ETF PERFORMANCE & PERSPECTIVES - S&P Global · ETF PERFORMANCE & PERSPECTIVES FROM S&P CAPITAL IQ...

ETF PERFORMANCE & PERSPECTIVESFROM S&P CAPITAL IQ MARKETSCOPE ADVISOREach month, we compile a selection of timely and actionable Trends & Ideas reports published on S&P Capital IQ Marketscope Advisor. The research reports inside include positive and negative implications for certain stocks, mutual funds and ETFs, and selected performance charts.

ETF INSIGHTS WITH TODD ROSENBLUTH Page 3

ETF MEDIA MENTIONS Page 4

ETF PORTFOLIO PERFORMANCE through October 31, 2012 Page 5

ETF PERFORMANCE & PERSPECTIVES

All of the views expressed in these research reports accurately reflect the research analyst’s personal views regarding any and all of the subject securities or issuers. No part of the analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. For important regulatory information, go to www.standardandpoors.com and click on Regulatory Disclosure. Copyright © 2012 Standard & Poor’s Financial Services LLC, a wholly owned subsidiary of The McGraw-Hill Companies. All rights reserved.

NOVEMBER 2012

RETAIL RELATED ETFS SEEN AS A SOLID BET AHEAD OF THE HOLIDAYS Page 7 10/16/2012. Anyone paying attention to the news is likely to be cognizant of the relatively gloomy state of the U.S. economy. Second-quarter GDP was revised down to growth of only 1.3%, the labor market remains on shaky footing, and consumer confidence is still low despite a recent uptick.

SYMBIOTIC RELATIONSHIPS IN THE TV ECOSYSTEM Page 9 10/23/2012. Despite ongoing courtroom dramas in which broadcasters have played the plaintiff, S&P Capital IQ believes the battles with non-broadcasters over potentially disruptive technology are likely to turn into more collaborative relationships in the longer term.

BIOTECH ETFS OFFER EXPOSURE TO DYNAMIC GROWTH 1 10/23/2012. Our positive fundamental outlook for the biotechnology sub-industry for the next 12 months reflects our favorable view for a continuation of FDA approvals of new drugs with strong commercial prospects, and an attractive environment for mergers and acquisitions (M&A) involving biotech companies.

INTERNATIONAL STRATEGY - A NEW WAY TO PLAY EMERGING MARKETS Page 13 10/23/2012. Traditional emerging market (EM) equity benchmarks are dominated by large, relatively mature markets such as South Korea and Taiwan (26% of MSCI EM Index) that tend to be highly correlated to developed markets. They also have high weightings in Financials and export-oriented sectors such as Energy, Materials and Technology (63% of the MSCI EM Index) that are often driven more by global market forces than more domestically oriented sectors like Consumer Staples, Consumer Discretionary, Telecom, Utilities and Health Care.

A NEW ETF OF HIGH DIVIDEND STOCKS WITH LOW-VOLATILITY Page 15 10/31/2012. While bank, CD and treasury rates are near record lows, investors seeking income but wary of volatile markets may be interested in a new exchange-traded fund (ETF) that seeks to combine high-yielding stocks with low volatility.

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ETF INSIGHTSwith Todd Rosenbluth

ETF flows continued during the month of October, even as the broader U.S. markets were closed for a couple of days toward the end of the month. According to data from BlackRock, there has been more than $193 billion added to global exchanged-traded products in the first 10 months of 2012, with more than $10 billion in October alone. We believe the flows have largely been into diversified ETFs that have long-established records, though we do not think a lengthy history is required for investors to start analyzing an ETF. S&P Capital IQ has performance, risk and cost factor analysis on over 770 equity ETFs as of mid-November, with such information on 75 that launched in the last 12 months.

Our approach to ranking ETFs, using holdings-based analysis combined with information about the ETF security, allows us to provide insight on ETFs early in their lifecycle. Even when we do not have a ranking available, when interesting ETFs are launched, our analysts, strategists and editors want to help clients understand what is inside the portfolio and how it compares with similar ETFs with a longer history. In October, we highlighted two such ETFs that recently began trading, one with a domestic focus and one with an international concentration. The domestic portfolio offers a twist on the traditional dividend-paying ETFs that have garnered investors’ attention in this low-rate environment, by targeting stocks with lower volatility. Meanwhile, the internationally focused story looks closer at the sec-tor and country exposure of a new emerging markets ETF, which have had appeal as some investors look to take on elevated risk through a low-cost, diversified portfolio.

Our team also highlighted a few different industries from a top-down perspective and how to play them through ETFs. One such industry is biotechnology, which we think is a way to play the continuation of health-care reform following President Obama’s reelection. In addi-tion, S&P Capital IQ sees a favorable merger and acquisition market for biotech companies. In a piece published in late October, we identified three different ways to participate in the growth of this industry through ETFs, but noted that there are some distinctions between them.

A second such industry that is topical as we head into the holiday shopping season is retail. S&P Capital IQ noted that in mid-October a few retail trade associations believe that the November-December 2012 shopping season will be relatively strong, though it is unclear yet what the impact of Hurricane Sandy will be. For investors looking for exposure to retail and other consumer discretionary stocks, three different ETFs were highlighted, each from a different ETF provider.

