-hedged.

What percentage of your international equity investments is currency-hedged?

0% 34.57%

1 to 25% 35.39%

26 to 50% 17.28%

51 to 75% 8.23%

76 to 100% 4.53%

It appears that a significant portion of the respondents are on the fence about currency-hedged ETFs, which indicates the trend has some runway left to it.

SMART BETA

If there’s a trend that has been building for some time though, it’s smart beta. Although the term covers a wide range of funds, factor-based ETFs have been where investors have been focused for the past several years, and the roster of such funds launched in 2015 rivals that of new currency-hedged funds.

Approximately 57% of respondents said they had bought a smart-beta ETF in the last 12 months, but 55% said that 5% of their portfolio or less was in smart-beta investments. Only 15% had more than 20% of their portfolios allocated to smart-beta strategies.

What share of smart-beta products currently make up your AUM?

Greater than 20% 14.88%

11-20% 8.68%

5-10% 21.07%

Less than 5% 55.37%

Most tellingly, only 1% of participants said they would reduce their smart-beta exposure over the next year, while 62% said they would maintain their current level of investment and 36% said they would increase their exposure.

While 31% of the respondents said they had not bought a smart-beta ETF, the largest portion of those who did—32%—said that they had used the smart-beta product to replace a plain-vanilla index fund. Another 13% said they had used it to replace an active fund.

33NOVEMBER 2015

that doesn’t mean they don’t have opinions about the firms that provide the ETFs they use. Indeed, when selecting a new ETF, 20% of respondents said it was the most important fac-tor to consider.

When participants were asked to choose the top issuers based on the strength of their brand and the quality of their ETFs, BlackRock’s iShares got the largest percentage of the vote, with 89% of respondents including it in their selection. Vanguard was the runner-up, chosen by 64% of the partici-pants and State Street Global Advisors came in third, being selected by 53% of the participants.

Which of the following top ETF sponsors have the strongest brand for delivering high-quality ETFs?

BlackRock's iShares 88.69%

Vanguard 63.60%

State Street Global Advisors 52.65%

WIsdomTree 27.92%

Invesco PowerShares 27.21%

First Trust 19.43%

Guggenheim 13.07%

Charles Schwab 11.31%

ProShares 10.95%

PIMCO 4.24%

Other 3.53%

Van Eck 1.41%

The iShares salespeople were also deemed the most knowl-edgeable, by a wide margin, at nearly 34% of the vote, while First Trust—a much smaller shop—came in a distant second, selected by more than 14% of respondents.

When asked what sort of support they’d like from issu-ers, 9% of the participants said they didn’t need any help. But 64% said they’d like more product information, with 55% saying returns data and related information were important to them. Roughly half want educational pieces on different areas of the market.

STRATEGISTS

Finally, we asked about ETF strategists, another rising trend in the ETF industry. And here the waters are very murky. Although we’ve heard a lot about strategists this year, 76% of respondents indicated they managed client assets entirely on their own, while only 24% said they used a strategist to man-age some or all of client assets.

ETF strategists—defined as firms that provide model portfolios or outsourced ETF-focused asset allocation strategies to other advisors—have emerged as a major source of growth for ETF products over the past few years. Do you…?

Manage all your assets yourself 76.35%

Use an ETF strategist for some of your clients’ portfolios 16.60%

Use an ETF strategist for all of your clients’ portfolios 7.05%

Those are powerful numbers, but it remains to be seen if most participants are managing their clients’ assets in-house, because ETF strategists have not yet gotten the word out about what they do, or because of lack of interest. If the former, the ETF strategist space could have a significant runway, but if it’s the latter, the half-fledged trend will probably stall out.

Whatever the case, participants indicated that track record was the most important selection criteria, chosen by 51% of participants, while 41% ranked breadth of product offering as the least important factor to consider.

CONCLUSION

While 15% of participants have portfolios that are 91-100% composed of ETFs, fully half of the respondents have 50% or less of their portfolios allocated to ETFs. That means ETFs have a lot of room to grow yet.

Please indicate the percentage of your AUM invested in ETFs/ETNs:

0-10% 12.72%

11-20% 12.72%

21-30% 13.43%

31-40% 11.31%

41-50% 6.71%

51-60% 4.59%

61-70% 4.59%

71-80% 9.54%

81-90% 6.71%

91-100% 14.84%

I don't manage investments. 2.83%

If you’re interested in learning more about the survey, send us and Brown Brothers Harriman a note at [email protected] with the words “ETF Report Survey” in the subject line.

Brown Brothers Harriman (“BBH”) is not affiliated with ETF.com or its ETF Report publication.

Smart-beta products are a logical extension for traditional active mutual fund managers wanting to dip their toes into the ETF world

In fact, 38% of respondents did not even consider trading commissions; another 39% stated it had only a moderate impact on their trading decisions. If they were making more trades in a client’s account, I think trading commissions would be a bigger deterrent, as it would have a greater effect on their performance.

Does it look like smart beta is getting a stronger foothold? Yes. We asked respondents if they bought smart-beta ETFs in the past year; last year 49% said yes, and this year the number jumped to 57%. Interest-ingly, over the next year, 99% of respondents plan to maintain or increase their exposure to smart beta. Advisors want to create the best performance for their clients, so if you have low-cost products that can generate excess returns; I think that’s music to advisors’ ears.

Smart-beta products are a logical extension for tra-ditional active mutual fund managers wanting to dip their toes into the ETF world. They are trying to create products that are generating excess returns over tra-ditional indexes, but in more of a rules-based setting. This is an area of the ETF market where managers can differentiate—creating smart-beta or active ETFs.

In total, 45% of the respondents bought a currency-hedged ETF in the past year. Are currency-hedged ETFs the future for interna-tional investing? Out of the 214 ETF launches this year, 43 were cur-rency-hedged funds, so they are certainly an option ETF sponsors are offering.1 With our clients, we’ve seen ETF sponsors offer both hedged and unhedged share classes. Many of these clients come to us to hedge their currency exposure through our Passive Currency Administration service offering.

As the global head of ETF services at Brown Brothers Har-riman (BBH), Senior Vice President Shawn McNinch has his finger on the pulse of the ETF industry. The firm has approximately $308 billion in ETF assets under custody as of June 30, 2015; that’s roughly 10% of total global assets invested in ETFs.

For the third year in a row, BBH has co-sponsored the annual advisor survey with ETF.com. A summary of the survey findings is published in this issue of ETF Report, and here, McNinch discusses the survey’s most signifi-cant findings.

What stood out to you when you looked at the data?This year we asked a new question: “Across all your accounts, on average, how many trades per month are you doing in a single account?” 73% of respondents stated only one to five. I thought it was interesting that, as much as we talk about a need for intraday liquidity, there are actually very few trades being executed in a client’s account.

Shawn McNinch Global Head of ETF Services

Brown Brothers Harriman

ETF Industry InsightThe annual advisor survey reveals some interesting and ongoing trends in the ETF space

That has implications for different things such as the importance of the expense ratio. The majority of inves-tors are long-term holders so they aren’t really moving in and out of positions frequently. They may be more concerned about long-term holding costs versus trad-ing commissions and spreads.

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is not only brand reputation, it also allows you to have a more modular approach to portfolio construction. You can use different indexes that one particular index provider has, and really make sure you’re allocating appropriately. However, there’s potential to be overexposed to a particu-lar asset class if you start mixing and matching different

Were investors hedging before these funds launched? The more sophisticated advisors were probably hedging themselves through foreign exchange transactions outside of the investment. But many advisors may not know whether the returns were attributed to their currency exposure or the actual underlying investments.

Are certain things becoming more important than they were in the past?In the three years we’ve conducted this survey, expenses have always been a key area of concern for managers. This year, when we asked participants what they would like to learn more about, 59% of respondents indicated liquidity is an area in which they need more education.

Recent market volatility demonstrated how these products may react in certain market conditions. There is an added layer of pricing risk given the exchange-traded nature of the product. That said, there are ways for investors to mitigate their execution risk; for exam-ple, they may not want to place stop-loss orders in vola-tile market conditions since your execution may be poor if an ETF has a short period of price dislocation. Advisors need to educate themselves on liquidity so that they bet-ter understand how to trade these products.

66% of respondents said the index provider was more important than a fee that is 10 basis points lower. Are indexes becoming more, or less, important? I think it depends on the product, the asset class and how advisors build portfolios for clients. That said, only 13% of survey respondents indicated that index brand doesn’t matter to them at all.

The advantage of using a named index provider

The advantage of using a named index provider is not only brand reputation, it also allows you to have a more modular

approach to portfolio construction

The positions expressed in this material are those of the author as of Oct. 14, 2015, and may not be consistent with the views of Brown Brothers Harriman & Co. This material should not be construed as legal or tax advice.

BBH is not affiliated with ETF Report, and does not monitor or maintain any of the information available on the external website mentioned, nor does it represent or guarantee that such website is accurate or complete, and it should not be relied upon as such.

indexes. In addition, there may be some benefit if you’re using the same index provider for your smart-beta prod-ucts as well as your performance benchmark. By doing so, it makes it easier to assess whether your alpha-seeking product is actually producing alpha.

As the market continues to add smart-beta-type prod-ucts, the index provider will probably become less relevant, because what you’re really buying is the intellectual property of the asset manager versus the brand recognition of the index provider.

1 ETF.com, ETF Launches, Sept. 30, 2015

SP

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CRBNiShares MSCI ACWI Low Carbon Target

WHY

What attracted you to the iShares MSCI ACWI Low Carbon Target fund (CRBN|D-95)?I came across it soon after it launched in in Decem-ber of last year. I read the index methodology. I went back and checked that out. I found that it could fit in well as a nice complement to some of the other ESG [environmental, social and governance] index funds I was already using. I adopted it relatively quickly. I did a big practicewide rebalance in June 2015 so that all my clients owned it by the beginning of the summer.

And how does it work in a portfolio for you?It works on two levels. First off, just the name of it—“low carbon”—speaks loudly to a lot of investors. If you ask most people off the street, most would probably say, “I do have environmental concerns.” But little do they know you can actually incorporate an environ-mental value with your portfolio designing.

In terms of asset allocation, it’s a little tricky to integrate. You have to really pay attention, because if you look at the underlying stocks, you’ve got a pretty broad representation of large companies and some mid-size companies. And then you’ve got U.S. companies as well as developed international companies, and a spat-tering of emerging markets in there.

When you insert this ETF into the overall portfolio, you really have to be careful that you’re not kind of disrupting your target allocations to U.S. large-cap versus international versus small-cap versus everything else.

Why CRBN over the SPDR MSCI ACWI Low Carbon Target (LOWC|D-95)? It came out at about the same time and tracks the same index.CRBN hit my radar first. And that’s where I focused my research. So that’s No. 1. And No. 2, CRBN received quite a bit of seed money from the United Nations, as well as the University of Maryland. I do worry a little bit about liquidity for clients.

There’s not a track record for performance for CRBN. How do you talk to your clients about that?We don’t have the research that goes back decades, if not through multiple market cycles. That is a limita-tion of anyone trying to promote socially responsible investing. The only thing I can do is talk to clients about two things. I can look at the index that goes back to 2010. I can make some general comments on risk and return with at least a couple years’ worth of data. So it’s not a solution, but it helps in response to CRBN questions.

There are certain triggers that may come up that make me look at everything and say, “Is this really the best fit for how I manage a client’s portfolio?”

