ETF Betas on Financial Websites: A Confusing Mess

By

Doug Waggle Associate Professor of Finance University of West Florida 11000 University Parkway Pensacola, FL 32514-5750 (850) 474-2726 dwaggle@uwf.edu

Pankaj Agrrawal Assistant Professor of Finance University of Maine 305 DPC Business Building Orono, ME 04469 (207) 581-1983 pankaj.agrrawal@maine.edu

January 2010

ETF Betas on Financial Websites: A Confusing Mess

Abstract We calculate betas of a sample of 232 ETFs and compare them against the betas reported by four top financial websites. We find that a large number of the website betas related to international, global, bonds, commodities, and currency ETFs are markedly different from our estimates. The primary reason for differences in the beta estimates was the selection of the market indexes used in the regression calculations, which many websites do not even reveal. We also looked at six additional financial websites and examined their market index selections along with their supporting information regarding the use and calculation of beta. Most financial websites do not provide adequate information on their beta calculations to allow for appropriate interpretations.

ETF Betas on Financial Websites: A Confusing Mess

Exchange Traded Funds (ETFs) have evolved to the point where both individual and institutional investors are employing them as core components of their portfolios. In a recent Wall Street Journal article, Burton (2008) notes that many financial advisors now depend on ETFs when building client portfolios. ETFs now occupy prominent positions in investor portfolios because they offer the benefits of mutual funds and the convenience of stocks. ETFs provide easy diversification, low fees, and significant tax advantages, while at the same time allowing real-time trading and short selling. With over 700 possibilities to choose from, ETFs can offer something for almost everyone. But how do investors choose a subset of ETFs that meets their goals from the wide selection that is available to them? To make such informed portfolio decisions, investors need timely and accurate financial data on the ETFs. Often they turn to enormously popular websites such as Yahoo! Finance, MSN Money, Google Finance or Morningstar to obtain key investment information, such as beta and other measures. With various estimates putting the traffic to such sites in the millions, the quality and validity of the information provided by these sites is obviously a concern. It is also the topic of research for this paper. This paper focuses on betas because they give a quick estimation of exposure to market risk. For a well-diversified portfolio the nondiversifiable systematic risk is best indicated by beta. The recent market turmoil has heightened the need to understand portfolio volatility and the impact that it can have on personal wealth. Reported ETF beta figures as well as supporting information available on ten well-known financial websites is examined. While some minor differences in betas across financial web sites were expected, a comparison of these public betas with our independent calculations reveals misleading figures, a lack of consistency in reporting,

a lack of transparency, and just plain misinformation. Despite beta being defined as a measure of systematic, or market risk, many websites report betas that do not reflect the market risk faced by U.S. investors; at best they reflect sector risk. In addition, most of the websites do not provide sufficient information to allow investors to appropriately interpret and utilize the available betas. ETF Background The S&P 500 SPDR, which surfaced on the scene in 1993, was the first ETF. It was not until 1995 that a second ETF, based on the S&P 400 Midcap Index, was offered, but by the end of 2000 there were 80 ETFs including the well-known Diamonds on the Dow and the Qs on the NASDAQ. As of November 2008, there were over 700 ETFs with about $480 billion in total assets. (Investment Company Institute, 2009). Leaders in the ETF industry include Barclays 1 , which issues iShares, State Street Global Advisors, sponsors of SPDRs, Merrill Lynch, known for HOLDRS, and Vanguard, which is well-known for index mutual funds and decided to have a presence in the ETF arena as well. With such a large selection of ETFs it is easier than ever to find one that matches a particular investment objective. There are ETFs that hold stocks, bonds, commodities, currencies, and real estate. Investors can use ETFs to invest domestically or internationally, or to capture individual sectors or industries within the market. While ETFs themselves can be shorted, there are also those that actually make short bets against the market. Some ETFs also have a component of active management built into the process.

On April 9, 2009 it was announced that Barclays PLC will sell its iShares unit to CVC, a private equity

group based in London for about $4.4 Billion.

