Market Overview

Bigger Isn't Always Better With ETFs: Part II


Continuing with our series that we started on Monday, Benzinga continues to sift through the vast landscape known as the world of ETFs looking for funds that are large by assets under management, but that give up performance to comparable ETFs with smaller asset bases.

On Monday, our search turned up a mix of sector funds, emerging markets ETFs and one developed markets play. Let's see what today's edition of “Bigger Isn't Always Better With ETFs” turns up.

A Classic Rivalry: The SPDR Gold Shares (NYSE: GLD) was the first ETF backed by physical gold to come to market and remains the largest in that niche. It's also the second-largest ETF in the world with almost $72 billion in AUM. On the other hand, the iShares Gold Trust (NYSE: IAU) has “just” $9.6 billion in AUM. The reality is GLD and IAU move in lockstep with each other and basically do the same thing, so this isn't about performance. It's about fees. IAU has an expense ratio of 0.25%. GLD's 0.4%. The choice appears clear.

An Oily Proposition: For all the controversy surrounding the U.S. Oil Fund (NYSE: USO) and how vulnerable this ETF is to contango, it remains popular for one reason or another and has over $1 billion in AUM. If you must dance with an ETF like USO, don't make it USO. Make it the U.S. Brent Oil Fund (NYSE: BNO), which is USO's equivalent for Brent Crude. A lot of governments and oil producers are going to Brent as their benchmark because of the wide spread between Brent and West Texas Intermediate.

That's a boon for BNO, which is up more than 24% year-to-date compared to a negative run for USO.

Another Golden Play: The conversation about gold mining ETFs usually goes in this order. 1) The Market Vectors Gold Miners ETF (NYSE: GDX). 2) The Market Vectors Junior Gold Miners ETF. 3) Dead air. Well, we're willing to bet a lot of investors didn't know the Global X Pure Gold Miners ETF (NYSE: GGGG) has performed in line with GDX year-to-date and clobbered GDXJ. Now you know.

Chinese Technology: We previously mentioned the Guggenheim China Technology ETF (NYSE: CQQQ) as an ideal way of playing high-flying Chinese tech stocks, if you dared. CQQQ has almost $28 million in AUM. Not bad for a niche fund like this, but that's dwarfed by the $177.1 million in AUM held by the Guggenheim China Small-Cap ETF (NYSE: HAO). Yet, CQQQ has trounced HAO in terms of performance this year.

BRIC Battle: Let's make this simple. The iShares MSCI BRIC Index Fund (NYSE: BKF) has almost $800 million in AUM. That's nearly 60% better than what the Guggenheim BRIC ETF (NYSE: EEB). Similar funds to be sure, but not similar performance. EEB has easily outpaced BKF year-to-date AND it has the lower expense ratio at 0.6% compared to 0.69% for the iShares offering.

Bull case: It's easy to be bullish on gold right now. In the case of the other funds, it will take non-gold commodities and emerging markets coming back into style to juice returns. QE3 anyone?

Bear case: No QE3. Oil falls. Emerging markets get smashed and gold loses its safe haven status.


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