In the broad scope of socially responsible invest-ing, this fund, while it’s pretty broadly diversified, really only covers the “E” of “ESG.” So if there were another fund that covered the E, the S and the G, and it did all of those things to a relatively strong extent, I’d certainly pause and take a look at that fund. If I can go from, let’s say, three funds covering the mid- and large-cap global allocation down to one or two, I would certainly look into that.

STRATEGY

I OWNFIRM: Aspen Leaf Partners

LOCATION: Golden, Colorado

FOUNDED: 2013

AUM: $18 Million

ETFS: 65%

GREGG LESSARDFounder & President

By Drew Voros

iShares MSCI ACWI Low Carbon Target (CRBN)

SEGMENT: Equity: Global - Total Market

ISSUER: BlackRock

LEGAL STRUCTURE: Open-Ended Fund

EXPENSE RATIO: 0.20%

AUM: $214 Million

AD$V (30-DAY): $397,460

AVG. SPREAD: 0.09%

COMPETING FUNDS: LOWC, HECO, EQLT

D J F M A M J J A S2015

Sources: ETF.com and Bloomberg, 12/9/2014-9/30/2015.

8

6

4

2

0

-2

-4

-6

-8

-0

RETURN%

6.81%

STRATEGIESAN ETF REPORT SUPPLEMENT

STRATEGIESAN ETF REPORT SUPPLEMENT

37


By Debbie Carlson

S T R A T E G I E S

The

Qui

et U

nder

perf

orm

erTE

CHSE

CTOR

DESPITE THE SUCCESS OF THE U.S. TECH INDUSTRY, THE SECTOR’S PERFORMANCE HASN’T BEEN AS BRILLIANT

To the casual observer, it may come as a surprise that one of the most-discussed investing sectors also has one of the poor-est long-term performance records.

Despite excitement over companies like Apple, Google and Facebook, a long-term investor in the technology sector has underperformed versus simply buying the broader stock market.

Over the past 16 years, the technology sector has lagged the broader market as the dot-com bust wreaked havoc on the tech industry.

In ETF terms, during that time, the Technology Select Sector SPDR Fund (XLK|A-91) has seen a total return of 44.2% versus a total return of the SPDR S&P 500 (SPY|A-99) of 109%.

MANIC MARKET FALLOUTThe drag on the technology sector shows what happens when markets are seized by manias, according to Brian Jacobsen,

XLK VS. SPY

RETURN160%

140

120

100

80

60

40

20

0

-20

-40

-60

-80

-100'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15


chief portfolio strategist at Wells Fargo Fund Management. Investors sought tech-nology between 1990-2000 because of the investment in information technology and the blossoming of the Internet, but after the bubble burst, people became sanguine, he explains.

“I understand why people were excited about technology, and it got overdone. I think a lot of people thought, ‘We have enough. Who’s going to want to lay more fiber optic cable? Who needs to invest in tech or computers?’” he said.

Jacobsen says the longer-term lagging of the sector is really more a large-cap and medium-size cap story. Small-cap technol-ogy has beaten the broader market over time, he says, but the problem was picking who would survive.

“A lot of people are excited about tech-nology, but they’re very skeptical about who’s going to lead. They don’t want to buy the next Pets.com. They want to buy the Amazon.com, but how do you determine which one is going to win? … That’s why a lot of people are leery of investing in tech-nology because everything is about disrup-tion. When everything is about disruption,

SPY

XLK

http://etf.com/xlk

http://etf.com/xlk

http://etf.com/spy

http://etf.com/spy

39NOVEMBER 2015

it can create and destroy a lot of wealth in a very short period of time,” he said.

PICKING PERFORMANCEMark Abssy, senior index and ETF manager for ISE ETF Ventures, doesn’t completely agree with the technology sector’s under-performance. He says that outside of the dot-com bubble bursting, the technology sector has performed well.

“Outside of that event, if we’re look-ing even from the end of September 2002 to now, we see an annualized rate on SPX [S&P 500] of 9.27% and 14.58% for the Nas-daq as of Aug. 31. That’s a 13-year period. With a 10-year period, that gap widens,” he said.

Rather than consider technology an underperformer, Abssy says, it’s really more about mania and how those form.

“I think that technology by its very nature is more prone to mania or to bubbles than other areas simply because it’s all about innovation and new things and the promise of a better tomorrow,” he said.

Technology companies come and go, Abssy notes.

“If something is so immensely popular or fulfills such a need, ultimately it turns into a commodity item,” he said, using the defunct company Global Crossing as an example.

“They were laying the backbone of the Internet. They were doing all this under-sea cable stuff. It was awesome. We hadn’t seen that in some time, and look at all the money they were going to make, and the Internet was going to rule the world. The Internet is still going to rule the world, but at the end of the day, that turns into a commodity,” Abssy said.

LOOKING AHEADJacobsen, and Chuck Self, chief investment officer at iSectors, are both bullish on tech-nology, and believe it will outperform.

Jacobsen says he is “broadly optimis-tic” on technology for two reasons. First, he expects to see growth in capital expen-ditures by companies, which should sup-

port technology firms. Second, he says valuations are reasonable.

“Capital expenditures have been some-what lagging over the last few years, and I think we can argue that companies have not been investing enough in technology ever since the tech bubble burst,” he said.

Additionally, in the past few years, technology companies have started to gen-

diversified than the average technology fund, and it’s beaten the S&P 500 for the past few years.

“Compared to the S&P 500 year-to-date, despite everything, QQQ is up 1.3% [as of Sept. 28], and the S&P 500 is down 4.77%,” he said, He believes part of that is the diversity of the fund, which is not straight technology.

When everything is about disruption, it can create and destroy a lot of

wealth in a very short period of time

erate much more free cash flow, and valu-ations haven’t caught up with that cash flow, Abssy says.

Self agreed that companies will start to increase their spending on technology, and he expects to see “significant” spend-ing by consumers on the Windows 10 operating system.

DIFFERENT TECH SECTOR ETFsSelf said he likes the iShares North Ameri-can Tech ETF (IGM|A-86). It represents both U.S. and Canadian technology com-panies and includes stocks from the S&P Total Market Index. He says the fund is also not so heavily weighted in Apple that it overwhelms the fund, unlike other tech-nology funds.

“I don’t have a view on Apple, but I would be concerned about any fund with a 15-20% weighting in any com-pany,” he said.

JJ Feldman, portfolio manager at Mira-cle Mile Advisors, also likes technology, but is taking a more diversified approach in his current investment. Previously, he owned XLK and the First Trust Nasdaq Technology Dividend Index Fund (TDIV|A-65).

This year he’s invested in the Power-Shares QQQ (QQQ|A-64). Feldman says what draws him to QQQ is that it’s more

WARNING SIGNS FLASHINGOne ETF fund firm is wary about the tech-nology sector and the broader market in general. Ryan Ballantyne, executive vice president of sales and trading at Reality Shares Advisors, says its Guardian indica-tor, which uses a factor-based approach of momentum in combination with vola-tility, has is negative on technology and other sectors.

The firm said the short-term mov-ing average price trend for technology fell below its long-term average on Aug. 31, and its volatility levels surpassed long-term averages by the market close on Oct. 12. It’s the fifth sector to turn negative in the Guardian Indicator, after health care, energy, utilities and con-sumer staples.

Yet Ballantyne says that, from a pure fundamental perspective, the technology sector is strong when looking solely at its dividend payments.

“IT has been the biggest contributor to dividend growth over the last several years,” he said, noting that as of 2014, Nas-daq dividend payments were just under $60 billion, versus just over $7 billion in 2004.

Looking at dividends versus just share price may be another way to play technol-ogy, Ballantyne says.

http://etf.com/igm

http://etf.com/igm

http://etf.com/tdiv

http://etf.com/tdiv

http://etf.com/qqq

http://etf.com/qqq


S T R A T E G I E S

This is a pretty simple concept: stripping out a sector from the nine S&P 500 sectors. You’ve launched four, but I presume you’ll eventually roll out a product lineup that strips out all nine sectors.We respond to demand from advisors and others. If we perceive that there is demand there, we will entertain more products.

What’s the motivation behind this? Was there actual demand for it in that regard? This product set came into being like you’ve seen many successful ETFs come into being. We’ve taken a strategy that has been used by institu-tional investors for a long time; namely, buying a segment of the market or an index, leaving out a sector. And we’ve taken that strategy and we’ve formed an ETF around it to make it simple and obtainable by retail investors. We’ve gotten very positive feedback from the advisor community who have indicated numerous ways they thought they could use a strategy like this.

Could you give me an example of how they would use this strategy?These do what many successful ETFs do, which is take something that may be complicated or diffi-cult to implement and deliver it through one ETF. These products turn sector funds on their head. Typically, an investor would take or buy a sector fund in order to overweight that particular sector in their portfolio. What these ETFs allow you to do is have further control over the exposure you have in your portfolio by allowing you to underweight a sector. So advisors have told us they might use the product, the strategies in a variety of ways.

LAST MONTH, PROSHARES, THE ETF PROVIDER behind various widely known alternative strategies, launched four S&P 500 ETFs, but each excludes an individual sector. The funds are: S&P 500 Ex-Energy ETF (SPXE); S&P 500 Ex-Financial ETF (SPXN); S&P 500 Ex-Health Care ETF (SPXV); and S&P 500 Ex-Technology ETF (SPXT). The funds are a new twist on sector investing. The idea is that investors might want broad exposure to the S&P 500 but would like to underweight a specific sector they don’t want. ETF Report sat down with Michael Sapir, chief executive officer of ProShares Advisors, to discuss the funds and the idea behind them.

PROSHARES’ NEW LINE OF SECTOR ETFs ALLOWS INVESTORS TO EXCLUDE ONE

By Drew Voros

MICHAELSAPIR

41NOVEMBER 2015

First, they’ve indicated that they would be using the strategy to underweight a part of the market that they don’t feel good about—just like they would overweight a part of the market that they felt good about. Before these products came along, you would have to buy the S&P 500 and you had to take everything that came with it, whether you believed in all the sectors or not.

For instance, if you felt there was a secular bear mar-ket in energy, and that it would continue, but you still wanted the S&P 500, you had no choice but to take the whole thing. Now you can say, “You know what? I want to underweight the energy sector in my client’s port-folio” And this gives you the opportunity to leave energy behind when you buy the S&P 500.

Is this is a cheaper way to do sector rotation?Well, it’s an easier, convenient way of getting to the result of buying eight out of the nine sectors. If you did that, you’d have to buy the eight different sector ETFs and pay a commission for each of those purchases. And then you would have to rebalance the sectors if you were looking to keep the same weighting that they have in the S&P 500.

Like other ETFs have made accessible a lot of strate-gies that you could otherwise implement yourself, but were inconvenient or difficult or expensive to imple-ment yourself, so do these funds.

It seems to me one of the things that could happen here is investors stripping out their poor performers and thus removing some of the diversification benefits of that, whereas there might be someone who says, “You should just do the opposite; what’s the best performer? Health care. You should strip that.” You certainly could implement that strategy that says, “Energy’s been underperforming for a couple years now.” And let’s say technology has been overperform-ing. I’m actually going to move out of the sector of the market that has overperformed. So this doesn’t restrict what the strategy should be. It gives you additional tools to implement strategies.

You could also make that argument against 90 per-cent-plus of the ETFs out there. You could say the same thing about sector funds. You could say the same thing about country funds. You could say the same thing about different market-cap funds. They all give you the ability to make decisions on what exposure ends up being in your portfolio. And you could certainly make a poor decision to go into the wrong part of the market at the wrong time.

