T H E M A G A Z I N E F O R E T F I N V E S T O R S ///////////////////////////////////////////////// O C T O B E R 2 0 1 5

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QQQ PowerShares QQQ

NASDAQ
100 • Invests in 100 of the world’s most innovative companies
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PowerShares QQQ was incepted on March 10, 1999 and
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100 of the largest domestic and international nonfinancial
companies listed on the Nasdaq Stock Market based on
market capitalization.
There are risks involved with investing in
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subject to risks similar to stocks, including those related
to short selling and margin maintenance. Ordinary
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QQQ, a unit investment trust, please
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or visit www.invescopowershares.com.
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pwr.sh/QQQ | @PowerShares

QQQ PowerShares QQQ
NASDAQ
100 • 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 nonfinancial
companies listed on the Nasdaq Stock Market based on
market capitalization.
There are risks involved with investing in
Exchange-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. Ordinary
brokerage commissions apply.
pwr.sh/QQQ | @PowerShares
ADVERTISEMENT
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 affiliated 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 carefully
before investing.
T H E M A G A Z I N E F O R E T F I N V E S T O R S /////// //////////////////////////////////////////////////////// O C T O B E R 2 0 1 5

est List
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 VO L U M E 1 5 | N O . 1 0
Contents

F E AT U R E S

11
The 15 Most Important ETFs
We showcase the 15 most important U.S.-listed ETFs to celebrate each year of ETF
Report’s existence. These featured funds are the ETF industry’s biggest game changers,
and at least some of them are likely among the core holdings in your portfolio.

32
Gundlach Surveys The Market
Jeffrey Gundlach, head of DoubleLine, discusses the actively managed ETF he runs
with State Street Global Advisors six months after its much-anticipated launch, as
well as the pitfalls and opportunities in the current market environment.

38
ETF Newcomer USAA Lays Out Its Plan
Two of the key figures in USAA’s push into the ETF space talk about how USAA may
use the Vanguard model and what they’re worried about in fixed-income markets.

43
MLP Supplement
Master limited partnerships have been hammered by falling oil prices, but some
fared worse than others. We separate the winners from the losers and also speak
with Global X’s Jay Jacobs about what’s driving the MLP space.

EVP, GLOBAL HEAD OF SALES DE PA RT ME NTS

Foster Wright, 646-867-4481
fwright@etf.com
US PUBLISHER, VP NORTH AMERICAN SALES New ETF Launches
4  50 Sectors In Review
Noel d’Ablemont Smith, 646-558-6985 Vanguard launches its first index-based All sectors ended up in the red during
nsmith@etf.com
muni bond ETF. Plus: Our monthly August, led in their downward dip by
REPRINT SALES look at launches and closures. the financials sector, while energy
Kevin Kelly, 646-582-9040
kkelly@etf.com rose to the top of the heap.
CHIEF EXECUTIVE OFFICER ETF Explainer: ASHR
6 
Matt Hougan Our ETF Explainer looks into the wild ETF Data
52 
mhougan@ETF.com performance of China’s A-shares market Our monthly databank breaks
FOUNDER over the past 12-month period. down ETF returns for every
Jim Wiandt
market segment.
EDITOR
Drew Voros
A Different Kind Of Fee Structure
8 
dvoros@ETF.com James Osborne of Bason Asset Management
MANAGING EDITOR explains how he’s keeping fees as fair as
Heather Bell possible for his clients.
COPY EDITOR
Lisa Barr Why I Own: VEA
42  GO Activate Your FREE Subscription
CREATIVE DIRECTOR Laura Scharr-Bykowsky of Ascend Financial
Jeannine Gaubert Pamoukdjian Subscribe by going to etf.com/subscribe
Planning talks about her recent move into or emailing subscriptions@etf.com
SENIOR GRAPHIC DESIGNER
Vanguard’s developed-markets ETF.
Patrick Hamaker

ETF.com
201 Mission St., Ste. 720
San Francisco, CA 94105
www.ETF.com

© 2015 ETF.com. All rights reserved. The text, images and other materials contained or displayed are proprietary to ETF.com, except
where otherwise noted, and constitute valuable intellectual property. No material from any part of any ETF.com publication, product,
service, report, email or website may be downloaded, transmitted, broadcast, transferred, assigned, reproduced or in any other way
used or otherwise disseminated in any form to any person or entity, without the explicit written consent of ETF.com. For permission to
photocopy and use material electronically, please contact sales@ETF.com or call 415-659-9006.
 NEW FUNDS By Heather Bell

ETF
Launches ETF FILING ACTIVITY
2% LAUNCHES
ASSET ALLOCATION
US EQUITY
4% 1% Guggenheim S&P 500 Equal Wt Real Estate
INT’L FIXED INCOME COMMODITIES
INT’L EQUITY
4% Compass EMP Intl 500 Volatility Wtd
ALTERNATIVES Compass EMP Intl High Div 100 Volatility Wtd
6% Deutsche X-trackers Jpn JPX-Nikkei 400 Hdgd
INVERSE Deutsche X-trkrs MSCI AW exUS HiDivYld Hdgd

9% 184 44%
Deutsche X-trackers MSCI Australia Hedged
Deutsche X-trackers MSCI EAFE HiDivYld Hdgd
US FIXED INCOME
ETFs INT’L EQUITY Deutsche X-trackers MSCI EAFE SmCap Hdgd
Deutsche X-trackers MSCI EM HiDivYld Hdgd
YEAR-TO-DATE
Deutsche X-trkrs MSCI Eurozone HiDivYld Hdgd
10% Deutsche X-trackers MSCI Italy Hedged
LEVERAGED Deutsche X-trackers MSCI So. Europe Hdgd
Deutsche X-trackers MSCI Spain Hedged
Market Vectors Oil Refiners
O’Shares FTSE Asia Pacific Quality Div Hedged
20% O’Shares FTSE Asia Pacific Quality Dividend
US EQUITY
O’Shares FTSE Europe Quality Div Hedged
O’Shares FTSE Europe Quality Dividend

US FIXED INCOME
F E AT U R E D E T F
Vanguard Tax-Exempt Bond Fund

Vanguard Tax-Exempt Bond Index Fund INT’L FIXED INCOME

Index fund giant rolls out its first passively managed muni fund Virtus Newfleet Multi-Sector Unconstr Bond

LEVERAGED

VTEB Quick View

It may come as a ETF (MUB|B-82), which, at more than Direxion Daily Homebuilders/Supplies Bull 3X
surprise to many, $5 billion in assets under management, Direxion Daily Regional Banks Bull 3X
ISSUER Vanguard
but index fund behe- is by far the largest municipal bond ETF
Fixed Income: U.S. – Muni INVERSE
SEGMENT moth Vanguard did trading. However, VTEB comes with an
Investment Grade
Direxion Daily Homebuilders/Supplies Bear 3X
EXPENSE RATIO 0.12% not have a passively expense ratio of 0.12%, less than half the
Direxion Daily Regional Banks Bear 3X
managed municipal 0.25% charged by MUB.
STRUCTURE Open-ended fund
bond fund on offer The underlying index of VTEB and MUB CLOSURES
DATE LAUNCHED 8/25/2015
until August. Previ- targets investment-grade debt that is exempt Deutsche X-trackers Regulated Utilities
COMPETING FUNDS MUB, TFI, PZA, PRB ously, all its munici- from U.S. income tax and the alternative Deutsche X-trackers Solactive Inv Gr Sub Debt
pal bond funds were minimum tax. The index has nearly 10,400 Pimco 3-7 Year US Treasury
actively managed, but that all changed components; unsurprisingly, the fund uses Pimco 7-15 Year US Treasury
with the launch of the Vanguard Tax- a representative sampling approach rather Pimco Foreign Currency Strategy
Exempt Bond Index Fund, which than holding the entire roster. ProShares UltraShort Telecommunications
includes ETF shares trading under the VTEB is the first ETF that Vanguard
ticker VTEB. has launched since it rolled out the
VTEB tracks the Standard & Poor’s Vanguard Total International Bond ETF GO ONLINE
National AMT-Free Municipal Bond (BNDX|B-57) and the Vanguard Emerg-
For the latest ETF listings,
Index, the same benchmark used by the ing Markets Government Bond ETF
visit ETF.com/ETFWatch
iShares National AMT-Free Muni Bond (VWOB|B-39) in June 2013.

Source: ETF.com, Data and information as of 8/31/2015. ETF Filings sidebar covers launches and filings for the month of August.

4 ETF.com/ETF Report
 VTEB
The new Vanguard Tax-Exempt Bond Index ETF
Use the power of a 0.12% expense ratio to give your clients
the potential for a stronger return.

Are you Vanguarding your clients’ portfolios?

®

ADVERTISEMENT
With a 0.12% expense ratio that’s half the industry average,* VTEB is the low-cost option
you’ve been waiting for to help diversify your clients’ tax-exempt portfolios.

Clients will appreciate the advantages of Vanguard’s worldwide ETF leadership and ongoing
commitment to low-cost investing.

Get to know VTEB and other cost-conscious options at advisors.vanguard.com/VTEB

or call 800 523-8556.

All investments are subject to risk, including the possible loss of the money you invest. Investments in bond funds are subject to interest rate,
credit, and inflation risk. Although the income from a municipal bond fund is exempt from federal tax, you may owe taxes on any capital gains
realized through the fund’s trading or through your own redemption of shares. For some investors, a portion of the fund’s income may be
subject to state and local taxes, as well as to the federal Alternative Minimum Tax.

Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors
must buy and sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing so, the investor may 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/VTEB, call 800 523-8556, 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 03/03/2015. Based on industry average expense ratio of 0.47% for tax-exempt bonds and Vanguard Tax-Exempt
Bond Index Fund of 0.12%.

© 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.

Follow us @Vanguard_FA for important insights, news, and education.

I N D E TA I L By Heather Bell

ETF Explainer: ASHR

Deutsche X-trackers Harvest CSI 300 China A-Shares ETF

Each month, we look at an ETF selected by ETF.com based on its performance and the factors driving that. This month
we consider the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (ASHR|D-53) after an eventful 12-month
period for China that crescendoed in a stunning market plunge in late August that left global markets reeling.

RETURN
140 %

120 JUN
ASHR Quick View
10
ISSUER Deutsche Bank
APR
Equity: China – 30
100 SEGMENT
Total Market
EXPENSE RATIO 0.80%
AUM $485.6 Million
80
COMPETING FUNDS PEK, GXC, MCHI, YAO, PGJ JUL
8

60

AUG
25
40

20 17.40%
NOV
SEP 12
22
0

-20
SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG

2015 ASHR ETF

SEP Alibaba’s IPO is the biggest ever, but its price falls the JUN MSCI decides to continue to exclude the A-shares market from

22 following Monday as the company sells additional shares to

underwriters exercising a “green shoe” option.
10 its main benchmarks despite China’s efforts to open its markets,
and foreign investors pull assets from China-focused ETFs.

NOV China and the U.S. sign a historic climate change deal in which JUL China markets go into free fall after a steady decline over a

12 the U.S. agrees to cut carbon emissions by nearly 30% by

2025, and China agrees to peak its emissions by 2030.
8 three-week period that caused investors who bought stocks
with borrowed cash to panic and sell en masse.

APR The April level of China’s manufacturing Purchasing Managers’ AUG China announces interest-rate cuts the day after its stocks

30 Index indicates the country’s economic growth is stabilizing in

the wake of monetary easing and infrastructure investments.
25 crash dramatically on concerns about an economic slowdown,
and drag down markets around the globe.

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

6 ETF.com/ETF Report
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PROFILE: JAMES OSBORNE

By Lara Crigger

Fair Fees
For All Clients
JAMES OSBORNE Bason Asset Management’s James Osborne
Founder & President changes up the traditional fee structure

MANY REGISTERED INVESTMENT ADVISORS ADHERE

TO A TRADITIONAL ASSET-BASED FEE STRUCTURE,
annually charging clients about 1% of all assets under
management. But is that really the fairest way to charge clients?
No, says James Osborne, founder and president of
Lakewood, Colorado-based Bason Asset Management. Before
starting the firm in 2012, Osborne worked at a large Denver
wealth management firm, which he describes as a “typical
1% firm.” “I couldn’t see the difference in
Advisor Quick View the services we provided for clients with

The ETF has FIRM Bason Asset Management

$500,000 versus the clients with $3 million
or $4 million,” he said.
a tendency FOUNDED
LOCATION
2012
Lakewood, CO
Moreover, the firm’s investment
committee favored active management,
to win out AUM $100 Million which was never able to consistently beat the
% OF ETFs 60-70%
market. “I grew weary of promising people
we could outperform our benchmarks, and
then having to follow up with those same
people a year later and tell them we didn’t,” Osborne added.
In 2012, Osborne started Bason Asset Management with
two goals in mind: a passive investment philosophy using index
funds and ETFs; and a flat retainer fee structure. It’s worked;
in just three short years, he’s grown his one-man firm from
nothing to roughly $100 million in assets under management.
Recently ETFR sat down with Osborne to discuss fair fees,
active management and how ETFs help him serve his clients
and keep costs low.

8 ETF.com/ETF Report
 How does your flat retainer fee work?
It’s fairly straightforward. Clients, regard-
less of the size of their portfolio, pay $4,500 a
year. With that, they get financial planning ser-
vices, portfolio management, tax planning, and
any and all financial advice they’re looking for. I
consider my services to be very comprehensive,
all covered under that financial planning fee.
Who are your typical clients?
My average client, if you blended them all
together, is probably about 50-55 years old. Their
portfolio is between $1.5 million to $2 million;
that’s probably the result of lifetime retirement
savings. Also, sometimes there’s a sale of a busi-
ness asset.
An asset-based fee structure can tend to
make a manager prioritize or cater to very
high net worth clients, since that’s where their
bread and butter is. Do you find that a retainer
fee allows you to help younger people, or people
who may not have as many assets saved up?
Good question. I’m not sure. Do I have a number
of clients who are still midcareer? Absolutely. Is
that a result of my fee structure? It’s possible.
My average client size is probably on the larger
side, however, which lends itself to people being
later in life.
Quite honestly, for many of my clients, I’m
significantly less expensive than a traditional
fee structure, which is great for them. For some
people with larger portfolios, the cost savings
can be very significant. Others are just happy the
fee is more straightforward and transparent.
As for me, each client provides plenty of reve-
nue. So, by and large, everyone is pretty happy.
How do you use ETFs in your practice?
Most of my client portfolios are fairly
straightforward allocations of global stocks
and bonds, which I try to execute in the most
cost-effective and tax-efficient way possible. Very
often, ETFs are the best vehicle for that.
So when we’re looking at how to get the best
exposure to, say, the broad U.S. stock market, we
look at what vehicle is going to give us as much
coverage of the market as we can get, with the
lowest expenses possible.
Breadth lends itself to very low turnover,
which is also good, because it makes things very
cost effective and tax efficient, and of course,
the ETF structure itself is very tax efficient by
design. Plus, trading ETFs at some place like
Schwab or Fidelity is oftentimes cheaper than
an open-ended mutual fund. So the ETF has a
tendency to win out, most of the time.
Have you been using ETFs since you started
Bason Asset Management?
Yes. Since day one.
Since you are a one-man shop, have you
found that ETFs help make portfolio
management easier?
There are some advantages, like block trading,
which is an efficient money management option.
Also it helps level the playing field for clients,
since all clients are trading in a single order.
But from a trading standpoint, my portfolios
are not very active; they’re low-turnover. If I
were more active, I might be inclined to say yes.
But really we’re talking about annual rebalanc-
ing, so I don’t think there’s a big delta between
an open-ended fund and an ETF, when you’re
talking about a few trades every year.
How many ETFs do you use right now?
Maybe a dozen.
What are some of your favorites?
For simple things, like broad market expo-
OCTOBER 2015 9
PROFILE: JAMES OSBORNE
sure, it’s tough to beat Vanguard. The
Vanguard Total Stock ETF (VTI|A-100) and
the Vanguard Total International Stock
ETF (VXUS|A-99) are two products I use
very regularly.
For taxable fixed income, I look for
ETFs in very liquid, very-high-quality
markets. So I’ll use something like the
Vanguard Total Bond Market ETF (BND|A-
94) or the iShares Core U.S. Aggregate Bond
ETF (AGG|A-98), where you’ll get mostly
Treasurys in a very liquid market.
So you like taking a total-market
approach with ETFs.
I do. Most people probably don’t need
to have a Canadian oil sands ETF, or a
northern European telecom ETF. I think
sometimes we get a little obsessed with
how thinly we can slice things. What
What most most people need to do is capture—and
keep—broad market returns.
people need to My portfolios are very straightforward.
I’m not trying to get cute with anything.
do is capture It’s really just about trying to get the
exposure that they need and using ETFs
—and keep— as a transparent and low-cost vehicle to
broad market do that.
returns You left your previous firm because
you were disillusioned with the idea
of active management. So what are your
thoughts on the new crop of active ETFs
that have sprung up lately?
Ultimately it’s probably a good thing for
investors. For whatever reason, the ETF
structure seems to be driving down costs,
10 ETF.com/ETF Report
relative to an open-ended equivalent, and
that’s good for investors. There’s also the
potential for more tax-efficient trading,
which will be good for investors in the
long run.
But the cynical part of me thinks
there’s a bit of a bandwagon here. When
we’re talking about the difference
between an actively managed mutual
fund and an actively managed ETF, I’m
not sure it really changes the game for the
manager, at least in terms of their stated
goals and trying to beat their benchmark.
But if it results in lower transaction costs
and lower internal costs for the investor,
then great. I’m all for it.
Do you use any smart-beta or
alternative indexing ETFs?
I use some Dimensional Funds, primarily
in U.S. and international small-caps.
I mean, if you’re talking about smart
beta, you’re really talking about factor
weighting, or some statistical method to
move away from a market-cap-weighted
benchmark. And when you move away
from the market-cap-weighted bench-
mark, most people will move toward
small-cap and value, which is essentially
what fundamental indexing does.
Dimensional’s been doing that for
a long time. So in certain asset classes,
I do recommend Dimensional funds to
gain access to small-cap and value risk
premiums. I’m not going to call it smart
beta, but it’s essentially what smart beta’s
attempting to do.
 15
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

MOST
IMPORTANT

ETFs
With ETF Report marking its 15th anniversary, it seems appropriate to celebrate
the occasion with a look at the ETFs that were the top game changers for the
industry, one for each year of the publication's existence. Readers may agree or
disagree with the guest list, but what follows are the ETFs we decided to invite
to the party, each one selected for its impact on the ETF industry.

OCTOBER 2015 11
'90 '91 '92 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

1993

SPY SPDR S&P 500

AND THEN THERE WAS “SPY”…
The brainchild of the late Nate Most, the SPDR
S&P 500 (SPY|A-99) was the first U.S-listed ETF
launched in January 1993.
SPY is no small achievement. It gave rise to
Global Advisors, who was part of the original team
AUM* that brought SPY to market.
$171.5B While there were other strategies before SPY
that sought to offer investors the ability to trade an
EXPENSE RATIO index—such as the Toronto 35 Index Participation

what is today a $2.1 trillion U.S. ETF industry, com-
prising more than 1,700 funds. Globally speaking,
it helped pave the way for thousands of ETFs, with
nearly $3 trillion in global assets today.
SPY is also the largest ETF in the market, boast-
ing roughly $170 billion in assets under manage-
ment. And it’s the most liquid security in the world,
trading some $27.4 billion on average every day.
“SPY sparked a revolution in the asset manage-
ment industry that significantly improved access
to the markets and lowered costs for all investors,”
said Jim Ross, global head of ETFs at State Street
RETURN
700 %
SPY Performance Since Launch
600
500
400
300
200
100
0
-100
'93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Source: Bloomberg, 5/22/2000 to 8/14/2015
0.09%
Units (TIPS), which tracked the Toronto 35 Index—
SPY was the first bona fide ETF. TIPS lacked the
creation/redemption structure ETFs are known for,
SEGMENT
and it had no mechanism to ensure it tracked its
Equity: US –
underlying index closely throughout the day, Ross
Large Cap
says. SPY also was the first ETF product registered
ISSUER under the Investment Company Act of 1940.
State Street But SPY has its quirks, too.
Global Advisors The fund is actually a unit investment trust that
has an expiration date: Jan. 22, 2118, or 20 years
INCEPTION DATE after the death of the last survivor of 11 people
January 22, 1993 named in the Trust Agreement, the oldest of whom
was born in 1990 and the youngest of whom was
born in 1993, according to Kathleen Moriarty, the
attorney who helped bring SPY to market—and
countless other ETFs since.
That date can be extended. In fact, it already
was once. When the fund first came to market, it
was set to expire 25 years later, or January 2018—
less than three years from now.
The history of its name is also amusing. SPY
was originally named “SPIRS,” which was the acro-
nym for Standard & Poor’s Index Receipts.
“Eventually, it was decided that ‘SPIRS’ sounded
like ‘SPEARS’ and no one wanted the product to be
dubbed with the name of a weapon,” said Moriarty,
who’s a partner at Kaye Scholer’s Investment Man-
agement Group, said. SPY has also gotten cheaper
over the years. It launched with an annual expense
ratio of 0.20%. Today the fund costs 0.09%.
—Cinthia Murphy

*All AUM data in the fund information boxes is as of 8/24/2015 and may
differ from other asset amounts mentioned in the articles.
12 ETF.com/ETF Report
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1996

EWJ iShares MSCI Japan

Global investment options, though, When it comes to liquidity, EWJ is a

AUM EXPENSE RATIO
would soon be very much on radar screens titan today. The fund trades hundreds of
$20.0B 0.48% everywhere. millions of dollars on most days, at pen-
“In 2004, dollar volumes of non-U.S. nywide spreads. Its massive assets under
SEGMENT ETFs exploded,” said Garff. “Part of that has management—nearly $20 billion—and
ISSUER
Equity: Japan – to do with the fact that during that time, strong liquidity set EWJ apart from its
BlackRock
Total Market
you have non-U.S. assets that are making Japan ETF competitors.
money and U.S. markets underperforming. —Drew Voros
INCEPTION DATE
I personally believe it was the performance
March 12, 1996
that drove the interest.”
AUM OF THE ORIGINAL WEBS
And in 2015, country-specific ETFs have
become sliced and diced much like the rest TICKER FUND AUM

THE iSHARES MSCI JAPAN (EWJ|B-99) of the investment universe. EWJ iShares MSCI Japan $18.51B
was launched in 1996 as part of Morgan “EWJ is a great segue in to the things EWG iShares MSCI Germany $6.58B
Stanley’s World Equity Benchmark Series, you can do now with Japan ETFs,” Garff
EWU iShares MSCI United Kingdom $2.78B
which were a group of country-specific added. “There are all kinds of Japan ETFs
funds that tracked Morgan Stanley Capital now: large-cap, small-cap currency-hedged, EWH iShares MSCI Hong Kong $2.64B

