XShares Reinvented as ETF Hawker

A Different Route

Entry into ETFs was different for XShares than for its predecessors. Although the company created health care and biotechnology indices and had a unit investment trust, it did not offer anything like a mutual fund. However, ETF players such as Barclays Global Advisors, State Street Global Advisors and Vanguard were already heavily involved in the index fund market before getting into ETFs. And newer ETF entrants such as Claymore Securities and First Trust were big in the closed-end fund spaces when they launched their first ETFs.

HealthShares are designed to track thin slices of the health care sector, specifically publicly traded health care, life sciences and biotechnology companies. The five HealthShares that have been launched are (HHE Quote)HealthShares Cardio Devices (HHE), (HHD Quote)HealthShares Diagnostic (HHD), (HHJ Quote)HealthShares Emerging Cancer (HHJ), (HHV Quote)HealthShares Enabling Technologies (HHV) and (HHB Quote)HealthShares Patient Care Services (HHB). These ETFs all carry an expense ratio of 0.75%.

The 15 additional HealthShares that have been filed with the SEC cover everything from Asian health and autoimmune-inflammation to dermatology and wound care. The expenses for these ETFs vary between 0.75% and 0.95%.

Getting Into Launch Mode

XShares is also getting ready to launch StateShares, which are based on S&P indices and are designed to track the top 50 publicly traded companies based in a designated state. The indices underlying the StateShares ETFs include only stocks that are listed on a major national securities exchange and have had a market cap of more than $100 million for at least two of the three preceding quarters. StateShares are still in registration with the SEC.

Feldman says XShares' business isn't only about developing its own products. In fact, he says that after the company filed the application for HealthShares with the SEC, which he calls a "labyrinth-like process," the company realized that there were probably others who wanted to issue ETFs but were deterred from the SEC filing process -- a well-known thorn in the side of many ETF companies.