Let me toss out there another use that we see for this product line. We see situations where people already have exposure to a sector of the market, and they don’t want additional exposure through their S&P 500 fund. For instance, you may be getting your exposure to a sec-tor of the market through active management. An advi-sor may be managing technology on his own because that’s an area of the market that he feels he knows well. So he may be going out and buying stocks on his own.

You may have the situation where an advisor has a client who has extensive exposure to a part of the mar-ket already if, for instance, he works in the financial sec-tor and has a lot of exposure through his employment, and through compensation plans to this financial sector. A prudent advisor may say he doesn’t need additional exposure, and he shouldn’t have additional exposure to the financial sector.

Are the expense ratios the same on all these?Twenty-seven basis points.

And these first four that you’re rolling out—ex-energy, ex-financial, ex-health care and ex-technology—were these areas that advisors were asking for? These were the areas that we saw the highest amount of initial interest in.

How do you expect to get traction with these products? Do you plan to put these on some of the platforms, like Schwab? Is there anything you can speak to in terms of that?We intend to have a significant marketing push behind these products. We also intend for our sales force to educate advisors on the products. We think that these products have many of the ingredients that make for a product line that can gain traction really quickly. The products are based off of the most popular index on the planet. And they deliver a very intuitive variation to that index.

We talk about launching products here that can be understood on the elevator ride. And I think these products can be understood going from floor one to floor two.

These products turn sector funds on their head


for sector funds, with a few more bright spots than in August, but also steeper declines. The SPDR S&P Metals and Mining ETF (XME|A-64) was hit the hardest of all the funds, falling more than 18%. At the other end of the returns spectrum was the Vanguard REIT ETF (VNQ|A-88), the best performing of the sector funds, up 3%. Real estate and utilities were the only two sectors that had across-the-board positive returns for the month, averaging returns of 2.3% and 2.8%, respectively. The picture was similarly bleak for flows, with only two sectors recording positive inflows. Financials led the hemorrhaging, with outflows of $715 million and the Select Sector Financials SPDR (XLF|A-87) alone losing $548 million. Interestingly, despite ranking just after financials with a loss of more than $590 million, the health care sector’s iShares Nasdaq Biotechnology ETF (IBB|A-46) had the most inflows of any fund, taking in more than $846 million. But it was technology that pulled in the most assets, to the tune of $245 million, and the Select Sector Technology SPDR ETF (XLK|A-91) came in right behind IBB, with inflows of more than $306 million. The industrials sector had more than $117 million in inflows.

September was another rough month

BASIC MATERIALS CONS. CYCL. CONS. NON-CYCL. ENERGY FINANCIAL HEALTH CARE INDUSTRIAL REAL ESTATE TECH TELECOM UTILITIES

BROADXLB

-7.44%

BROADXLY

-0.64%

BROADXLP

0.44%

BROADXLE

-7.20%

BROADXLF

-2.98%

BROADXLV

-5.65%

BROADXLI

-2.17%

BROADIYR

1.62%

BROADXLK

-1.32%

BROADIYZ

-4.98%

BROADXLU

2.92%

MININGXME

-18.06%

HOMEBLDXHB

-5.44%

FOODPBJ

-0.58%

EQUIPIEZ

-13.65%

BANKSKBWB-3.63%

BIOTECHIBB

-11.41%

DEFENSEPPA

-3.21%

BROADVNQ

3.01%

INTERNETFDN

-3.36%

BROADVOX

-3.23%

BROADVPU

2.74%

MEDIAPBS

-1.09%

EXPLORXOP

-13.78%

BANK & INIAI

-4.60%

MED DEVIHI

-6.07%

TRANSPOIYT

-0.58%

SEMISXSD

-1.45%

RETAILXRT

-5.03%

INSURANCEKBWI

-2.14%

PHARMAIHE

-10.93%

ENGINEERPKB

-6.57%

SOFTWAREIGV

-0.42%

LEISUREPEJ

0.65%

SERVICESIYG

-4.07%

EQUIPMENTXHE

-7.79%

SERVICESIHF

-6.22%

Sector Performance SEPTEMBER 2015

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

≤-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 8/31/2015-9/30/2015. ETFs chosen to represent each sector based on the most liquid ETF in each segment of the ETF.com ETF Classification System.

-

IN REVIEW

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

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Top InflowsTICKER NET FLOWS AUM ($M)

iShares Nasdaq Biotechnology IBB 846.52 8,145.86 Health Care

Technology Select SPDR XLK 306.52 11,388.18 Technology

Alerian MLP AMLP 251.80 7,035.42 Energy

Industrial Select SPDR XLI 174.47 6,184.95 Industrials

Vanguard Energy VDE 131.21 3,469.64 Energy

TICKER NET FLOWS AUM ($M)

Financial Select SPDR XLF -547.92 16,960.62 Financials

Health Care Select SPDR XLV -377.26 12,853.00 Health Care

SPDR S&P Oil & Gas Exp & Prod XOP -373.23 1,302.09 Energy

iShares U.S. Real Estate IYR -255.53 4,055.36 Real Estate

Vanguard REIT VNQ -244.94 24,529.50 Real Estate

By Heather Bell

http://etf.com/xme

http://etf.com/xme

http://etf.com/vnq

http://etf.com/vnq

http://etf.com/xlf

http://etf.com/ibb

http://etf.com/ibb

http://etf.com/xlk

ADVERTISEMENT

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 registered trademarks of Standard & Poor’s Financial Services LLC. 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 figures do not reflect 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. Diversification does not eliminate the risk of experiencing investment losses. ALPS Portfolio Solutions Distributor, Inc., a registered broker-dealer, is distributor for the Select Sector SPDR Trust.

Potential benefits of adding Sector SPDR ETFs to your portfolio include:

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

• The all-day tradability of stocks

• The diversification of mutual funds

• Total transparency

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

Time For A Stock Alternative

Financial Sector SPDR ETF

1 Berkshire Hathaway B BRK.b 8.74%2 Wells Fargo WFC 8.58%3 JP Morgan Chase JPM 8.06%4 Bank of America BAC 5.83%5 Citigroup C 5.34%6 American Intl Group AIG 2.63%7 Goldman Sachs GS 2.50%8 US Bancorp USB 2.43%9 American Express AXP 2.26%10 Simon Property SPG 2.03%

Company Name Symbol Weight

XLF - FINANCIAL

* Components and weightings as of 9/30/15. Please see website for daily updates. Holdings subject to change.

Top Ten Holdings*

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

WHY BUY A SINGLE STOCK WHEN YOU CAN INVEST IN THE ENTIRE SECTOR?