All of these pieces and many others about ETFs were published originally as Trends & Ideas pieces on our MarketScope Advisor platform and through feeds for our clients. To learn more about our ETF research and/or to receive these pieces directly, please contact us at through the information on the side of this page.




@spmarketscope ETF PERFORMANCE & PERSPECTIVES


NOVEMBER 2012

Todd Rosenbluth S&P Capital IQ ETF Analyst

http://www.getmarketscope.com










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S&P’s Rosenbluth: ETF Fee War Is Good “The widening “fee war” among ETF sponsors definitely benefits investors, Todd Rosenbluth, an ETF analyst with S&P Capital IQ, recently told IndexUniverse.com Managing Editor Olly Ludwig.”

Media Mentions




@spmarketscope ETF PERFORMANCE & PERSPECTIVES


NOVEMBER 2012

A compilation of news clippings highlighting S&P Capital IQ’s influence in the ETF marketplace

Click on a box to access the full article. Follow @spmarketscope and #ETFHour for additional ETF coverage.

S&P Capital IQ’s Rosenbluth Discusses Mutual Funds & ETFs “Todd Rosenbluth, mutual fund and ETF analyst at S&P Capital IQ, discusses investing in mutual funds and exchange traded funds.”

Exotic Dividend ETFs Can Fall Short of the Hype “Todd Rosenbluth, an ETF analyst with S&P Capital IQ, warns that some dividend ETFs own stocks that have had a strong run-up and may no longer be attractive. For instance, he is not a fan of the U.S.-listed PowerShares KBW High Dividend Financial Portfolio ETF even though it is up about 17 per cent this year, and has a dividend yield of 9 per cent.”

Rosenbluth on an ETF That May Gain From Obama “Todd Rosenbluth, an exchange-traded fund analyst at S&P Capital IQ, discusses an ETF that may benefit as President Obama enters a second term.”

Todd Rosenbluth on Chuck Jaffee’s MoneyLife Show “Todd Rosenbluth will discuss how S&P Capital IQ’s ETF research is different. They analyze the underlyding companies to decide what is worthwhile and not.”

Follow @spmarketscope and #ETFHour for additional ETF insight throughout the day.

http://www.indexuniverse.com/hot-topics/15081-saps-rosenbluth-etf-fee-war-is-good.html












http://media.bloomberg.com/bb/avfile/Markets/Analyst_Calls/v8rHLoqjrQpY.mp3

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/exotic-dividend-etfs-can-fall-short-of-the-hype/article4673365/

http://etfdailynews.com/2012/11/08/rosenbluth-on-an-etf-that-may-gain-from-obama-nysearcaxlv/

http://www.moneylifeshow.com/SaveFiles/Upload_Files/121019.mp3


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ETF MODEL PERFORMANCEOctober 14, 2008 - October 31, 2012

A model portfolio comprised of ETFs with an overall S&P Capital IQ ETF ranking of Overweight has outperformed the S&P 500 Total Return Index.

A model portfolio comprised of ETFs with an overall S&P Capital IQ ETF ranking of Marketweight has outperformed the S&P 500 Total Return Index.

A model portfolio comprised of ETFs with an overall S&P Capital IQ ETF ranking of Underweight has underperformed the S&P 500 Total Return Index.

ETF ranking categories are models only. Please see the next page for additional important disclosures regarding the inherent limitations of model performance. Model performance is gross of all investor level fees and expenses. The S&P 500 index is the benchmark for the ETF model portfolios. The S&P 500 index assumes reinvestment of dividends. Indexes are unmanaged, statistical composites and their returns do not include payment of any sales charges or fees an investor would pay to purchase the securities they represent. It is not possible to invest directly in an index. Inclusion of fees and expenses in the model or S&P 500 index would lower performance. Past performance of the models or S&P 500 index is no indication of future results.




@spmarketscope OCTOBER 31, 2012

AVGERAGE ANNUALPERFORMANCE Since 10/14/08

HYPOTHETICAL GROWTH OF $100

Invested on 10/14/08

OVERWEIGHT +19.2% $203MARKETWEIGHT +14.0% $170

S&P 500 TOTAL RETURN INDEX +11.4% $155

UNDERWEIGHT +1.5% $106As of October 31, 2012

For Financial Advisor Use Only. Not For Public Distribution.