International (MSCI) country indexes. The noncap-weighted. The only way any of EWC iShares MSCI Canada $1.91B
funds were developed with Barclays Global those were going to happen for investors EWP iShares MSCI Spain Capped $1.62B
Investors, and in 2000, were renamed the was if EWJ was successful.”
EWA iShares MSCI Australia $1.18B
iShares MSCI Series. We chose EWJ as opposed to the other
EWW iShares MSCI Mexico Capped $1.14B
These were the first ETFs to provide expo- WEBS products because of Japan’s mar-
iShares MSCI Switzerland
sure to foreign markets, which was revolu- kets being closed during U.S. trading and EWL $1.14B
Capped
tionary at the time. And it allowed for price the price discovery it created. Most of the EWI iShares MSCI Italy Capped $1.10B
discovery when those markets were closed other country-specific products were in EWS iShares MSCI Singapore $594.95M
during U.S. trading hours. Before this, out- European or South American markets,
EWQ iShares MSCI France $346.78M
side of the options market, there wasn’t a which also have some overlap with the
live price for a market like Japan. U.S. We could just as easily have chosen EWD iShares MSCI Sweden $333.54M

“In 1996, I would say nobody I knew was any of the other original WEBS funds. EWM iShares MSCI Malaysia $252.05M
talking ‘price discovery,’” said Dave Garff, EWJ tracks a market-cap-weighted index EWN iShares MSCI Netherlands $170.96M
managing director of Walnut Creek, Califor- of Japanese stocks, providing broad expo-
EWK iShares MSCI Belgium Capped $152.05M
nia-based Accuvest Global, who was a bro- sure to the Japanese equity market with a
ker then. “And you wanted to own tech. You large-cap tilt, and excludes most small-caps. EWO iShares MSCI Austria Capped $55.01M

weren’t really thinking internationally.” Industry tilts are present, but very minor.
Source: ETF.com, as of 9/4/2015

OCTOBER 2015 13
'90 '91 '92 '93 '94 '95 '96 '97 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

1998 Current AUM Of Original

XLK
Sector SPDRs

XLF
FINANCIAL
SELECT SPDR
$17.8B

XLV
HEALTH CARE
Technology Select Sector SPDR SELECT SPDR
$14.0B

XLK
TECHNOLOGY
THE IDEA OF SECTOR INVESTING “At the time of the launch, hav- SELECT SPDR

is so entrenched in the market to- ing a $1 billion ETF trust was huge,” $11.3B
day that it’s hard to imagine that, noted Dolan. “We were able to raise

as recently as the late 1990s, it was
virtually impossible to do.
But Dan Dolan, one of the cre-
ators of the $95 billion Select Sector
SPDRs family, remembers.
AUM “[In the late 1990s] Chuck
XLE
$500 million even before our nine
ETFs started trading. We thought
Sector SPDRs could one day be a $10 ENERGY SELECT
SPDR
billion family.”
Today they stand a little north
$11.3B
of $95 billion in assets, and have

$12.0B Clough was our well-respected chief

investment strategist at Merrill
sparked a wave of more than 400
competing sector, subsector, indus-
XLY
CONSUMER
Lynch,” Dan recalled. “He was there try and niche ETFs. DISCRETIONARY
EXPENSE RATIO SELECT SPDR
more than 10 years and had a huge From the beginning, however,
0.15% following. He had a sector-based technology was hot. $9.9B
model where he would over- and “In the late 1990s when we
SEGMENT
Equity: US
underweight sectors and talk about
what he liked and didn’t. The advi-
launched, technology was the star,
and we knew the Technology Select
XLP
CONSUMER STAPLES
Technology sors loved him, but he had a hard Sector SPDR (XLK|A-89) would gen- SELECT SPDR
time implementing his strategy.” erate huge demand; it was half the $7.6B
ISSUER
Enter the Select Sector SPDRs. trust assets for the first few years,”
State Street
Global Advisors The ETFs, which launched in 1998,
divided the S&P 500 into nine dis-
Dolan added.
Today XLK is the third-largest XLU
UTILITIES SELECT
tinct sectors, allowing Merrill Lynch Select Sector SPDR, trailing the SPDR
INCEPTION DATE
advisors (and everyone else in the $17.8 billion Financial Select SPDR
December 16, 1998 $6.4B
market) the opportunity to slice, (XLF|A-89) and the $14 billion

dice, over- and underweight sectors
however they wanted.
Beyond model usage, Dolan says,
they expected advisors to use the
XLI
Health Care Select SPDR (XLV|A-94).
For investors of all stripes, sector
investing has become another tool INDUSTRIAL
that ETFs have provided in an easy, SELECT SPDR

funds to customize the S&P 500 and inexpensive manner. XLK, to us, is $6.3B
institutions to trade sectors long the epitome of how the market can
MATERIALS SELECT SPDR
and short. And use them they did. be sliced in a passive vehicle.
XLB $2.1B
—Matt Hougan

Source: ETF.com, 9/4/2015

14 ETF.com/ETF Report
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1999

QQQ PowerShares QQQ

2% 1%
INDUSTRIALS TELECOMMUNICATION
THE POWERSHARES QQQ (QQQ|A-67) IS ONE OF SERVICES
the more interesting ETFs in the market. Also known
8%
CONSUMER
as the “cubes” or the “Q’s,” the fund tracks an index STAPLES
that seemingly makes no sense. That hasn’t dampened
popularity for the fund one iota, and it’s currently the 15%
HEALTH CARE

QQQ
second-most-actively traded ETF in the United States.
Launched in March 1999, QQQ was initially called 54%
the Nasdaq-100 Trust, Series 1 and it traded on the HOLDINGS INFORMATION
American Stock Exchange. Though now owned by TECHNOLOGY
Invesco PowerShares, the ETF was initially introduced
by Nasdaq itself, with the aim of increasing trading vol-
20%
ume in Nasdaq-listed securities. CONSUMER
To that end, the ETF tracked the Nasdaq-100, an DISCRETIONARY
index designed by the stock exchange that comprised
the 100 largest nonfinancial securities that traded exclu-
Source: Bloomberg, as of 8/24/2015
sively on the Nasdaq. The financial companies were rele-
gated to their own index, giving the Nasdaq-100 a heavy
bias toward health care, consumer discretionary and in has remained popular, and the No. 1 choice for many AUM

particular, technology. tech traders, even though the fund only has about a 54% $38.5B
For the Q’s, the timing of the launch couldn’t have weighting in the technology sector.
been better. The late ’90s were the heyday of the dot-com “The Nasdaq-100 doesn’t have any financials, but it EXPENSE RATIO

bubble, and investors were gaga for all things tech. The
fund gained immediate traction, and the ETF quickly
became the most-traded security on the stock market.
Nearly a year after the QQQs launched, the tech
bubble reached its peak, and the fund hit its highest
point ever, at $120.50, 135% above where it was only 12
months earlier. Unfortunately for tech enthusiasts, the
mania didn’t last, and the subsequent bursting of the
Internet bubble sent the ETF plunging to an all-time low
of $19.76 in October 2002, a loss of 84% from its peak.
Recently, the Q’s have made a comeback alongside
the broader stock market, with the fund trading as high
as $114 this year. Throughout its wild swings, the ETF
0.20%
doesn’t mean it’s all tech,” said John Jacobs, executive vice
president of the Nasdaq OMX Group.
“If you look at the breakdown, it includes all sorts
SEGMENT
of industries. It’s [really] a nonfinancial growth index,”
Equity: US -
he added.
Large Cap
Perhaps a big reason for QQQ’s consistent popular-
ity is its relatively large marketing budget. According ISSUER
to the fund’s prospectus, 0.05% of the fund’s assets are Invesco
used annually for marketing purposes. Powershares
Using the current asset base of nearly $40 billion,
that’s a $20 million budget for advertising, which trans- INCEPTION DATE
lates into exposure not just for the Q’s, but ETFs as a March 10, 1999
trading and investment vehicle more generally.

—Sumit Roy

OCTOBER 2015 15
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

2000

IVV iShares Core S&P 500

THE SPDR S&P 500 (SPY|A-99) WAS RETURN

120%
the original U.S.-listed ETF, but several
IVV Performance Since Launch
years later, with the launch of what is now 100
known as the iShares Core S&P 500 ETF
80
(IVV|A-99), it was confronted with its own
doppelganger as a direct competitor. 60
IVV was one fund in a wave of roughly
40 launches from iShares, then a part of 40

Barclays Global Investors, in 2000 that 20

really established the ETF family as a
major player in the space. While SPY was 0

designed as a trading tool, BGI's lineup was -20

more advisor-friendly, offering all the core
index funds that would be on the average -40
advisor’s wish list.
-60
IVV was offered as part of a plan to pro- '00 '01 '02 '03 '04 '05 '06 '07 '09 '10 '11 '12 '13 '14 '15
vide a complete and broad product fam- Source: Bloomberg, 5/22/2000 to 8/14/2015

ily, according to former iShares head Lee

Kranefuss, but BGI’s internal models also
suggested that the fund would not only
drain assets away from SPY, but would
come to represent 60 to 70% of the total
iShares assets under management.
Objectively speaking, IVV has a better
construction than SPY, which is a grantor
trust and cannot reinvest dividends. IVV has
no such handicap. But most importantly, it
was—and still is—cheaper than SPY.
“We thought that price was all impor-
tant. We thought there would be a big
deflation of [SPY],” Kranefuss said.
But while IVV has never lacked for
assets, it was only last year that the fund
pushed its way past the iShares MSCI EAFE
ETF (EFA|A-93) and finally became the sec-
ond-largest ETF in the world, behind SPY.
IVV is far from a failed experiment. with SPY’s $163 billion. Given that more
Kranefuss notes that IVV helped to drive advisors are moving toward ETFs, how-
down the price of the S&P 500 for investors, ever, that gap might not be as insurmount-
as well as to lower spreads. Prior to IVV’s able as some may think.
launch, SPY was trading a quarter wide. —Heather Bell
What was really important about IVV
though, Kranefuss says, was that it showed
that price is not the only criteria that inves-
tors use in selecting an ETF. If it were the AUM EXPENSE RATIO
only criteria, SPY would have ended up
$68.4B 0.07%
with no assets.
SPY had the advantage of being the first SEGMENT
ISSUER
to market and established liquidity. IVV gath- Equity: US -
BlackRock
ered assets in part because of its lower price Large Cap
but also because iShares made an effort to
compete on customer service, Kranefuss adds. INCEPTION DATE
IVV currently has roughly $67 billion May 15, 2000
in assets under management compared

16 ETF.com/ETF Report
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2001

VTI Vanguard Total Stock Market

VANGUARD WAS ALWAYS A back in the 1970s. When Vanguard follow in subsequent years brought
pioneer, and its Vanguard Total Stock launched VTI as a share class of its additional choice to investors and AUM

Market ETF (VTI|A-100) was nothing Total Stock Market Index Fund, the much-needed cost competition to $55.5B
short of a major breakthrough for mutual fund was the firm’s best- the industry.”
the industry. selling equity fund, and one of the But VTI’s success—and the suc- EXPENSE RATIO

Launching in 2001—some eight
years after the very first U.S.-listed
ETF debuted—VTI helped set the
stage for what became an indus-
try acutely focused on costs. It also
helped bring ETFs into the main-
stream retail market and popularize
the structure among financial advi-
industry’s most popular.
Known for its “characteristic
candor and disclosure regarding
costs,” as Gus Sauter, managing
director of Vanguard’s Quantitative
Equity Group, said at the time VTI
came to market, Vanguard proved
with VTI and its other ETFs that
0.05%
cess of Vanguard ETFs in general—
hasn’t come without its challenges.
Right out of the gate, there was the
SEGMENT
issue of a name. Vanguard origi-
Equity: US - Total
nally named its ETFs VIPERs, for
Market
Vanguard Index Participation Equity
Receipts. The not-so-cuddly image
wasn’t a huge success, and Vanguard ISSUER

sors. Today VTI boasts roughly $55 keeping costs low works. rebranded in 2006. Vanguard
billion in assets. “VTI marked the entrance of Another obstacle Vanguard
It’s no surprise Vanguard would Vanguard into the ETF market, ETFs had to face was the disbelief INCEPTION DATE
rise to become the second-largest opening up a new distribution chan- in the ETF structure the company’s May 24, 2001
ETF issuer, with $456 billion in ETF nel for our indexing experience and founder John Bogle never hesitated
assets as of August 2015. The com- expertise,” said Martha King, man- to share. Bogle, an avid fan of index
pany was ahead of the game in the aging director at Vanguard. “VTI investing, questioned the use of trad-
equity index mutual fund space and the low-cost Vanguard ETFs to ing an index fund throughout the
day. To him, ETFs were for day trad-
ers and not for the long-term inves-
RETURN
150 %
tor Vanguard best served. He’s still
vocal about that all these years later.
VTI Performance Since Launch Of note, unlike other ETF provid-
100 ers, Vanguard built its ETFs as share
classes of existing mutual funds
instead of stand-alone investment
50 vehicles. Mutual fund sharehold-
ers were allowed to convert to ETF
shares if they wanted to—a fea-
0
ture that appealed to Vanguard cli-
ents who already believed in index
investing, but liked the feature of
-50
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 intraday pricing.
—Cinthia Murphy
Source: Bloomberg, 5/31/2001 to 8/14/2015

OCTOBER 2015 17
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

2002

LQD LQD Annual Net Flows

iShares iBoxx $ Investment
Grade Corporate Bond

IN 2002, THE FIRST FIXED-INCOME a two-sided market, complete with bids,

FLOWS ($M)
ETFs began trading, and perhaps no other asks and spreads, Tucker says.
800
fund represented such an important turn- But the story of LQD is also one of
ing point for investors as the iShares iBoxx liquidity, as its ticker implies. Tucker notes
608.0M

$ Investment Grade Corporate Bond ETF that from its 2002 launch through much
600 (LQD|A-77). of 2008, the fund traded an average of $20
It launched alongside three Treasury million a day and was primarily used as
ETFs, but Treasurys had always been a liq- a buy-and-hold vehicle by the retail and
uid market with few concerns about pric- wealth markets. And then the financial cri-
400
366.5M

ing or defaults. Investment-grade corpo- sis happened, and bond liquidity dried up.
rate bonds, though, were a different story. It was during the crisis that institutions
287.7M
279.6M

273.6M

Bonds don’t trade on an exchange discovered LQD, Tucker says. By the fourth
200 and investors can’t get real-time pricing quarter of 2008, its average daily volume
on individual issues. But ETF pricing is stood at $160 million, and currently stands
39.5M
23.4M

21.6M
11.3M

available in real time. While its under- at $320 million. Bond liquidity has contin-
lying index tells one story, the price of ued to be an issue for investors, and that
0
LQD tells another story. It reflects the has had an impact on LQD’s popularity.
-1.1M
-6.0M

markets’ real-time opinion of the value “LQD is actually helping to solve the
of its portfolio, and that offers all inves- problem by delivering liquidity to the cor-
-200 tors – even those who aren’t investing in porate bond market,” Tucker said. “LQD is
bonds – valuable information. not the entire solution, but it’s helping to
“When LQD launched, it really created address some of the market structure con-
the first way that investors could see what cerns people have today.”
-400 was happening in the bond market in real —Heather Bell
time. I think one of the biggest benefits
it’s provided since it launched is being a
-600
barometer for the corporate bond market,”
said Matt Tucker, head of the iShares Fixed AUM EXPENSE RATIO
Income Strategy team.
“It’s a pioneer fund that created this
$21.0B 0.15%
762.7M

-800 concept of a visible fixed-income market SEGMENT

and delivered it out to all investors,” he Fixed Income: ISSUER
US - Corporate BlackRock
added. For investors in the fund, it makes Investment Grade
establishing a corporate bond position
-1000
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 much easier and convenient due to the INCEPTION DATE
intraday trading, the ability to execute dif- July 22, 2002
Source: Bloomberg ferent types of orders and the ability to see

18 ETF.com/ETF Report
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2003

EEM iShares MSCI

Emerging Markets

THE ISHARES MSCI EMERGING MARKETS ETF
(EEM|B-100) was the first emerging market ETF—and
that’s saying a lot.
Prior to EEM’s launch in 2003, there had been
a long, simmering debate in the emerging market
space suggesting you simply couldn’t provide low-
cost exposure to developing markets to U.S. investors.
EEM proved that wasn’t true, and that was
momentous, which put this cap-weighted index of
emerging market firms on this list.
Similarly, there was an argument that active
managers would always outperform in the emerging
market space, which has always struck us as a sort
of colonialist view of investing. But passive-vehicle
EEM disproved that argument as well, and became
an enormously successful product, helping establish
iShares as the dominant ETF issuer.
“Before EEM, you had to set up local brokerage
accounts, establish local relationships, and sometimes
there were tax implications and other mechanisms that
made [investing in emerging markets] very cumber-
some. Brazil was always a nightmare,” said Mark Dow,
founder of Dow Global Advisors, who has more than
20 years of experience as a policymaker, investor and
trader focused on global macro and emerging markets. AUM
Certainly, one side caveat was tracking issues $22.4B
with EEM early on, which really helped launch Van-
guard into the space two years after EEM with it FTSE
EXPENSE RATIO
Emerging Markets ETF (VWO|B-88), which is now the
bigger of the two in terms of assets. iShares, obvi- 0.68%
ously, eventually corrected that tracking problem, SEGMENT
and EEM continues to be a major provider of assets. Equity: Emerging
“EEM allowed one simple way to get in and out,” Dow Markets – Total
added. “It’s a trading vehicle, so that will make things get Market
whipped around a little bit more. But it’s also a vehicle
ISSUER
that will allow the long-term investor a very easy and
BlackRock
low-cost way to get exposure to a major asset class.”
Since EEM doesn’t significantly optimize its port-
folio, its sector and country bets are fairly muted. INCEPTION DATE
(EEM includes South Korea as emerging; rival VWO April 7, 2003
doesn’t.) The fund’s index also doesn’t go down the
market-cap spectrum very far, which helps tilt the
portfolio’s average market cap slightly higher than
the market’s.
But credit EEM with being the first ETF to open
“impossible” markets to indexing.
—Drew Voros

RETURN
500 %

EEM Performance Since Launch Vs. iShares MSCI EAFE ETF (EFA|A-93)
400

300
EEM

200
EFA

100

0
03 04 05 06 07 08 09 '10 '11 '12 '13 '14 '15
Source: Bloomberg, 4/11/2003 to 8/14/2015

OCTOBER 2015 19
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

2003

RSP Guggenheim S&P 500

Equal Weight ETF

SMART-BETA ETFs ARE CURRENTLY ALL
THE rage, but they’re not exactly a new con-
cept. The Guggenheim S&P 500 Equal Weight ETF
(RSP|A-83), which launched in 2003, was actually
the first fund to entirely eschew weighting by
The strategy came with significant transac-
AUM tional costs and tax consequences when pack-
$10.7B aged as a separately managed account or a
mutual fund that diluted its outperformance rel-
EXPENSE RATIO ative to a cap-weighted S&P 500 strategy. Belden

0.40%
market capitalization. And RSP’s fairly consistent says that the ETF wrapper, with its in-kind trans-
outperformance compared with its cap-weighted action mechanism, offered both transactional
brethren (SPY and IVV) is likely part of the impe- and tax advantages.
SEGMENT
tus behind the widespread popularity of alterna- “It’s an efficient delivery of an impressive
Equity: US -
tively weighted ETFs that we see today. performance story,” he explained, noting that a
Large Cap
According to Bill Belden, managing director of common criticism of smart-beta approaches is
Guggenheim Investments, the origins for RSP actu- that their execution requires a higher number of
ISSUER
ally date back to the early 1970s, when an equal- transactions. The implication seems to be that the
Guggenheim
weighted S&P 500 portfolio was first managed for current smart-beta phenomenon wouldn’t be pos-
an institutional investor as a separately managed sible without ETFs.
account. But along with a general lowering of com- INCEPTION DATE But it’s that performance that’s arguably the
mission fees, it really was the ETF wrapper that made April 24, 2003 most interesting part of RSP’s rise. A look at a
an equal-weighted portfolio practical for many. graph comparing its history to that of SPY shows
an ever-widening performance gap.
While Belden attributes some of RSP’s outper-
RETURN formance to severing the link between a stock’s
300%
price and its index weight, he believes the regu-
RSP Performance Since Launch RSP
lar rebalancing has been a bigger factor, because
250
it means the portfolio is regularly buying stocks
after they’ve fallen in price, and selling them
200 after they’ve risen in price.
SPY
“The rebalancing schedule—which happens
150 on a quarterly basis—has really helped drive
what value has been delivered through RSP over
100 its 12-plus years of history,” Belden noted.
To Guggenheim, RSP is a core large-cap hold-
50 ing for client portfolios, even if it’s riskier than
market-weighted vehicles. The added risk of
0
higher volatility associated with an equal-weight
strategy has been rewarded by the outperfor-
mance, which tends to be greater in rising mar-
-50
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 kets, Belden says.
—Heather Bell

20 ETF.com/ETF Report
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2004

GLD SPDR Gold

PEOPLE HAVE BEEN USING GOLD FOR GLD Flows And Performance Since Launch
millennia. The yellow metal’s roots as jew- FLOWS RETURN
$1,500M 350%
elry and money can be traced all the way
back to ancient Egypt, some 5,000 years
ago. Gold’s reign as the top currency lasted 300
$1,000
all the way until the last century, when it
was finally jettisoned in favor of fiat money. 250
But gold is still valuable. People remain $500

instinctively drawn to the metal, and its 200

luster is unlikely to wear off any time soon. $0
In fact, millions of ounces of gold continue
150
to be bought every year, and not just for
decorative purposes. -$500
100
Indeed, much of the demand for gold
now comes from investors who see the -$1,000
metal as a stable store of value. But rather 50

than buying physical gold bars or coins,

these investors are buying up SPDR Gold -$1,500 0
Shares (GLD|A-100), the revolutionary
exchange-traded fund that has brought -$2,000 -50
the ancient metal into the 21st century. '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15