U.S. EQUITY: TOTAL MARKET

iShares MSCI USA Momentum Factor MTUM 0.15 852.5 1.10 - -

First Trust US IPO FPX 0.60 752.6 -2.79 19.64 19.04

iShares MSCI USA Minimum Volatility USMV 0.15 6,054.8 -0.79 12.40 -

iShares MSCI USA Quality Factor QUAL 0.15 1,254.3 -1.68 - -

Fidelity NASDAQ Composite Tracking Stock ONEQ 0.21 580.5 -1.83 15.27 15.41

PowerShares DWA Momentum PDP 0.65 1,806.8 -1.84 13.94 14.30

iShares Core S&P Total U.S. Stock Market ITOT 0.07 2,445.4 -5.41 12.39 13.18

Schwab U.S. Broad Market SCHB 0.04 4,742.2 -5.54 12.48 13.28

Vanguard Total Stock Market VTI 0.05 52,365.5 -5.54 12.45 13.28

iShares Dow Jones U.S. IYY 0.20 897.1 -5.57 12.30 13.08

iShares Russell 3000 IWV 0.20 5,773.1 -5.62 12.34 13.07

FlexShares Quality Dividend QDF 0.37 642.0 -5.83 - -

iShares MSCI KLD 400 Social DSI 0.50 425.5 -6.41 12.45 12.21

WisdomTree U.S. Quality Dividend Growth DGRW 0.28 484.0 -6.53 - -

SPDR Russell 3000 THRK 0.10 236.0 -6.74 12.14 12.96

WisdomTree Total Dividend DTD 0.28 468.6 -7.40 10.52 12.64

Vanguard Dividend Appreciation VIG 0.10 18,233.2 -7.58 9.68 11.04

iShares MSCI USA ESG Select KLD 0.50 319.1 -7.59 11.13 11.30

FlexShares Morningstar U.S. Market Factor Tilt TILT 0.27 709.5 -7.67 11.77 -

PowerShares Buyback Achievers PKW 0.68 2,326.7 -8.21 14.70 15.56

PowerShares Dividend Achievers PFM 0.55 283.0 -8.98 7.84 10.52

Vident Core U.S. Equity VUSE 0.58 388.7 -9.18 - -

Market Vectors Morningstar Wide Moat MOAT 0.49 742.4 -10.14 9.98 -

Guggenheim Spin-Off CSD 0.66 365.9 -14.87 12.29 13.52

U.S. EQUITY: TOTAL MARKET GROWTH

iShares Core U.S. Growth IUSG 0.09 790.4 -2.06 13.38 14.15

U.S. EQUITY: TOTAL MARKET VALUE

iShares MSCI USA Value Factor VLUE 0.15 649.5 -7.71 - -

iShares Core U.S. Value IUSV 0.09 724.1 -9.26 11.21 11.88

U.S. EQUITY: EXTENDED CAP

Vanguard Extended Market VXF 0.10 3,897.4 -6.21 12.92 12.99

PowerShares FTSE RAFI US 1500 Small-Mid PRFZ 0.39 1,083.1 -8.48 11.99 11.89

U.S. EQUITY: LARGE CAP

PowerShares S&P 500 BuyWrite PBP 0.75 303.9 0.21 4.78 6.45

PowerShares QQQ QQQ 0.20 36,931.5 -0.74 15.58 17.02

PowerShares S&P 500 High Dividend SPHD 0.30 459.4 -1.67 - -

PowerShares S&P 500 Low Volatility SPLV 0.25 4,543.1 -3.56 11.35 -

PowerShares S&P 500 High Quality SPHQ 0.29 503.1 -4.00 14.16 14.41

Guggenheim Russell Top 50 Mega Cap XLG 0.20 452.1 -4.70 9.77 12.45

iShares S&P 100 OEF 0.20 3,861.6 -5.26 10.78 12.81

Schwab U.S. Large-Cap SCHX 0.04 4,273.6 -5.31 12.40 13.23

Vanguard S&P 500 VOO 0.05 34,597.2 -5.33 12.34 13.27

iShares Russell 1000 IWB 0.15 11,243.4 -5.33 12.53 13.26

iShares Core S&P 500 IVV 0.07 63,797.8 -5.35 12.37 13.25

Vanguard Large-Cap VV 0.09 5,889.9 -5.39 12.45 13.28

SPDR S&P 500 SPY 0.09 168,304.0 -5.40 12.26 13.20

Vanguard Russell 1000 VONE 0.12 515.5 -5.50 12.51 13.29

Vanguard Mega Cap MGC 0.11 914.8 -5.69 11.91 13.17

First Trust NASDAQ-100 Equal Weighted QQEW 0.60 528.8 -5.80 16.69 14.27

ProShares S&P 500 Dividend Aristocrats NOBL 0.35 797.3 -5.88 - -

RevenueShares Large Cap RWL 0.49 313.2 -6.77 14.13 13.97

Guggenheim S&P 500 Equal Weight RSP 0.40 9,022.8 -6.99 13.88 13.38

SPDR Dow Jones Industrial Average Trust DIA 0.17 11,080.6 -7.00 9.11 11.19

ProShares Large Cap Core Plus CSM 0.45 384.7 -7.46 13.28 13.49

WisdomTree LargeCap Dividend DLN 0.28 1,624.3 -7.47 10.09 12.59

First Trust Large Cap Core AlphaDEX FEX 0.64 1,662.7 -7.60 13.12 12.24

PowerShares FTSE RAFI US 1000 PRF 0.39 3,974.5 -8.08 12.52 12.64

iShares Morningstar Large-Cap JKD 0.20 565.4 -8.13 13.28 13.97

Schwab Fundamental U.S. Large Company FNDX 0.32 750.5 -8.17 - -

ALPS Sector Dividend Dogs SDOG 0.40 953.5 -8.55 12.26 -

WisdomTree Dividend Ex-Financials DTN 0.38 927.6 -10.40 9.67 12.60

PowerShares S&P 500 Downside Hedged PHDG 0.40 424.9 -12.90 - -

Barclays S&P Veqtor ETN VQT 0.95 382.6 -13.25 0.72 4.91

Pacer Trendpilot 750 PTLC 0.60 259.4 - - -

U.S. EQUITY: LARGE CAP GROWTH

PowerShares Dynamic Large Cap Growth PWB 0.58 326.6 0.61 16.40 15.85

iShares Morningstar Large-Cap Growth JKE 0.25 728.4 -0.33 13.50 14.98

iShares Russell Top 200 Growth IWY 0.20 524.8 -0.76 13.26 14.61

First Trust Large Cap Growth AlphaDEX FTC 0.65 623.7 -1.42 16.36 13.31

Vanguard Russell 1000 Growth VONG 0.12 453.4 -1.69 13.52 14.34

iShares Russell 1000 Growth IWF 0.20 27,714.2 -1.75 13.38 14.24

Guggenheim S&P 500 Pure Growth RPG 0.35 2,085.9 -2.24 17.22 15.99

Vanguard S&P 500 Growth VOOG 0.15 565.4 -2.26 13.32 14.53

iShares S&P 500 Growth IVW 0.18 11,989.8 -2.33 13.24 14.49

Schwab U.S. Large-Cap Growth SCHG 0.07 2,270.7 -2.61 14.42 14.54

SPDR S&P 500 Growth SPYG 0.15 518.1 -2.65 13.19 14.56

Vanguard Growth VUG 0.09 18,576.7 -3.05 13.01 14.28

Vanguard Mega Cap Growth MGK 0.11 1,871.6 -3.35 12.66 14.38

U.S. EQUITY: LARGE CAP VALUE

Vanguard Mega Cap Value MGV 0.11 934.7 -7.28 11.50 12.18

Vanguard Value VTV 0.09 17,087.9 -7.45 12.07 12.34

Schwab U.S. Large-Cap Value SCHV 0.07 1,467.1 -7.93 10.40 11.83

iShares Morningstar Large-Cap Value JKF 0.25 247.1 -8.47 8.59 10.14

Vanguard S&P 500 Value VOOV 0.15 275.1 -8.73 11.07 11.70

iShares S&P 500 Value IVE 0.18 7,883.4 -8.81 11.02 11.67

PowerShares Dynamic Large Cap Value PWV 0.57 927.2 -8.96 10.95 12.58

Vanguard Russell 1000 Value VONV 0.12 406.8 -8.99 11.43 12.09

iShares Russell 1000 Value IWD 0.20 23,542.1 -9.07 11.36 12.06

Guggenheim S&P 500 Pure Value RPV 0.35 736.1 -11.53 16.42 15.20

First Trust Large Cap Value AlphaDEX FTA 0.64 1,016.3 -12.50 10.36 11.03

U.S. EQUITY: MID CAP

Schwab U.S. Mid-Cap SCHM 0.07 1,818.0 -3.33 14.74 -

Vanguard Mid-Cap VO 0.09 11,901.7 -4.66 14.69 13.62

iShares Core S&P Mid-Cap IJH 0.12 24,773.8 -4.70 13.09 12.81

Vanguard S&P Mid-Cap 400 IVOO 0.15 349.2 -4.71 13.03 12.63

SPDR S&P MidCap 400 MDY 0.25 14,234.2 -4.86 12.81 12.62

iShares Morningstar Mid-Cap JKG 0.25 495.7 -5.66 14.57 14.54

WisdomTree MidCap Dividend DON 0.38 1,424.4 -5.71 14.02 13.79

iShares Russell Mid-Cap IWR 0.20 12,009.2 -5.94 13.74 13.23

WisdomTree MidCap Earnings EZM 0.38 700.8 -6.50 14.52 13.99

First Trust Mid Cap Core AlphaDEX FNX 0.67 844.0 -8.36 11.34 11.69

U.S. EQUITY: MID CAP GROWTH

Guggenheim S&P MidCap 400 Pure Growth RFG 0.35 741.7 1.93 12.06 13.51

iShares S&P Mid-Cap 400 Growth IJK 0.25 5,294.6 -0.89 13.11 13.29

Vanguard S&P Mid-Cap 400 Growth IVOG 0.20 369.2 -1.09 13.06 13.32

SPDR S&P MidCap 400 Growth MDYG 0.15 243.6 -1.29 13.11 13.35

Vanguard Mid-Cap Growth VOT 0.09 3,206.4 -3.84 13.77 13.26

iShares Russell Mid-Cap Growth IWP 0.25 5,774.9 -4.34 13.77 13.36

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 09/30/2015› 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 $230 million and above› Source: ETF.com

ETFDATA

FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %

45NOVEMBER 2015

U.S. EQUITY: MID CAP VALUE

Vanguard Mid-Cap Value VOE 0.09 3,812.4 -5.57 15.33 13.81

iShares Russell Mid-Cap Value IWS 0.25 6,134.8 -7.81 13.44 12.92

iShares S&P Mid-Cap 400 Value IJJ 0.25 3,759.4 -8.72 12.63 12.08

U.S. EQUITY: SMALL CAP

PowerShares DWA SmallCap Momentum DWAS 0.60 420.6 -4.58 12.41 -

iShares Core S&P Small-Cap IJR 0.12 15,628.1 -5.64 12.96 14.01

SPDR S&P SmallCap 600 SLY 0.15 376.9 -5.76 12.69 13.62

Vanguard Small-Cap VB 0.09 10,649.0 -6.62 12.47 13.00

Schwab U.S. Small-Cap SCHA 0.08 2,800.2 -6.97 12.44 13.04

Vanguard Russell 2000 VTWO 0.15 534.1 -7.70 11.04 11.75

iShares Russell 2000 IWM 0.20 25,331.9 -7.77 11.05 11.77

Schwab Fundamental U.S. Small Company FNDA 0.32 418.8 -7.98 - -

WisdomTree SmallCap Dividend DES 0.38 1,131.6 -9.33 10.90 11.83

First Trust Small Cap Core AlphaDEX FYX 0.67 588.3 -10.26 10.06 11.75

WisdomTree SmallCap Earnings EES 0.38 368.0 -10.38 10.83 11.66

RevenueShares Small Cap RWJ 0.54 329.9 -10.77 12.80 13.76

U.S. EQUITY: SMALL CAP GROWTH

iShares S&P Small-Cap 600 Growth IJT 0.25 3,300.6 -1.14 13.97 15.08

SPDR S&P SmallCap 600 Growth SLYG 0.15 557.9 -1.28 13.88 15.14

iShares Russell 2000 Growth IWO 0.25 6,366.0 -5.38 13.00 13.40

Vanguard Small-Cap Growth VBK 0.09 4,596.5 -5.92 11.31 12.98

U.S. EQUITY: SMALL CAP VALUE

Vanguard Small-Cap Value VBR 0.09 5,334.3 -7.30 13.20 12.72

SPDR S&P SmallCap 600 Value SLYV 0.15 368.0 -9.68 11.53 12.19

iShares S&P Small-Cap 600 Value IJS 0.25 3,075.9 -10.18 11.58 12.71

iShares Russell 2000 Value IWN 0.25 5,508.2 -10.20 9.03 10.03

iShares Morningstar Small-Cap Value JKL 0.30 365.7 -11.28 11.08 11.68

U.S. EQUITY: MICRO CAP

iShares Micro-Cap IWC 0.60 792.1 -8.57 11.20 12.17

U.S. EQUITY: BASIC MATERIALS

Materials Select SPDR XLB 0.15 1,928.0 -16.67 5.01 6.31

Vanguard Materials VAW 0.12 923.7 -17.24 4.24 6.70

iShares U.S. Basic Materials IYM 0.45 317.1 -20.47 0.42 1.97

SPDR S&P Metals and Mining XME 0.35 231.1 -45.23 -26.11 -19.65

U.S. EQUITY: CONSUMER CYCLICALS

Consumer Discretionary Select SPDR XLY 0.15 9,935.4 3.99 18.36 19.11

Vanguard Consumer Discretionary VCR 0.12 1,796.6 1.79 18.04 18.64

Fidelity MSCI Consumer Discretionary FDIS 0.12 238.8 1.83 - -

iShares U.S. Home Construction ITB 0.45 2,032.7 1.09 10.90 17.28

iShares U.S. Consumer Services IYC 0.45 949.6 0.66 18.01 18.93

SPDR S&P Homebuilders XHB 0.35 1,898.5 0.62 11.85 17.81

First Trust Consumer Discretionary AlphaDEX FXD 0.70 2,362.6 -3.67 16.88 15.85

SPDR S&P Retail XRT 0.35 944.3 -6.70 13.50 17.53

U.S. EQUITY: CONSUMER NON-CYCLICALS

Guggenheim S&P Equal Weight Consumer Staples RHS 0.40 339.9 3.17 17.72 16.84

First Trust Consumer Staples AlphaDEX FXG 0.70 2,569.1 -0.22 21.96 18.29

iShares U.S. Consumer Goods IYK 0.45 574.8 -0.56 13.55 13.97

Consumer Staples Select SPDR XLP 0.15 7,364.8 -0.84 12.60 14.19

Vanguard Consumer Staples VDC 0.12 2,357.5 -1.27 13.12 14.51

U.S. EQUITY: ENERGY

First Trust North American Energy Infrastructure EMLP 0.95 868.5 -20.16 4.29 -

Energy Select SPDR XLE 0.15 11,069.6 -21.06 -3.83 3.78

iShares U.S. Oil & Gas Exploration & Production IEO 0.45 385.6 -21.40 -3.57 2.30

iShares U.S. Energy IYE 0.45 1,002.4 -21.71 -4.73 3.02

Vanguard Energy VDE 0.12 3,469.6 -22.33 -5.00 2.67

Fidelity MSCI Energy FENY 0.12 241.5 -22.34 - -

Alerian MLP AMLP 5.43 7,035.4 -24.75 -2.94 2.08

iShares U.S. Oil Equipment & Services IEZ 0.45 256.5 -26.07 -10.08 -2.86

Barclays ETN+ Select MLP ETN ATMP 0.95 244.5 -30.13 - -

SPDR S&P Oil & Gas Exploration & Production XOP 0.35 1,302.1 -30.54 -15.08 -3.85

ETRACS Alerian MLP Infrastructure ETN MLPI 0.85 1,822.8 -30.76 -2.86 4.33

JPMorgan Alerian MLP ETN AMJ 0.85 3,464.6 -30.99 -4.41 3.03

iPath S&P MLP ETN IMLP 0.80 454.3 -31.09 - -

ETRACS Alerian MLP ETN AMU 0.80 406.1 -31.26 -4.42 -

Credit Suisse X-Links Cushing MLP Infrastructure ETN MLPN 0.85 463.2 -33.15 -2.00 3.79