60708090

100110120130140150160170180190200

Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12











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Performance Disclosure The exchange-traded fund (“ETF”) model performance chart on the prior slide is only an illustration of S&P ETF research; it shows how all ETF’s that received a particular Overall S&P ETF ranking of Overweight, Marketweight or Underweight performed. The Overall S&P ETF rankings in the above chart are model portfolios only; they are not collective invest-ment funds. (The ETF model portfolios are also collectively referred to as “model” or “model portfolio”.) Model perfor-mance has inherent limitations. The ETF model performance does not show how any actual portfolio has performed. ETF model performance does not represent the results of actual trading of investor assets. S&P maintains the model and calculates the model performance shown or discussed, but does not manage actual assets. Thus, the performance shown or discussed does not reflect the impact that mate-rial economic and market factors had or might have had on decision-making if actual investor money had been man-aged. Performance of an investor’s actual portfolio will not necessarily match the performance of the model portfolio due to differences in the weightings of the individual securi-ties. In addition, the model results do not take into account timing differences between the selections by S&P and purchases that were or would have been made based on those selections by any advisor or by actual investors. While model performance for some or all ETF ranking categories may have performed better than the illustrative reference point for the period shown, the performance during any shorter period may not have, and there is no assurance that the model will perform better than the illustrative reference point in the future. The model does not take into account any particular investment objective, financial situation or need and are not intended as an investment recommenda-tion or strategy. Investments based on the ETF methodology may lose money. Past performance of the ETF model is no guarantee of future results.

Performance is calculated daily using a time-weighted rate of return. The model performance calculation takes into account dividends and distributions but does not take into account reinvestment of dividends. ETF’s in each model will change over time, and some or all of the ETF’s that received rankings during the time period shown may not have main-tained their ranking during the entire period.

For model performance calculation purposes, the ETF’s within each model at October 14, 2008 were equally weight-ed. Thereafter, additions to the composition of the ETF’s in each model are made at the average market value of the ETF model at the preceding month end with no rebalancing. The average market value of the ETF equals the total market value of the ETF model at the prior month-end divided by the number of ETFs in the ETF model at the prior month-end. The number of shares of the new ETF added equals the average value of an ETF in the ETF model at the preceding

month-end divided by the price of the added ETF at the close of the day it was added. The number of shares remains fixed unless there is a subsequent distribution. Subsequent to the addition of the equity, the performance calculation is based on the number of shares and the daily closing prices. An ETF is deleted in its entirety, and the deletion is made at the closing price of the day that the deletion is made.

ETF model performance reflects the fees and expenses of the underlying ETFs. The model performance does not consider taxes and brokerage commissions, nor does it re-flect the deduction of any advisory or other fees charged by advisors or other parties that investors will incur when their accounts are managed in accordance with the model. The imposition of these fees and charges would cause actual performance to be lower than the performance shown. For example, if the model returned 10 percent on a $100,000 investment for a 12-month period (or $10,000) and an an-nual asset-based fee of 1.5 percent were imposed at the end of the period (or $1,650), the net return would be 8.35 percent (or $8,350) for the year. Over 3 years, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.1%, a total fee of $5,375 and a cumulative net return of 27.2% (or $27,200).

An investment based upon any of the models should only be made after consulting with a financial advisor and with an understanding of the risks associated with any invest-ment in securities, including, but not limited to, market risk, currency risk, political and credit risks, the risk of economic recession and the risk that issuers of securities or general stock market conditions may worsen, over time. Foreign investing involves certain risks, including currency fluctua-tions and controls, restrictions on foreign investments, less governmental supervision and regulation, less liquidity and the potential for market volatility and political instability. As with any investment, investment returns and principal value will fluctuate, so that when redeemed, an investor’s shares may be worth more or less than their original cost.

Benchmark Disclosure The S&P 500 index is the benchmark for the ETF model portfolios. Indexes are unmanaged, statistical composites and their returns do not reflect payment of any sales charg-es or fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. The methodology for calculating the return of the S&P 500 index differs from the methodology for calculating returns for the ETF ranking categories. The S&P 500 index has different risk character-istics than the ETF model portfolios, and its performance calculation takes into account reinvestment of dividends and distributions. Past performance of the S&P 500 Index is no guarantee of future results.

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ETF TRENDS & IDEASFROM S&P CAPITAL IQ MARKETSCOPE ADVISOR

Retail-Related ETFs Seen as a Solid Bet Ahead of the Holidays

Anyone paying attention to the news is likely to be cognizant of the relatively gloomy state of the U.S. economy. Second-quarter GDP was revised down to growth of only 1.3%, the labor market remains on shaky footing, and con-sumer confidence is still low despite a recent uptick. Moreover, the looming fiscal cliff and presidential election only add to the uncer-tainty facing most Americans.

In spite of these unnerving headlines, con-sumer habits die hard. In this country, most consumers prefer to spend rather than save, and this tends to ring even more true over the holiday season. While S&P Capital IQ Equity Research has yet to finalize its projection for holiday spending (this, as part of our holiday report, will be published toward the end of No-vember), two trade associations have already published their forecasts.

The International Council of Shopping Centers (ICSC) expects holiday chain store sales to increase 3.0%. The National Retail Federa-tion (NRF), which includes online sales in its estimate, is projecting a 4.1% increase for the traditional November-December time pe-riod. This is higher than the 10-year average holiday sales increase of 3.5%, and is the most optimistic forecast that the NRF has released since the recession.