Launched in 2004 by State Street Global

Advisors, GLD was the first ETF to hold
physical gold. It was an instant hit, gaining
more than $1 billion in assets in less than a
week, a record that still stands today.
“It’s transformed the way people think
about gold and investing in gold,” said
World Gold Trust’s CEO Will Rhind. “It
also opened the door for investing in com-
modities more broadly as an asset class,
which has become a key portfolio compo-
nent over the last 10 years.”
In fact, since GLD’s launch a decade
ago, more than 100 commodity ETFs have
followed, and today the category boasts
more than $50 billion in total assets.
That said, it certainly hasn’t been with the yellow metal isn’t going away
a smooth ride for GLD. The fund’s for- any time soon, and that means GLD is
tunes have waxed and waned based on here to stay.
—Sumit Roy
the demand and price outlook for gold.
At one point in 2011, as gold prices were
peaking at a record high of $1,921, GLD AUM EXPENSE RATIO
briefly became the world’s largest ETF,
with $77.5 billion in assets.
$24.9B 0.40%
Since then, assets have been slashed to SEGMENT ISSUER
$25 billion amid a combination of outflows Commodities: State Street
and plunging gold prices. Nevertheless, the Precious Metals Gold Global Advisors
fund remains the largest and most liquid
gold ETF by far. INCEPTION DATE
Gold may be down, but it’s not out. If November 12, 2004
history is any guide, peoples’ fascination

OCTOBER 2015 21
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '07 '08 '09 '10 '11 '12 '13 '14 '15

2006

USO United States Oil

WHAT’S THE FIRST COMPANY YOU
think of when it comes to commodity
ETFs? It’s probably not any of the big ones
like Deutsche Bank or Citigroup. Rather,
you might think of United States Commod-
ity Funds (UCSF), the issuer of highly popu-
lar ETFs such as the United States Oil Fund
(USO|B-100) and the United States Natural
Gas Fund (UNG|C-100).
Founded in 2006, USCF is a 10-person
company based in Oakland, California. No
one would have guessed this little upstart
would be able to compete with the big ETF
providers, but that’s exactly what it’s done.
USCF’s flagship product, the United
States Oil Fund, was one of the most daring
launches in exchange-traded fund history,
and catapulted the firm into the dominant
RETURN
1.5%
USO Performance Since Launch vs. Spot Oil
1.0
0.5
0 Despite the ugly returns, the $2.8 bil-
-0.5
-1.0
‘06 ‘07 ‘08 ‘09 ‘10
position when it came to commodity ETFs.
USO was the first crude oil-linked ETF
in history, as well as the first single-com-
modity futures ETF. The fund gave indi-
vidual investors and advisors easy access to
one of the most esoteric corners of the mar-
ket for the first time, effectively bringing
commodities to the mainstream investor.
“Prior to USO, if you wanted access to
the global crude oil market, you would have
to have a futures account or you would have
to use an imperfect proxy like oil stocks,”
said John Love, president and CEO of United
States Commodity Funds.
“We thought it’d be a great product. It’s
constructed very simply, so you always know
what’s in there. That’s one of the things that
has helped popularize the ETF,” he added.
SPOT
USO
‘11 ‘12 ‘13 ‘14 ‘15
AUM EXPENSE RATIO
$2.6B 0.66%
SEGMENT ISSUER
Commodities: US Commodity
Energy Crude Oil Funds
INCEPTION DATE
April 10, 2006
Now there are more than 100 com-
modity ETFs on the market, most of them
futures-based funds. But with new access
comes new risks, something that USO has
exposed to the world. The fund has per-
formed abysmally since its inception in
2006, losing 81% of its value.
Part of that is due to the poor perfor-
mance in crude oil futures, which have
dropped 43%. The other part is due to
contango and the associated “roll costs”
from that. Thanks to USO, commodity ETF
investors are now well aware of terms like
“contango” and “backwardation” and the
impact they have on returns. Or at least
they should be.
lion USO has done what it was designed to
do: provide exposure to front-month crude
oil futures contracts. It’s probably not an
ETF that investors should hold long term,
but it’s a great tool for traders and those
with shorter-term horizons.
—Sumit Roy

22 ETF.com/ETF Report
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '07 '08 '09 '10 '11 '12 '13 '14 '15

2006

DXJ WisdomTree Japan

Hedged Equity

WE CHOSE THE WISDOMTREE JAPAN HEDGED RETURN

30%
Equity ETF (DXJ|B-64) and not one of WisdomTree’s
DXJ Performance Since Launch
dividend-weighted products because, in many 20
ways, DXJ opened up a whole new idea of currency
10
hedging, which we believe is transformational for
how advisors interact with the market. 0 CURRENCY EXPORTER
Despite investors having been able to buy HEDGE SCREEN
ADDED ADDED
international stocks for 100 years, understand- -10

ing that currency is a significant driver of those -20

returns has never been so obvious until now. DXJ
had a large role in changing that mindset. -30

Today investors realize they’re making two -40

bets when they invest overseas: one on the stocks,
and one on the currency. That’s transformational. -50
‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15
DXJ started out as a Japan equity ETF in
Source: Bloomberg, 6/16/2006-8/14/2015
2006, some 10 years after the first Japan equity
ETF—the iShares MSCI Japan ETF (EWJ|B-99)— dend-weights them and hedges its yen exposure.
launched. In 2010, Wisdom Tree added the cur- AUM The fund positions itself to gain from increased
rency hedge after the yen strength kept surging $18.1B trade and a devalued currency to the extent that
shortly after the financial crisis. dividend-paying firms benefit.
“Seeing headlines every morning that read, EXPENSE RATIO The fund’s $18 billion in assets under man-

‘Yen Is Up, Japanese Exporters Hit,’ and having
thought this could potentially reverse one day
was one simple inspiration for the addition of a
currency hedge to DXJ in April 2010,” said Jeremy
Schwartz, director of research for WisdomTree.
“A further enhancement was decided in the
middle of 2012—ahead of Shinzo Abe’s election
as prime minister,” he added. “The fund would
target exporters [under the premise that] an even-
tual weak yen would make Japan’s multination-
als more competitive globally, and that change
went into effect in the fund on Nov. 30, 2012.”
Currently, DXJ’s narrow thesis selects export-
oriented, dividend-paying Japanese firms, divi-
0.48%
agement confirms investor understanding of
currency hedging, with more than $14 billion of
that having come in after Abe’s election.
SEGMENT That gives the fund very good liquidity and
Equity: Japan - makes it easy to trade. The fund’s 0.48% expense
Total Market ratio also makes it relatively cheap to hold.
“Abe’s election in December 2012 was a criti-
cal catalyst for raising awareness of the currency
ISSUER
risk inherent to traditional, nonhedged interna-
WisdomTree
tional equity funds,” Schwartz said.
WisdomTree now offers a total of 17 cur-
INCEPTION DATE rency-hedged equity ETFs, and most major ETF
June 16, 2006 issuers have also initiated currency-hedged prod-
ucts on the heels of DXJ’s success.
—Drew Voros

OCTOBER 2015 23
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '07 '08 '09 '10 '11 '12 '13 '14 '15

2006

SSO ProShares
Ultra S&P 500

LEVERAGED AND INVERSE ETFS HAVE BEEN
among the most controversial ETF products on
the market since before they even launched.
ProShares first filed for the right to launch
leveraged/inverse ETFs in 2000, and the filing sat
Leveraged and inverse funds rocketed out of
AUM the gate, attracting billions in assets in their first
$1.7B few years as investors embraced the easy leverage
or downside exposure they offered.
EXPENSE RATIO But use of the funds was not without its issues.

0.89%
at the Securities and Exchange Commission for Not all investors understood that the funds were
more than six years before the funds finally got (and are) designed primarily for short-term use,
the green light in 2006. and that delivering two times the daily return of
SEGMENT
“When we began the process, the [ETF] indus- the S&P 500, for instance, does not mean deliver-
Leveraged Equity:
try was still very young,” said Morgan Gold, ing two times the long-term return of that index.
US - Large Cap
managing director at ProShares. “As the industry ETF Report was actually the first to report on
grew, investors began to look for a wider choice this disconnect, in a memorable June 2007 cover
ISSUER
of strategies in ETFs—including ones designed to article, “1+1≠2.”
ProShares
help manage risk and enhance returns. By 2006, Following the market volatility in 2008, which
when we introduced the first geared ETFs, the exacerbated the impact of the daily rebalancing,
industry and investor needs had evolved. The INCEPTION DATE the products were banned by UBS and a number
time was right for geared ETFs.” June 19, 2006 of other advisory firms on the grounds that advi-
Asset flows and trading volumes certainly sors did not understand them.
support that statement. Still, following a significant educational
RETURN effort, things settled down and the products
150%
remain popular among hedge funds, institutional
SSO Performance Since Launch investors and certain advisors. There are cur-
100 rently 270 funds on the market and billions of
dollars in assets.
One of the first leveraged ETFs on the market,
50
the ProShares Ultra S&P 500 ETF (SSO), remains
one of the largest.
0 “Our geared funds remain an important
part of our overall product offering,” said Gold.
“They are used extensively by a diverse share-
-50
holder base. We recently added a number of
geared ETFs to our lineup, and we expect to
-100 continue to respond to market demand for new
‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15
Source: Bloomberg, 6/21/2006-8/14/2015 products in the future.”
—Matt Hougan

24 ETF.com/ETF Report
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '10 '11 '12 '13 '14 '15

2009

SCHB Schwab U.S.

Broad Market ETF

CHARLES SCHWAB’S ENTRY INTO THE
exchange-traded fund market in 2009
changed the game for ETF investors in
multiple ways.
First, there was the pricing. Schwab’s
message to the market was simple: We will
retail investors, and strategies like tax-loss
$1.4B
harvesting and frequent rebalancing sud- SCHB Net Flows
denly made sense for advisors.
The impact was immediate and has
only increased over time: According to
Schwab, ETF assets custodied at the firm

not be undersold.
The firm launched a suite of four sim-
ple, broad-based ETFs, and priced them
lower than anything else on the market.
The Schwab U.S. Broad Market ETF
(SCHB|A-100), which quickly became
$1.2B
1.2B
have grown from $83 billion in December
2009 to $231 billion at the end of 2014.
Meanwhile, brokerages like Fidelity
and TD Ameritrade have been forced to
respond with their own commission-free 1.0B
programs, letting millions of individual

Schwab’s most popular fund, launched
with an all-in fee of just 0.08%, making it
the cheapest ETF on the market and under-
cutting competitors like the SPDR S&P 500
(SPY|A-99) by 1 basis point. It has been the
low-cost leader in the ETF market ever
since, currently charging just 0.04% a year.
Even more importantly, at its ETF
launch, Schwab said it would allow all 8
million Charles Schwab customers to trade
its ETFs commission-free.
That was revolutionary. Without com-
missions, ETFs suddenly made sense for
$996M
investors participate in the ETF market for
the first time.
The biggest effect of Schwab’s entry
into the ETF market may be still to come. 800M
“What I find very exciting is the role
that Schwab ETFs are playing in two
of the most ambitious and potentially
landscape-changing initiatives in all
of financial services today,” said John 600M
Sturiale, senior vice president, product
management, Charles Schwab Invest-
ment Management. “[That includes the]
Schwab Intelligent Portfolios, our auto-
mated investment advisory service that’s 400M

AUM EXPENSE RATIO offered for only the cost of [underlying

$377M
$363M

$4.9B 0.04%
funds] to investors; and, the ETF version
of the Schwab Index Advantage, which
$272M

SEGMENT
uses ETFs to build portfolios, dramati-
ISSUER 200M
Equity: US - cally lowering the costs to employees in
Charles Schwab retirement plans.”
Total Market
Schwab is also looking at ways to
INCEPTION DATE increase the use of ETFs in 401(k)s. If it can
November 3, 2009 truly open up the retirement market, that
0
could be its biggest impact yet. ‘10 ‘11 ‘12 ‘13 ‘14
Source: Bloomberg
—Matt Hougan

OCTOBER 2015 25
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '13 '14 '15

2012

BOND PIMCO Total

Return Active

$3,500M The fund, built around the Barclays

AUM EXPENSE RATIO
U.S. Aggregate Index, showed that trans-
$2.5B 0.55% parency in active fixed-income portfolios
$3.32B

SEGMENT
was nothing to be afraid of.
3,000
Fixed Income: ISSUER “The Total Return ETF harnesses PIM-
Global - Broad PIMCO CO’s time-tested investment process and
Market our skills as an active manager, and we
2,500 believe it signals an important new phase in
INCEPTION DATE
the development of the ETF marketplace,”
March 1, 2012
Bill Gross said at BOND’s launch in 2012.
Indeed, BOND was transformative
2,000
THE 2012 LAUNCH OF THE PIMCO TOTAL in the active ETF space. In roughly three
Return ETF (BOND|B) was a turning point for months, the fund gathered its first $1 bil-
the ETF industry, and not because BOND was lion in assets, making it the most success-
the first actively managed ETF to come to 1,500 ful active ETF launch ever. Of the 1,700-plus
market. ETFs in the market today, BOND’s speed
BOND was not even PIMCO’s first foray at asset-gathering remains second only to
into the ETF market—the PIMCO Enhanced that of the SPDR Gold Trust (GLD|A-100),
1,000
Short Maturity Strategy (MINT|B) takes that which reached $1 billion in assets just
credit, and it remains the asset manager’s three days after its launch in 2004.
largest ETF, with some $4.2 billion in assets Perhaps something that helped propel
$143.2M

as of August 2015. 500 BOND into the investor mainstream—

The turning point was that BOND beyond its star-name manager—was the
brought Bill Gross into the ETF space. The resonance of its ticker.
world of predominantly passive strategies What’s interesting is that when the ETF
0
was now home to a celebrity active man- came to market in March 2012, it was orig-
ager for the first time. inally listed under the ticker “TRXT.” But
$166.8M

Gross, widely known as the “bond
guru” who founded PIMCO and managed
the world’s largest bond portfolio—PIM-
CO’s flagship fund—was now also an ETF
roughly a month later, Pimco went looking
-500 for a more visible name, just to discover
that “BOND” hadn’t yet been claimed by
any issuer. The surprising discovery led to
$1.2B

portfolio manager. a rebranding that April of what became an

-1,000
Gross’ entry into the fold helped pave the icon in the active ETF segment.
way for other active managers to follow. It Today Scott Mather, Mark Kiesel and
also offered a significant endorsement to the Mihir Worah manage the portfolio following
ETF wrapper among the alpha-seeking crowd. -1,500 Gross’ departure to Janus Capital in 2014.
‘12 ‘13 ‘14 ‘15
Source: Bloomberg —Cinthia Murphy
Note: Flows data for 2012 covers from BOND's
March launch through the end of the year; flows
data for 2015 covers through the end of July.
26 ETF.com/ETF Report
 BUILT BY INVESTORS, FOR INVESTORS

With dividend ETFs,

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FlexShares® quality dividend ETFs pursue income and long-term growth potential, with return
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S P O N S O R E D CO N T E N T

Your Investment Challenges

Are Not Average
Smart beta strategies may help investors effectively address some of the
challenges they face

Andrew Ang, Ph.D.

Head of Factor Based Strategies Group,
BlackRock

Many investors have distinct preferences, guidelines and constraints that are far different from the market. Some investors
are looking for income, some are seeking to reduce risk and others are simply focused on total returns. Traditional passive
strategies can provide exposure to the collective wisdom of the market, but may not effectively deliver the more targeted
outcomes sought by different investors.

Smart beta strategies are designed to harvest broad, persistent drivers of returns by taking advantage of economic insights,
diversification and efficient trading execution. This style of investing can address some challenges in today’s market environ-
ment, including:
1. Potentially rising interest rates
2. Equity volatility and downside risk
3. Extracting cost-effective sources of incremental returns

INVESTOR CHALLENGE 1: POTENTIAL IMPACT OF RISING INTEREST RATES

Historically, interest-rate risk has dominated traditional broad-based fixed income indices. These traditional indices have
only small exposures to credit risk—another important source of risk premiums in fixed income. This makes core index port-
folios highly sensitive to rising interest rates. As we exit a period of extraordinarily loose monetary policy, many fixed income
investors are seeking more diversified strategies that emphasize other sources of risk and return.

➜ Smart Beta Solution: Complement core fixed income with diversified smart beta fixed income strategies
A diversified smart beta approach to fixed income can systematically balance exposures to the key drivers of risk and return
for bond portfolios: interest-rate risk and credit risk. A rules-based smart beta strategy can provide the potential for attrac-
tive yield with less duration, while retaining the scale benefits of index-based strategies.

Barclays Aggregate Index Risk Contribution1 Smart Beta Fixed Income Balanced Risk Contribution2

Spread Risk
HY <BB
10%
■ Enhanced
HY BB diversification
across interest-rate
and credit risk has
IG 5-10 Spread Interest historically led to
Yr Risk Rates better risk-adjusted
returns, higher yield
Interest Rates and lower duration
90% IG 1-5 compared to
Yr traditional bond
indices.
MBS

1
Source: BlackRock and Barclays. Using monthly Barclays Index Data between January 1989 and December 2014, interest-rate risk was 92% of the Barclays
Aggregate Bond Index’s total risk.
2 The FIBR Strategy Target for illustrative purposes only. Using monthly Barclays Index Data between January 1989 and December 2014, interest-rate risk was

92% of the Agg’s total risk. Excess returns were used to proxy spread risk. Total Returns – Excess Returns were used to proxy interest-rate risk. Using the same
dataset but running a one-factor regression against the Agg’s total returns resulted in a beta of 90% with an R-squared of 89%.
Beta is a measure of the tendency of securities to move with the market as a whole. A beta of 1 indicates that the security's price will move with the market. A
beta less than 1 indicates the security tends to be less volatile than the market, while a beta greater than 1 indicates the security is more volatile than the market.
R2 is a statistical measure that represents the percentage of a fund or security's movements that can be explained by movements in a benchmark index.
 S P O N S O R E D CO N T E N T
INVESTOR CHALLENGE 2: POTENTIAL DOWNSIDE RISK IN EQUITY MARKETS

The market has become much more volatile in recent months. Divergence in central bank policies around the world,
geopolitical events and mixed economic data may all contribute to volatility in equity markets going forward.

➜ Smart Beta Solution: Seek to minimize equity volatility without sacrificing returns
Minimum volatility strategies are designed to provide exposure to equity markets, but with less severe peaks and
valleys. While minimum volatility strategies have tended to perform better than the broad market in times of market
turbulence, they can also provide upside participation in good times.

Upside vs. Downside Capture for the MSCI Minimum Volatility Indices

100% ■ When the market falls, a minimum volatility

portfolio will generally fall by less. When the
Upside

88% market rises, a minimum volatility strategy

77% may capture proportionally more of the upside
69%
than its loss on the downside.

■ Investors should consider which type of low

0%
volatility strategy they invest in. Simply
-43%
Downside

-51% assembling a basket of low volatility stocks

-64% may result in hidden risks like high sector
concentrations.

■ Well-designed low or minimum-volatility

-100% strategies evaluate stocks across multiple
MSCI ACWI MV MSCI EM MV MSCI USA MV dimensions, including volatilities and
Index vs. MSCI Index vs. MSCI Index vs. MSCI correlations, to maintain similar characteristics
ACWI Index EM Index USA Index relative to a broad market index.

Source: Morningstar. Based on monthly index returns from 12/1/09 – 8/31/15. MSCI
USA MV Index incepted: 5/30/08; all other MSCI MV Indices above incepted: 11/30/09.

MSCI USA Minimum Volatility Index Excess Returns vs. VIX Index

MSCI USA Minimum Volatility Index - S&P 500 Performance vs. VIX Index
Difference in Monthly Returns

8% 60 ■ Historically the MSCI USA

6% Minimum Volatility Index has
50
VIX Index Level

outperformed the S&P 500

4% 40 Index in months when
2% volatility is rising.
30
0%
-2% 20 ■ By limiting downside risk
during the market’s deepest
-4% 10
troughs, a minimum volatility
-6% 0 strategy helps to preserve
wealth over the long term.
11/11
2/11
5/11
8/11
11/09

11/10

11/12

11/13
2/10
5/10
8/10

2/12
5/12
8/12

2/13
5/13
8/13

2/15
5/15
8/15
11/14
2/14
5/14
8/14

MSCI USA Minimum Volatility Index - S&P 500 Index (LHS)

VIX Index Level (RHS)

The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices.
Index returns are for illustrative purposes only and do not represent actual iShares Fund performance. Index performance returns do not
reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index. Past
performance does not guarantee future results. For actual iShares Fund performance, please visit www.iShares.com or call 1-800-474-2737.
S P O N S O R E D CO N T E N T

INVESTOR CHALLENGE 3: RETURN ENHANCEMENT AT A REASONABLE FEE

Regardless of the market environment, investors need consistent sources of returns to meet investment goals, actu-
arial assumptions and funding needs. While the need for returns is a constant, investors are increasingly fee-conscious
and seeking more scalable, low-cost solutions for total returns.

➜ Smart Beta Solution: Seek to capture cost-effective incremental returns

Smart beta strategies are built to target broad, persistent drivers of returns. These sources of returns are intuitive and
widely understood, and are expected to endure over the long term because they are rewarded for bearing risk. They
exist due to structural impediments or behavioral biases.

Factors are at the heart of many time-tested strategies that active managers have employed for decades. Today, inves-
tors can efficiently access these sources of returns with ETFs, generally at a lower cost relative to traditional active
management.

Factor Investment Intuition

Quality High-quality stocks tend to exhibit earnings consistency and balance-sheet strength, and
have historically outperformed the broader market.3

Value The timeless adage of buying low and selling high, value investing is based on the belief
that stocks that are undervalued relative to fundamentals may outperform.

Momentum Stocks with higher relative performance have historically performed well in the near term,
relative to stocks with weaker relative performance.3

Size Because smaller-capitalization companies are often more volatile and less liquid, and have
more variability in earnings, they often justify a higher risk premium.

Diversifying exposure across multiple factors:

While many individual factors have historically outperformed the broad market, performance
can be cyclical. Combining multiple factors into one holistic and diversified solution can take
advantage of the low correlations between factors, offering the potential for more consistent
returns throughout business and economic cycles.4
3
Sources: R. Sloan, “Do Stock Prices Fully Reflect Information in Accruals and Cash Flows About Future Earnings.” Accounting Review,
1996; J. Lakonishok, A. Shleifer, R. Vishny, “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance, 1994; Fama & French
1992: “The cross-section of expected stocks returns,” Journal of Finance, 1992; N. Jegadeesh and S. Titman, “Returns to Buying
Winners and Selling Losers: Implications for Stock Market Efficiency.” Journal of Finance, 1993; R. Clarke, H. de Silva and S. Thorley,
“Minimum-Variance Portfolio in the U.S. Equity Market.” Journal of Portfolio Management, 2006.
4
Source: Index Performance in Changing Economic Environments, MSCI 4/14.

Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the
summary prospectuses, which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
Past performance does not guarantee future results. There can be no assurance that performance will be enhanced for funds that seek to provide exposure to certain quantitative investment characteristics
(“factors”). Exposure to such investment factors may detract from performance in some market environments, perhaps for extended periods. In such circumstances, a fund may seek to maintain exposure to
the targeted investment factors and not adjust to target different factors, which could result in losses.
The iShares Minimum Volatility ETFs may experience more than minimum volatility as there is no guarantee that the underlying index’s strategy of seeking to lower volatility will be successful. Small-
capitalization companies may be less stable and more susceptible to adverse developments, and their securities may be more volatile and less liquid than larger capitalization companies. Diversification and
asset allocation may not protect against market risk or loss of principal.
Buying and selling shares of ETFs will result in brokerage commissions. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the
possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets or in concentrations of single
countries.
The Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does this
company make any representation regarding the advisability of investing in the Funds. BlackRock is not affiliated with MSCI Inc.
©2015 BlackRock. All rights reserved. iSHARES and BLACKROCK are registered trademarks of BlackRock. All other marks are the property of their respective owners. iS-16552-0915
 S P O N S O R E D CO N T E N T
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Source: Deploying Multi-factor Allocations in Institutional Portfolios, MSCI 12/13.
 By Cinthia Murphy JEFFREY GUNDLACH requires no introduction. The
DoubleLine chief executive and chief investment officer
has built a reputation as one of the most insightful fixed-
income investors. This year, he brought that expertise into
the ETF space for the first time with the launch of the SPDR
DoubleLine Total Return Tactical ETF (TOTL). The actively

Gundlach managed fund hit its first $1 billion in assets in just about five
months, all the while outperforming its competitors. Gundlach,
who is a keynote speaker at this year’s ETF.com Fixed
Income Conference, taking place Nov. 4-5 in Newport Beach,
California, shared with us what it’s been like managing an ETF
portfolio, as well as his views on the world and on where the
opportunities are.
Jeffrey

What’s the most challenging aspect

of managing an active ETF? Are there
challenges you’ve encountered that are
unique to the ETF structure?
It’s exactly the same from our perspective as
managing a mutual fund. There’s really no differ-
ence at all because we’re not really administering
it; State Street Global Advisors is doing that. I’m
sure there’s a lot of work at their end that would
be challenging if we tried to do it ourselves. But
we’re not doing that.

As a fixed-income investor, what

metrics do you look at when you’re
deciding on allocation changes? Have you
made allocation changes to TOTL since its
launch that you didn’t quite anticipate?

QA
ONE OF THE WORLD’S BEST
BOND INVESTORS TALKS
ABOUT THE OPPORTUNITIES
AND PITFALLS HE SEES
There’s certainly no deviation from what our nor-
mal procedure is, so therefore no deviation from
what we would’ve anticipated. We make alloca-
tion changes in fixed income based upon, first and
foremost, relative value—valuation of sectors.

&
We subdivide the fixed-income market into
Treasury bonds, mortgage-backed securities,
investment-grade corporate bonds, below-invest-
ment-grade corporate bonds, bank loans, com-
mercial mortgage-backed securities, developed-
market bonds and emerging market bonds. These
are the building blocks.
We have broadly characterized bonds into
two fundamental categories: those that have the
backing of a government guarantee and those
that don’t. Our first allocation decision is what
fraction of the portfolio we want in government-
guaranteed bonds, and what part of the portfolio

32 ETF.com/ETF Report
is subject to corporate default risk or securitized
default risk. That judgment has a lot to do with
our viewpoint on inflation in the global economy.
The weaker the global economy and the lower the
inflation rate, the more you want government
bonds. The higher the economic growth, the safer
corporate bonds are.
That decision has a lot to do with valuation as
well. There are times when the global economy
is very weak, like in 2009, but government bonds
are really expensive, reflecting a lot of already-
occurred flight to quality.
When it comes to the credit risk, we make
judgments about the most potentially rewarding
and lower-risk ways of obtaining the potential
rewards by emphasizing one sector over another.
For example, entering 2014, we had virtually no
high-yield bonds at all, but we had emerging mar-
ket bonds. We took credit risk, but it wasn’t in
U.S. high-yield corporate bonds.
In TOTL and in other portfolios, we have mar-
ginally decreased our corporate credit risk over
the past few months. We don’t have any expecta-
tions in how we’re going to allocate, so it’s not
like we’ve deviated from expectations, it’s that
we react to changes in the market, changes in
valuation and changes in the economy.
The performance of TOTL so far this
year has been practically flat. Are
you happy with that performance? Is the
fund at this moment more about capital
preservation?
No, we’re trying to outperform competing bond
products. We would compare it to other bond
mutual funds and other active bond ETFs. There’s
really only one other big active ETF that PIMCO
runs [the PIMCO Total Return Active (BOND|C)].
And we’ve outperformed it by a pretty decent
amount. We’ve also outperformed index funds
by a fair amount. We manage TOTL relative to
a benchmark index. It’s not an absolute-return
product, so we’re looking to offer higher returns
than other bond-market-focused alternatives.
We saw a pickup in volatility late in
the summer in global markets. Has
your view on the health of the U.S. economy
and the global economy changed at all?
I’ve not had a radical change in my views, but two
weeks ago today [Sept. 1], I came to the opinion
that markets were showing contradictory signals,
and that the risk markets seemed to be out of
sync. So I made a comment that got circulated:
“If you look at commodity prices, and you look
at emerging market equity prices, and you look
at junk bond prices, and you look at U.S. nominal
GDP, you would probably expect—looking at only
those four things—that the Fed should be easing,
not tightening.”
It seemed like stock market investors were
walking around as if in a daydream, missing the
fact that we have multiyear lows in commodity
prices, multiyear lows in junk bond prices, multi-
year lows in emerging market equity prices, and
the U.S. equity market was very near its all-time
high. That seemed completely out of sync with
messages that were being sent elsewhere.
Also, the Shanghai Composite Index in
China—the second-largest economy in the
world—was crashing. The U.S. market was in
need of pricing downward to get in line with the
signals being sent elsewhere.
One has to believe that one of the drivers of
the crash in commodity prices was a slowdown in
China, which isn’t really hypothetical anymore,
because the autocrats in charge of that economy
have reacted by cutting interest rates five times
and changing reserve requirements and the like,
another three times. So, eight times this year, the
Chinese authorities have found it a good idea to
do some sort of emergency measures. Finally, they
devalued their currency, which was a strong sig-
nal that they were concerned about their exports
and were trying to amp up economic growth.
JEFFREY GUNDLACH
CIO of DoubleLine
OCTOBER 2015 33
 We did analysis recently where we said, what if the Chi-
nese economy is not growing at 7.5% or 8%, which is what
they hope to do? What if it’s growing at 2% or 0% instead?
And we came to the conclusion that the global economic
growth could very well be only 1% right now on an annu-
alized basis. That’s an incredibly low rate of growth.
The problem with 1% on average global economic
growth would be that a large fraction of countries
would probably be in recession. When average growth is
at 1%, some are at 3% and some are at -1%. Once you’re
negative, you’re in a bad place for economic growth, and
you probably want to do something about it. And the
thing that’s left for most economies to do is to devalue
their currency.
We’ve been of the view, for nearly three years now,
that we entered a world in which currency devaluations
were going to be the norm. And the reason we picked
November 2012 is that’s when Abenomics began—when
Japan started to vocally report that they wanted to
stimulate their economy by devaluing their currency in
a systematic way. They did that, and the yen has weak-
ened very dramatically from 80 nearly three years ago to
120 versus the dollar. It’s a pretty big devaluation.
WE’VE JUMPED TO THE WRONG
CONCLUSION THAT THE FED
TIGHTENING IS SOMEHOW A
DISASTER FOR LONG-TERM BONDS;
IT’S EXACTLY THE OPPOSITE
The flip side of all this is a persistently
strong U.S. dollar, right? What does that
mean for the U.S. economy going forward?
We’re already seeing that multinational companies are
having trouble with the translation of profits from for-
eign currencies into the U.S. dollar. What it means is
that the U.S. competitive position in certain industries,
and for multinationals, is getting more challenging. It
also means that the U.S. inflation rate is going to have
a hard time gaining traction, because a strong dollar is
obviously a vehicle to import deflation, or at least disin-
flation. That’s been the consequence of a stronger dollar.
Now, the dollar was smoking hot from June 2014
until March of this year in a nonstop appreciation. After
the dollar got so strong, it became problematic for the
Fed, which wants to raise interest rates. The Fed doesn’t
have any fundamental reason to raise interest rates, but
34 ETF.com/ETF Report
they’re very nervous about being at zero for so many
years, and how it ties their hands, should the economy
weaken, which appears to be happening globally. Start-
ing on March 18, Janet Yellen showed that they were
thinking that the dollar might become a new issue for
them, and it might cause them to have to wait in terms
of raising interest rates. Ever since then, the dollar has
moved sideways.
But we’re in a funny kind of circular logic world,
where, since the Fed acknowledged a strong dollar
could become a variable, that meant the odds of the Fed
increasing interest rates declined. One of the reasons
the dollar stopped strengthening is the consequence of
the Fed mentioning its strength has been problematic,
meaning there’s less likelihood of them tightening. But
the reason the dollar was getting so strong was that the
Fed was talking about tightening.
You see the circular logic: The dollar is strong, so
they can’t tighten. So the dollar weakens, so they can
tighten. So the dollar strengthens, so they can’t tighten,
so the dollar weakens, so they can tighten ... and around
we go. That’s where we are right now.
What happens next?
It’ll have to break out one way or another, and
we’ll let the market tell us which way. I don’t always
have a view on where things are going to go. And much
of the time, you don’t need to have a view, you need to
watch the signals of the market.
Long [duration] bonds want the Fed to tighten. The
long bond wants there to be deflation. Why else would
you buy a long bond yielding 3%, other than there’s a
strong likelihood of zero inflation or negative inflation?
If you think inflation is going to be 2%, you probably
have no interest in a 2.75%-yielding 30-year Treasury
bond, and certainly have no interest in a 2%-yielding
10-year Treasury bond.
The long end of the bond market—perversely, ver-
sus the way people think about it—rallies when the Fed
is about to tighten, or is perceived to be more likely to
tighten. And it struggles even in the face of high-stock-
market volatility, when they think the Fed is less likely
to tighten. That’s the Rosetta Stone right now to fig-
uring out how the markets are behaving. Most people
don’t get this.
Do you think high-yield credit spreads are
going to continue to widen? And is that
largely related to oil?
I don’t have an opinion on that. We thought they would
widen, so we allocated down from high-yield bonds in
June. We bought investment-grade corporate bonds.
 We had been at a maximum underweight in invest-
ment-grade corporate bonds starting this year. It was our
biggest allocation statement. We thought that invest-
ment-grade corporate bonds were the most overvalued
in the history of our analysis, which goes back about 30
years. And for that reason, we entered 2015 with our
lowest-ever allocation to investment-grade corporate
bonds. We’ve never been lower in my 30-plus-year career.
In June, investment-grade corporate bonds had might-
ily underperformed high-yield bonds. High-yield bonds
were up 3 or 4%. Investment-grade corporate bonds were
down a percent or two. So that metric that was in place
of overvaluation entering the year had changed.
So we sold some high-yield bonds, and we bought
investment-grade corporate bonds back in June. Now,
high-yield bonds look to us to be fairly valued versus
Treasury bonds—not all that exciting, not all that bad.
But it’s really going to be dependent upon commodity
prices for sure.
When commodity prices are falling, it’s indicative
of a lack of pricing power for commodity producers
and commodity corporations. And it’s also indicative
of weak global growth. Those things are bad for credit
investors. It increases the chance of default.
Recently, you saw the commodities find a floor. But
it remains to be seen whether that’s a floor or whether
we’re going to decline again. It seems to me that com-
modity prices have probably bottomed, over the short
term. And so, probably incrementally, the pressure on
high-yield bonds in the short term is somewhat lessened.
Has the tide finally turned in oil markets?
I’ve been of the opinion that oil wouldn’t rally very
much, but it also wasn’t going to go to $20 like you’ve
heard a lot of the real mega-bears talk about. Certainly,
it seems like it has a hard time staying below $40; it even
seems to have a hard time staying much below $45.
Is it going to start rallying? In a certain sense, I think
yes, because I don’t think it’s going to fall. But that’s
not really what’s important for the oil market. What’s
important for the oil market is, will it stay below $60?
If oil rallies up to $49, it doesn’t do a lot of good for the
oil service companies and the oil producers. It needs to
go higher than that.
I don’t know if the tide has turned. If you define it
as oil is going to stop dropping, that’s probably good.
If you mean oil is going to rally up to a point where
there’s no stress in the commodity economy, I don’t
agree with that.
Why is what happens to commodity prices—
particularly oil—crucial to fixed income?
That’s been the case for decades. Oil is an incredibly
important commodity. And oil correlates pretty highly
to directions in interest rates, because it’s a centerpiece-
type commodity for inflation. Bonds care a lot about
inflation. For government bonds, inflation is the most
important thing. And oil is a harbinger of inflation. It’s
not surprising that collapsing oil prices lead to a down-
grade of inflation expectations, which leads to, on the
margin, further support for bonds.
OIL IS AN INCREDIBLY
IMPORTANT COMMODITY. AND
OIL CORRELATES PRETTY
HIGHLY TO DIRECTIONS IN
INTEREST RATES
What’s been curious in the last month is that oil
prices have been on a wild ride, and commodity prices
generally have been on a wild ride. And yet for the
month of August, the bond market was down in terms
of total return, which is strange given the tremendous
collapse that occurred in the commodity complex. If
you’re going to take 20% out of the oil market price,
under conventional wisdom, you’d’ve expected interest
rates to fall substantially, not just 15 basis points or so,
as we saw.
But again, go back to the Rosetta Stone. Why did
this happen? Because oil collapsing meant the Fed
was less likely to tighten. The more you analyze the
markets, the more you realize the message has been
crystal clear now, for nearly two years. The long bond
wants the Fed to tighten. And I know that a lot of peo-
ple have a hard time with that notion, but it’s difficult
to look at the market data objectively and come to a
different conclusion.
People are far too committed to the idea that interest
rates are about to explode higher. That’s been the wrong
idea for years. And we’ve jumped to the wrong conclu-
sion that the Fed tightening is somehow a disaster for
long-term bonds. It’s exactly the opposite.
Any assets you’re absolutely shunning
right now?
We’re shunning emerging market equities pretty heav-
ily here. The China aspect of emerging markets is very
troubling. And emerging market equities are perform-
ing so badly that it just seems like one of these falling
knife situations.
OCTOBER 2015 35
S P O N S O R E D CO N T E N T
Building A Better Mousetrap
For 401(k) Investors
Beaumont Capital Management addresses the trouble with target-date funds
Managing Partner and Portfolio Manager David Haviland discusses how
Beaumont Capital Management (BCM) works to overcome the pitfalls
of common qualified default investment alternatives (QDIAs) seeking to
deliver a better solution to their clients.
Would you provide some background about your firm?
Beaumont Financial Partners, LLC, the registered investment advisor,
has roots dating back to 1981. And our ETF strategist division, which
we call BCM, was started in 2009 as a direct response to what our
wealth management clients were looking for.
We were fortunate in 2008 to identify the bear market in its fairly
early stages and started selling equity in response to that. As a result,
many of our wealth management clients were not as negatively
impacted as mainstream indices such as the S&P 500.
But what we found is that after our clients lived through the 2000
to 2002 bear market, and the 2008 to early 2009 bear market, they
were looking for a way of institutionalizing what we were doing on
an individualized basis. Thus, we sought to create some strategies
with the goal of achieving two main objectives: provide a healthy
amount of growth when the times are good; and most importantly,
avoid the majority of the large losses when a correction or a bear
market occurs.
Philosophically, we’re trying to smooth the ride for our investors.
We want to help them stay invested regardless of where we are in a
market cycle and allow them to invest in more targeted asset classes
during difficult times. Or, within certain strategies, allow them to not
be invested when markets or asset classes enter periods of failure.
We believe we can lend a significant beneficial effect to the average
investor portfolio over a full market cycle.
Who is your typical client?
At BCM, we serve financial professionals in constructing portfolios
for their clients, and we’re part of a Fidelity referral program where
we get many direct clients. We see both sides: By working with both
types of clients, we have a very unique perspective that benefits all.
We also service both the retirement side and the nonretirement side.
The same overall desire of that end client is to grow assets when
times are good and to preserve assets when markets are in a state of
failure, and that belief permeates everything we do.
You offer an alternative to the traditional target-date mutual
funds. What’s the biggest problem with those products?
David Haviland
Managing Partner & Portfolio Manager
The QDIA was originally a stable value fund, but this didn’t provide
adequate growth for investors. In response, the investment industry
came up with a second type of QDIA, the target-date mutual fund.
A target-date fund is typically assigned based on your age or
expected retirement date. As you get older or near retirement, they’re
going to attempt to reduce the equity exposure and increase the bond
and cash exposure to try and make it risk-appropriate over time.
We believe target-date funds are trying to do financial planning
without a financial planner. They don’t consider other assets the cli-
ent may have—risk tolerance, income level, etc. The concept of risk
is typically determined by someone in an ivory tower who has never
worked directly with investors.
Are there any other drawbacks?
There are other aspects of target-date funds that bother us. One,
they are based on a glide path, and these glide paths are not very
transparent. You’ve got to go digging in a prospectus to find out what
it is, and let’s be honest, practically no one does this.
Further, a glide path is a fixed, predetermined asset alloca-
tion that has no regard for current market conditions—nothing
tactical or dynamic. If you look at the performance of target-date
funds, it can be disturbing. For October 2007 to March 2009, the
average 2010 target-date fund—hypothetically, someone who is
going to retire in one to two years—had an average equity weight-
ing of 47 to 54% over that time period, but still lost an average
37% peak to trough.*
The perception that glide paths are going to add bear market
protection is not true, as borne out by the 2007 to 2009 bear mar-
ket. They lost almost the same amount as the S&P 500 in 2008. If
a portfolio was only 54% equities and still lost that much, it doesn’t
even make sense.
Another issue we have with target-date funds is that many spon-
sors can and have changed the glide path allocation at their discre-
tion. Recently, one target-date fund provider increased its equity
allocations in most of its funds by 20%, and a second increased its
international equity by 10% across the board. They may be allowed
to do this according to their prospectus, but are they still suitable?
Maybe, but the issue is that end investor really has no idea.
An additional knock on the mutual fund industry, and 401(k)s
as a whole, has to do with the overall expenses. If you add up the
expenses of the mutual fund manager—and that includes the under-
lying funds as well as the manager of the target-date or balanced

fund—and then you look at the trading costs, the cost of the fund
administration through the third-party administrator and/or record-
keeper, the cost of paying whoever is advising that 401(k), oftentimes
they’re in excess of 3 or 4%!
We’re focusing on reducing expenses, and we’ve got solutions
that we can usually get down to around 1.5, 1.6% all-in. If you’re going
to have a 50% reduction in your expenses, not only are we doing the
right thing by that end client, we’re also helping that financial profes-
sional meet his/her fiduciary duties under the Department of Labor
and ERISA guidelines.
How does the solution you offer work?
What we’ve tried to do is provide a different kind of QDIA in the form
of dynamic, risk-managed portfolios. It won’t solve everyone’s prob-
lems, but it does address a lot of these issues.
Clearly, the expense reduction is going to have a beneficial effect
on any portfolio. Also, instead of relying on a glide path that disre-
gards the individual’s circumstances, we actually manage risk-based
portfolios. Our portfolios are transparent, and any investor can easily
review and make an appropriate choice. If they want to completely
turn over the management of that portfolio, we’re there for them. But
it also allows them to very quickly and easily look at the allocation
and say, “I want to be more conservative/aggressive than that,” and
pick another option.
Are these portfolios entirely made of ETFs?
All of the BCM strategies use long-only ETFs and money markets. So
we don’t use an ETF that actively employs leverage, margin, inverse
or another complicating factor that can get a manager in trouble, nor
do we do it at the strategy level.
Are the portfolios fully transparent?
We believe in complete transparency and open communication
with end clients and financial professionals. This is a big difference,
and one of the things we like about ETFs. You can pull up an ETF on
Bloomberg and find out exactly what it holds, whereas a mutual fund
usually delays publishing its holdings for 60 or more days. ETFs are
just a lot more transparent, and BCM tries to be as well.
So you don’t use glide paths at all?
We don’t use the concept of glide path; rather, we’ve been using stra-
tegic allocations for over 30 years. We manage our portfolios through
S P O N S O R E D CO N T E N T
the lens of an investment advisor. This is how we’re meeting the needs
of our wealth management clients, and these strategic allocations have
performed over many market cycles and have stood the test of time.
Where our strategies are really unique is the tactical overlay that
allows us to, in certain portions of the portfolio, attempt to avoid failing
markets, and then reinvest when that market becomes healthy again.
Our QDIAs seek to address the issues we see with other types of
QDIAs. They’re transparent. You see the allocations. You know what
we’re trying to do. There are low-cost initiatives. The end investor gets
to determine the suitability based on their circumstances. You can
make adjustments, or we make adjustments should either the equity
markets and/or the fixed-income markets go into a period of failure.
Our strategies have the capability to do all of this for investors.
*Source: Morningstar Fund Research – From stocks’ Oct. 9, 2007 peak through
Feb. 17, 2011, target-date 2010 funds gained a cumulative 5% on average.
Fourteen of the 23 funds that were in operation through the entire period posted a
gain. The S&P 500 declined 7% over that period. Although the target-date funds
collectively outperformed the S&P 500 during the extended period, we firmly
believe that many investors would have either sold the target-date fund and
remained in cash or elected another investment option after the sharp decline in
performance, and not realized some of this outperformance. This is the foundation
of our investment philosophy.
Copyright © 2015 Beaumont Financial Partners, LLC DBA Beaumont Capital
Management. All rights reserved.
The views and opinions expressed are those as of the date of this report based on
experience and knowledge pertaining to these items. These opinions are subject
to change.
This material is provided for informational purposes only and does not in any sense
constitute investment advice for any person. Some of the information presented
in this report is based on data obtained from third-party sources. Although it is
believed to be accurate, no representation or warranty is made as to its accuracy
or completeness.
ETFs are not typically actively managed (with few exceptions), trade like stocks
and are subject to investment volatility and the potential for loss. The principal
amounts invested in ETFs are not protected, guaranteed or insured. An exchange-
traded fund (ETF) is a security that tracks an index, a commodity or a basket of
assets like an index fund, but trades like a stock on an exchange. ETFs experience
price changes throughout the day as they are bought and sold.
Diversification does not ensure a profit or guarantee against a loss. As with all
investments, there are associated inherent risks.
“S&P 500®” is a registered mark of Standard & Poor’s Financial Services, LLC, a
division of McGraw Hill Financial, Inc.
Beaumont Trust Associates was originally founded in 1981 and was reclassified as
Beaumont Financial Partners, LLC (BFP) in 1999. Beaumont Capital Management
is a separate division of BFP.
Beaumont Financial Partners, LLC- DBA Beaumont Capital Management, 250 1st
Avenue, Needham, MA 02494 (844-401-7699).
ANALYZING
ONE BOND
AT A TIME
USAA is coming into the ETF space
with a tried-and-true approach to
fixed-income research

USAA, the financial services group that serves current and

former members of the military and their families, is the lat-
est large insurance/mutual fund company to enter the ETF pool.
The company’s most recent filing suggests USAA will be mod-
eling its exchange-traded funds after Vanguard’s approach to
creating ETF shares out of its existing mutual funds.
ETF Report sat down with Matt Freund, chief investment
officer of USAA mutual funds, and Paul Fulmer, AVP investment
product management, to discuss USAA’s ETF plans as well as
MATT FREUND its fixed-income investing philosophy. Freund will be a speaker
CIO, USAA Mutual Funds
at ETF.com’s Fixed Income conference Nov. 4-5 in Newport
Beach, California.