U.S. EQUITY: FINANCIALS

SPDR S&P Regional Banking KRE 0.35 2,482.7 2.44 14.85 14.41

SPDR S&P Insurance KIE 0.35 563.6 2.35 19.01 13.37

SPDR S&P Bank KBE 0.35 2,714.3 0.23 14.23 9.50

iShares U.S. Regional Banks IAT 0.45 511.0 -2.31 11.69 11.30

First Trust Financials AlphaDEX FXO 0.70 861.3 -2.72 15.76 12.76

PowerShares KBW Bank KBWB 0.35 455.0 -5.04 13.95 -

Vanguard Financials VFH 0.12 3,018.2 -5.72 14.48 11.53

iShares U.S. Financials IYF 0.45 1,464.9 -5.73 14.72 11.80

iShares U.S. Financial Services IYG 0.45 838.6 -6.07 16.82 12.22

Financial Select SPDR XLF 0.15 16,960.8 -7.16 15.27 11.44

PowerShares KBW High Dividend Yield Financial KBWD 2.80 271.1 -7.83 4.63 -

iShares U.S. Broker-Dealers IAI 0.45 286.9 -8.98 22.12 10.66

U.S. EQUITY: HEALTH CARE

PowerShares S&P SmallCap Health Care PSCH 0.29 250.2 8.91 22.20 21.99

iShares U.S. Healthcare Providers IHF 0.45 880.5 4.75 22.26 20.65

SPDR S&P Biotech XBI 0.35 2,091.3 0.50 26.81 26.26

PowerShares Dynamic Pharmaceuticals PJP 0.58 1,614.7 0.04 26.37 27.12

iShares Nasdaq Biotechnology IBB 0.48 8,145.9 0.01 28.74 28.79

PowerShares DWA Healthcare Momentum PTH 0.60 230.3 -0.11 17.27 17.24

First Trust NYSE Arca Biotechnology FBT 0.58 2,987.7 -0.58 29.81 23.78

Guggenheim S&P Equal Weight Health Care RYH 0.40 576.3 -1.11 22.49 20.31

iShares U.S. Medical Devices IHI 0.45 667.9 -1.19 18.13 16.17

Vanguard Health Care VHT 0.12 5,325.4 -1.55 20.59 19.50

iShares U.S. Pharmaceuticals IHE 0.45 889.4 -1.63 19.63 20.94

Fidelity MSCI Health Care FHLC 0.12 676.5 -1.70 - -

iShares U.S. Healthcare IYH 0.45 1,940.2 -2.16 19.70 18.83

Health Care Select SPDR XLV 0.15 12,853.3 -2.18 20.04 18.85

First Trust Health Care AlphaDEX FXH 0.70 3,339.5 -3.47 21.20 20.14

PowerShares Dynamic Biotech & Genome PBE 0.59 416.9 -8.51 24.13 18.93

SPDR S&P Pharmaceuticals XPH 0.35 802.9 -12.71 19.51 19.32

U.S. EQUITY: INDUSTRIALS

iShares U.S. Aerospace & Defense ITA 0.44 490.6 -4.14 20.48 16.74

iShares U.S. Industrials IYJ 0.45 544.7 -8.53 12.61 12.47

Vanguard Industrials VIS 0.12 1,836.7 -9.79 13.50 12.54

Industrial Select SPDR XLI 0.15 6,185.1 -10.49 13.21 12.07

iShares Transportation Average IYT 0.45 811.5 -14.00 18.26 12.62

First Trust Industrials/Producer Durables AlphaDEX FXR 0.70 272.4 -14.65 13.21 10.91

SPDR S&P Transportation XTN 0.35 260.5 -19.12 22.94 -

U.S. EQUITY: TECHNOLOGY

First Trust Dow Jones Internet FDN 0.57 3,331.9 7.75 20.32 17.07

iShares North American Tech-Software IGV 0.48 890.3 2.16 14.47 13.05

iShares North American Tech IGM 0.48 788.1 -1.01 14.19 13.82

SPDR Morgan Stanley Technology MTK 0.35 414.2 -1.94 14.51 12.29

Technology Select SPDR XLK 0.15 11,388.3 -3.21 10.67 13.35

Vanguard Information Technology VGT 0.12 7,173.3 -3.36 12.47 13.75

PowerShares S&P SmallCap Information Technology PSCT 0.29 360.9 -3.37 17.67 14.80

Fidelity MSCI Information Technology FTEC 0.12 288.1 -3.56 - -

iShares U.S. Technology IYW 0.45 2,401.0 -4.49 10.55 12.40

Guggenheim S&P Equal Weight Technology RYT 0.40 656.1 -5.47 17.05 12.98

First Trust Technology AlphaDEX FXL 0.70 667.0 -8.16 14.23 10.63

First Trust NASDAQ-100-Technology QTEC 0.60 275.6 -9.36 16.33 12.66

iShares PHLX Semiconductor SOXX 0.47 362.5 -11.34 17.94 12.97

U.S. EQUITY: TELECOMMUNICATIONS

Vanguard Telecommunication Services VOX 0.12 771.4 -4.26 6.09 8.70

iShares U.S. Telecommunications IYZ 0.45 414.3 -6.12 4.56 7.24

U.S. EQUITY: UTILITIES

Utilities Select SPDR XLU 0.15 6,628.7 -5.87 9.96 10.84

iShares U.S. Utilities IDU 0.45 534.1 -6.35 9.99 10.91

Vanguard Utilities VPU 0.12 1,620.6 -6.62 9.95 10.99

U.S. EQUITY: REAL ESTATE

iShares Residential Real Estate Capped REZ 0.48 263.7 3.28 11.83 13.45

iShares Cohen & Steers REIT ICF 0.35 3,042.9 -2.11 9.44 11.87

Schwab U. S. REIT SCHH 0.07 1,567.9 -2.98 9.84 -

SPDR Dow Jones REIT RWR 0.25 2,897.1 -3.11 9.66 12.01

Vanguard REIT VNQ 0.12 24,529.7 -4.29 9.38 11.88

iShares U.S. Real Estate IYR 0.45 4,055.4 -5.17 7.31 10.15

FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %



iShares Mortgage Real Estate Capped REM 0.48 935.4 -8.17 -0.64 4.77

U.S. EQUITY: HIGH DIVIDEND YIELD

PowerShares HiYld Equity Dividend Achievers PEY 0.55 477.0 -3.72 13.56 12.96

First Trust Value Line Dividend FVD 0.70 1,093.7 -4.06 12.30 12.81

First Trust Morningstar Dividend Leaders FDL 0.45 773.0 -5.10 8.58 11.75

iShares Select Dividend DVY 0.39 12,780.4 -6.05 11.68 13.02

iShares Core High Dividend HDV 0.12 3,945.8 -6.37 8.20 -

Vanguard High Dividend Yield VYM 0.10 10,326.0 -6.73 10.87 13.37

SPDR S&P Dividend SDY 0.35 12,017.7 -6.75 11.75 11.54

WisdomTree High Dividend DHS 0.38 861.2 -7.49 9.15 12.29

Schwab US Dividend Equity SCHD 0.07 2,473.0 -7.72 10.86 -

Global X SuperDividend U.S. DIV 0.45 266.3 -12.51 - -

GLOBAL EQUITY

First Trust Dorsey Wright Focus 5 FV 0.94 4,066.8 -0.41 - -

iShares MSCI All Country World Minimum Volatility ACWV 0.20 2,115.0 -1.72 8.29 -

Vanguard Total World Stock VT 0.17 4,531.7 -6.40 7.47 7.05

iShares MSCI ACWI ACWI 0.33 5,981.8 -6.71 7.21 6.88

iShares Global 100 IOO 0.40 1,588.4 -7.71 6.57 6.47

GLOBAL EQUITY EX-U.S.