Beta Calculation and Potential Issues The Sharpe-Lintner-Black CAPM Beta is a measure of the systematic risk of individual securities or portfolios and is based on historical returns of the asset relative to the market. The usefulness of beta continues to be widely discussed and challenged, but Graham and Harvey (2001) find that 70% of practitioners still use the traditional CAPM beta as a measure of their exposure to market risk. Higher betas mean greater co-movement with the market and higher expected returns relative to the market. Investors also use betas to select the level of market risk that they are comfortable with. With well-diversified portfolios, company-specific, or unsystematic risk, is diversified away, thus making beta an even better tool for evaluating the relevant investment risk. ETFs are, of course, portfolios of securities so their betas are conceivably even more meaningful and useful than those of individual securities. Beta is calculated using the Ordinary Least Squares regression of the historical returns of the security or portfolio against the overall market. The standard model for calculating beta employs excess returns relative to the risk-free rate:
(ri r f ) = i + i (rM r f ) + ei

(1)

where ri is the return on security i, rM is the return on the market, rf is the risk-free rate of return, i is the calculated beta coefficient, is the intercept term, and ei is the residual term. In practice, the beta calculation is often simplified by ignoring the risk-free rate and regressing the security returns against the returns of the market. Since the periodic risk-free rate is fairly close to zero and subtracted from both sides of the equation, this simplification makes little practical difference, and the format of the equation is as follows:
ri = i + i (rM ) + ei

(2)

ETF betas were calculated using both Equations (1) and (2), but only the results for the latter case are presented here. The differences in the two sets of estimates are trivial. The returns on the S&P 500 index and the 3-month U.S. Treasury bill rate were used to represent the market and the risk-free rate, respectively. The betas were estimated using a minimum of 24 months and a maximum of 36 months of return data. ETFs with less than 24 months of data were excluded from the data set, to maintain estimation stability. While the calculation of beta might initially sound straight forward, it leaves a lot of room for interpretation and differences. First, although the S&P 500 index has been widely used as a market measure for U.S. equity securities, many potential questions remain. Should this market portfolio be expanded to include a broader index, such as the Russell 3000? Should the market portfolio include additional tradable assets, such as bonds, commodities, real estate, or currencies? Given that U.S. investors are encouraged to invest internationally, should the market portfolio be expanded to include the entire globe? If a global market portfolio is used, should it include just equity or other asset classes as well? There is likewise no agreed upon estimation interval for the calculation of beta, but estimation windows of one to five years are common. Does a five-year estimation window give too much weight to the distant past? Is a one-year estimation window more appropriate or does this focus too much weight on the current market environment? Works such as Smith (1980) and Hawawini (1980) have observed the effects of the estimation window. Groenewold and Fraser (2000) argue that the typical five-year estimation window has the best explanatory value. Even if there is agreement on the estimation interval, the frequency of observations is another potential point of contention. Should beta calculations employ daily, weekly, monthly, or even quarterly returns? While daily returns clearly provide more observations, they may

understate the true volatility of less liquid securities. The use of monthly returns can also be problematic since it requires a longer estimation interval to provide a suitable number of observations. These issues are examined by works such as Hawawini and Vora (1980), Corhay (1992), Levy, Guttman and Tkatch (2001), Ho and Tsay (2001), and Agrrawal and Clark (2007). Differences in beta estimates from various information providers are to be expected, and this has been true for as long as betas have been calculated. Reilly and Wright (1988), for example, noted that the published betas of Value Line and Merrill Lynch differed significantly. They concluded that the differences were due to the use of weekly returns by Value Line and monthly returns by Merrill Lynch. ETF Beta Sample Over half of the 700 plus ETFs in existence today were introduced after 2006, giving them limited windows for the calculation of beta, and many have relatively small market capitalizations that may result in liquidity issues such as wide bid-ask spreads. Accordingly, we consider only ETFs with at least $100 million in market capitalization and 24 months of return history as of September 2008 2 . This resulted in a final sample of 232 ETFs. Our sample includes 155 U.S. equity ETFs, 59 international or global ETFs, 6 commodity ETFs, 6 foreign currency ETFs, and 6 bond ETFs. The U.S. equity group is obviously the biggest category by far. All available betas for our selected ETFs were retrieved in September of 2008, from four of the most visited financial websites: Yahoo! Finance, MSN Money, Morningstar, and Google Finance. Yahoo! Finance reported betas for 154 of our sample of 232 ETFs, with most omissions appearing to be due to there being less than three years of historical return data available. For

The dataset of ETF betas as available on these websites, was created in September 2008 using a

proprietary web-retrieval program and manual assembly.

