State Street Shows Odd Timing With ETF Launch

Is now a good time to launch a new series of ETFs? It depends on your perspective.

One view is that a downward-trending market is a less-than-ideal moment to attempt to gain enthusiasm for a new family of ETFs. The opposing view is that the timing is near-perfect, as the majority of troubles have already been flushed out of the market.

On Tuesday, State Street ( STT) forged ahead with the launch of 10 new SPDR ETFs. Each fund is sector-specific and adds an international flavor.

"These ETFs were developed in response to demand from investors seeking targeted exposure to sectors that do not include U.S.-listed securities," said James Ross, senior managing director at State Street Global Advisors.

These international sector ETFs are benchmarked to a series of S&P broad market indices, and cover a range of sectors, such as energy, technology, materials and financials. Each is market-cap weighted and includes only non-U.S. holdings.

Scanning the new SPDR S&P International Energy Sector ETF ( IPW), the fund contains top foreign names such as BP ( BP), Royal Dutch Shell ( RDS.A), Suncor Energy ( SU), Canadian Natural Resources ( CNQ) and Imperial Oil ( IMO).

Looking at the SPDR S&P International Financial Sector ETF ( IPF), investors will see holdings that include UBS ( UBS), Banco Santander ( STD), Barclays ( BCS) and Credit Suisse Group ( CS).

Name Ticker
SPDR S&P International Consumer Discretionary Sector ETF IPD
SPDR S&P International Consumer Staples Sector ETF IPS
SPDR S&P International Financial Sector ETF IPF
SPDR S&P International Health Care Sector ETF IRY
SPDR S&P International Industrial Sector ETF IPN
SPDR S&P International Materials Sector ETF IRV
SPDR S&P International Technology Sector ETF IPK
SPDR S&P International Telecommunications Sector ETF IST
SPDR S&P International Utilities Sector ETF IPU
SPDR S&P International Energy Sector ETF IPW

Fine-Tuning Asset Allocation

The advancement of foreign markets, coupled with expanded media coverage, has captured the attention of the investing community.

"International equities have been a very fast-growing segment of the ETF world," says Tom Anderson, head of ETF research for State Street Global Advisors. "These new funds are another tool that will allow you to get that foreign equity exposure."

Given that foreign equities play an integral role in how most investors construct their portfolios, it stands to reason that this new series of ETFs could play a role in assisting investors looking to fine-tune their international exposure.

"You can use these ETFs to build your own custom-weighted index," Anderson says. "They give you very precise exposure. There are unlimited ways to play these."

Although these ETFs do increase the number of ways that investors can obtain international exposure in their portfolios, these funds do not come without risk. They are only one small piece of the big picture.

"By definition, when you buy a sector ETF, you are buying a focused investment," Anderson points out. "Whereas when you buy a broad-based ETF, you are getting diversification across sectors."

Opportunity Knocks

With the markets reeling, it would be understandable if the team at State Street were a little bit nervous on the timing of these new offerings.

"The other day I heard the question, 'Is this a bad time to be launching these international sector ETFs?'" says Anderson. "On one hand, it is. A weak stock market has the tendency to make investors skittish. On the other hand, down markets present an opportune entry point for investors."

Anderson points to the financial sector as a case in point for opportunity. Just a couple of weeks ago, the Financial Select Sector SPDR ( XLF), which has top holdings that include Bank of America ( BAC), JPMorgan Chase ( JPM), Citigroup ( C) and American International Group ( AIG), was down more than 40% on the year as it hit its 52-week low on July 15.

Fast-forward two weeks, and it appears as though the dogs have been called off. This ETF has rallied 24.4% since bottoming out 14 days ago.

"It has been one of the most beaten-up sectors so far this year," Anderson says. "Yet in recent weeks, the financials have been among the top sectors in terms of inflows of money."

On the surface, the timing of this launch may be puzzling to some. Yet for others, it spells opportunity.

At the time of publication, Billy Fisher was short Bank of America (BAC).

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