Claymore has just announced a new ETF to track a broad emerging market index that will be of interest to Canadians worried about estate tax implications of holding cheaper US-based emerging market ETFs such as the Vanguard Emerging Markets ETF (VWO). Unlike the soon to be announced BMO Emerging Markets ETF, CWO is truly a broad emerging market index fund. A comparison with VWO reveals an almost identical country diversification and only minor differences in the top 10 holdings. Curiously, the fact card of CWO is vague on the index that is tracked:

The Manager will select an Emerging Markets Benchmark Index such as the MSCI Emerging Markets Index, the FTSE RAFI Emerging Index or another widely recognized emerging markets index in order to provide such exposure and may change the Emerging Markets Benchmark Index in its discretion without unitholder approval.

The MER of the fund is a bit steep at 65 basis points compared to just 27 basis points (incidentally, the MER for VWO is down 3 basis points since I first wrote a post on it!) for VWO. But then again, it is hard to compete with Vanguard on fees. CWO also hedges the currency exposure of the fund, which is of dubious benefit given the high costs involved in the form of tracking errors.

Claymore should be applauded for being the first to introduce a broad market emerging market ETF in Canada. As some of Claymore’s newest funds are thinly traded and have very wide bid-ask spreads, I would hold off on considering the ETF for investment until the fund is fairly widely held.

See also: Jon Chevreau wrote about CWO in his blog.

This article has 18 comments

  1. This new all bold font is making my eyes bleed. ;)Please make it stop.

    Loved the old style, made it easy to read numerous archived postings without getting eye weary.

    I’d comment on the topic but I couldn’t finish the first paragraph, profusely bleeding eyes and all.:P

  2. Canadian Capitalist

    GSP: Can you expand a bit on your comment? The body of the text is all black now. That’s the only difference. I can put it back to the old colour but I found the new one easy on my eyes 🙂 I’d also like feedback from other readers. What do you think?

  3. Canadian Capitalist

    GSP: I’ve put it back to the old style. Is it better now?

  4. I don’t see a difference from when you first changed it in the last hour or so. I still see the text bigger and bolder than before.

    I’m using IE6 with the text size setting at “larger”. Obviously I haven’t changed any setting on both machines I tested or I wouldn’t be complaining.

    Did you also increase the font size? I’ve been playing around with it just now and noticed that reducing the text size to “medium” brought it back to how it was before in “larger” setting.

    How do I get emoticons to work in my replies?

  5. Canadian Capitalist

    GSP: I did make some other changes, which looked great in Firefox 3.0 and IE 7 and Safari. In fact, the text size was too large for IE7, so I reduced it a bit. I’ll try out IE6 and try and fix anything that looks ugly.

    To get emoticons, you just have to type it in text and comments automatically replaced it with the graphic.

    For example, if I type ‘:’ followed by ‘)’, it displays it like this – 🙂

  6. CC: Claymore Broad Emerging Markets ETF has only one holding. Believe it or not: Vanguard Emerging Markets ETF. I believe Claymore hedges US dollar, because Vanguard Emerging Markets ETF is domiciled in US dollar.

    Is this a joke? No wonder that I thought CWO seems to eerily similar to VWO. C for Claymore and V for Vanguard.

  7. Charles in Vancouver

    Well, the fund’s inception date is merely today. Perhaps they’re trying to make it easier for creation units to circulate, and then once there are enough shares outstanding, they’ll actually invest it in something.

    Regarding currency hedging, I also noticed they created today the “Claymore US Fundamental ETF (non-hedged)”
    And, I’m not making this up, I quote: “The Claymore US Fundamental Index ETF (non-hedged) will hedge its exposure to US currency to eliminate foreign currency return risk for Canadian investors.”

    WTF??? Clearly the webmaster is incompetent.

    • Canadian Capitalist

      Charles: Perhaps a copy-paste job… we developers are very familiar with that concept 🙂

      Claymore replied that they’ll get the error fixed up.

  8. I hope it’s not just holding VWO and hedging against fluctuations in USD/CAD. At the very least, it should be hedging the fluctuations with local currencies (BRL, RUB, INR, CNY, etc)/CAD.

  9. How would you compare CWO to CBQ. I’m a big fan of the BRIC and wonder if just holding CBQ is enough. You did not mention the DRIP factor for these funds…comments?

  10. I noted a little while ago that the MER for VWO has actually bounced around a bit, from the 0.30% in 2006, down to 0.25% in 2007, and now back up a bit to 0.27%. It still quite low compared to other comparative ETFs though.

  11. Canadian Capitalist

    EconStudent: I haven’t looked at the prospectus yet but like Charles says, it could be temporary until they get it up and running?

    Charles: That’s funny! I’ll let Claymore know that they should correct it.

    alvanson: Even though VWO is denominated in US dollars, for Canadian investors this is what happens:

    VWO prices incorporate Emerging market currency/USD fluctuations
    Canadian investors in VWO experience USD/CAD fluctuations
    The USD fluctuations above cancel out leaving Canadian investors with Emerging market currency/CAD fluctuation.

    CWO would be hedging the Emerging market currency / CAD fluctuation because it is pointless to hedge the USD/CAD fluctuation.

    Ranger: I’m cautious on BRICs as I explained in this post:

  12. CC: That’s exactly what SHOULD happen (reread my comment). But for CBQ, they just hedge the CAD/USD fluctuations which doesn’t make any sense.

  13. CC can you please shed some more light on this statement you made “that will be of interest to Canadians worried about estate tax implications of holding cheaper US-based emerging market ETFs such as the Vanguard Emerging Markets ETF (VWO). ”
    What exactly you mean estate tax implications? If you keep them in a non registered account doesn’t this behave like any other US security? I thought there was only a withholding tax on dividends paid by these shares but other than that?


  14. If the US dollar declines relative to the currencies of the countries in the emerging markets ETFs, wouldn’t the companies in the ETF benefit from this fact? The value of the companies relative to the US dollar would likely increase and hence the value of the relevant ETF. I don’t worry too much about hedging Vanguard non-US ETFs.

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