Aside from the holiday shopping season, there are other reasons why investors might be in-terested in retail stocks. On a historical basis, retail stocks - like stocks in general - tend to

fare best from October to March. Using data compiled since 1990, the best three months for retail stocks on an absolute basis are: March (+3.86%), November (+3.13%) and Oc-tober (+1.71), while the three worst are: Sep-tember (-0.73%), August (-0.67%) and June (-0.66%). Perhaps more importantly, however, is how retail stocks have fared on a relative basis when compared to the S&P 500. This is perhaps a better indicator of seasonal inter-est, with retail sales numbers drumming up interest in the stocks themselves. Not surpris-ingly, March (+2.51%) and February (+1.71%) ranked among the top three months, given the fact that retailers typically announce their fis-cal fourth quarter results over this two-month period (November, at +1.70%, was also in the top three months for relative outperformance, probably related to Black Friday hoopla). Given

10/16/2012-11:27 AM ET

TAKEAWAY: Consumer spending is expected to accelerate this holiday season, and these ETFs might benefit.

POSITIVE IMPLICATIONS

CONSUMER DISCRE-TIONARY SELECT SECTOR SPDR FUND

MARKETWEIGHT [XLY]

ISHARES DOW JONESUS CNSMR SRVCS SECTOR INDEX FUND

OVERWEIGHT [IYC]

VANGUARD CONSUM-ER DSCRTNRY INDEX FUND; ETF SHARES

MARKETWEIGHT [VCR]

ETF TRENDS & IDEAS
















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the historical data, it appears that now is a relatively good time to shop for some retail stocks. Of course, past performance is no guarantee of future results, and if the holiday shopping season falls short of expectations, Q4 results may disappoint (and the stocks could suffer).

We believe that, for investors seeking exposure to retail compa-nies with the benefit of diversification, ETFs merit a closer look. S&P Capital IQ uses three proprietary broad input categories to calculate the overall rankings for ETFs. These include: Perfor-mance Analytics, based on S&P STARS, S&P Fair Value and S&P Technical Indicators; Risk Considerations, which assesses S&P Quality Rank, S&P Risk Assessment, S&P Credit Rating (S&P Ratings Services operates independently of S&P Capital IQ) and standard deviation; and Cost Factors, which looks at the expense ratio, bid/ask ratio and price to NAV.

With S&P reports and rankings on nearly 700 ETFs, the process of locating an attractive fund may seem daunting. However, the Funds tab of MarketScope Advisor offers a simple way to nar-row your search. We narrowed ours by seeking only Equity ETFs that are currently ranked either Marketweight or Overweight by S&P, and screened the top-10 holdings for Amazon.com (AMZN 244 ***), Target (TGT 62 *****) and Wal-Mart Stores (WMT 77 ****), as we think these retailers will benefit from the holiday season. These three ETFs each had two of the three aforemen-tioned holdings in their top 10:

Consumer Discretionary Select SPDR Fund (XLY 47 Overweight)

XLY has outperformed both its Lipper peers and the S&P 500 over the past 1-year, 3-year, 5-year and 10-year periods, with significant outperformance versus its peers over the 3-year pe-riod (19.9% vs. 16.2%). Moreover, XLY’s return on a year-to-date basis through October 15 is also favorable, with a 20.9% return (vs. 19.6% for Lipper peers and 16.5% for the S&P 500). XLY also receives an Overweight assessment related to Cost Factors (thanks in large part to having an expense ratio of under 0.2%). The fund receives a Marketweight assessment for Performance Analytics, as a negative S&P Fair Value input is offset by a posi-tive input from S&P STARS. 100% of assets from a holdings date of 9/30/12 are characterized as Consumer Discretionary compa-nies under GICS codes.

iShares Dow Jones U.S. Consumer Services Sector Index Fund (IYC 87 Marketweight)

IYC receives Marketweight assessments in Performance Analyt-ics and Risk Considerations, but receives an Overweight assess-ment for Cost Factors. Despite the overall Marketweight as-sessment, IYC received favorable inputs (within the three broad drivers) for S&P STARS, S&P Quality Rank, Standard Deviation and Bid/Ask Spread. IYC’s historical performance is favorable, boosted by strong year-to-date returns through October 15 (22.2% vs. 19.6% for Lipper peers and 16.5% for the S&P 500). Some 72% of IYC’s holdings are classified as Consumer Discre-tionary stocks, while its top holding as of 8/31/12, Wal-Mart Stores (6.6% weighting), is classified as a Consumer Staples company (as it derives a majority of its revenues from groceries) but is also the largest retailer in the world.

Vanguard Consumer Discretionary Index Fund (VCR 76 Market-weight)

VCR, like XLY, holds almost entirely Consumer Discretionary companies (97% of assets as of 6/30/12), and has a minimal expense ratio of under 0.2%. As a result of the low expense ratio, VCR also receives an Overweight assessment for Cost Factors. Despite a Marketweight assessment for Performance Analyt-ics, VCR has bested both peers and the S&P 500 over the past 1-year, 3-year and 5-year periods, with significant outperfor-mance over the 3-year period (19.6% vs. 16.2% for peers and 11.8% for the S&P 500).