What’s the investment philosophy or approach that makes

USAA unique?
FREUND One of the things that attracted me here was the phi-

losophy that the investment team had at the time—and still has
to this day—of really focusing on the fundamentals. Sometimes
we like to talk about these things as being old-fashioned. I would
PAUL FULMER call them classic principles of investment management that are
AVP, Investment Product timeless because they work over long periods of time.
Management We take a long-term view. We focus on fundamentals and
valuation. We’re willing to be different from the crowd, to look
different, even if it makes us look foolish in the short term.

Are your mutual funds all active or are some of them index-
based?
FULMER We’re primarily active. We do run a couple of index funds
By Drew Voros as well. But I’d say our primary focus has been in the active space.

38 ETF.com/ETF Report
From your filings, it seems you’re going to be
modeling your ETFs after Vanguard’s patented
approach to creating ETF share classes out of
existing mutual funds.
FULMER We actually amended our exemptive relief let-
ter a few months ago; in particular, to at least contem-
plate the potential to launch the funds as a share class
a la Vanguard. We’ve been in discussions with Van-
guard regarding licensing its patent for that structure.
In your original filings, you list 14 of your current
mutual funds that I assume would be the first ETF
approaches.
FULMER We envision we’ll take many of our strategies
that we’re currently running in mutual fund structure
and move them forward into the ETF space. That’s not
to say we won’t look outside and create other strategies
down the road that would come in an ETF form. But at
least our initial focus will be strategies that we currently
have employed in our mutual fund structure.
Will the ETFs be cheaper than the mutual funds, as
they are with Vanguard, generally speaking?
FULMER Yes. We haven’t fully decided on the exact pric-
ing, but our general thought is that our ETFs will be
at or below our institutional share class pricing on the
mutual fund side.
FREUND One of the things we strive for is to make sure
we can deliver above-average service and above-average
performance, for a below-average price. You’ll see that
consistently across the platform, whether it’s the bond
funds, the muni funds, the equity funds.
The analogy to the Vanguard model is not quite
exact, because we’re owned by a company that’s owned
by the shareholders. But the philosophy is right on.
Let’s delve into your firm’s fixed-income approach.
FREUND We have a long legacy on the fixed-income
side. We started as an insurance company, and insur-
ance companies have a tradition of funding their liabili-
ties with fixed-income investments. That’s our legacy,
and it goes back to the first days of USAA as an enter-
prise. That legacy has grown. We got into the mutual
fund business in the early 1970s. But again, the longest
and the most established teams we have here are on the
fixed-income side.
We’ve been doing it for a long time. We’ve actually
won the Lipper Award for the best large mutual fund
shop twice in the last 10 years. We have a deep fixed-
income team with traders, analysts and portfolio man-
agers. And we have a long legacy of outperformance in
that space.
FULMER From the ETF perspective, because of our long-
term strength and track record in the fixed-income area,
we’re contemplating going on to an active fixed-income
ETF offering. We feel that fixed income is a good oppor-
tunity in the active ETF environment.
The other thing is, on our equity side, we want a
mixed shop of both internally managed funds and strat-
egies as well as a heavy use of subadvisors. So that’s why
we’re kind of focusing on the fixed-income launches ini-
tially out of the gate.
WE FEEL THAT FIXED INCOME IS
A GOOD OPPORTUNITY IN THE
ACTIVE ETF ENVIRONMENT
What was the final push that moved you into the ETF
space?
FULMER We took a look at it from an industry perspec-
tive and clearly see the trend toward greater use of ETFs
in the marketplace. We also took a close look at our
membership base. We run a self-directed broker/dealer
platform for our members. And we’ve clearly seen activ-
ity in ETFs pick up on that platform as well.
We’re in an environment now where people are
constantly talking about interest rates rising. But they
haven’t. And this has been going on for years. How
does whether the Fed raises rates now or later figure
into your research?
FREUND The first thing to know about us is that we
assemble portfolios from the bottom up. We buy them
bond by bond, analyzing the risks associated with
OCTOBER 2015 39
 that security against the potential reward. Again, that
sounds very old-fashioned, but that’s what we do. We
don’t make big macro bets. I’m a huge fan of some of
the big macro players out there, but we spend our time
analyzing structures and securities, companies, differ-
ent sectors of the market, while staying fairly neutral
on a duration basis. We’re not indexers by any means.
In fact, when you look through our portfolio, some-
times people say, “OK, who are you indexing to?” Just go
back to the philosophy we talked about. We don’t mind
looking different. I think indexing in the fixed-income
space is actually a fairly dangerous thing to do. You’re
buying securities because they have good underwriters,
or because they just serially issue a lot of debt, or issue a
lot of debt in terms of asset classes.
INDEXING IN THE FIXED-INCOME
SPACE IS ACTUALLY A FAIRLY
DANGEROUS THING TO DO
We don’t do that. That’s the first point. And we
will vary our duration, but we’ll move our durations
within a fairly well-defined band. You generally will
not see us much more than half a year from neutral
on a duration basis.
That’s how we approach the markets: very focused
on individual securities, bond by bond, and really look-
ing to make sure we’re well paid for the risks we’re tak-
ing on our investors’ behalf.
So are you saying all this noise around the Fed doesn’t
impact your research?
FREUND I worry all the time. I wish I worried less. But
in terms of the disciplined approach we take, we do the
same thing every time, where we start with our research
analysts. They’re the tip of the spear. We have a talented
trading desk, which is in touch with all of the major sell-
side shops, looking for what is available and what sort of
40 ETF.com/ETF Report
market intelligence is there. And then we have portfolio
managers (PMs). A lot of our competitors were trying to
get away with having PMs who did their own trading
and then analysts who were really PMs. We’ve kept the
traditional three-legged stool of the process.
To answer your question specifically, we’ve been
pretty vocal for quite some time that rates were going
to stay lower for longer. I think the first article I wrote
on rates surprising people to the downside was in 2010.
This idea that rates are going to be going higher, and
having to go higher right away, is the right diagnosis
for the wrong disease. We have come through a balance-
sheet recession. We got into trouble because there was
too much debt.
There have been three major balance-sheet reces-
sions in the last 100 years. One was the U.S. in the late
1800s; we had too much railroad debt. One was the
U.S. in the '30s. The stock market had just corrected
in '29. But the recession really lasted straight through
the beginning of World War II. And then the last one
is Japan, and that started 20 years ago and they’re still
kind of stuck.
The problem you get in balance-sheet recessions is
that the traditional tools don’t work. The recovery is
generally very shallow, and pretty fragile; it’s very on-
again/off-again.
Again, this isn’t my opinion; it’s history. History
shows that coming out of balance-sheet recessions, you
have volatility in rates, and people are confused as to,
again, what illness they’re trying to cure. But ultimately
that debt is very deflationary. And we’ve seen that
around the world. Despite what we’ve done, we can’t
really get inflation going.
We’ve really been in an environment where the risk
of rates spiking has been overblown. We’ve been taking
advantage of that volatility to find nice securities out in
the 20- and 30-year part of the curve.
But again, how you get your duration and where
you keep your duration are two different things. So
we’re not afraid of adding bonds in that part of the
curve, but our portfolios will have their durations
more or less neutral.
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 S T R AT E GY
WHY LAURA SCHARR-BYKOWSKY
I OWN Principal
FIRM: Ascend Financial Planning LLC
VEA
LOCATION: Columbia, SC
FOUNDED: 2008
AUM: $100 Million
Vanguard FTSE % ETFs: 15-20%
Developed Markets ETF
When did you first start using VEA? What drew you to
the fund?
I used to use the Vanguard Total International Stock
ETF (VXUS|A-99). That’s a great all-in-one fund. The
FTSE Global All-Cap ex-US Index is a good index, and I
like to keep it simple for my clients.
But recently, as markets have gotten cheaper
and I wanted to tilt more toward emerging markets,
I decided to break my exposure into two ETFs: the
Vanguard FTSE Developed Markets (VEA|A-93) and the
Vanguard FTSE Emerging Markets ETF (VWO|B-88).
That was spurred by VEA’s change from the MSCI
EAFE Index to the FTSE Developed ex North America
Index, and now they’re changing it again to get more
small-cap exposure in there. I heard about that change
and thought, “Great!”
Why did you like it so much?
It just makes sense. Small-cap will now be about 10%
of the overall weight, I think. And if you look at the
research, tilting a little bit toward international small-
caps is a nice long-term play.
Plus, those are different industries you’re investing
in. They’re not multinational corporations. So I think
you’re getting some value added in terms of the diversi-
fication there.
So this is a fairly recent switch for you.
Yes. Only within the past couple months.
Why go with VEA versus one of its com-
petitors, like the iShares MSCI EAFE ETF
(EFA|A-92)?
EFA is so much more expensive, for starters.
I like VEA for so many reasons. It’s
large. It’s liquid. It’s cheap. It’s easy to
trade. And I like Vanguard too because
they’re not a publicly owned company;
they don’t have to answer to sharehold-
ers. They answer to the investors who
42 ETF.com/ETF Report
By Lara Crigger
invest in their funds. So when they reduce costs, those
costs tend to accrue to the benefit of investors. I like
that philosophy.
I also feel like they have a good team I can always
call on when I need help, and they’ve done a good
job of reinforcing that area over the past few years.
If there’s ever a question about a change in the index
or if there’s ever anything I need, I can go to them for
support. They have some very good advisor resources
on their site, too.
Over the next few months, VEA will also move to
include exposure to Canada. How much of a selling
point is that for you?
Very much! I’m a market-cap-weighted gal, and I felt
that not having that exposure just didn’t make any
sense. I’m glad they’re adding it. I think about 8% of
the new index will be Canada.
That’s not insignificant.
Yes. You’ll lose about 2% from Japan and 1% each from
France, Germany, the U.K. and Switzerland; so you’re
taking some money out of Japan and Western Europe
to get that Canadian exposure. Of course that also
changes your sector mix a little. You’ll have more in,
for example, energy. But I’m comfortable with that.
I’m a big fan of the broadest exposure you can get
in the cheapest way. I’m also comfortable with the
China A-shares addition to VWO, for example. I’m a
passive investor at heart; I’m not particularly tactical.
What would be the trigger for you to get out of VEA?
I guess if Vanguard increased the expense ratio a lot.
For me, it’s all about low-cost exposure, so if I saw that
was happening, it would make me worry. But if any-
thing, Vanguard tends to decrease its expense ratios,
generally speaking. I don’t foresee that happening.
Vanguard FTSE Developed Markets ETF (VEA)
SEGMENT: Equity: Developed RETURN
Markets Ex-U.S. – Total Market 6%
ISSUER: Vanguard 4
2
LEGAL STRUCTURE:
Open-Ended Fund 0
-2
EXPENSE RATIO: 0.09%
-4
AUM: $26.9 Billion -6
-7.21%
AD$V (30-DAY): $264.02 Million -8
AVG. SPREAD: 0.03% -10
-12
COMPETING FUNDS: S O N D J F M A M J J A
EFA, DWM, SCHF, PXF, GWL
Sources: ETF.com, Bloomberg. Data as of 9/9/2015.
THE 2015

GUIDE TO

MLPs
OCTOBER 2015 43
 G U I D E TO M L P s

H By Debbie Carlson

IG
H
-F
M
LY
L
IN M
ASTER LIMITED PARTNERSHIPS
were a darling of investors who wanted
C

G
P
exposure to the U.S.’ energy renais-
sance, or those looking for higher income—or
R

both—but a tumble in crude oil prices and a stock

market rout is leaving investors smarting.
s
MLPs, as these investments are known, focus
A
D

on the U.S. energy sector and are usually classi-

fied in one of two ways: upstream MLPs, which
TO

are tied to energy exploration and production; or

O

midstream MLPs, which focus on infrastructure,

H

such as pipelines.
W

Pretty much any investment with the word

E

“energy” in it is being punished right now. As of

O

Aug. 25, the United States Oil ETF (USO|B-100),

IL

which delivers exposure to oil using near-month

P

A
N
R

futures, is down 65% from its 12-month high,

IC
E

and crude oil futures prices are at their lowest

S
W

level since early 2009.

R
R

The 12-month returns of the 27 MLP ETFs list-

E
A
K

ed on ETF.com’s website shows not a single one

H

is positive. The best performer, the First Trust

A
V

North American Energy Infrastructure (EMLP), is

O
C

down 12.38% as of Aug. 25. The worst performer

W

H IT

was the Yorkville High Income MLP (YMLP), down

H

53.53%. Meanwhile, the Alerian MLP (AMLP), the

M
LP

largest and most liquid MLP ETP, is down 19.40%.

s

44 ETF.com/ETF Report

IT’S ALL RELATIVE
Paul Britt, senior analyst at FactSet, says a few
things stand out when reviewing why some MLP
ETPs are doing relatively better than others.
“The legal structure comes into play in the
MLP space and the way you can access them
through ETFs. The tax perspective also has an im-
pact on performance,” he noted.
There are two ways ETPs are usually struc-
tured to avoid tax complications in the MLP
space. For ETPs that are set up as regulated invest-
ment companies and want to keep their tax pass-
through status, their holdings in securities that
issue a Schedule K-1 tax form are capped at 25%.
Those that invest more than 25% in Schedule
K-1 securities are structured as C-corporations.
These pay taxes at the fund level, so investors
have a “watered down” exposure to the under-
lying index, Britt says. C-corporations pass on
THINGS THAT HAVE DONE THE
BEST ARE NOT MLPs; THAT’S THE
COMPELLING STORY HERE
the reduced income to investors, who then pay
their own taxes, so the same income stream is
taxed twice. The taxes are expressed to inves-
tors as expenses.
This watered-down exposure helps in bear
markets, he adds, which may explain why some
funds are outperforming. However, in bull mar-
kets, these funds lag.
“In a bear market, it really has a very large
impact, even before exposure to the nature of the
security,” Britt said.
EMLP’s relative outperformance comes from
the fact the fund is not a pure-play MLP. It’s an ac-
tively managed fund that invests in North Ameri-
can energy infrastructure MLPs and LLCs, and it’s
structured as a traditional 1940 Act fund. The de-
scription from the ETF.com database shows EMLP
G U I D E TO M L P s
includes “pipelines and utilities structured as C-
corporations, Canadian firms that used to be roy-
alty trusts, and unique institutional MLP shares
issued by MLP affiliates.”
Robert Goldsborough, fund analyst at Morn-
ingstar, agrees that the funds with relative out-
performance have diversified holdings, such as
the Global X MLP & Energy Infrastructure (MLPX),
down 20.23%.
“Things that have done the best are not MLPs.
That’s the compelling story here,” he said.
The worst-performing funds in terms of
one-year return were the riskiest. There are
those that doubled-down on MLP bets, such as
the Etracs 2X Monthly Leveraged Long Alerian
MLP Infrastructure ETN (MLPL), down an un-
surprising 47.8%. Or, they may have focused on
high yield, like YMLP, which was sold to Van
Eck’s Market Vectors—along with Yorkville’s
High Income Infrastructure MLP (YMLI)—ear-
lier this year.
These high-yield funds are just another example
of why income investors need to be careful about
reaching for as much yield as possible, Britt notes.
Goldsborough says another factor affecting
the worst-performing ETPs is size, with small-caps
doing the worst. YMLP has an average market-cap
weighting of $1.06 billion, and another under-
performer, the Global X Junior MLP ETF (MLPJ),
which is down 39.4%, has an average market-cap
weighting of $1.5 billion.
That compares with the Global X MLP
(MLPA), which is down 22.4% and has an aver-
age market-cap weighting of $12.95 billion, and
AMLP’s average market-cap of $12.2 billion,
Goldsborough says.
OCTOBER 2015 45
 G U I D E TO M L P s
WHAT’S HURTING MLPs
Jay Hatfield, co-founder and president of Infra-
structure Capital Advisors, and portfolio manager
of the InfraCap Active MLP ETF (AMZA), said the
sector is “tainted by these upstream MLPs, and
that’s made investors extremely nervous, and has
affected the sector negatively.”
Because upstream MLPs are closely tied to oil
production, they’re more likely to get hurt in the
drop in oil prices.
Emily Hsieh, director of operations at Alerian,
says the issue in 2015 is that people are not neces-
sarily sure how long oil prices will remain at cur-
rent levels.
“The fear now is that crude prices will stay
where they are, and MLPs won’t grow anymore,”
she said.
THERE’S STILL ROOM FOR
THE BLOODLETTING TO
CONTINUE
The income that MLPs generate still makes
them attractive, particularly now, says Dan Heck-
man, national investment consultant for U.S.
Bank Wealth Management. The yield spread
between MLPs and the 10-year U.S. Treasury note
has widened to as much as 500 basis points, ver-
sus the historical average of around 300 bps.
“We think the higher-quality MLPs will do fine
over a longer-term cycle,” Heckman said, adding
that he believes MLPs are starting to bottom.
There is some debate as to whether any inter-
est-rate hike by the Federal Reserve will pinch
MLPs. Some argue the Fed won’t raise rates high
enough to entice yield-loving investors. But in
late August, Barron’s cited comments by Jeffrey
Gundlach, founder of DoubleLine Capital, who
46 ETF.com/ETF Report
said MLPs will suffer under a rate hike because of
the leverage some MLPs use.
Phil Blancato, chief executive officer of Laden-
burg Thalmann Asset Management, with $2.2 bil-
lion under management, says that despite MLPs
being underwater, his firm is sticking with the
investment. He still likes MLPs from a portfolio
diversification standpoint, and that they can be
a “solid dividend payer in a portfolio.” He has a
small allocation to the MLPX.
Blancato says the U.S. energy outlook is still
positive, as energy infrastructure in the U.S. is
vastly underserved and that demand in the U.S.
and globally remains up, even with sluggishness
in the global economy. Further, earnings for mid-
stream MLPs remain solid, with all of them still
paying dividends.
He would change his mind if the U.S. slipped
into a recession and true energy demand fell,
Blancato says. A sustained drop in crude oil prices
would also give him pause.
“I think that producers in the U.S. are profit-
able north of $30 a barrel. Our opinion is, even
with crude at six-year lows, U.S. producers are
profitable here because of the efficiency of the
fracking technology. That said, there’s still room
for the bloodletting to continue,” he said.
Chuck Self, chief investment officer of iSec-
tors, says investors should at least “have a toe in
the water” for MLPs, noting that “the market has
priced in a lot of pain.”
What might be working against MLPs is
that—until the late August equity sell-off—the
stock market was focused on growth, rather than
value, he says. Given the sector’s volatility, he
would recommend no more than 5% for a port-
folio allocation.
Morningstar’s Goldsborough says that given
that only a handful of MLP ETFs are even five
years old, one should consider the risk of invest-
ing in a sector so young.
“It’s always more interesting to see how funds
behave across a full market cycle. That’s certainly
an issue for MLPs,” he noted.
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 G U I D E TO M L P s

By Debbie Carlson

JAY JACOBS
THE ENERGETIC MLP SPACE

ay Jacobs is a research analyst at Global X, a New York-

J based sponsor of ETFs, with $3.7 billion in managed assets

invested in 40 funds available across U.S. and foreign
exchanges. Jacobs oversees the firm’s research team and helped
establish GlobalXResearch.com, a website featuring original content
and curated third-party news and research.
Global X has three master limited partnership ETFs: the pure-play
MLP fund, Global X MLP (MLPA), which is down 22.4% as of Aug.
25; the regulated investment companies-structured Global X MLP &
Energy Infrastructure (MLPX), down 20.23%; and the Global X Junior
MLP (MLPJ), which is down 39.4%. MLPA is the largest of the three
funds, with nearly $150 million in assets under management.

MLPA tracks the Solactive MLP Infrastructure Index. Would you

describe the index?
It’s an index of the largest MLPs in the midstream sector in the U.S.

Since MLPA is structured as a C-corporation, how do the tax impli-

cations affect performance?
On a daily basis, the fund has to accrue a tax liability based on essen-
tially the realized and unrealized gains of the fund. In an up market,
the fund will tend to trail the index, because it’s accruing taxes on the
way up. In a down market, the fund, in some environments, will lag
the index, because it can offset some of the falling with the tax liabil-
ity. At the end of the year, [the tax liability is] shown as an expense on
the prospectus.

