Van Eck Files For Preferred Security and Global Chemicals ETFs - ETF News And Commentary

Zacks Investment Research
Posted: Mar 25, 2012 11:23 AM
Van Eck Files For Preferred Security and Global Chemicals ETFs - ETF News And Commentary

Founded in 1955, the New York based firm Van Eck Global is one of the leading players in the investment management space worldwide. The firm boasts about being one of the pioneers of bringing global investment opportunities to the U.S investors.

Van Eck Global is also the sponsor of the Market Vectors exchange traded fund family. Currently, the brand is an ETF behemoth; it is the fifth largest provider of exchange traded products in the U.S. and is gaining AUM seemingly every day. (see Zacks Investment Ideas feature highlights: Market Vectors Agribusiness ETF)

With over 40 ETFs in its product portfolio, Market Vectors caters to the needs of all types of investors across a number of asset classes. The company recently expanded its lineup with the release of the Unconventional Oil and Gas ETF (FRAK) (read Market Vectors Launches Unconventional Oil and Gas ETF (FRAK)), and looks to further expand its offering in the future thanks to the latest fund filing.

In this SEC document, the company revealed plans for two new ETFs; a Global Chemical ETF and a Preferred Security ex-Financials ETF.  While a great deal of info wasn’t released in the initial filing—such as information about the symbol, and expense structure—we have highlighted some of the key details below:

The Global Chemical ETF and the Preferred Security ETF will track the price and yield performance of the Market Vectors Global Chemicals Index and the Preferred Securities ex Financials Index, respectively.

The former index is a free float adjusted market capitalization weighted index that tracks the performance of U.S and global companies related to the chemical industry. The latter index tracks the performance of U.S dollar denominated convertible and non-convertible preferred securities issued by U.S based companies (including mid and small cap companies) and listed on U.S exchanges.

According to the SEC filing, the index presently holds 158 securities with an average market capitalization of $ 7.8 billion (read Top 5 Best Performing Small Cap ETFs). With this approach, the ETF looks to give investors complete exposure to the global chemical space, investing at least 80% of assets in companies that derive a majority of their revenues from the sector.

Van Eck defines this space as one that consists of firms that earn their revenues from research, development, manufacture or marketing of chemical products and services across a number of nations.  

Meanwhile, the Preferred Stock ETF gives investors the choice of investing in callable and non callable preferred stocks through a basket approach by investing in a variety of convertible and non convertible securities including depository preferred securities and perpetual subordinated debt. The product also looks to exclude financials from this basket which could be very helpful to some investors (see Three Low Beta Sector ETFs).

This is because many preferred stock ETFs have a heavy, if not complete, focus on financial securities. Since this fund will be excluding these firms, it could either offer investors a nice compliment to their current preferred holdings, or it could be a more diversified play on the space for those that currently don’t have any exposure to the segment.

ETF Competition

Although a healthy comparison cannot be made in the pure play chemical ETF, there are several ETFs that have chemical exposure via the basic materials sector. One of the more popular in this space is The Dow Jones U.S. Basic Materials ETF (IYM), which tracks the price and yield performance of the Dow Jones U.S. Basic Materials Index and has a 7.90% holding in Dow Chemical Co. (DOW).

IYM is largely dependent on the basic materials sector which comprises 89.47% of its total assets. Although the fund charges 48 basis points in fees a year, the product has attracted a great deal of investors as it has amassed AUM over $600 million.  

As far as the Preferred Security ETF space is concerned, the S&P International Preferred Stock Index Fund (IPFF) can be a major threat to Van Eck’s proposed product. The ETF is a relatively new fund launched in November 2011 that tracks the S&P International Preferred Stock Index. IPFF provides a great exposure in the developed markets preferred stock space (read Top Three High Yield Financial ETFs).

IPFF charges 55 basis points in fees while holding 62 securities in its basket. With total assets of $ 94.97 million, the fund has seen decent amount of inflows in its asset base in just 4 months, but obviously it still has some work to do to build a huge following. However, it should be noted that IPFF is heavily exposed to financials-- with a 64% allocation towards the sector—so maybe Van Eck’s proposed fund can see some inflows from those looking for a more balanced approach.

Thanks to the relative novelty of both of the proposed products, either could see decent inflows from investors if they ever receive a green light from the SEC. Competition could be fierce from other products in similar sectors, but both of the funds have unique competitive advantages that should allow them to accumulate decent inflows in no time at all, assuming of course they can pass the government’s regulatory hurdles first.

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