While S&P Equity Analysts maintain a relatively cautious over-all outlook on consumer spending for 2013, we think investors seeking exposure to retail stocks should consider one of the aforementioned ETFs. At the ETFs tab of MarketScope Advi-sor, you can see reports on these funds as well as alternatives focused on the consumer discretionary sector.

Michael Souers

S&P Capital IQ Equity Analyst

ETF TRENDS & IDEAS FROM S&P CAPITAL IQ MARKETSCOPE ADVISOR

ETF TRENDS & IDEAS OCTOBER 16, 2012

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Symbiotic Relationships in the TV Ecosystem

Despite ongoing courtroom dramas in which broadcasters have played the plaintiff, S&P Capital IQ believes the battles with non-broad-casters over potentially disruptive technol-ogy are likely to turn into more collaborative relationships in the longer term.

“While technological innovations have been and could be disruptive for traditional TV broadcasters in the near term, I think there is also a likelihood that over the next four to five years or longer, such fears may prove to be unfounded,” says Tuna Amobi, head of con-sumer discretionary equity coverage at S&P Capital IQ, who believes many of the broad-casters are currently undervalued.

The catalyst for recent court action in the broadcasting industry appears to be innova-tion as technologies such as digital video recorders (DVRs), online streaming content and portable media devices provide viewers with options of how to store, watch and pay for content. Broadcasters are not necessar-ily embracing the innovations, arguing that such technological innovation threatens their revenues, profits, market share, and business relationships.

However, Amobi believes over time that broad-casters may seek to take a “join ‘em if you can’t beat ‘em” attitude towards the defending startups and entrenched players with technol-ogy on their side.

“With broadcasters also starting to reap

meaningful streaming revenues from online video providers, in the end, we think several symbiotic relationships in the TV ecosystem will form,” he says.

In the latest court challenge, CBS (CBS 34 *****), Comcast (CMCSA 37 ****) (CMCSK 36 ****) unit NBC , Walt Disney (DIS 52 *****) units Disney Channel and ABC, and others have filed a lawsuit charging startup Aereo with copyright infringement, and have asked for preliminary and permanent injunction

10/17/2012-03:04 PM ET

ETF TRENDS & IDEAS






TAKEAWAY: These investments may benefit longer term from innovative TV viewing technologies.


CBS CORP ‘B’ [CBS]

COMCAST CL’A’ [CMCSA]

COMCAST’A’SPL (NON-VTG) [CMCSK]

DISH NETWORK’A’ [DISH]

DISNEY (WALT) CO [DIS]

NETFLIX INC [NFLX]

NEWS CORP ‘A’ [NWSA]

NEWS CORP’B’ [NWS]

POWERSHARES DYNAMIC MEDIA PORTFOLIO

UNDERWEIGHT [PBS]











http://www.youtube.com/watch?http://www.youtube.com/user/spcapitaliq

http://youtu.be/XhAinZRIMqA

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against the company. Another lawsuit by CBS, Univision, News Corp. (NWS 26 ****) (NWSA 25 ****) unit Fox, and a few others, charges Aereo with copyright infringement and unlawful compe-tition.

In March 2012, startup web service Aereo, which is backed by media mogul Barry Diller and IAC/Interactive Corp. (IACI 54 ***), an Internet-content and e-commerce company launched in 1995, began streaming free TV content it picks up from broad-cast TV signals to its subscribers’ wireless devices. Subscribers pay $12 monthly.

Because the networks do not receive any retransmission fees from Aereo, they claim the startup has no right to the copyright-ed content they transmit.

“With rising cable fees spurring consumers to look for cheaper video options, this service was expected to receive a good re-sponse. Not surprisingly, that positive response did not include the major broadcasters and stations, which are suing Aereo,” notes Amobi.

In Aereo’s case, the court refused to serve it an injunction, thereby allowing the company to continue serving subscribers. Aereo argued that a favorable court decision in 2006 for Cablevi-sion (CVC 18 *) in its DVR case against the broadcasters set a precedent for Aereo’s technology.

But Fox, NBC and CBS are also still battling satellite TV provider Dish Network (DISH 34 ****) over its DVR called Hopper with ad-skipping functionality in a separate case dating back to May 2012. Broadcasters allege that DISH violated content-licensing agreements by allowing its customers to block out the broad-casters’ primary source of revenue - ads -- and by automatically recording all prime-time programs from the major networks.

Amobi acknowledges both Aereo and Dish court cases will affect the industry, but does not expect the longer-term outcome of

these legal cases to be “sufficiently and/or materially disruptive to broadcasters’ business models over the longer term,” he says.

Despite some landmark decisions in earlier copyright chal-lenges, Amobi also sees a potential confluence of issues related to the personalization of content, which is increasingly available through a growing array of on-demand outlets, such as Netflix (NFLX 67 ****), Google’s (GOOG 755 *** ) YouTube.com and Amazon (AMZN 246 ***), and through increasingly ubiquitous devices, such as smart TVs, smartphones and media tablets.