48 ETF.com/ETF Report

Let’s talk about fees and how the fund is performing.
We have a 45 bp management fee, and then there are the
tax expenses, which change year to year. It’s difficult to
know what that tax expense will be in any given year [as
it depends on the fund’s return]. At 45 bps, if my recent
research is correct, we are the lowest-management-fee
MLP ETF out there. The only other 45 bp management-
fee MLP ETF is our MLPX ETF.
I think one of the key reasons this fund has held up
better than other MLP funds is because of its midstream
exposure. Some other funds may be more focused on the
yield characteristics of MLPs, or they’re more broadly
trying to access the entire MLP market—regardless of
upstream, midstream or downstream.
Our fund is laser-focused on midstream MLPs. What
that means is we’re only focused on MLPs involved in
the storage, transportation and processing of oil and
natural gas. Those businesses tend to be more insulated
from the price of oil.
Because they’re in a toll-road business model,
they’re paid on the amount of oil or natural gas they’re
transporting through pipelines rather than the value of
the underlying commodities. You could compare that to
upstream, where you’re basically drilling.
If you’re drilling and extracting oil from the ground,
you’re selling it at the market price of oil. Those drillers
have a high sensitivity to oil prices. Midstream is just
taking oil from point A to point B.
What is pressuring the MLP market? Is it weak oil
prices, concerns about global growth, a possible Fed-
eral Reserve rate hike?
It’s a little bit of everything. It does seem like the MLP
market has been trading in line with some other energy
stocks, which is pretty surprising to us. We think that
the MLP business model is much more robust than other
energy stocks. It’s created a situation where the valu-
ations on MLPs are actually quite attractive relative to
where they’ve historically been.
Different valuation metrics don’t always make sense
for different businesses. One of the measures I like for
MLPs in this environment is EV to EBITDA [enterprise
value to earnings before interest, taxes, depreciation
and amortization]. If you look at EV to EBITDA, valua-
tions are at their most attractive point since mid-2011.
What does this pressure mean for the sector?
I think it depends on how an investor is looking at MLPs.
We tend to see two types of investors. We see the asset
allocators who look at MLPs as an asset class, and when
we talk to those clients, they tend to still like the MLP
G U I D E TO M L P s
vehicle. If you see MLPs as an asset class, then the recent
volatility shouldn’t bother you, because inherently MLPs
are still are what they are: They still tend to have low cor-
relations to equities; they tend to be yield-based instru-
ments. Because of that, they tend to still be a different
asset class that serves a specific purpose in their portfolio.
When we look at the other types of investors who
might look at MLPs as a tactical opportunity, that’s
when it runs the spectrum and you see bunch of differ-
ent opinions. Some people are coming in and are very
bullish on the MLP sector, they’re bullish on energy,
they’re looking for different ways to play it; they’re buy-
ing for a pure tactical allocation. We tend to be more on
the asset allocation side.
In the MLP space, there has been a lot of merger and
acquisition activity. What does this say to you?
That’s definitely a good signal. At the end of the day, it
tends to be a smaller industry than the whole market.
It’s a subindustry; it’s a pocket of the market. And the
people buying and selling MLPs are in that subindustry.
They’re the insiders, they know the market, they have
the most information. So if you see more M&A in the
space, that’s an indication they’re bullish on the space.
When advisors talk to you about the space, what are
they asking?
It really depends on their time frame. When advisors
are calling and asking about the MLP space, they tend
to be looking more short term; when they’re calling and
asking more generally about the fund and a little less
concerned, they tend to take a more medium- and long-
term view. Some are nervous about the recent pullback,
but the asset allocators are looking more for long-term
opportunity.
We’re seeing some oil rig counts falling, the growth in
fracking is slowing down. If we see oil prices fall and
if we see the volume of oil produced falling, how does
that impact midstream producers?
It can vary by MLP. Some of the drillers, the oil produc-
ers, sign very-long-term contracts with MLPs, so they
locked in a specific price to transport the commodity
from point A to point B. In some instances, they’ve pre-
leased space in that pipeline or in that storage facility. So
in those instances, it doesn’t matter how much they’re
producing for the MLP. For others, it can be more vari-
able. So if we see more drillers coming offline, less oil
coming off, that can slow down the growth of the MLP
space, but again, MLPs are designed to be insulated from
the price movement.
OCTOBER 2015 49
 IN REVIEW By Heather Bell

August was hard on sectors,

with every one left in the red in terms of average
returns, and only one fund, the SPDR S&P Metals and Top Inflows | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | || | | | | || | | | | | | | | | | | | | | | | | | | | | | | | |

Mining ETF (XME|A-64), recording positive returns. TICKER NET FLOWS AUM ($M)
For the record, XME was up 1.55%. Energy was the
Energy Select SPDR XLE 792.72 12,049.33 Energy
best-performing sector, with an average decline of just
1.60%, led by the SPDR S&P Oil & Gas Exploration & Utilities Select SPDR XLU 562.79 6,614.80 Utilities
Production ETF (XOP|A-57), the second-best-performing
SPDR S&P Oil & Gas Expl & Prod XOP 452.61 1,925.81 Energy
fund, with a decline of just 0.27 percent. Meanwhile,
the financial sector was hit the hardest, with an Vanguard REIT VNQ 378.94 24,299.11 Real Estate
average decline of 7.1%, with the iShares U.S. Broker- iShares U.S. Financial Services IYG 187.49 908.02 Financials
Dealers ETF (IAI|C-76) leading the plunge with a 7.81%
fall. But the worst performer among the sector funds
was the PowerShares Dynamic Media ETF (PBS|B-63),
which was down 11.11%. Health care, which was just Top Outflows | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | || || | | || | | | | | | | | | | | | | | | | | | | | | |

behind financials in terms of performance, saw the TICKER NET FLOWS AUM ($M)
most flows—$575.6 million, to be exact—in a month Health Care Select SPDR XLV -1,065.10 14,120.68 Health Care
where all but two sectors experienced outflows. Utilities
saw the most outflows, losing a whopping $2.4 billion Technology Select SPDR XLK -1,028.91 11,289.04 Technology
from its two funds. Among individual ETFs, the Energy Financial Select SPDR XLF -857.57 18,135.07 Financials
Select Sector SPDR (XLE|A-93) topped the inflows, with
a gain of $792.7 million; XLV was at the other end of the
iShares Nasdaq Biotechnology IBB -801.24 8,238.34 Health Care

spectrum, with a loss of $1.1 billion. Consumer Discretionary Select SPDR XLY -558.18 10,232.79 Cons. Cyclicals

Sector
Performance AUGUST 2015
BASIC MATERIALS CONS. CYCL. CONS. NON-CYCL. ENERGY FINANCIAL HEALTH CARE INDUSTRIAL REAL ESTATE TECH TELECOM UTILITIES
BROAD BROAD BROAD BROAD BROAD BROAD BROAD BROAD BROAD BROAD BROAD
XLB XLY XLP XLE XLF XLV XLI IYR XLK IYZ XLU
-5.53% -6.44% -5.87% -4.15% -6.75% -7.84% -5.39% -5.75% -5.33% -1.55% -3.43%
MINING HOMEBLD FOOD EQUIP BANKS BIOTECH DEFENSE BROAD INTERNET BROAD BROAD
XME XHB PBJ IEZ KBWB IBB PPA VNQ FDN VOX VPU
1.55% -3.56% -5.35% -0.38% -7.18% -10.58% -4.07% -6.24% -5.44% -2.98% -3.66%
MEDIA EXPLOR BANK & IN MED DEV TRANSPO SEMIS
PBS XOP IAI IHI IYT XSD
-11.11% -0.27% -7.81% -5.96% -6.22% -3.49%
RETAIL INSURANCE PHARMA ENGINEER SOFTWARE
XRT KBWI IHE PKB IGV
-4.83% -6.77% -8.06% -1.13% -7.10%
LEISURE SERVICES EQUIPMENT
PEJ IYG XHE
-6.08% -7.02% -4.28%
SERVICES
IHF
-5.50%

- +
/////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// KEY:
≤-5.0
-3.0 ≤-4.9
-1.0 ≤-2.9
-0.1 ≤-0.9
0
0.1 ≤ 0.9
1.0 ≤ 2.9
3.0 ≤ 4.9
≥ 5.0

Source: Bloomberg. Data from 7/31/2015 to 8/31/2015. ETFs chosen to represent each sector based
on the most liquid ETF in each segment of the ETF.com ETF Classification System.

50 ETF.com/ETF Report
 WHY BUY A SINGLE STOCK WHEN YOU
CAN INVEST IN THE ENTIRE SECTOR?
Technology Sector SPDR ETF
Top Ten Holdings*

XLK - TECHNOLOGY
Company Name Symbol Weight

1 Apple AAPL 16.57%

2 Microsoft MSFT 8.98%
3 AT&T T 5.20%
4 Verizon Communications VZ 4.81%
5 Facebook FB 4.80%
6 Google A GOOGL 4.73%
7 Google C GOOG 4.53%
8 Visa V 3.51%
9 Intl Business Machines IBM 3.45%
10 Cisco Systems CSCO 3.36%
* Components and weightings as of 8/31/15.
Please see website for daily updates. Holdings subject to change.

ADVERTISEMENT

Potential benefits of adding Sector SPDR ETFs to your portfolio include: Time For A
• Undiluted exposure to a specific sector of the S&P 500 Stock Alternative
• The all-day tradability of stocks
• The diversification of mutual funds
• Total transparency
• Liquidity Visit www.sectorspdrs.com
or call 1-866-SECTOR-ETF

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

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.
 FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %
PowerShares S&P 500 High Quality SPHQ 0.29 498.0 -2.87 14.54 15.53
iShares Core S&P 500 IVV 0.07 66,283.3 -2.92 14.28 15.79
Vanguard S&P 500 VOO 0.05 33,714.2 -2.93 14.31 -
SPDR S&P 501 SPY 0.09 167,606.0 -2.93 14.26 15.78
iShares S&P 100 OEF 0.20 3,960.7 -3.09 12.71 15.17
PowerShares S&P 500 Low Volatility SPLV 0.25 4,636.4 -3.21 12.18 -
Vanguard Mega Cap MGC 0.11 969.8 -3.29 13.86 15.72
ProShares S&P 500 Dividend Aristocrats NOBL 0.35 773.6 -3.56 - -
U.S.-LISTED ETFs

ETF
First Trust Large Cap Core AlphaDEX FEX 0.64 1,796.0 -4.08 15.50 15.18
BY ASSET CLASS AND Guggenheim S&P 500 Equal Weight RSP 0.40 9,709.0 -4.10 16.10 16.34
YEAR-TO-DATE RETURN RevenueShares Large Cap RWL 0.49 330.6 -4.27 16.31 16.04
ProShares Large Cap Core Plus CSM 0.45 409.1 -4.92 15.12 15.84
› Data as of 08/31/2015 PowerShares FTSE RAFI US 1000 PRF 0.39 4,300.0 -5.34 14.87 15.27
Exp Ratio is annual expense ratio SPDR Dow Jones Industrial Average Trust DIA 0.17 10,942.4 -5.73 10.62 13.22

DATA
›
iShares Morningstar Large-Cap JKD 0.20 594.4 -5.77 15.06 16.38
› AUM is net assets in $US millions
ALPS Sector Dividend Dogs SDOG 0.40 1,019.6 -5.78 14.08 -
› YTD is year-to-date Schwab Fundamental U.S. Large Company FNDX 0.32 690.1 -5.79 - -
› 3YR and 5YR returns are annualized WisdomTree LargeCap Dividend DLN 0.28 1,681.0 -5.89 11.59 14.64
WisdomTree Dividend Ex-Financials DTN 0.38 971.1 -7.59 11.66 15.12
› Includes all U.S.-listed ETFs and ETNs
PowerShares S&P 500 Downside Hedged PHDG 0.40 450.8 -10.30 - -
with assets of $250 million and above
Barclays S&P Veqtor ETN VQT 0.95 406.2 -10.64 2.21 -
› Source: ETF.com U.S. EQUITY: LARGE CAP GROWTH
iShares Morningstar Large-Cap Growth JKE 0.25 755.9 2.62 15.43 18.33
PowerShares Dynamic Large Cap Growth PWB 0.58 321.3 2.30 17.60 18.18
FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % First Trust Large Cap Growth AlphaDEX FTC 0.65 632.3 2.20 18.73 16.34
U.S. EQUITY: TOTAL MARKET iShares Russell Top 200 Growth IWY 0.20 554.7 1.36 14.85 17.40
First Trust US IPO FPX 0.60 833.3 3.23 23.74 23.20 Vanguard Russell 1000 Growth VONG 0.12 451.9 1.08 15.31 -
iShares MSCI USA Momentum Factor MTUM 0.15 815.7 3.04 - - Schwab U.S. Large-Cap Growth SCHG 0.07 2,246.1 0.93 16.66 17.90
Fidelity NASDAQ Composite ONEQ 0.21 601.4 1.76 17.46 19.01 iShares Russell 1000 Growth IWF 0.20 28,572.4 0.88 15.01 17.21
PowerShares DWA Momentum PDP 0.65 1,833.7 1.40 15.51 17.50 Guggenheim S&P 500 Pure Growth RPG 0.35 2,105.9 0.55 19.47 19.57
iShares MSCI USA Minimum Volatility USMV 0.15 5,872.4 -0.17 13.30 - Vanguard S&P 500 Growth VOOG 0.15 558.6 0.06 15.06 -
iShares MSCI USA Quality Factor QUAL 0.15 1,100.1 -0.39 - - iShares S&P 500 Growth IVW 0.18 12,451.7 -0.02 14.15 16.01
Schwab U.S. Broad Market SCHB 0.04 4,914.4 -2.68 14.63 16.06 Vanguard Growth VUG 0.09 18,756.5 -0.19 14.97 17.35
Vanguard Total Stock Market VTI 0.05 54,266.5 -2.70 14.59 16.06 SPDR S&P 500 Growth SPYG 0.15 541.5 -0.27 15.01 17.72
iShares Russell 3000 IWV 0.20 5,989.3 -2.73 14.53 15.84 Vanguard Mega Cap Growth MGK 0.11 1,928.5 -0.63 14.55 17.39
iShares Dow Jones U.S. IYY 0.20 927.6 -2.79 13.43 14.41 U.S. EQUITY: LARGE CAP VALUE
iShares Core S&P Total U.S. Stock Market ITOT 0.07 2,504.9 -2.88 15.26 15.83 Vanguard Value VTV 0.09 17,488.2 -5.04 14.19 14.61
FlexShares Quality Dividend QDF 0.37 657.4 -3.40 - - Vanguard Mega Cap Value MGV 0.11 956.9 -5.22 13.66 14.30
FlexShares Morningstar U.S. Market Factor Tilt TILT 0.27 734.0 -3.96 14.48 - Vanguard Russell 1000 Value VONV 0.12 406.9 -5.99 13.81 -
iShares MSCI KLD 400 Social DSI 0.50 430.1 -4.06 14.31 14.85 Vanguard S&P 500 Value VOOV 0.15 274.7 -5.99 13.41 -
WisdomTree U.S. Quality Dividend Growth DGRW 0.28 480.2 -4.57 - - Schwab U.S. Large-Cap Value SCHV 0.07 1,431.1 -6.03 12.31 13.88
Vident Core U.S. Equity VUSE 0.58 400.8 -4.61 - - iShares S&P 500 Value IVE 0.18 8,044.3 -6.16 13.31 14.00
PowerShares Buyback Achievers PKW 0.68 2,511.3 -4.88 17.06 18.98 iShares Russell 1000 Value IWD 0.20 24,013.4 -6.19 13.77 14.46
iShares MSCI USA ESG Select KLD 0.50 315.2 -5.58 12.90 13.87 iShares Morningstar Large-Cap Value JKF 0.25 258.4 -6.31 10.79 12.17
WisdomTree Total Dividend DTD 0.28 48,835.5 -5.78 12.05 14.68 PowerShares Dynamic Large Cap Value PWV 0.57 975.7 -6.58 12.21 13.28
Vanguard Dividend Appreciation VIG 0.10 18,775.1 -5.85 11.11 13.27 Guggenheim S&P 500 Pure Value RPV 0.35 825.0 -7.98 19.30 18.34
Market Vectors Morningstar Wide Moat MOAT 0.49 797.3 -6.21 12.76 - First Trust Large Cap Value AlphaDEX FTA 0.64 1,085.7 -9.26 12.56 13.93
PowerShares Dividend Achievers PFM 0.55 297.5 -7.37 9.28 12.53 U.S. EQUITY: MID CAP
Guggenheim Spin-Off CSD 0.66 413.1 -7.80 16.56 17.29 Schwab U.S. Mid-Cap SCHM 0.07 1,825.5 0.79 17.18 -
U.S. EQUITY: TOTAL MARKET GROWTH Vanguard Mid-Cap VO 0.09 12,000.3 -1.01 16.99 16.85
iShares Core U.S. Growth IUSG 0.09 737.0 0.83 15.31 17.25 iShares Core S&P Mid-Cap IJH 0.12 25,373.1 -1.59 15.08 16.02
U.S. EQUITY: TOTAL MARKET VALUE Vanguard S&P Mid-Cap 400 IVOO 0.15 376.8 -1.60 15.03 -
iShares MSCI USA Value Factor VLUE 0.15 644.7 -4.99 - - SPDR S&P MidCap 400 MDY 0.25 14,866.1 -1.72 14.76 15.82
iShares Core U.S. Value IUSV 0.09 814.2 -6.24 13.67 14.39 iShares Morningstar Mid-Cap JKG 0.25 517.1 -1.99 16.65 17.89
U.S. EQUITY: EXTENDED CAP iShares Russell Mid-Cap IWR 0.20 12,400.8 -2.39 16.02 16.40
Vanguard Extended Market VXF 0.10 3,972.0 -1.52 15.81 16.61 WisdomTree MidCap Earnings EZM 0.38 731.0 -2.70 16.95 17.45
PowerShares FTSE RAFI US 1500 Small-Mid PRFZ 0.39 1,144.9 -3.93 15.06 15.64 WisdomTree MidCap Dividend DON 0.38 1,464.3 -3.68 15.68 16.16
U.S. EQUITY: LARGE CAP First Trust Mid Cap Core AlphaDEX FNX 0.67 897.0 -4.55 13.82 15.21
PowerShares QQQ QQQ 0.20 37,952.6 1.49 16.88 20.53 U.S. EQUITY: MID CAP GROWTH
PowerShares S&P 500 BuyWrite PBP 0.75 322.1 0.21 3.49 2.28 Guggenheim S&P MidCap 400 Pure Growth RFG 0.35 753.2 5.21 14.21 17.29
PowerShares S&P 500 High Dividend SPHD 0.30 507.2 -1.84 - - iShares S&P Mid-Cap 400 Growth IJK 0.25 5,514.1 1.86 14.84 16.62
First Trust NASDAQ-100 Equal Weighted QQEW 0.60 552.9 -2.30 18.78 17.92 Vanguard S&P Mid-Cap 400 Growth IVOG 0.20 377.5 1.65 14.82 -
iShares Russell 1000 IWB 0.15 11,586.4 -2.60 14.67 15.94 Vanguard Mid-Cap Growth VOT 0.09 3,352.2 0.20 16.27 16.85
Schwab U.S. Large-Cap SCHX 0.04 4,325.2 -2.61 14.51 15.88 iShares Russell Mid-Cap Growth IWP 0.25 5,900.4 -0.44 16.10 16.92
Guggenheim Russell Top 50 Mega Cap XLG 0.20 450.2 -2.68 11.67 14.74 U.S. EQUITY: MID CAP VALUE
Vanguard Large-Cap VV 0.09 5,828.3 -2.74 14.52 15.96 Vanguard Mid-Cap Value VOE 0.09 3,950.4 -2.25 17.55 16.67
Vanguard Russell 1000 VONE 0.12 509.8 -2.84 14.61 - iShares Russell Mid-Cap Value IWS 0.25 6,411.7 -4.54 15.66 15.74