Vanguard FTSE All-World ex-US Small Cap VSS 0.19 2,294.9 -3.66 4.23 2.98

First Trust Dorsey Wright International Focus 5 IFV 1.10 626.8 -5.32 - -

Vanguard Total International Stock VXUS 0.14 4,438.8 -6.59 3.24 -

iShares Core MSCI Total International Stock IXUS 0.14 1,700.9 -7.00 - -

Vanguard FTSE All-World ex-US VEU 0.14 12,862.0 -7.22 2.91 2.12

iShares MSCI ACWI ex U.S. ACWX 0.33 1,811.8 -7.86 2.52 1.70

SPDR MSCI ACWI ex-US CWI 0.30 715.3 -8.11 2.91 2.07

FlexShares International Quality Dividend IQDF 0.47 390.3 -10.79 - -

Vident International Equity VIDI 0.68 585.1 -12.85 - -

PowerShares International Dividend Achievers PID 0.54 1,073.2 -15.41 1.33 3.00

INTERNATIONAL EQUITY: BLENDED DEVELOPMENT

iShares Asia 50 AIA 0.50 320.5 -11.19 -0.22 1.80

iShares MSCI All Country Asia ex Japan AAXJ 0.68 2,535.8 -12.88 -0.42 -0.94

INTERNATIONAL EQUITY: DEVELOPED

WisdomTree Japan SmallCap Dividend DFJ 0.58 285.4 10.72 10.01 7.80

iShares MSCI Italy Capped EWI 0.48 1,133.7 7.15 8.47 -0.48

WisdomTree Europe SmallCap Dividend DFE 0.58 962.1 6.99 16.73 10.58

WisdomTree Intl Hedged Quality Div Growth IHDG 0.58 480.6 3.95 - -

iShares MSCI EAFE Small-Cap SCZ 0.40 4,875.6 3.45 10.22 7.65

iShares Currency Hedged MSCI EMU HEZU 0.51 1,733.0 2.63 - -

iShares MSCI EAFE Minimum Volatility EFAV 0.20 2,952.6 2.55 7.53 -

iShares MSCI Japan EWJ 0.48 18,612.9 2.20 9.06 4.54

iShares Currency Hedged MSCI Japan HEWJ 0.48 613.0 1.72 - -

Deutsche X-trackers MSCI Japan Hedged DBJP 0.45 1,309.0 1.60 25.26 -

WisdomTree International SmallCap Dividend DLS 0.58 1,011.3 1.41 8.99 6.88

SPDR S&P International Small Cap GWX 0.40 650.6 0.98 6.34 4.54

Deutsche X-trackers MSCI Europe Hedged DBEU 0.45 3,065.6 0.15 - -

WisdomTree Europe Hedged HEDJ 0.58 18,289.4 -0.09 11.87 7.29

WisdomTree Japan Hedged DXJ 0.48 14,932.0 -0.54 21.27 10.24

Schwab Fundamental International Small Company FNDC 0.46 306.1 -0.66 - -

iShares Currency Hedged MSCI EAFE HEFA 0.39 2,765.4 -0.69 - -

iShares MSCI France EWQ 0.48 364.3 -0.70 7.50 2.94

Deutsche X-trackers MSCI EAFE Hedged DBEF 0.35 13,168.4 -0.86 11.97 -

Schwab International Small-Cap SCHC 0.18 609.3 -1.07 5.66 4.44

iShares MSCI Switzerland Capped EWL 0.48 1,065.4 -1.17 9.99 8.53

WisdomTree Germany Hedged DXGE 0.48 318.2 -1.59 - -

iShares MSCI EAFE Growth EFG 0.40 1,833.4 -1.81 6.37 4.67

iShares Currency Hedged MSCI Germany HEWG 0.53 1,582.4 -1.84 - -

First Trust Europe AlphaDex FEP 0.80 375.2 -1.85 8.17 -

iShares Core MSCI EAFE IEFA 0.12 6,274.9 -2.95 - -

iShares Core MSCI Europe IEUR 0.14 679.0 -2.98 - -

Vanguard FTSE Europe VGK 0.12 14,379.4 -3.71 6.57 4.75

iShares Core MSCI Pacific IPAC 0.14 559.9 -3.73 - -

iShares MSCI EMU EZU 0.48 10,796.1 -3.82 7.17 2.79

Vanguard FTSE Developed Markets VEA 0.09 26,018.2 -3.89 6.00 4.20

iShares MSCI EAFE EFA 0.33 53,647.8 -4.19 5.76 4.01

Vanguard FTSE Pacific VPL 0.12 2,708.9 -4.40 5.00 3.38

iShares Europe IEV 0.60 2,670.5 -4.58 5.93 4.14

SPDR S&P World ex-US GWL 0.34 714.9 -4.64 4.76 3.74

FlexShares Mstar Dev Mkt ex-US Factor Tilt TLTD 0.42 532.7 -4.68 4.90 -

SPDR STOXX Europe 50 FEU 0.29 247.6 -5.03 4.10 2.82

iShares MSCI Sweden EWD 0.48 360.4 -5.11 4.67 3.71

Schwab International SCHF 0.08 4,006.0 -5.33 4.62 3.46

iShares MSCI Hong Kong EWH 0.48 2,620.7 -5.69 4.64 4.00

PowerShares DWA Developed Markets Momentum PIZ 0.80 262.5 -5.86 7.61 4.39

SPDR Euro STOXX 50 FEZ 0.29 4,044.4 -5.99 6.23 2.04

WisdomTree International DWM 0.48 635.6 -6.01 5.41 4.04

iShares MSCI Kokusai TOK 0.25 289.5 -6.34 8.91 8.81

PowerShares S&P Intl Dev Low Volatility IDLV 0.25 300.2 -6.55 3.12 -

WisdomTree International LargeCap Dividend DOL 0.48 366.1 -6.64 4.00 3.22

iShares MSCI EAFE Value EFV 0.40 2,562.0 -7.31 4.49 2.99

PowerShares FTSE RAFI Developed Markets ex-U.S. PXF 0.45 727.7 -7.81 5.08 2.02

iShares MSCI United Kingdom EWU 0.48 2,578.2 -7.44 2.24 3.95

Schwab Fundamental International Large Company FNDF 0.32 682.6 -7.52 - -

iShares MSCI Germany EWG 0.48 6,049.0 -8.17 5.00 4.65

WisdomTree International Dividend ex-Financials DOO 0.58 286.1 -8.63 2.54 1.88

iShares MSCI Spain Capped EWP 0.48 1,563.4 -12.97 6.39 -1.04

iShares MSCI Pacific ex Japan EPP 0.49 1,868.1 -14.81 -2.21 0.47

iShares MSCI Australia EWA 0.48 1,215.8 -17.21 -4.19 -0.66

iShares MSCI Canada EWC 0.48 1,812.9 -19.69 -4.78 -1.81

iShares MSCI Singapore EWS 0.48 554.7 -21.15 -5.37 -1.44

Global X FTSE Greece 20 GREK 0.61 291.1 -28.28 -12.72 -

INTERNATIONAL EQUITY: EMERGING

Market Vectors Russia RSX 0.61 1,696.3 7.31 -15.77 -11.50

PowerShares India PIN 0.85 465.9 -4.99 2.73 -3.95

iShares MSCI India INDA 0.68 3,486.4 -4.21 4.62 -

iPath MSCI India ETN INP 0.89 309.2 -4.98 4.08 -2.67

iShares India 50 INDY 0.94 827.6 -6.35 4.97 -1.41

WisdomTree India Earnings EPI 0.83 1,705.3 -8.73 2.75 -4.56

iShares MSCI Philippines EPHE 0.62 236.5 -9.46 4.85 7.59

iShares MSCI EM Minimum Volatility EEMV 0.25 2,478.0 -11.12 -2.26 -

iShares MSCI South Korea Capped EWY 0.62 3,043.6 -11.77 -5.21 -0.89

iShares MSCI China MCHI 0.62 1,778.5 -11.88 3.61 -

SPDR S&P Emerging Asia Pacific GMF 0.49 428.4 -12.53 1.76 0.15

iShares MSCI Mexico Capped EWW 0.48 1,191.3 -12.57 -6.32 0.87

SPDR S&P China GXC 0.59 817.8 -12.86 3.98 -0.01

iShares MSCI Taiwan EWT 0.62 2,993.0 -12.91 1.39 1.80

Deutsche X-trackers Harvest CSI 300 China A-Shares ASHR 0.80 387.1 -13.09 - -

iShares China Large-Cap FXI 0.74 5,584.7 -14.34 3.04 -1.51

iShares Core MSCI Emerging Markets IEMG 0.18 7,171.6 -14.40 - -

Vanguard FTSE Emerging Markets VWO 0.15 34,875.6 -15.24 -4.59 -3.42

WisdomTree EM SmallCap Dividend DGS 0.63 995.3 -15.28 -5.14 -3.53

Schwab Emerging Markets SCHE 0.14 1,291.7 -15.40 -4.50 -3.61

iShares MSCI Emerging Markets EEM 0.68 21,279.2 -15.95 -5.65 -4.20

SPDR S&P EM Small Cap EWX 0.65 373.7 -16.16 -3.68 -4.49

iShares MSCI South Africa EZA 0.62 326.9 -16.48 -4.72 -1.68

Schwab Fundamental EM Large Company FNDE 0.46 275.5 -18.66 - -

PowerShares FTSE RAFI Emerging Markets PXH 0.49 293.9 -21.10 -9.88 -7.25

iShares Latin America 40 ILF 0.49 456.8 -28.17 -16.91 -12.60

iShares MSCI Turkey TUR 0.62 327.1 -31.13 -11.52 -10.36

iShares MSCI Brazil Capped EWZ 0.62 1,804.2 -38.85 -23.65 -19.52

INTERNATIONAL EQUITY: FRONTIER

iShares MSCI Frontier 100 FM 0.79 482.0 -16.66 3.14 -

Market Vectors Vietnam VNM 0.70 414.3 -19.46 1.47 -6.82

GLOBAL EQUITY: SECTOR

iShares Global Consumer Discretionary RXI 0.48 260.0 0.90 15.43 13.71

PowerShares Global Listed Private Equity PSP 2.09 419.1 0.69 12.91 9.09

iShares Global Consumer Staples KXI 0.48 591.3 0.40 8.88 10.74

iShares Global Healthcare IXJ 0.48 1,620.0 -0.35 17.15 16.34

Market Vectors Pharmaceutical PPH 0.35 314.4 -0.94 18.66 -

First Trust ISE Cloud Computing SKYY 0.60 470.3 -1.20 12.31 -

SPDR Dow Jones Global Real Estate RWO 0.50 1,899.2 -3.47 7.42 9.11