The U.S. courts may be predisposed toward the fair-use doctrine in the Aereo and Dish suits, according to Amobi. The fair-use doctrine effectively entrenches consumers’ access to content for their personal use - as celebrated in Sony (SNE 12 ***) vs. Betamax and more recently affirmed in 20th Century Fox vs. Ca-blevision - to the potential detriment of TV broadcasters in favor of traditional and online-video distributors, Amobi points out.

“Conversely, we would not rule out sufficiently novel arguments that could effectively challenge if not completely overturn earlier judicial precedents - a potentially welcome outcome for broad-casters,” Amobi states.

Amobi is constructive on many, many names in the entertain-ment industry. For investors seeking broad exposure to the media industry, the exchange-traded fund (ETF) PowerShares Dynamic Media Portfolio (PBS 17 Marketweight) counts many of Amobi’s highly ranked broadcast and content-provider enti-ties among its top-10 holdings, including Time Warner (TWX 46 ****), Discovery Communications (DISCA 61 ****), Comcast, Walt Disney, News Corp., and CBS.

Isabelle Sender

S&P Capital IQ Editorial



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Biotech ETFs Offer Exposure to Dynamic Growth

Our positive fundamental outlook for the biotechnology sub-industry for the next 12 months reflects our favorable view for a con-tinuation of FDA approvals of new drugs with strong commercial prospects, and an attrac-tive environment for mergers and acquisitions (M&A) involving biotech companies. The S&P Biotechnology sub-industry comprises roughly 14% of the S&P 1500 Health Care sector, and about 1.65% of the total S&P 1500 Index.

Year to date through October 19, the S&P Bio-tech Index rose 39.0%, versus a 13.7% gain for the S&P 1500 Composite Index. In 2011, the sub-industry index rose 20.0%, versus a 0.3% decline for the S&P 1500.

In 2011, the U.S. FDA approved 30 new drugs, compared to 21 in 2010. Through September 2012, the year-to-date total was 22. We see an improving trend for FDA first cycle review approvals and a rise in the rate of new drug approvals for rare diseases, which we think is helping to boost investor sentiment for the agency, after years of criticism stemming from inconsistency in making and communicating its decisions. More important than the recent boost in approval count, in our view, is the approval of new drugs with what we see as robust commercial prospects and that have represented a significant advance over previ-ously available therapies, reversing a trend seen over the prior five years. Of note, during 2012, the FDA has approved new treatments for rare respiratory disease cystic fibrosis and multiple others for cancer months ahead of

their scheduled action dates.

We expect a favorable M&A climate to con-tinue, boosted by the closing of two deals in August 2012 that involved prominent biotech names, Amylin Pharmaceuticals and Human Genome Sciences. We see larger firms need-ing to offset revenues recently lost or soon to be lost from expiring drug patents, which is referred to as a “patent cliff” in the phar-maceutical industry. In addition, we also see larger biotech companies becoming more ac-tive in this regard, seeking to boost their drug pipelines amid maturing legacy products and declining R&D productivity trends. In 2011, industry bellwether Amgen (AMGN 87, Buy) became the first biotech company to initiate a regular dividend. We think such trends are

10/23/2012-12:01 PM ET

TAKEAWAY: These ETFs provide exposure to relatively outperforming biotechnology industry stocks.


AMGEN INC [AMGN]

GILEAD SCIENCES [GILD]

ISHARES NASDAQ BIOTECH INDEX FUND

MARKET-WEIGHT

[IBB]

POWERSHARES DYNAMIC PHARMA PORTFOLIO

MARKET-WEIGHT

[PJP]

SPDR S&P BIOTECH ETF

MARKET-WEIGHT

[XBI]

ETF TRENDS & IDEAS
















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evidence of blurring lines of distinction between the pharmaceu-tical and biotech industries.

In June 2012, the U.S. Supreme Court upheld the health care reform law, which included the authorization of the FDA to es-tablish an infrastructure to oversee “biosimilar” drug approvals, and the 12-year exclusivity period granted to branded drugmak-ers. Although we do not expect biosimilars to reach the market for several years, we see partnering activity among biotech and generics companies to co-develop biosimilars picking up. Once marketed, we look for clinical and manufacturing costs for biosimilar drugs to result in more modest price discounts and higher retained market share for branded drugs than seen in the pharmaceutical industry.

The U.S. large-cap biotech group recently traded at an average P/E above 18X our 2012 EPS estimate, which, despite advanc-ing from around 13.5X in late 2011, is significantly lower than the industry’s historical levels. We view this as evidence of the maturation of the industry.

Biotechnology investing, in our view, carries potential for above-average performance potential, but with a higher inherent risk profile. Investors seeking exposure to the industry may want to consider the following two biotech-focused exchange-traded funds: SPDR S&P Biotech ETF (XBI 86, Marketweight), and iShares Nasdaq Biotechnology Index Fund (IBB 135, Market-weight). In addition, a third ETF, PowerShares Dynamic Pharma-ceuticals Portfolio (PJP 34, Overweight) is more concentrated in pharmaceutical company holdings, but biotechnology stocks accounted for nearly 19% of its portfolio, as of September 30, 2012.