52 ETF.com/ETF Report
FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %
iShares S&P Mid-Cap 400 Value IJJ 0.25 3,925.4 -5.14 14.94 15.19 SPDR S&P Bank KBE 0.35 2,795.5 1.48 16.46 11.16
U.S. EQUITY: SMALL CAP iShares U.S. Regional Banks IAT 0.45 456.5 -0.56 13.81 13.14
PowerShares DWA SmallCap Momentum DWAS 0.60 437.1 1.73 15.58 - First Trust Financials AlphaDEX FXO 0.70 978.7 -1.15 16.35 13.40
SPDR S&P SmallCap 600 SLY 0.15 386.7 -1.83 15.12 17.33 PowerShares KBW Bank KBWB 0.35 451.2 -1.46 17.33 -
Vanguard Small-Cap VB 0.09 11,114.3 -2.19 15.37 16.70 iShares U.S. Financial Services IYG 0.45 908.0 -1.88 20.37 14.74
iShares Core S&P Small-Cap IJR 0.12 16,133.0 -2.19 15.28 17.34 iShares U.S. Financials IYF 0.45 1,591.1 -3.19 16.92 13.86
Schwab U.S. Small-Cap SCHA 0.08 2,893.8 -2.28 15.41 16.84 Vanguard Financials VFH 0.12 3,069.5 -3.40 16.57 13.54
Vanguard Russell 2000 VTWO 0.15 554.4 -2.97 14.15 - Fidelity MSCI Financials FNCL 0.12 299.0 -3.56 - -
iShares Russell 2000 IWM 0.20 25,483.1 -2.98 14.23 15.62 Financial Select SPDR XLF 0.15 18,135.2 -4.49 17.72 13.43
Schwab Fundamental U.S. Small Company FNDA 0.32 413.5 -3.79 - - iShares U.S. Broker-Dealers IAI 0.45 317.8 -4.64 25.25 13.42
WisdomTree SmallCap Earnings EES 0.38 396.3 -5.68 13.78 15.25 PowerShares KBW High Dividend Yield Financial KBWD 2.80 288.6 -4.95 6.47 -
RevenueShares Small Cap RWJ 0.54 347.0 -5.93 15.98 17.20 U.S. EQUITY: HEALTH CARE
First Trust Small Cap Core AlphaDEX FYX 0.67 632.9 -6.17 12.89 15.52 SPDR S&P Biotech XBI 0.35 2,579.9 19.44 36.98 34.04
WisdomTree SmallCap Dividend DES 0.38 1,178.6 -6.43 13.43 14.52 PowerShares S&P SmallCap Health Care PSCH 0.29 271.2 18.01 26.22 26.99
U.S. EQUITY: SMALL CAP GROWTH PowerShares Dynamic Pharmaceuticals PJP 0.58 1,897.8 12.89 32.49 32.26
iShares S&P Small-Cap 600 Growth IJT 0.25 3,325.0 2.25 15.92 18.48 iShares Nasdaq Biotechnology IBB 0.48 8,238.3 12.76 36.33 34.61
SPDR S&P SmallCap 600 Growth SLYG 0.15 541.8 2.04 15.92 18.94 iShares U.S. Healthcare Providers IHF 0.45 939.2 11.79 26.29 25.28
iShares Russell 2000 Growth IWO 0.25 6,653.0 0.97 16.74 17.97 PowerShares DWA Healthcare Momentum PTH 0.60 250.0 11.33 22.87 22.43
Vanguard Small-Cap Growth VBK 0.09 4,436.6 -0.34 14.15 16.80 iShares U.S. Pharmaceuticals IHE 0.45 1,159.5 10.66 26.14 26.20
U.S. EQUITY: SMALL CAP VALUE First Trust NYSE Arca Biotechnology FBT 0.58 3,394.0 10.37 37.46 28.69
Vanguard Small-Cap Value VBR 0.09 5,550.1 -3.86 15.74 15.85 SPDR S&P Pharmaceuticals XPH 0.35 1,008.3 7.57 29.42 26.62
SPDR S&P SmallCap 600 Value SLYV 0.15 374.3 -6.10 14.35 15.42 PowerShares Dynamic Biotech & Genome PBE 0.59 499.0 6.93 32.68 25.23
iShares S&P Small-Cap 600 Value IJS 0.25 3,254.1 -6.65 14.27 15.99 Guggenheim S&P Equal Weight Health Care RYH 0.40 826.8 6.57 27.46 24.66
iShares Russell 2000 Value IWN 0.25 5,676.6 -6.95 11.61 13.11 First Trust Health Care AlphaDEX FXH 0.70 3,849.0 6.14 27.28 25.04
iShares Morningstar Small-Cap Value JKL 0.30 389.8 -7.46 13.88 14.96 Vanguard Health Care VHT 0.12 5,783.3 5.41 25.09 23.45
U.S. EQUITY: MICRO CAP Fidelity MSCI Health Care FHLC 0.12 767.3 5.38 - -
iShares Micro-Cap IWC 0.60 850.7 -2.89 14.65 15.14 iShares U.S. Medical Devices IHI 0.45 783.8 5.18 22.78 20.49
U.S. EQUITY: BASIC MATERIALS iShares U.S. Healthcare IYH 0.45 2,231.8 4.73 24.21 22.72
Materials Select SPDR XLB 0.15 2,209.7 -10.00 9.13 9.60 Health Care Select SPDR XLV 0.15 14,121.0 3.73 24.09 22.40
Vanguard Materials VAW 0.12 1,043.9 -10.22 8.50 10.24 U.S. EQUITY: INDUSTRIALS
iShares U.S. Basic Materials IYM 0.45 364.1 -13.67 4.35 5.76 iShares U.S. Aerospace & Defense ITA 0.44 510.6 -0.45 22.74 19.96
SPDR S&P Metals and Mining XME 0.35 266.1 -33.21 -19.44 -14.70 iShares U.S. Industrials IYJ 0.45 587.4 -5.93 14.51 15.65
U.S. EQUITY: CONSUMER CYCLICALS Vanguard Industrials VIS 0.12 1,898.3 -7.11 15.38 15.79
iShares U.S. Home Construction ITB 0.45 2,154.2 7.40 15.67 20.99 Industrial Select SPDR XLI 0.15 6,180.4 -8.48 14.56 15.08
SPDR S&P Homebuilders XHB 0.35 1,917.2 6.40 16.05 21.89 First Trust Industrials/Producer Durables AlphaDEX FXR 0.70 335.8 -8.90 15.66 14.25
Consumer Discretionary Select SPDR XLY 0.15 10,232.6 4.60 19.91 21.81 iShares Transportation Average IYT 0.45 775.9 -13.47 17.72 14.90
Vanguard Consumer Discretionary VCR 0.12 1,821.7 3.42 20.02 21.88 SPDR S&P Transportation XTN 0.35 290.2 -14.97 24.88 -
Fidelity MSCI Consumer Discretionary FDIS 0.12 294.2 3.24 - - U.S. EQUITY: TECHNOLOGY
iShares U.S. Consumer Services IYC 0.45 1,037.1 2.18 19.88 21.96 First Trust Dow Jones Internet FDN 0.57 3,365.8 11.59 23.21 21.15
First Trust Consumer Discretionary AlphaDEX FXD 0.70 2,447.7 -1.11 18.32 18.89 iShares North American Tech-Software IGV 0.48 866.0 2.68 15.20 15.32
SPDR S&P Retail XRT 0.35 1,127.3 -1.94 16.57 22.45 iShares North American Tech IGM 0.48 799.2 0.33 15.15 16.96
U.S. EQUITY: CONSUMER NON-CYCLICALS SPDR Morgan Stanley Technology MTK 0.35 419.6 -0.06 15.83 15.49
First Trust Consumer Staples AlphaDEX FXG 0.70 2,793.8 3.12 23.00 19.33 U.S. Equity: Technology XLK 0.15 11,289.2 -1.87 11.81 16.22
Guggenheim S&P Equal Weight Consumer Staples RHS 0.40 308.1 2.81 17.59 16.82 Vanguard Information Technology VGT 0.12 7,258.7 -2.05 13.45 16.84
iShares U.S. Consumer Goods IYK 0.45 660.0 -0.69 14.05 15.31 Fidelity MSCI Information Technology FTEC 0.12 377.7 -2.42 - -
Vanguard Consumer Staples VDC 0.12 2,392.7 -1.23 13.81 15.88 PowerShares S&P SmallCap Information Tech PSCT 0.29 354.9 -2.45 18.13 18.39
Consumer Staples Select SPDR XLP 0.15 7,347.4 -1.24 13.18 15.47 iShares U.S. Technology IYW 0.45 2,530.8 -3.11 11.46 15.41
U.S. EQUITY: ENERGY Guggenheim S&P Equal Weight Technology RYT 0.40 693.5 -4.03 17.90 16.30
Alerian MLP AMLP 5.43 7,877.1 -12.93 2.38 5.81 First Trust Technology AlphaDEX FXL 0.70 705.5 -5.71 14.68 13.77
First Trust North American Energy Infrastructure EMLP 0.95 975.7 -13.81 7.27 - First Trust NASDAQ-100-Technology QTEC 0.60 290.7 -7.91 17.06 16.09
iShares U.S. Oil & Gas Exploration & Production IEO 0.45 419.4 -14.26 0.57 6.17 Market Vectors Semiconductor SMH 0.35 427.1 -9.28 16.51 -
iShares U.S. Oil Equipment & Services IEZ 0.45 298.7 -14.33 -5.30 2.81 iShares PHLX Semiconductor SOXX 0.47 365.2 -10.14 17.21 16.49
Energy Select SPDR XLE 0.15 12,049.1 -14.95 -0.40 7.38 U.S. EQUITY: TELECOMMUNICATIONS
iShares U.S. Energy IYE 0.45 1,186.8 -15.53 -1.24 6.59 Vanguard Telecommunication Services VOX 0.12 796.9 -1.18 9.35 11.41
Vanguard Energy VDE 0.12 3,698.1 -15.96 -1.35 6.33 iShares U.S. Telecommunications IYZ 0.45 425.5 -1.41 7.31 8.25
Fidelity MSCI Energy FENY 0.12 256.8 -16.30 - - U.S. EQUITY: UTILITIES
ETRACS Alerian MLP Infrastructure ETN MLPI 0.85 2,151.3 -18.25 1.30 5.53 Utilities Select SPDR XLU 0.15 6,614.6 -8.55 9.38 10.85
ETRACS Alerian MLP ETN AMU 0.80 391.5 -18.62 0.12 - iShares U.S. Utilities IDU 0.45 565.7 -8.96 9.53 11.03
SPDR S&P Oil & Gas Exploration & Production XOP 0.35 1,925.8 -19.57 -9.19 0.88 Vanguard Utilities VPU 0.12 1,581.4 -9.09 9.52 11.12
First Trust Energy AlphaDEX FXN 0.70 277.1 -19.94 -3.66 2.33 U.S. EQUITY: REAL ESTATE
Barclays ETN+ Select MLP ETN ATMP 0.95 289.1 -19.94 - - iShares Residential Real Estate Capped REZ 0.48 253.6 -1.53 8.99 13.04
iPath S&P MLP ETN IMLP 0.80 579.3 -20.65 - - iShares Mortgage Real Estate Capped REM 0.48 1,019.9 -5.65 1.20 6.43
JPMorgan Alerian MLP ETN AMJ 0.85 4,440.4 -22.07 -1.41 3.60 iShares Cohen & Steers REIT ICF 0.35 2,989.8 -5.75 7.32 11.92
Credit Suisse X-Links Cushing MLP Infrastr ETN MLPN 0.85 575.2 -23.24 1.51 5.26 Schwab U. S. REIT SCHH 0.07 1,509.8 -6.07 7.92 -
U.S. EQUITY: FINANCIALS SPDR Dow Jones REIT RWR 0.25 2,807.6 -6.29 7.75 12.25
SPDR S&P Insurance KIE 0.35 537.2 3.32 20.25 15.61 iShares U.S. Real Estate IYR 0.45 4,288.7 -6.68 6.38 10.82
SPDR S&P Regional Banking KRE 0.35 2,408.4 1.70 15.99 16.24 Vanguard REIT VNQ 0.12 24,299.2 -7.13 6.93 10.15

OCTOBER 2015 53
FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %
U.S. EQUITY: HIGH DIVIDEND YIELD Vanguard FTSE Pacific VPL 0.12 2,771.8 -0.57 7.05 5.80
PowerShares High Yield Equity Dividend Achievers PEY 0.55 489.2 -2.57 15.14 14.93 SPDR S&P World ex-US GWL 0.34 745.0 -0.57 7.31 6.64
First Trust Value Line Dividend FVD 0.70 1,109.4 -3.94 13.11 14.46 iShares MSCI Sweden EWD 0.48 331.5 -0.85 7.61 8.42
Vanguard High Dividend Yield VYM 0.10 10,581.0 -5.26 12.46 15.39 SPDR Euro STOXX 50 FEZ 0.29 4,385.2 -0.85 9.46 5.68
First Trust Morningstar Dividend Leaders FDL 0.45 792.5 -5.33 9.51 13.07 Schwab International Equity SCHF 0.08 4,014.0 -1.04 7.22 6.44
iShares Core High Dividend HDV 0.12 4,063.0 -5.43 9.32 - SPDR STOXX Europe 50 FEU 0.29 263.8 -1.18 6.43 5.93
SPDR S&P Dividend SDY 0.35 12,321.6 -5.45 13.26 13.83 WisdomTree International Equity DWM 0.48 671.1 -1.65 7.71 6.95
iShares Select Dividend DVY 0.39 12,960.0 -5.95 12.46 14.64 iShares MSCI EAFE Value EFV 0.40 2,731.1 -1.80 7.61 5.99
WisdomTree Equity Income DHS 0.38 878.2 -6.34 10.46 14.01 WisdomTree International LargeCap Dividend DOL 0.48 387.9 -1.86 6.61 6.26
Schwab US Dividend Equity SCHD 0.07 2,497.8 -7.05 11.64 - iShares MSCI Germany EWG 0.48 6,606.1 -2.24 9.49 8.78
Global X SuperDividend U.S. DIV 0.45 277.5 -9.51 - - Schwab Fundamental International Large Company FNDF 0.32 700.0 -2.30 - -
GLOBAL EQUITY iShares MSCI Kokusai TOK 0.25 320.2 -2.37 11.21 11.88
First Trust Dorsey Wright Focus 5 FV 0.94 4,283.5 6.03 - - PowerShares FTSE RAFI Developed Markets ex-U.S. PXF 0.45 840.6 -2.41 8.11 5.39
iShares MSCI All Country World Minimum Volatility ACWV 0.20 2,115.6 -0.98 9.09 - PowerShares DWA Developed Markets Momentum PIZ 0.80 296.7 -3.64 9.38 6.94
Vanguard Total World Stock VT 0.17 4,587.3 -2.79 10.01 9.97 iShares MSCI United Kingdom EWU 0.48 3,210.5 -3.66 4.50 6.69
iShares MSCI ACWI ACWI 0.33 6,212.7 -3.39 9.49 9.68 WisdomTree International Dividend ex-Financials DOO 0.58 307.2 -4.18 4.79 4.95
iShares Global 100 IOO 0.40 1,639.9 -5.09 8.60 8.85 iShares MSCI Hong Kong EWH 0.48 2,722.3 -4.90 7.41 6.85
GLOBAL EQUITY EX-U.S. PowerShares S&P Intl Developed Low Volatility IDLV 0.25 314.8 -5.34 4.20 -
Vanguard FTSE All-World ex-US Small Cap VSS 0.19 2,426.2 -1.37 6.85 5.91 iShares MSCI Spain Capped EWP 0.48 1,666.1 -6.02 9.80 -1.29
First Trust Dorsey Wright International Focus 5 IFV 1.10 684.0 -2.44 - - iShares MSCI Pacific ex Japan EPP 0.49 1,984.1 -12.09 -0.27 3.54
Vanguard Total International Stock VXUS 0.14 4,641.3 -2.84 5.82 - iShares MSCI Australia EWA 0.48 1,227.8 -13.84 -2.48 2.57
iShares Core MSCI Total International Stock IXUS 0.14 1,698.5 -3.23 - - iShares MSCI Canada EWC 0.48 1,931.2 -15.26 -1.92 0.68
Vanguard FTSE All-World ex-US VEU 0.14 13,393.5 -3.31 5.56 5.06 iShares MSCI Singapore EWS 0.48 610.2 -17.97 -3.46 1.02
iShares MSCI ACWI ex U.S. ACWX 0.33 1,867.7 -3.73 5.26 4.61 Global X FTSE Greece 20 GREK 0.61 280.7 -31.34 -8.48 -
SPDR MSCI ACWI ex-US CWI 0.30 769.0 -4.24 5.43 4.94 INTERNATIONAL EQUITY: EMERGING
FlexShares International Quality Dividend IQDF 0.47 406.5 -5.79 - - Market Vectors Russia RSX 0.61 1,761.9 14.97 -12.06 -9.01
PowerShares International Dividend Achievers PID 0.54 1,217.5 -8.40 4.89 6.45 PowerShares India PIN 0.85 470.4 -4.32 6.61 -1.58
Vident International Equity VIDI 0.75 616.3 -10.44 - - iShares MSCI India INDA 0.68 3,583.9 -5.82 8.53 -
INTERNATIONAL EQUITY: BLENDED DEVELOPMENT iPath MSCI India ETN INP 0.89 308.0 -6.65 8.46 0.20
iShares Asia 50 AIA 0.50 357.1 -10.01 2.06 4.05 iShares India 50 INDY 0.94 866.1 -7.96 7.65 1.37
iShares MSCI All Country Asia ex Japan AAXJ 0.68 2,695.2 -11.91 1.90 1.41 iShares MSCI Philippines EPHE 0.62 266.3 -8.11 7.23 -
INTERNATIONAL EQUITY: DEVELOPED iShares MSCI Emerging Markets Minimum Volatility EEMV 0.25 2,462.3 -9.23 -0.66 -
WisdomTree Japan SmallCap Dividend DFJ 0.58 297.3 13.77 11.57 9.33 iShares MSCI Mexico Capped EWW 0.48 1,207.1 -10.38 -3.55 3.36
WisdomTree Europe SmallCap Dividend DFE 0.58 1,008.9 11.18 20.47 14.14 WisdomTree India Earnings EPI 0.83 1,755.3 -10.49 6.94 -2.41
iShares MSCI Italy Capped EWI 0.48 1,077.5 10.74 9.74 0.82 iShares MSCI South Africa EZA 0.62 373.4 -10.53 -1.54 2.53
iShares Currency Hedged MSCI Japan HEWJ 0.48 735.0 9.02 - - iShares MSCI China MCHI 0.62 1,815.2 -11.29 5.80 -
Deutsche X-trackers MSCI Japan Hedged Equity DBJP 0.45 1,345.4 8.73 27.92 - SPDR S&P Emerging Asia Pacific GMF 0.49 645.1 -11.40 4.21 2.63
iShares MSCI Japan EWJ 0.48 19,143.5 8.37 11.73 6.90 iShares MSCI Taiwan EWT 0.62 3,275.5 -11.58 3.82 4.38
iShares Currency Hedged MSCI EMU HEZU 0.51 1,562.5 7.31 - - SPDR S&P China GXC 0.59 900.3 -12.02 6.24 2.05
WisdomTree Japan Hedged Equity DXJ 0.48 16,878.4 6.74 24.70 12.64 Schwab Emerging Markets Equity SCHE 0.14 1,268.4 -12.59 -1.87 -0.89
iShares MSCI EAFE Small-Cap SCZ 0.40 4,951.3 6.24 12.82 10.72 iShares Core MSCI Emerging Markets IEMG 0.18 7,025.3 -12.69 - -
WisdomTree Intl Hedged Quality Div Growth IHDG 0.58 495.0 5.56 - - Vanguard FTSE Emerging Markets VWO 0.15 38,891.5 -12.73 -1.99 -0.73
WisdomTree Europe Hedged Equity HEDJ 0.58 19,874.0 5.28 14.24 9.34 iShares MSCI Emerging Markets EEM 0.68 20,998.8 -13.23 -3.03 -1.43
iShares MSCI EAFE Minimum Volatility EFAV 0.20 2,878.3 4.77 9.09 - iShares China Large-Cap FXI 0.74 5,872.5 -13.27 5.07 0.45
SPDR S&P International Small Cap GWX 0.40 701.4 4.54 9.10 7.43 iShares MSCI South Korea Capped EWY 0.62 3,163.0 -13.47 -4.47 0.55
WisdomTree International SmallCap Dividend DLS 0.58 1,050.6 4.54 11.47 9.83 Deutsche X-trackers Harvest CSI 300 China A-Shares ASHR 0.80 534.8 -13.92 - -
iShares Currency Hedged MSCI Germany HEWG 0.53 1,746.7 3.96 - - Schwab Fundamental Emrg Mkts Large Company FNDE 0.46 267.1 -14.30 - -
Deutsche X-trackers MSCI Europe Hedged Equity DBEU 0.45 2,960.7 3.88 - - WisdomTree Emerging Markets SmallCap Dividend DGS 0.63 1,059.4 -14.42 -3.55 -1.19
Deutsche X-trackers MSCI EAFE Hedged Equity DBEF 0.35 13,586.0 3.70 14.10 - PowerShares FTSE RAFI Emerging Markets PXH 0.49 342.4 -15.71 -6.53 -4.26
WisdomTree Germany Hedged Equity DXGE 0.48 335.9 3.51 - - SPDR S&P Emerging Markets Small Cap EWX 0.65 393.7 -15.73 -1.87 -2.44
iShares Currency Hedged MSCI EAFE HEFA 0.39 2,832.5 3.23 - - iShares Latin America 40 ILF 0.49 495.1 -22.16 -14.05 -9.20
iShares MSCI France EWQ 0.48 350.1 3.22 9.60 6.70 iShares MSCI Malaysia EWM 0.48 263.7 -23.42 -8.47 -1.54
Schwab Fundamental Intl Small Company FNDC 0.46 312.1 3.19 - - iShares MSCI Indonesia EIDO 0.62 268.4 -26.41 -9.79 -3.29
First Trust Europe AlphaDex FEP 0.80 390.1 2.89 11.60 - iShares MSCI Turkey TUR 0.62 371.2 -27.92 -10.13 -6.85
iShares MSCI Switzerland Capped EWL 0.48 1,200.4 2.81 11.99 9.11 iShares MSCI Brazil Capped EWZ 0.62 1,989.2 -30.69 -20.58 -17.14
Schwab International Small-Cap Equity SCHC 0.18 609.8 1.98 8.64 7.53 INTERNATIONAL EQUITY: FRONTIER
iShares MSCI EAFE Growth EFG 0.40 1,909.2 1.64 8.50 7.58 iShares MSCI Frontier 100 FM 0.79 503.0 -12.18 - -
iShares Core MSCI EAFE IEFA 0.12 6,225.4 1.37 - - Market Vectors Vietnam VNM 0.70 441.2 -15.30 1.14 -5.29
iShares Core MSCI Pacific IPAC 0.14 592.1 1.18 - - GLOBAL EQUITY: SECTOR
iShares Core MSCI Europe IEUR 0.14 650.1 0.98 - - Market Vectors Pharmaceutical PPH 0.35 370.1 7.02 23.24 -
iShares MSCI EMU EZU 0.48 10,134.4 0.88 10.27 6.42 iShares Global Healthcare IXJ 0.48 1,706.1 5.74 21.00 19.70
Vanguard FTSE Europe VGK 0.12 14,888.7 0.43 9.17 7.93 PowerShares Global Listed Private Equity PSP 2.04 443.5 5.58 13.60 9.14
iShares MSCI EAFE EFA 0.33 56,487.2 0.24 8.38 6.98 iShares Global Consumer Discretionary RXI 0.48 282.7 2.66 16.86 16.86
Vanguard FTSE Developed Markets VEA 0.09 26,899.6 0.20 8.47 7.04 PureFunds ISE Cyber Security HACK 0.75 1,161.2 2.38 - -
FlexShares Mstar Dev Mkts ex-US Factor Tilt TLTD 0.42 548.4 0.07 - - First Trust ISE Cloud Computing SKYY 0.60 474.5 2.05 14.71 -
iShares Europe IEV 0.60 2,781.5 -0.21 8.68 7.38 iShares Global Telecom IXP 0.48 425.9 1.26 6.75 8.42

