Recently, I had a chance to chat with Mary Anne Wiley, head of BlackRock Canada on what the 800 pound Gorilla in the ETF marketplace plans to do after the blockbuster acquisition of the #2 player Claymore Investments was recently finalized. After the acquisition closed, iShares rebranded all Claymore products (ticker symbols remained the same) but apart from that the only changes have been some minor adjustments. Here’s what I learnt:

  • I started off by asking why the Claymore Inverse 10 Year Government Bond ETF (CIB) was terminated and whether it presages any more fund closures. Ms. Wiley said that the decision was made because CIB was not consistent with the iShares brand since it was most effective for short-term holding periods and also had no strong market appeal.
  • iShares plans on maintaining the lineup of Research Affiliates Fundamental Index (RAFI) ETFs and laddered fixed-income ETFs both of which are very popular among individual investors. It appears that laddered ETFs make it easier to introduce the concept of low-cost fixed-income investing to retail investors compared to capitalization-weighted products, which are more popular among institutional investors.
  • Dividend Reinvestment Plans (DRIPs), Share Purchase Plans (SPPs) and Pre-Authorized Contribution Plans (PACCs) will be maintained for the Claymore ETFs.
  • DRIPs will be rolled out to all iShares products later this year. Since, many discount brokers already offer synthetic DRIPs on most ETFs, many investors already have the ability to reinvest dividends.
  • The advisor class ETFs which are sold through advisors and have an extra fee tacked on top to compensate for financial advice will be maintained for existing products.
  • iShares plans to roll out advisor class ETFs to the other products in its lineup.

This article has 6 comments

  1. Maybe I don’t know much about CIB (the bond inverse ETF), but it made little sense to me. If I wanted to short bonds, it would be for the purpose of raising money to invest in something else. I.e., I’d be using the short as a form of leverage. But with CIB, I have to tie up capital rather than free up capital.

    • @Michael James: I’ve never done any shorting, so I may be completely out to lunch on this one. My understanding is when you short a security, the money from the sale is held in escrow by the broker and is not available to the investor who is short. In fact, the investor may have to come up with collateral if the short works against her.

      That said, I agree with you on inverse and leveraged ETF products. Anything that depends on getting the timing right sounds like an iffy proposition, at least for most of us average investors.

  2. @Michael James: I’ve shorted once with TDW, and it basically works as CC says. Shorting is
    done in a shorting account, separate of the margin account, with the proceeds paid to the
    shorting account. So immediately after the short, the account has a balance of 0 (-ve X on the
    short and +ve X in cash). At the end of every day, an amount is deposited/withdrawn from
    the margin to make the short account have a balance of 0. It is actually quite annoying, as
    it “pollutes” monthly statements with mundane transactions every day, and the cash can’t be
    used for other purposes. I don’t even think it pays a token amount of interest. Maybe for
    institutional investors shorting is more friendly.

  3. How does one set up a drip?

    • @John: Call your broker for setting up a DRIP as well as finding out which securities are eligible for DRIPs. Synthetic DRIPs can only be done for whole shares. Example: if the dividend is $20 and the share price is $22 you’ll just get cash. But if the share price was $15, you’ll get 1 share and $5 deposited in your account.

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