S&P Capital IQ uses three proprietary broad input categories to calculate the overall rankings for ETFs. These include: Perfor-mance Analytics, based on S&P STARS, S&P Fair Value and S&P Technical indicators; Risk Considerations, which assesses S&P Quality Rank, S&P Risk Assessment, S&P Credit Rating (Stan-dard & Poor’s Ratings Services operates independently of S&P Capital IQ) and standard deviation; and Cost Factors, which looks at the expense ratio, bid/ask ratio and price to NAV of the ETF.

XBI, which tracks the S&P Biotechnology Select Industry Index and has 100% of its holdings in the biotechnology industry, is ranked Marketweight overall by S&P Capital IQ, with market-weight scores in the Performance Analytics and Cost Factors categories. The fund did not have sufficient data among Risk Considerations category inputs, although its holdings were scored negative based on the S&P Quality Rank measure. Over the past 12 months through October 19, 2012, XBI had a total return of 43.37%, and it had $647.3 million in total assets. Its top 10 holdings accounted for 31% of the ETF’s assets, as of September 30, 2012.

S&P Capital IQ also has an overall Marketweight ranking on IBB, which contains NASDAQ-listed companies classified as either biotechnology (74.7%, as of August 31, 2012), pharmaceuti-cal companies (19.8%) or life sciences & services (5.7%), with marketweight scores in Performance Analytics and Cost Factors, offsetting an underweight score in Risk Considerations, affected by a negative score for S&P Quality Rank. IBB had a total return of 47.17% over the past 12 months, as of October 19, 2012, and had total assets of $2.37 billion. Its top 10 holdings represented 56% of total assets, as of August 31, 2012.

PJP has an overall Overweight ranking, with an overweight score in Performance Analytics, and marketweight scores in Risk Considerations and in Cost Factors compared with other ETFs in its asset class. PJP provided a total return of 37.22% over the past 12 months through October 19, 2012, and had total assets of $329 million, with its top 10 holdings representing 49% of its total assets, as of September 30, 2012. Among its top 10 holdings as of September 30, 2012 were biotechnology industry bellwethers Gilead Sciences (GILD 65, Buy), number one overall, and Amgen at number eight.

Steven Silver

S&P Capital IQ Equity Analyst



13


International Strategy - A New Way to Play Emerging Markets

Traditional emerging market (EM) equity benchmarks are dominated by large, relatively mature markets such as South Korea and Taiwan (26% of MSCI EM Index) that tend to be highly correlated to developed markets. They also have high weightings in Financials and export-oriented sectors such as En-ergy, Materials and Technology (63% of the MSCI EM Index) that are often driven more by global market forces than more domesti-cally oriented sectors like Consumer Staples, Consumer Discretionary, Telecom, Utilities and Health Care.

The risks of these external, global alloca-tion tilts have come to the fore in recent years as pervasive, largely external, global macro-economic risks have led traditional EM equity benchmark performance to falter in an environment when investors have sought out greater domestically insulated EM country and sector exposures with more attractive secular growth prospects. After trouncing the U.S. large cap benchmark in the 2000s, the MSCI EM Index has trailed the total return of the S&P 500 by 29% since 12/31/09.

S&P Dow Jones Indices, which operates inde-pendently of S&P Capital IQ, recently launched the S&P Emerging Markets Core Index, which utilizes an innovative methodology to enhance sector diversification and reduce exposure to larger more advanced markets, while being broadly representative of emerging market equities. Back-tested performance dating

back to December 31, 2005 shows persis-tent outperformance relative to traditional purely market cap weighted EM equity indi-ces without materially higher risk. Through September 2012, the S&P Emerging Markets Core Index has compiled a cumulative total return of 110.5% vs. only 70.2% for the MSCI EM Index and has outperformed across YTD, 1-year, 3-year and 5-year time frames. From a risk perspective, its standard deviation of 27.7 since December 2005 has been only marginal-ly higher than the MSCI EM benchmark’s 27.0.

Drilling deeper into the index’s methodology, it excludes weightings to South Korea and Tai-wan. In addition, individual country exposures are capped at 15%. The individual stocks are initially equal-weighted. However, modifica-tions are made to security weights to adhere to the 15% country cap. Excluding these more mature, globally driven markets and capping individual country exposure leaves far more room for more domestically driven, nascent, developing economies like India, South Africa, Russia, Mexico, Malaysia, Chile, Indonesia and

10/23/2012-09:56 AM ET

TAKEAWAY: New S&P EM index increases domestic consumer exposure; reduces exposure to more mature export-driven sectors.


EGSHARES EMERG-ING MARKETS CORE ETF

NA [EMCR]

ETF TRENDS & IDEAS
















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Turkey. In addition, the methodology drives a lower - but never-theless healthy - 25% combined weighting to China and Brazil (vs. 29% for MSCI EM) further fostering geographic balance, in our view.