iShares Global Telecom IXP 0.48 382.6 -4.03 4.04 5.71

47NOVEMBER 2015


iShares Global Tech IXN 0.48 802.0 -4.66 10.49 11.29

PureFunds ISE Cyber Security HACK 0.75 1,059.2 -4.68 - -

Guggenheim S&P Global Water CGW 0.65 343.1 -5.92 8.67 9.33

FlexShares STOXX Global Broad Infrastructure NFRA 0.47 396.1 -7.65 - -

iShares Global Financials IXG 0.48 233.9 -7.66 9.68 5.82

iShares Global Infrastructure IGF 0.48 1,056.3 -9.35 5.80 5.87

First Trust Nasdaq Technology Dividend TDIV 0.50 470.3 -10.83 9.94 -

Market Vectors Agribusiness MOO 0.57 950.4 -12.74 -1.75 1.64

Market Vectors Junior Gold Miners GDXJ 0.55 1,282.5 -18.14 -40.80 -29.34

PowerShares Water Resources PHO 0.61 655.7 -19.90 2.36 5.16

iShares Global Energy IXC 0.48 781.6 -21.73 -7.56 -0.80

iShares North American Natural Resources IGE 0.48 1,715.1 -23.05 -8.14 -1.88

FlexShares Mstar Global Upstream Nat Resources GUNR 0.48 1,826.8 -23.32 -11.27 -

Market Vectors Oil Services OIH 0.35 1,034.4 -23.50 -10.60 -

SPDR Global Natural Resources GNR 0.40 573.1 -24.76 -11.57 -6.62

Market Vectors Gold Miners GDX 0.53 4,579.2 -25.24 -35.95 -23.93

iShares Exponential Technologies XT 0.47 619.7 - - -

GLOBAL EX-U.S. EQUITY: SECTOR

Market Vectors Biotech BBH 0.35 652.4 -0.92 28.47 -

SPDR Dow Jones International Real Estate RWX 0.59 4,753.2 -3.28 4.86 6.14

Vanguard Global ex-U.S. Real Estate VNQI 0.24 2,983.6 -3.60 4.01 -

iShares International Developed Real Estate IFGL 0.48 886.6 -4.06 3.66 4.49

INTERNATIONAL EQUITY: DEVELOPED SECTOR

iShares MSCI Europe Financials EUFN 0.48 393.6 -4.50 8.92 1.33

INTERNATIONAL EQUITY: EMERGING SECTOR

EGShares Emerging Markets Consumer ECON 0.84 717.8 -14.29 -2.95 0.98

GLOBAL EQUITY: HIGH DIVIDEND YIELD

Global X SuperDividend SDIV 0.58 834.6 -11.10 3.01 -

First Trust Dow Jones Global Select Dividend FGD 0.60 407.5 -11.81 1.88 4.06

GLOBAL EX-U.S. EQUITY: HIGH DIVIDEND YIELD

SPDR S&P International Dividend DWX 0.45 974.4 -16.29 -3.85 -3.23

INTERNATIONAL EQUITY: HIGH DIVIDEND YIELD

WisdomTree International High Dividend DTH 0.58 286.4 -8.65 3.87 3.07

iShares International Select Dividend IDV 0.50 2,928.3 -13.73 0.87 2.50

WisdomTree Emerging Markets High Dividend DEM 0.63 1,510.3 -17.63 -10.77 -5.79

SPDR S&P Emerging Markets Dividend EDIV 0.49 298.2 -23.91 -13.03 -

U.S. FIXED INCOME: BROAD MARKET - BROAD MATURITIES

Vanguard Total Bond Market BND 0.08 26,801.0 1.11 1.55 2.98

iShares Core U.S. Aggregate Bond AGG 0.08 26,641.4 1.00 1.61 2.95

iShares Core Total USD Bond Market IUSB 0.15 430.4 0.98 - -

Schwab U.S. Aggregate Bond SCHZ 0.05 1,895.5 0.95 1.61 -

SPDR Barclays Aggregate Bond LAG 0.08 1,000.0 0.81 1.62 2.91

Vident Core U.S. Bond Strategy VBND 0.45 424.1 0.65 - -

U.S. FIXED INCOME: BROAD MARKET - SHORT-TERM

iShares Core Short-Term USD Bond ISTB 0.12 424.9 1.21 - -

iShares Short Maturity Bond NEAR 0.25 1,634.5 0.70 - -

PIMCO Enhanced Short Maturity Strategy MINT 0.35 4,298.8 0.28 0.59 0.93

U.S. FIXED INCOME: GOVERNMENT/CREDIT - SHORT-TERM

Vanguard Short-Term Bond BSV 0.10 17,079.4 1.44 1.04 1.48

U.S. FIXED INCOME: GOVERNMENT/CREDIT - INTERMEDIATE

Vanguard Intermediate-Term Bond BIV 0.10 6,809.7 1.99 1.94 3.93

iShares Intermediate Government/Credit Bond GVI 0.20 1,910.2 1.55 1.16 2.17

U.S. FIXED INCOME: GOVERNMENT/CREDIT - LONG-TERM

Vanguard Long-Term Bond BLV 0.10 1,736.3 -2.68 2.10 5.93

U.S. FIXED INCOME: GOVERNMENT

Vanguard Intermediate-Term Government Bond VGIT 0.12 425.6 2.68 1.38 2.69

Vanguard Short-Term Government Bond VGSH 0.12 667.0 0.94 0.59 0.68

Vanguard Long-Term Government Bond VGLT 0.12 282.8 0.04 2.61 6.07

U.S. FIXED INCOME: TREASURY - BROAD MATURITIES

iShares Core U.S. Treasury Bond GOVT 0.15 1,475.7 1.85 1.22 -

PowerShares 1-30 Laddered Treasury PLW 0.25 274.0 1.42 2.08 4.56

U.S. FIXED INCOME: TREASURY - SHORT TERM

iShares 1-3 Year Treasury Bond SHY 0.15 13,357.3 0.98 0.55 0.64

Schwab Short-Term U. S. Treasury SCHO 0.08 1,124.4 0.88 0.61 0.66

iShares Short Treasury Bond SHV 0.15 4,015.3 0.06 0.03 0.04

SPDR Barclays 1-3 Month T-Bill BIL 0.14 3,066.1 -0.11 -0.09 -0.07

U.S. FIXED INCOME: TREASURY - INTERMEDIATE

iShares 7-10 Year Treasury Bond IEF 0.15 8,946.6 3.07 1.70 3.91

iShares 3-7 Year Treasury Bond IEI 0.15 6,180.2 2.84 1.29 2.31

Schwab Intermediate-Term U.S. Treasury SCHR 0.09 424.3 2.73 1.37 2.67

SPDR Barclays Intermediate Term Treasury ITE 0.10 351.6 1.91 0.99 1.81

U.S. FIXED INCOME: TREASURY - LONG-TERM

iShares 10-20 Year Treasury Bond TLH 0.15 507.7 2.97 2.34 4.91

SPDR Barclays Long Term Treasury TLO 0.10 279.0 -0.21 2.62 6.08

iShares 20+ Year Treasury Bond TLT 0.15 6,419.4 -0.22 2.68 6.47

Vanguard Extended Duration Treasury EDV 0.12 371.0 -2.31 3.44 9.11

U.S. FIXED INCOME: AGENCIES

iShares Agency Bond AGZ 0.20 621.4 1.69 1.24 1.85

U.S. FIXED INCOME: AGENCY MBS

Vanguard Mortgage-Backed Securities VMBS 0.12 1,545.7 1.60 1.79 2.94

iShares MBS MBB 0.27 7,582.2 1.46 1.72 2.73

U.S. FIXED INCOME: TIPS

FlexShares iBoxx 5-Year Target Duration TIPS TDTF 0.20 432.6 0.90 -1.44 -

FlexShares iBoxx 3-Year Target Duration TIPS TDTT 0.20 2,041.0 0.37 -1.10 -

Vanguard Short-Term Inflation-Protected Securities VTIP 0.10 1,838.2 0.29 - -

iShares 0-5 Year TIPS Bond STIP 0.10 590.2 0.25 -0.81 -

PIMCO 1-5 Year U.S. TIPS STPZ 0.20 1,158.6 0.17 -0.95 0.86

iShares TIPS Bond TIP 0.20 13,543.6 -0.90 -1.95 2.38

Schwab U.S. TIPS SCHP 0.07 777.9 -1.05 -1.93 2.31

SPDR Barclays TIPS IPE 0.15 640.0 -1.36 -2.03 2.38

U.S. FIXED INCOME: MUNICIPAL - BROAD MARKET

iShares California AMT-Free Muni Bond CMF 0.25 415.3 1.44 3.18 4.55

SPDR Nuveen Barclays Municipal Bond TFI 0.23 1,485.6 1.37 2.48 3.88

PowerShares National AMT-Free Municipal Bond PZA 0.28 883.8 1.20 3.05 4.65

iShares National AMT-Free Muni Bond MUB 0.25 5,320.7 1.00 2.06 3.56

U.S. FIXED INCOME: MUNICIPAL - SHORT-TERM

SPDR Nuveen Barclays Short Term Municipal Bond SHM 0.20 2,633.0 0.90 0.84 1.30

Market Vectors Short Municipal SMB 0.20 264.6 0.52 0.56 1.36

iShares Short-Term National AMT-Free Muni Bond SUB 0.25 895.7 0.52 0.50 0.94

U.S. FIXED INCOME: MUNICIPAL - INTERMEDIATE

Market Vectors Intermediate Municipal ITM 0.24 1,172.7 1.39 2.39 3.92

PIMCO Intermediate Municipal Bond Strategy MUNI 0.35 240.2 0.79 1.37 2.71

U.S. FIXED INCOME: MUNICIPAL - HIGH YIELD

Market Vectors High-Yield Municipal HYD 0.35 1,539.6 2.43 2.84 5.39

SPDR Nuveen S&P High Yield Municipal Bond HYMB 0.45 356.5 1.20 4.22 -

U.S. FIXED INCOME: MUNICIPAL - BUILD AMERICA BONDS

PowerShares Build America Bond BAB 0.27 659.2 -0.41 3.98 7.04

U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - BROAD MATURITIES

iShares Aaa - A Rated Corporate Bond QLTA 0.15 391.5 0.25 1.42 -

PIMCO Investment Grade Corporate Bond CORP 0.20 233.7 -0.52 2.13 4.05

iShares iBoxx $ Investment Grade Corporate Bond LQD 0.15 22,127.5 -0.59 1.97 4.49

