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New SSgA ETF Targets Commodities Boom
9/14/2010 12:38:00 PM
CORRECTION:An earlier version of this story overstated the percentage of energy holdings in the new State Street ETF. The composition of the underlying index was changed by Standard & Poor's between the time SSgA initially filed to offer the ETF and the day it was marketed. The change cut by about half the percentage of energy-related companies held in the portfolio.We regret the error.
State Street Global Advisors, the Boston-based company that sponsors the world's biggest ETF, launched a global natural resources fund that will track the Standard & Poor's Global Natural Resources Index, a benchmark that has a third allocated to energy companies, compared to about three-fourths for one of the more popular ETFs it will compete against.
The SPDR Global Natural Resources ETF (NYSEArca:GNR) will enter a market already occupied by the iShares S&P North American Natural Resources Sector Index Fund (NYSE Arca:IGE). IGE is an ETF with a North American focus that weights energy at 77.0 percent, compared with 33.1 percent for the globally focused GNR.
The proliferation of natural resources ETFs reflects a global boom in commodities over the past 10 years. Rapid development in emerging market countries-particularly China and India-is behind spiking demand for basic materials such as oil, which is now about 70 percent higher in price than in 2000.
"There are not a lot of spots left in the ETF marketplace," said Jim Ross, a managing director at SSgA, who heads up the firm's ETF business. "This is a significant weighting in the traditional mutual fund world, and there wasn't an ETF in that spot. This seems to be a natural place for an ETF."
Apart from GNR and IGE, other funds competing in the space include the Jefferies | TR/J CRB Global Commodity ETF (NYSEArca:CRBQ), the Market Vectors RVE Hard Assets Producers ETF (NYSEArca:HAP) as well as the IQ ARB Global Resources ETF (NYSEArca:GRES), which bills itself as the first global resources hedged ETF.
The SPDR Global Natural Resources ETF (NYSEArca:GNR) will cost investors 0.40 percent a year. IGE has an expense ratio of 0.48, while CRBQ and HAP charge investors 0.65 percent a year in annual fees. SSgA Fund Management will serve as investment adviser to the fund. GRES charges 0.75 percent.
Using a replication strategy to mirror the S&P Global Natural Resources Index, the new fund will invest at least 80 percent of total assets in the securities in the index, which is composed of 60 of the largest publicly traded companies in the global agriculture, energy, and metals and mining sectors.
Index constituents will be weighted according to market capitalization but are capped so that no single security exceeds 5 percent of total assets. The fund may also invest in stocks not listed in the index, as well as futures, options, swap contracts, and other derivatives, according to the filing.
As of Dec. 31, 2009, the global energy sector was the most heavily weighted in the S&P Global Natural Resources Index, accounting for 63.6 percent of listings. The metals and mining sector accounted for 26.9 percent, and the agriculture sector made up the remaining 9.5 percent. The top three holdings at the end of last year were BP, Chevron and Total SA, the French energy firm.
SSgA launched the SPDR S&P 500 ETF (NYSEArca:SPY) in 1993, and it's now the biggest ETF in the world, with $72.88 billion as of Sept. 13, according to data compiled by IndexUniverse.com.
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