Turning to sectors, the global industry classification standard (GICS) jointly developed by S&P Dow Jones Indices and MSCI includes 10 sectors comprised of a combined 24 industry groups The S&P EM Core Index uses the 24 GICS Industry groups as building blocks for stock selection, to enhance diversification across industries. The top 4 GICS industry groups in the S&P EM Core Index comprise only 28% of its market cap vs. 51% in the MSCI EM Index. Because industries are the building blocks of sectors, this industry diversity equates to better sector balance as well. In stark contrast to the more concentrated MSCI EM Index, no sector in the S&P EM Core Index garners more than an 18% weight or less than a 5% allocation.

In addition, beyond greater sector breadth than the MSCI EM Index, we note much higher weightings to more domestic growth areas like Consumer Staples (17.7% vs. 8.6%), Consumer Discretionary (17.7% vs. 8.2%), Utilities (7.1% vs. 3.6%), Health Care (6.3% vs. 1.4%) and to a lesser extent, Industrials (10.1% vs. 6.7%). Conversely, the S&P EM Core Index sports much lower weightings to the more globally driven Financials sector (15.9% vs. 24.3%) as well as materially lower weightings to the more mature, export-oriented Materials (6.1% vs. 13.2%), I.T. (7% vs. 13.9%) and Energy (6.7% vs. 11.9%) sectors.

Alec Young S&P Capital IQ Global Equity Strategist



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A New ETF of High Dividend Stocks with Low-Volatility

While bank, CD and treasury rates are near record lows, investors seeking income but wary of volatile markets may be interested in a new exchange-traded fund (ETF) that seeks to combine high-yielding stocks with low volatil-ity.

On October 15, 2012, S&P Dow Jones Indices (which operates independently of S&P Capital IQ) launched the S&P 500 Low Volatility High Dividend Index (S&P 500 LVHD), which seeks to measure the performance of the 50 least volatile high dividend-yielding stocks in the S&P 500 Index. The S&P 500 LVHD is designed to serve as a benchmark for income-seeking investors in the U.S. equity market and may be the first index to identify high yielding securi-ties with low levels of volatility. The top 75 highest yielding stocks from the S&P 500 are selected, and from that list the top 50 securi-ties with the lowest realized volatility form the S&P 500 LVHD. As of September 28, 2012, S&P 500 LVHD’s dividend yield was 4.51%.

“Income has been a primary focus for many investors in 2012 as dividend funds continue to draw an increasing amount of interest; however, volatility is still at the forefront of in-vestor minds as market uncertainty continues to factor into their investment decisions,” says Vinit Srivastava, director of strategy indices at S&P Dow Jones Indices, which operates inde-pendently from S&P Capital IQ. “The S&P 500 Low Volatility High Dividend Index captures

these two trending investment themes into one unique design and concept.”

On October 18, 2012, Invesco PowerShares, licensee for the S&P 500 LVHD, rolled out its PowerShares S&P 500 High Dividend Portfolio exchange-traded fund (ETF) (SPHD 25 NR), which attempts to track the price performance of the underlying holdings in the S&P 500 LVHD. The ETF generally will invest at least 90% of its total assets in common stocks that comprise the S&P 500 LVHD.

Prior to release of SPHD, investors seeking a basket of low volatility, high dividend stocks had to invest in at least two ETFs, such as PowerShares S&P 500 Low Volatility Portfolio (SPLV 28 Marketweight), which tracks the S&P 500 Low Volatility Index, and SPDR S&P Divi-dend ETF (SDY 58 Overweight), which follows the S&P High Yield Dividend Aristocrats Index.

S&P Capital IQ believes it is important to as-sess an ETF’s underlying holdings in addition to its performance, risk and cost consider-

10/31/2012-01:37 PM ET

TAKEAWAY: This ETF may be attractive to in-vestors seeking a portfolio of less volatile income stocks.


POWERSHARES S&P500 HIGH DIVIDENDPORTFOLIO

NA [SPHD]

ETF TRENDS & IDEAS
















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ations, and its proprietary ranking methodology incorporates all of these analyses in establishing an ETF’s overall ranking. SPHD receives an overweight grade from S&P Capital IQ for cost factors due to favorable marks for its expense ratio and bid/ask spread.

As of October 24, 2012, large-cap value stocks represented 48.4% of SPHD’s market cap and style allocations, mid-cap value 32.5%, mid-cap growth 12.2% and large-cap growth 6.9%; while utilities (21.8%), consumer staples (16.1%), financials (13.1%), telecommunication services (10.1%), and health care (9.5%) led sector weightings. Four utility stocks reside in SPHD’s top-ten holdings as of October 24, 2012, including two with Buy recom-mendations from S&P Capital IQ: PPL Corp. (PPL 29 ****) and

Exelon (EXC 36 ****), and two with Hold opinions: Pepco Hold-ings (POM 20 ***) and American Electric Power (AEP 44 ***). Voice and data network communications company Windstream (WIN 10 *****), the ETF’s second largest holding as of Octo-ber 24, 2012 garners S&P Capital IQ’s top recommendation of Strong Buy.

Art Epstein S&P Capital IQ Editorial



ETF PERFORMANCE & PERSPECTIVES - S&P Global · ETF PERFORMANCE & PERSPECTIVES FROM S&P CAPITAL IQ...

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