iShares Core U.S. Credit Bond CRED 0.15 791.0 -1.02 1.70 3.78

U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - SHORT-TERM

Vanguard Short-Term Corporate Bond VCSH 0.12 10,561.6 1.38 1.74 2.52

Guggenheim BulletShares 2016 Corporate Bond BSCG 0.25 701.4 1.12 1.32 2.84

Guggenheim BulletShares 2017 Corporate Bond BSCH 0.25 963.2 0.86 1.52 3.47

SPDR Barclays Short Term Corporate Bond SCPB 0.12 3,912.6 0.74 1.03 1.63

iShares 1-3 Year Credit Bond CSJ 0.20 10,955.6 0.70 0.92 1.44

Guggenheim BulletShares 2015 Corporate Bond BSCF 0.25 390.4 0.23 0.79 2.05

U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - INTERMEDIATE

Guggenheim BulletShares 2020 Corporate Bond BSCK 0.25 400.5 2.53 2.89 -

Guggenheim BulletShares 2019 Corporate Bond BSCJ 0.25 398.0 2.43 2.30 -

Guggenheim BulletShares 2018 Corporate Bond BSCI 0.25 736.0 1.55 2.01 -

Vanguard Intermediate-Term Corporate Bond VCIT 0.12 5,533.0 1.36 2.71 4.72

SPDR Barclays Intermediate Term Corporate Bond ITR 0.12 864.2 1.08 1.97 3.48

iShares Intermediate Credit Bond CIU 0.20 6,137.6 0.95 1.75 3.11

U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - FLOATING RATE

SPDR Barclays Investment Grade Floating Rate FLRN 0.15 386.5 0.17 0.29 -

iShares Floating Rate Bond FLOT 0.20 3,761.3 0.15 0.51 -

U.S. FIXED INCOME: CORPORATE - HIGH YIELD - BROAD MATURITIES

PowerShares Fundamental HiYld Corporate Bond PHB 0.50 612.2 -2.10 2.27 4.61

iShares iBoxx $ High Yield Corporate Bond HYG 0.50 12,694.2 -3.72 2.35 5.03

SPDR Barclays High Yield Bond JNK 0.40 8,961.4 -4.01 1.95 4.84



Vanguard Long-Term Corporate Bond VCLT 0.12 1,022.3 -4.19 1.87 6.00

iShares 10+ Year Credit Bond CLY 0.20 744.7 -4.65 1.11 5.27

AdvisorShares Peritus High Yield HYLD 1.18 284.1 -6.36 -2.47 -

U.S. FIXED INCOME: CORPORATE - HIGH YIELD - SHORT-TERM

Guggenheim BulletShares 2016 HiYld Corp Bond BSJG 0.44 726.9 2.24 4.19 -

Guggenheim BulletShares 2015 HiYld Corp Bond BSJF 0.44 516.0 1.93 3.62 -

PIMCO 0-5 Year HiYld Corp Bond HYS 0.55 2,223.0 -2.80 2.53 -

SPDR Barclays Short Term High Yield Bond SJNK 0.40 3,317.8 -3.57 1.32 -

iShares 0-5 Year HiYld Corp Bond SHYG 0.30 824.0 -2.83 - -

Guggenheim BulletShares 2017 HiYld Corp Bond BSJH 0.43 589.7 0.37 3.31 -

U.S. FIXED INCOME: CORPORATE - HIGH YIELD - INTERMEDIATE

Guggenheim BulletShares 2018 HiYld Corp Bond BSJI 0.44 458.7 -1.26 3.26 -

U.S. FIXED INCOME: CORPORATE - CONVERTIBLES

SPDR Barclays Convertible Securities CWB 0.40 2,660.6 -3.10 9.24 7.70

U.S. FIXED INCOME: CORPORATE - LOANS

Highland/iBoxx Senior Loan SNLN 0.55 309.7 -0.71 - -

PowerShares Senior Loan BKLN 0.65 4,707.9 -1.35 1.51 -

U.S. FIXED INCOME: CORPORATE - PREFERRED STOCK

PowerShares Financial Preferred PGF 0.63 1,413.5 4.37 5.90 6.72

PowerShares Preferred PGX 0.50 2,843.9 3.72 5.91 6.76

SPDR Wells Fargo Preferred Stock PSK 0.45 279.2 3.65 4.90 5.51

iShares U.S. Preferred Stock PFF 0.47 13,406.5 1.49 5.22 5.80

Market Vectors Preferred Securities ex Financials PFXF 0.40 261.9 -1.79 4.38 -

GLOBAL FIXED INCOME

First Trust Preferred Securities and Income FPE 0.87 369.8 3.43 - -

First Trust Senior Loan FTSL 0.85 344.7 2.38 - -

First Trust Tactical High Yield HYLS 1.29 476.1 1.22 - -

Guggenheim Enhanced Short Duration Bond GSY 0.30 555.1 1.02 1.22 0.96

SPDR Blackstone / GSO Senior Loan SRLN 0.70 681.5 0.76 - -

PIMCO Total Return Active BOND 0.55 2,623.0 0.57 2.46 -

RiverFront Strategic Income RIGS 0.22 462.1 -0.42 - -

SPDR DoubleLine Total Return Tactical TOTL 0.55 1,178.1 - - -

INTERNATIONAL FIXED INCOME: BLENDED DEVELOPMENT

Vanguard Total International Bond BNDX 0.19 3,897.9 0.55 - -

SPDR Barclays International Treasury Bond BWX 0.50 1,501.2 -5.89 -4.04 -0.92

SPDR DB Intl Govt Inflation-Protected Bond WIP 0.50 699.0 -8.62 -3.52 0.25

INTERNATIONAL FIXED INCOME: DEVELOPED

PowerShares Variable Rate Preferred VRP 0.50 353.2 2.14 - -

Global X SuperIncome Preferred SPFF 0.58 240.8 -3.21 2.98 -

iShares International Treasury Bond IGOV 0.35 455.7 -5.84 -2.79 -1.16

iShares Global ex USD High Yield Corporate Bond HYXU 0.40 232.1 -7.55 1.10 -

INTERNATIONAL FIXED INCOME: EMERGING

Market Vectors Emerging Markets High Yield Bond HYEM 0.40 356.2 2.91 1.55 -

PowerShares Emerging Markets Sovereign Debt PCY 0.50 2,501.2 1.32 0.95 4.74

Vanguard Emerging Markets Government Bond VWOB 0.34 473.3 0.21 - -

iShares J.P. Morgan USD Emerging Markets Bond EMB 0.40 4,444.9 -0.14 0.06 3.75

iShares Emerging Markets Local Currency Bond LEMB 0.50 517.8 -13.48 -6.66 -

WisdomTree Emerging Markets Local Debt ELD 0.55 469.3 -13.50 -8.98 -4.01

Market Vectors JPM EM Local Currency Bond EMLC 0.47 1,162.4 -15.06 -8.66 -3.82

COMMODITIES: BROAD MARKET

United States Commodity USCI 0.92 513.2 -13.40 -11.99 -5.09

GreenHaven Continuous Commodity GCC 1.02 240.6 -14.83 -13.90 -7.11

ELEMENTS Rogers International Commodity ETN RJI 0.75 387.1 -17.43 -16.38 -8.17

PowerShares DB Commodity Tracking DBC 0.85 2,464.3 -17.89 -19.16 -8.87

iPath Bloomberg Commodity ETN DJP 0.70 1,054.6 -18.25 -17.92 -10.38

iShares S&P GSCI Commodity GSG 0.77 747.6 -20.85 -20.35 -10.66

COMMODITIES: AGRICULTURE

PowerShares DB Agriculture DBA 0.85 815.2 -16.11 -10.79 -5.35

COMMODITIES: ENERGY

United States Natural Gas UNG 1.01 548.3 -21.39 -18.36 -25.13

PowerShares DB Oil DBO 0.74 494.1 -27.71 -24.25 -14.81

United States Oil USO 0.66 2,459.4 -27.90 -24.51 -15.87

iPath S&P GSCI Crude Oil ETN OIL 0.75 872.6 -32.54 -27.63 -17.97

COMMODITIES: PRECIOUS METALS

iShares Silver Trust SLV 0.50 4,665.8 -7.90 -25.45 -8.23

iShares Gold Trust IAU 0.25 5,752.8 -5.77 -14.54 -3.38

ETFS Physical Swiss Gold SGOL 0.39 834.1 -5.89 -14.64 -3.51

SPDR Gold GLD 0.40 24,612.2 -5.92 -14.65 -3.53

ETFS Physical Silver SIVR 0.30 266.7 -7.58 -25.29 -8.05

ETFS Physical Platinum PPLT 0.60 426.1 -24.94 -18.68 -11.84

CURRENCY: DEVELOPED

CurrencyShares Euro FXE 0.40 268.1 -8.02 -4.97 -4.16

ASSET ALLOCATION

WBI Tactical Income WBII 1.05 334.5 0.30 - -

iShares Moderate Allocation AOM 0.24 356.7 -2.73 4.36 5.19

WBI Tactical High Income WBIH 1.08 245.1 -3.02 - -

iShares Growth Allocation AOR 0.24 505.2 -3.77 6.34 7.18

iShares Aggressive Allocation AOA 0.23 361.9 -4.63 8.14 8.88

PowerShares CEF Income Composite PCEF 1.88 593.3 -5.12 1.07 3.80

First Trust Multi-Asset Diversified Income MDIV 0.67 881.0 -8.94 2.81 -

Guggenheim Multi-Asset Income CVY 0.84 541.8 -14.20 -0.79 4.49

iShares Commodities Select Strategy COMT 0.48 250.3 -21.19 - -

ALTERNATIVES: ABSOLUTE RETURN

IQ Hedge Multi-Strategy Tracker QAI 0.91 1,062.2 -2.01 2.00 2.06

ALTERNATIVES: TACTICAL TOOLS

iPath S&P 500 VIX Short-Term Futures ETN VXX 0.89 667.3 -18.66 -43.75 -52.91

LEVERAGED

UBS AG FI Enhanced Large Cap Growth ETN FBGX 1.52 729.6 -4.75 - -

ProShares Ultra QQQ QLD 0.95 887.1 -4.80 29.12 31.62

Credit Suisse FI Large Cap Growth Enhanced ETN FLGE 1.52 522.7 -5.12 - -

ProShares Ultra NASDAQ Biotech BIB 0.95 649.9 -7.14 54.62 55.51

Credit Suisse FI Enhanced Europe 50 ETN FIEU 0.80 252.9 -7.64 - -

ProShares UltraPro QQQ TQQQ 0.95 1,186.7 -10.52 42.22 44.89

Barclays ETN+ FI Enhanced Europe 50 ETN FEEU 0.76 727.3 -11.39 - -

FI Enhanced Global High Yield ETN FIEG 1.75 281.9 -12.62 - -

ProShares Ultra S&P 500 SSO 0.89 1,726.4 -13.07 22.48 23.63

Barclays ETN+ FI Enhanced Global HiYld ETN FIGY 0.76 1,165.0 -13.21 - -

ProShares Ultra Financials UYG 0.95 691.3 -13.33 28.17 19.44

Direxion Daily Healthcare Bull 3x CURE 1.01 291.0 -14.96 58.64 -

ETRACS Monthly Pay 2x Lev Mortgage REIT ETN MORL 0.80 287.0 -19.28 - -

ProShares Ultra Silver AGQ 1.67 245.3 -19.76 -49.24 -28.77

Direxion Daily Financial Bull 3x FAS 0.97 1,202.2 -21.01 42.13 23.08

ProShares UltraPro S&P 500 UPRO 0.95 957.8 -21.09 32.45 32.79

Direxion Daily S&P 500 Bull 3X SPXL 0.98 612.6 -21.26 31.94 31.47

Direxion Daily Small Cap Bull 3x TNA 0.98 872.3 -27.10 25.26 20.77

ProShares Ultra VIX Short-Term Futures UVXY 1.51 300.4 -55.50 -79.16 -

VelocityShares Daily 2X VIX Short Term ETN TVIX 1.65 282.2 -55.87 -79.99 -

ProShares Ultra Bloomberg Crude Oil UCO 1.13 787.2 -56.26 -47.42 -35.41

Direxion Daily Energy Bull 3x ERX 0.98 411.7 -57.68 -21.81 -4.98

VelocityShares 3X Long Natural Gas ETN UGAZ 1.65 503.6 -68.09 -66.58 -

VelocityShares 3X Long Crude Oil ETN UWTI 1.35 813.2 -78.28 -67.99 -

INVERSE

ProShares Short MSCI Emerging Markets EUM 0.95 568.3 13.48 0.98 -2.20

ProShares UltraShort Euro EUO 0.93 547.2 12.73 6.58 4.21

ProShares UltraShort Russell 2000 TWM 0.95 230.3 9.57 -26.10 -31.12

ProShares UltraShort Dow 30 DXD 0.95 279.8 9.51 -20.15 -24.63

WisdomTree Bloomberg US Dollar Bullish USDU 0.50 351.1 6.58 - -

ProShares UltraPro Short S&P 500 SPXU 0.92 605.1 5.89 -35.98 -40.54

ProShares UltraShort S&P 500 SDS 0.89 1,764.2 5.58 -24.70 -27.76

ProShares Short Russell 2000 RWM 0.95 472.9 5.24 -13.34 -15.58

ProShares Short Dow30 DOG 0.95 467.8 5.24 -10.36 -12.64

Direxion Daily S&P 500 Bear 3X SPXS 0.99 351.6 4.76 -36.90 -41.33

PowerShares DB US Dollar Bullish UUP 0.76 1,040.3 4.71 4.62 1.91

ProShares Short S&P 500 SH 0.89 2,186.4 3.35 -12.91 -14.37

ProShares UltraShort Yen YCS 0.93 307.4 -1.66 28.56 11.91

ProShares Short QQQ PSQ 0.95 372.0 -2.29 -16.12 -17.86

ProShares Short 20+ Year Treasury TBF 0.93 853.1 -2.50 -5.54 -9.44

ProShares UltraShort QQQ QID 0.95 420.5 -6.21 -30.52 -33.90

ProShares UltraShort 20+ Year Treasury TBT 0.92 2,782.8 -6.51 -11.40 -19.08

ProShares UltraPro Short QQQ SQQQ 0.95 385.3 -11.96 -43.69 -48.29

Direxion Daily 20 Year Plus Treasury Bear 3x TMV 0.93 536.9 -13.33 -19.77 -30.43

VelocityShares Daily Inverse VIX Short Term ETN XIV 1.35 1,258.1 -21.80 12.68 -

ProShares Short VIX Short-Term Futures SVXY 1.33 629.7 -22.11 12.25 -

Direxion Daily CSI 300 China A Share Bear 1X CHAD 0.80 277.7 - - -

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Carefully consider a fund’s objectives, risks, charges, and expenses. For a prospectus, or summary prospectus if available, containing this, daily holdings, and other information, visit PrincipalETFs.com or call Sales Support at 800-787-1621. Please read it carefully before investing. RISKS - Asset allocation and diversification do not ensure a profit or protect against a loss. Investing in ETFs involves risk, including possible loss of principal. ETFs are subject to risk similar to those of stocks, including those regarding short-selling and margin account maintenance. Equity investment options involve greater risk, including heightened volatility, than fixed-income investment options. Fixed-income investments are subject to interest rate risk; as interest rates rise, their value will decline. Lower-rated securities are subject to additional credit and default risks. REIT securities are subject to risk factors associated with the real estate industry and tax factors of REIT registration. A Master Limited Partnership (MLP) that invests in a particular industry (e.g., oil and gas) may be harmed by detrimental economic events within that industry. As partnerships, MLPs may be subject to less regulation (and less protection for investors) under state laws than corporations. In addition, MLPs may be subject to state taxation in certain jurisdictions, which may reduce the amount of income paid by an MLP to its investors. Unlike typical exchange-traded funds, there are no indexes that the Funds attempt to track or replicate. Thus, the ability of the Fund to achieve its objectives will depend on the effectiveness of the portfolio manager. This Fund is new and has limited operating history. ETFs can be tax efficient in that they are exchange traded and redeem creation units from authorized participants by using redemptions in kind, which are not taxable transactions for the Fund. However, capital gains are still possible in an ETF, and if you reinvest the earnings of the ETF, you may owe taxes on your funds even if you didn’t sell any shares, potentially eating into your returns. Investor shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Ordinary brokerage commissions apply. ALPS Distributors, Inc. is the distributor of the Principal EDGE Active Income ETF. ALPS Distributors, Inc. and the Principal Funds are not affiliated.

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THE MAGAZINE FOR ETF INVESTORS Report/2015/11... · ETF Report and Brown Brothers Harriman have once again teamed up to conduct the Annual ... Direxion Daily Pharma/Medical Bull 2X