54 ETF.com/ETF Report
FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %
iShares Global Consumer Staples KXI 0.48 606.8 -0.02 9.20 12.30 SPDR Barclays 1-3 Month T-Bill BIL 0.14 2,280.3 -0.07 -0.08 -0.06
iShares Global Tech IXN 0.48 822.4 -3.33 11.75 14.15 U.S. FIXED INCOME: TREASURY - INTERMEDIATE
iShares Global Financials IXG 0.48 308.5 -3.91 12.61 8.22 iShares 3-7 Year Treasury Bond IEI 0.15 5,791.7 1.73 0.92 2.19
Market Vectors Agribusiness MOO 0.57 1,260.8 -4.57 2.51 4.56 Schwab Intermediate-Term U.S. Treasury SCHR 0.09 380.3 1.48 0.94 2.50
FlexShares STOXX Global Broad Infrastructure NFRA 0.47 385.6 -4.94 - - iShares 7-10 Year Treasury Bond IEF 0.15 7,875.1 1.47 1.06 3.59
Guggenheim S&P Global Water CGW 0.65 346.7 -5.06 10.27 11.52 SPDR Barclays Intermediate Term Treasury ITE 0.10 349.2 1.14 0.75 1.72
SPDR Dow Jones Global Real Estate RWO 0.50 1,880.8 -5.41 6.64 10.23 U.S. FIXED INCOME: TREASURY - LONG-TERM
iShares Global Infrastructure IGF 0.48 1,132.7 -7.14 7.52 7.91 iShares 10-20 Year Treasury Bond TLH 0.15 459.5 1.12 1.39 4.35
First Trust Nasdaq Technology Dividend TDIV 0.50 498.1 -9.35 10.47 - iShares 20+ Year Treasury Bond TLT 0.15 5,424.1 -2.14 1.15 5.53
Market Vectors Oil Services OIH 0.35 1,085.7 -12.42 -6.56 - Vanguard Extended Duration Treasury EDV 0.12 365.5 -4.44 1.41 7.76
Guggenheim Solar TAN 0.71 266.6 -13.28 26.09 -13.03 U.S. FIXED INCOME: AGENCIES
PowerShares Water Resources PHO 0.61 710.4 -14.43 5.79 8.64 iShares Agency Bond AGZ 0.20 579.0 1.16 1.14 1.75
Market Vectors Junior Gold Miners GDXJ 0.55 1,244.7 -15.04 -37.54 -27.47 U.S. FIXED INCOME: AGENCY MBS
iShares Global Energy IXC 0.48 870.3 -15.67 -4.64 2.80 Vanguard Mortgage-Backed Securities VMBS 0.12 1,450.9 1.03 1.67 2.76
SPDR Global Natural Resources GNR 0.40 589.8 -16.05 -6.85 - iShares MBS MBB 0.27 7,458.4 0.85 1.60 2.54
iShares North American Natural Resources IGE 0.48 1,886.9 -16.25 -4.25 1.64 U.S. FIXED INCOME: TIPS
FlexShares Mstar Global Upstr Natural Resources GUNR 0.48 1,999.2 -16.59 -7.25 - FlexShares iBoxx 5-Year Target Duration TIPS TDTF 0.20 438.4 1.59 -1.08 -
Market Vectors Gold Miners GDX 0.53 4,595.7 -23.23 -33.03 -22.91 Vanguard Short-Term Inflation-Protected Sec VTIP 0.10 1,788.1 0.35 - -
iShares Exponential Technologies XT 0.47 644.6 - - - iShares 0-5 Year TIPS Bond STIP 0.10 585.8 0.33 -0.74 -
GLOBAL EX-U.S. EQUITY: SECTOR FlexShares iBoxx 3-Year Target Duration TIPS TDTT 0.20 2,089.0 0.29 -0.97 -
Market Vectors Biotech BBH 0.35 756.1 9.21 35.61 - PIMCO 1-5 Year U.S. TIPS STPZ 0.20 1,159.2 0.25 -0.92 1.02
SPDR Dow Jones International Real Estate RWX 0.59 4,846.9 -3.68 5.66 8.03 iShares TIPS Bond TIP 0.20 13,351.3 -0.38 -1.62 2.65
iShares International Developed Real Estate IFGL 0.48 899.3 -3.95 5.04 6.85 Schwab U.S. TIPS SCHP 0.07 782.5 -0.66 -1.60 2.60
Vanguard Global ex-U.S. Real Estate VNQI 0.24 3,032.5 -4.01 4.85 - SPDR Barclays TIPS IPE 0.15 661.0 -0.79 -1.74 2.78
INTERNATIONAL EQUITY: DEVELOPED SECTOR U.S. FIXED INCOME: MUNICIPAL - BROAD MARKET
iShares MSCI Europe Financials EUFN 0.48 427.9 1.32 13.21 4.20 PowerShares National AMT-Free Municipal Bond PZA 0.28 877.9 0.65 3.05 4.56
INTERNATIONAL EQUITY: EMERGING SECTOR iShares California AMT-Free Muni Bond CMF 0.25 407.6 0.39 3.10 4.32
EGShares Emerging Markets Consumer ECON 0.84 781.9 -10.38 0.10 - SPDR Nuveen Barclays Municipal Bond TFI 0.23 1,432.4 0.21 2.29 3.51
GLOBAL EQUITY: HIGH DIVIDEND YIELD iShares National AMT-Free Muni Bond MUB 0.25 5,178.0 0.13 1.97 3.39
Global X SuperDividend SDIV 0.58 878.8 -8.31 4.33 - U.S. FIXED INCOME: MUNICIPAL - SHORT-TERM
First Trust Dow Jones Global Select Dividend FGD 0.60 437.9 -8.75 2.04 3.40 SPDR Nuveen Barclays Short Term Municipal Bond SHM 0.20 2,582.7 0.78 0.85 1.22
GLOBAL EX-U.S. EQUITY: HIGH DIVIDEND YIELD iShares Short-Term National AMT-Free Muni Bond SUB 0.25 946.8 0.18 0.42 0.85
SPDR S&P International Dividend DWX 0.45 1,077.3 -12.33 -1.77 -0.26 Market Vectors Short Municipal SMB 0.20 272.7 0.08 0.53 1.23
INTERNATIONAL EQUITY: HIGH DIVIDEND YIELD U.S. FIXED INCOME: MUNICIPAL - INTERMEDIATE
WisdomTree DEFA Equity Income DTH 0.58 322.9 -4.61 6.36 6.14 Market Vectors Intermediate Municipal ITM 0.24 1,132.2 -0.01 2.14 3.59
iShares International Select Dividend IDV 0.50 3,243.8 -10.45 2.68 5.61 U.S. FIXED INCOME: MUNICIPAL - HIGH YIELD
WisdomTree Emerging Markets Equity Income DEM 0.63 1,707.7 -12.83 -8.03 -2.86 Market Vectors High-Yield Municipal HYD 0.35 1,514.0 0.07 2.28 5.02
SPDR S&P Emerging Markets Dividend EDIV 0.49 338.2 -19.40 -10.45 - SPDR Nuveen S&P High Yield Municipal Bond HYMB 0.45 342.0 -0.33 4.02 -
U.S. FIXED INCOME: BROAD MARKET - BROAD MATURITIES U.S. FIXED INCOME: MUNICIPAL - BUILD AMERICA BONDS
iShares Core Total USD Bond Market IUSB 0.15 409.5 0.96 - - PowerShares Build America Bond BAB 0.27 655.4 -2.08 3.16 6.63
Vanguard Total Bond Market BND 0.08 26,446.9 0.26 1.34 2.81 U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - BROAD MATURITIES
iShares Core U.S. Aggregate Bond AGG 0.08 25,887.5 0.19 1.44 2.79 iShares Aaa - A Rated Corporate Bond QLTA 0.15 391.3 -0.49 1.55 -
Vident Core U.S. Bond Strategy VBND 0.45 426.3 0.17 - - iShares iBoxx $ Investment Grade Corporate Bond LQD 0.15 20,965.8 -1.76 1.96 4.35
Schwab U.S. Aggregate Bond SCHZ 0.05 1,751.1 0.15 1.43 - iShares Core U.S. Credit Bond CRED 0.15 821.6 -1.90 1.55 3.67
SPDR Barclays Aggregate Bond LAG 0.08 961.0 -0.04 1.39 2.82 U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - SHORT-TERM
U.S. FIXED INCOME: BROAD MARKET - SHORT-TERM Vanguard Short-Term Corporate Bond VCSH 0.12 10,376.4 0.77 1.71 2.58
iShares Core Short-Term USD Bond ISTB 0.12 404.4 0.90 - - Guggenheim BulletShares 2017 Corporate Bond BSCH 0.25 906.9 0.65 1.81 3.64
iShares Short Maturity Bond NEAR 0.25 1,506.2 0.57 - - Guggenheim BulletShares 2016 Corporate Bond BSCG 0.25 701.2 0.58 1.36 2.99
PIMCO Enhanced Short Maturity Strategy MINT 0.35 4,252.5 0.51 0.54 0.89 iShares 1-3 Year Credit Bond CSJ 0.20 10,942.1 0.54 0.99 1.41
U.S. FIXED INCOME: GOVERNMENT/CREDIT - SHORT-TERM SPDR Barclays Short Term Corporate Bond SCPB 0.12 3,997.4 0.46 1.06 1.65
Vanguard Short-Term Bond BSV 0.10 16,565.2 0.90 0.89 1.43 Guggenheim BulletShares 2015 Corporate Bond BSCF 0.25 393.7 0.28 0.98 2.38
U.S. FIXED INCOME: GOVERNMENT/CREDIT - INTERMEDIATE U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - INTERMEDIATE
Vanguard Intermediate-Term Bond BIV 0.10 6,510.3 1.09 1.82 3.87 Guggenheim BulletShares 2019 Corporate Bond BSCJ 0.25 380.6 1.78 2.49 -
iShares Intermediate Government/Credit Bond GVI 0.20 1,828.4 0.86 1.02 2.17 Guggenheim BulletShares 2020 Corporate Bond BSCK 0.25 363.4 1.70 2.97 -
U.S. FIXED INCOME: GOVERNMENT/CREDIT - LONG-TERM Guggenheim BulletShares 2018 Corporate Bond BSCI 0.25 711.6 1.10 2.26 -
Vanguard Long-Term Bond BLV 0.10 1,509.6 -3.32 1.62 5.49 iShares Intermediate Credit Bond CIU 0.20 6,225.5 0.47 1.78 3.16
U.S. FIXED INCOME: GOVERNMENT SPDR Barclays Intermediate Term Corporate Bond ITR 0.12 843.1 0.38 2.01 3.57
Vanguard Intermediate-Term Government Bond VGIT 0.12 359.6 1.45 0.97 2.51 Vanguard Intermediate-Term Corporate Bond VCIT 0.12 5,402.4 -0.36 2.39 4.59
Vanguard Short-Term Government Bond VGSH 0.12 625.6 0.67 0.50 0.65 U.S. FIXED INCOME: CORPORATE - INVESTMENT GRADE - FLOATING RATE
U.S. FIXED INCOME: TREASURY - BROAD MATURITIES iShares Floating Rate Bond FLOT 0.20 3,549.3 0.37 0.79 -
iShares Core U.S. Treasury Bond GOVT 0.15 1,368.9 0.92 0.79 - SPDR Barclays Investment Grade Floating Rate FLRN 0.15 387.3 0.21 0.46 -
PowerShares 1-30 Laddered Treasury PLW 0.25 270.8 -0.41 1.11 3.93 U.S. FIXED INCOME: CORPORATE - HIGH YIELD - BROAD MATURITIES
U.S. FIXED INCOME: TREASURY - SHORT TERM PowerShares Fundamental HiYld Corp Bond PHB 0.50 672.7 -0.15 3.08 5.66
iShares 1-3 Year Treasury Bond SHY 0.15 11,942.7 0.69 0.46 0.61 iShares iBoxx $ High Yield Corporate Bond HYG 0.50 12,896.6 -0.76 3.59 6.44
Schwab Short-Term U. S. Treasury SCHO 0.08 1,023.4 0.57 0.48 0.62 SPDR Barclays High Yield Bond JNK 0.40 10,143.2 -0.88 3.32 6.26
iShares Short Treasury Bond SHV 0.15 3,451.5 0.03 0.02 0.04 AdvisorShares Peritus High Yield HYLD 1.18 298.4 -1.65 -0.24 -

OCTOBER 2015 55
FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR % FUND NAME TICKER EXP RATIO % AUM ($M) YTD % 3YR % 5YR %
Vanguard Long-Term Corporate Bond VCLT 0.12 971.9 -5.52 1.40 5.34 ETFS Physical Platinum PPLT 0.60 502.9 -16.57 -13.69 -8.45
iShares 10+ Year Credit Bond CLY 0.20 750.9 -5.67 0.82 4.93 ASSET ALLOCATION
U.S. FIXED INCOME: CORPORATE - HIGH YIELD - SHORT-TERM WBI Tactical Income Shares WBII 1.05 317.8 0.47 - -
Guggenheim BulletShares 2016 HiYld Corp Bond BSJG 0.44 733.0 2.66 4.70 - iShares Moderate Allocation AOM 0.24 352.0 -1.58 5.23 6.28
Guggenheim BulletShares 2015 HiYld Corp Bond BSJF 0.44 530.7 1.75 3.84 - iShares Growth Allocation AOR 0.24 475.5 -1.96 7.68 8.77
Guggenheim BulletShares 2017 HiYld Corp Bond BSJH 0.43 570.4 1.42 4.10 - iShares Aggressive Allocation AOA 0.23 360.0 -2.02 9.92 11.61
PIMCO 0-5 Year High Yield Corporate Bond HYS 0.55 2,343.0 -0.37 3.71 - PowerShares CEF Income Composite PCEF 1.88 623.7 -3.04 2.44 5.07
iShares 0-5 Year High Yield Corporate Bond SHYG 0.30 848.9 -0.52 - - First Trust Multi-Asset Diversified Income MDIV 0.67 942.8 -5.67 4.29 -
SPDR Barclays Short Term High Yield Bond SJNK 0.40 3,669.2 -1.14 2.54 - Guggenheim Multi-Asset Income CVY 0.84 647.3 -8.89 1.80 7.33
U.S. FIXED INCOME: CORPORATE - HIGH YIELD - INTERMEDIATE iShares Commodities Select Strategy COMT 0.48 273.9 -15.95 - -
Guggenheim BulletShares 2018 HiYld Corp Bond BSJI 0.44 447.4 0.44 4.17 - ALTERNATIVES: ABSOLUTE RETURN
U.S. FIXED INCOME: CORPORATE - CONVERTIBLES IQ Hedge Multi-Strategy Tracker QAI 0.91 1,032.2 -1.09 2.49 2.72
SPDR Barclays Convertible Securities CWB 0.40 2,894.7 -0.74 11.17 9.18 ALTERNATIVES: TACTICAL TOOLS
U.S. FIXED INCOME: CORPORATE - LOANS iPath S&P 500 VIX Short-Term Futures ETN VXX 0.89 1,426.2 -14.79 -47.55 -54.74
PowerShares Senior Loan BKLN 0.65 4,958.9 -0.24 2.28 - LEVERAGED
Highland/iBoxx Senior Loan SNLN 0.55 312.8 -0.70 - - ProShares Ultra NASDAQ Biotech BIB 0.95 832.4 21.13 75.05 70.23
U.S. FIXED INCOME: CORPORATE - PREFERRED STOCK Direxion Daily Healthcare Bull 3x CURE 1.01 357.9 3.95 76.27 -
PowerShares Financial Preferred PGF 0.63 1,412.0 3.94 5.98 7.18 Credit Suisse FI Enhanced Europe 50 ETN FIEU 0.80 270.5 1.50 - -
PowerShares Preferred PGX 0.50 2,822.2 3.50 6.00 6.99 UBS AG FI Enhanced Large Cap Growth ETN FBGX 1.52 742.6 0.76 - -
SPDR Wells Fargo Preferred Stock PSK 0.45 289.5 3.26 4.87 5.81 Credit Suisse FI Large Cap Growth Enhanced ETN FLGE 1.52 550.8 0.39 - -
iShares U.S. Preferred Stock PFF 0.47 13,371.7 2.19 5.75 6.03 ProShares Ultra QQQ QLD 0.95 922.3 0.26 32.26 39.67
Market Vectors Preferred Securities ex Financials PFXF 0.40 278.0 -0.40 5.11 - ProShares UltraPro QQQ TQQQ 0.95 1,174.4 -2.60 47.64 58.44
GLOBAL FIXED INCOME Barclays ETN+ FI Enhanced Europe 50 ETN FEEU 0.76 819.8 -3.19 - -
First Trust Tactical High Yield HYLS 1.29 494.7 3.79 - - ETRACS 2X Leveraged Long Wells Fargo BDC ETN BDCL 0.85 255.0 -3.42 6.08 -
First Trust Preferred Securities and Income FPE 0.87 338.2 3.60 - - ProShares Ultra S&P 500 SSO 0.89 1,804.4 -7.97 26.98 29.41
First Trust Senior Loan FTSL 0.85 328.8 3.09 - - ProShares Ultra Financials UYG 0.95 746.3 -8.16 33.28 23.81
SPDR Blackstone / GSO Senior Loan SRLN 0.70 677.5 1.62 - - FI Enhanced Global High Yield ETN FIEG 1.75 281.4 -9.11 - -
PIMCO Total Return Active BOND 0.55 2,490.1 1.36 3.15 - Barclays ETN+ FI Enhanced Global High Yield ETN FIGY 0.76 1,258.5 -9.31 - -
RiverFront Strategic Income RIGS 0.22 471.2 1.16 - - Direxion Daily Financial Bull 3x FAS 0.97 1,196.0 -12.98 51.20 30.02
Guggenheim Enhanced Short Duration Bond GSY 0.30 465.4 0.99 1.27 0.94 ProShares UltraPro S&P 500 UPRO 0.95 938.6 -13.63 40.11 42.28
SPDR DoubleLine Total Return Tactical TOTL 0.55 1,062.1 - - - Direxion Daily S&P 500 Bull 3X SPXL 0.98 606.0 -13.71 39.66 40.98
INTERNATIONAL FIXED INCOME: BLENDED DEVELOPMENT Direxion Daily Small Cap Bull 3x TNA 0.98 933.4 -14.01 36.32 33.28
Vanguard Total International Bond BNDX 0.19 3,607.2 -0.26 - - ETRACS Monthly Pay 2x Lev Mortgage REIT ETN MORL 0.80 304.4 -15.02 - -
SPDR Barclays International Treasury Bond BWX 0.50 1,478.5 -6.36 -3.67 -0.41 ETRACS 2X Monthly Lev Long MLP Infrastr ETN MLPL 0.85 257.9 -33.49 5.47 17.15
SPDR DB International Govt Infl-Protected Bond WIP 0.50 734.1 -7.97 -2.64 1.57 Direxion Daily Energy Bull 3x ERX 0.98 488.3 -45.66 -12.53 5.31
INTERNATIONAL FIXED INCOME: DEVELOPED ProShares Ultra VIX Short-Term Futures UVXY 1.51 362.0 -46.28 -81.63 -
PowerShares Variable Rate Preferred VRP 0.50 342.4 2.04 - - VelocityShares Daily 2X VIX Short Term ETN TVIX 1.65 399.6 -46.45 -82.34 -
Global X SuperIncome Preferred SPFF 0.58 255.2 -1.29 4.05 - ProShares Ultra Bloomberg Crude Oil UCO 1.13 1,043.0 -47.58 -46.20 -30.88
iShares International Treasury Bond IGOV 0.35 426.1 -6.58 -2.52 -0.40 VelocityShares 3X Long Natural Gas ETN UGAZ 1.65 570.2 -57.29 -58.86 -
INTERNATIONAL FIXED INCOME: EMERGING Direxion Daily Gold Miners Bull 3X NUGT 1.05 646.3 -70.25 -82.89 -
Market Vectors Emerging Markets High Yield Bond HYEM 0.40 382.0 4.37 2.01 - VelocityShares 3X Long Crude Oil ETN UWTI 1.35 1,207.5 -70.76 -66.74 -
PowerShares Emerging Markets Sovereign Debt PCY 0.50 2,495.9 1.66 1.75 5.09 INVERSE
Vanguard Emerging Markets Government Bond VWOB 0.34 444.6 1.64 - - ProShares UltraShort Euro EUO 0.93 565.0 12.17 4.79 1.01
iShares J.P. Morgan USD Emerging Markets Bond EMB 0.40 4,216.2 0.93 1.02 4.31 ProShares Short MSCI Emerging Markets EUM 0.95 472.5 11.17 -1.61 -4.82
iShares Emerging Markets Local Currency Bond LEMB 0.50 529.4 -10.69 -5.05 - WisdomTree Bloomberg US Dollar Bullish USDU 0.50 337.8 5.84 - -
WisdomTree Emerging Markets Local Debt ELD 0.55 479.3 -11.24 -7.58 -2.64 PowerShares DB US Dollar Bullish UUP 0.80 1,116.4 4.55 3.99 0.77
Market Vectors EM Local Currency Bond EMLC 0.47 1,196.3 -12.32 -6.84 -2.06 ProShares Short Dow30 DOG 0.95 377.2 4.21 -11.52 -14.20
COMMODITIES: BROAD MARKET ProShares UltraShort S&P 500 SDS 0.89 1,298.7 1.63 -27.14 -30.85
United States Commodity USCI 0.92 523.6 -12.01 -11.98 -3.27 ProShares Short S&P 500 SH 0.89 1,741.5 1.24 -14.39 -16.25
ELEMENTS Rogers International Commodity ETN RJI 0.75 430.0 -14.10 -15.34 -5.89 ProShares Short Russell 2000 RWM 0.95 461.2 0.65 -15.70 -18.41
PowerShares DB Commodity Tracking DBC 0.89 2,588.9 -14.96 -18.41 -6.72 ProShares UltraShort Yen YCS 0.93 350.3 0.60 29.37 12.10
iPath Bloomberg Commodity ETN DJP 0.70 1,157.9 -15.41 -16.63 -8.47 ProShares UltraPro Short S&P 500 SPXU 0.92 468.1 0.55 -38.99 -44.29
iShares S&P GSCI Commodity GSG 0.77 771.0 -15.80 -19.37 -8.15 ProShares Short 20+ Year Treasury TBF 0.93 911.6 -0.16 -4.08 -8.66
COMMODITIES: AGRICULTURE Direxion Daily S&P 500 Bear 3X Shares SPXS 0.99 305.8 -0.53 -39.84 -45.18
PowerShares DB Agriculture DBA 0.85 831.0 -16.11 -11.85 -4.28 ProShares UltraShort 20+ Year Treasury TBT 0.92 2,959.7 -1.90 -8.62 -17.69
COMMODITIES: ENERGY Direxion Daily Small Cap Bear 3x TZA 0.98 453.8 -2.67 -44.09 -52.11
United States Natural Gas UNG 1.01 590.6 -14.01 -12.35 -24.32 Direxion Daily Financial Bear 3x FAZ 0.99 273.2 -3.24 -46.82 -48.44
PowerShares DB Oil DBO 0.78 546.9 -20.83 -23.10 -12.16 ProShares Short QQQ PSQ 0.95 340.3 -3.97 -17.01 -20.23
United States Oil USO 0.66 3,148.2 -21.95 -23.89 -13.04 Direxion Daily 20 Year Plus Treasury Bear 3x TMV 0.93 627.5 -6.56 -16.28 -28.53
iPath S&P GSCI Crude Oil ETN OIL 0.75 995.1 -26.71 -27.05 -15.01 ProShares UltraShort QQQ QID 0.95 331.6 -8.97 -31.89 -37.59
COMMODITIES: PRECIOUS METALS ProShares UltraPro Short QQQ SQQQ 0.95 290.0 -15.21 -45.29 -52.55
iShares Gold Trust IAU 0.25 5,882.7 -4.02 -12.72 -2.12 VelocityShares Daily Inverse VIX Short Term ETN XIV 1.35 1,141.1 -17.66 22.80 -
SPDR Gold GLD 0.40 24,899.9 -4.19 -12.88 -2.28 ProShares Short VIX Short-Term Futures SVXY 1.33 546.7 -18.15 22.03 -
ETFS Physical Swiss Gold SGOL 0.39 854.3 -4.23 -12.86 -2.28
ETFS Physical Silver SIVR 0.30 270.2 -6.87 -23.10 -5.72
iShares Silver Trust SLV 0.50 4,703.8 -7.10 -23.23 -5.88

56 ETF.com/ETF Report
United States Commodity Index Fund

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NYSE: USCI

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.
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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
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