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Dion's Weekly ETF Blog Wrap

Scheduled for Execution

Published 8/17/2010 2:53 PM EDT

Four more ETFs are slated for execution. Claymore is preparing to close the Claymore/Zacks Dividend Rotation (IRO), Claymore/Zacks Country Rotation (CRO), Claymore/Beacon Global Exchanges, Brokers & Asset Managers Index (EXB) and the Claymore/Robb Report Global Luxury Index (ROB) on Sept. 10.

These funds deserve a special nod since at least one of them seemed like a neat idea. ROB was an ETF I always secretly rooted for, even though the indexing was, well, unconventional. Whether or not you agree with the Robb Report's ratings, an ETF that one could use to target luxury retail was crafty. I hope someone else picks up the idea and executes at a lower price point.

Dividend ETFs are plentiful, and I'm partial to the one that I own -- the iShares Dow Jones Select Dividend Index (DVY). Claymore's two options tried to put a different spin on things but just couldn't muster the investor interest to make them viable. This should put things in perspective: DVY has nearly $4.2 billion in assets; IRO has just $12.5 million in assets.

From an investor standpoint, I think that the whole rotation thing turned people off. Here's a tip for picking an ETF that will be popular: People like funds in which they know what to expect. Methodologies that change over time (read this as: lifecycle ETFs) or aren't clear (how about those double-down housing funds?) usually don't have longevity. Even if the rotating was done in an extremely predictable way, I still think people would lean toward a mutual fund on that type of strategy.

So that this doesn't just turn into another one of my rants on liquidity, here's two practical takeaways:
  1. ETFs with original or innovative ideas don't always make it (even if you're secretly rooting for them). They need a fan base.
  2. If you happen to own one of the four ETFs that Claymore plans to kill, the funds will stop trading on Sept. 10. You're free to sell (or buy) them until then. (A word of caution: If people start unloading, these could trade at deep discounts.) If you don't sell your fund by Sept. 10, your assets will be in lockdown. (I'm now reading that there's exemptions for certain broker/dealer transactions, but it's safe to say that most of us aren't in that category). Anyone left as of Sept. 17, will receive a cash distribution into their brokerage account representing the value of their shares as of that date, which will also include any capital gains and dividends. Not so bad unless the value of the fund drops like a rock between the Sept. 10 and Sept. 17.
At the time of publication, Dion Money Management was long DVY.
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