ETFs with longer histories, Yahoo! Finance presents betas for 3 Years, 5 Years, and even 10 Years. 3 Only on the Yahoo!s 3-year betas were examined. Yahoo! Finance actually obtains their beta and other risk measures from Morningstar, but the figures lag the numbers shown at Morningstar. As expected the Morningstar sample is somewhat larger with 157 observations. Morningstar presents only 3-year betas. MSN Money had betas for all 232 ETFs in the sample 4 . Google Finance presented betas for 226 of the sample, and there does not seem to be explanation for the six exclusions since all of them had ample financial history. In addition to examining the full sample of betas for the four noted websites, these sites and six other popular financial sites were examined to locate publicly available information on their calculations of beta and to determine which indexes they use as a basis for their calculations. For sites lacking descriptive information, a much smaller subset of ETFs was examined to see if any inferences could be drawn about their beta calculations. The six additional sites examined were: AOL Money & Finance, Bloomberg, CNN Money, Reuters, Smart Money, and TheStreet.com. Some Unexpected ETF Betas on Popular Websites First, the published financial betas as found on the Yahoo! Finance, MSN Money, Morningstar, and Google Finance websites were examined and then compared them against beta calculations with the S&P 500 index as the market proxy. The results of these comparisons are illustrated in the XY scatter plots shown in Figures 1 through 4.

For some reason, however, Yahoo! Finance omits beta statistics on Merrill Lynch HOLDRS in our

sample despite the fact that they have been around for well over three years.
4

MSN Money provides only a 1-year beta.

Figure 1 shows that the bulk of the 3-year betas presented by Yahoo! Finance match up fairly well with the calculations discussed here, but that there is a noticeable group of outliers that skew the results to a -0.23 correlation coefficient. As can be seen in Figure 2, the majority of the MSN betas generally pair up fairly well with our calculations, but the set of outliers is even larger here. As is the case with Yahoo! Finance, the outliers change the overall positive relationship for the majority of observations to a correlation -0.32. Figure 3 reveals that most of Morningstars betas also line up with our S&P 500 based calculations, but that there are again a sizeable number of outliers leading to a correlation of -0.22 that is not representative of the overall picture. It is obvious that outliers are driving the negative correlations noted in Figures 1, 2, and 3. It is these numerous outliers and the reasons for them, which are of particular interest. As has already noted, some differences in beta estimations are to be expected, but not of the magnitude revealed by the scatter plots. which are clearly beyond the norm. Removing the outliers for Yahoo! Finance, MSN, and Morningstar results in expectedly high correlation coefficients of 0.90 or higher for the betas of these sites relative to our calculated betas. 5 The XY scatter plot of Googles ETF betas versus our S&P 500-based betas is shown in Figure 4, and makes a particularly interesting picture. It is not so much that there are outliers, but rather that Google reports so many betas exactly equal to 1.0, all of which plot on a straight line (Figure 4), that is perplexing. In fact, of the 226 betas in our Google sample, fully 75 of those are exactly equal to 1. This was not something that was expected. The Google sample includes 152 ETFs classified as U.S. equity. About 47 of these, nearly one third of the sample, have published betas of exactly 1.0 while our calculations for these same ETFs range from a low of 0.56 to a

As we discuss below, all the outliers are non-U.S. equity ETFs.

high of 2.78. MSN Moneys estimates for the same group of ETFs likewise range from a low of 0.35 to a high of 3.10. This information is presented in Table 1. Unfortunately, Googles website does not provide its visitors with any explanation regarding their beta calculations. Our first impression with the Google betas was that they are applying separate best-fit indexes and using those as their market measures. Morningstar, for example, presents separate beta calculations with a standard index and a best-fit index. Google could be calculating betas for pharmaceutical ETFs, for example, using a pharmaceutical index as the assumed market. The Google assigned beta for the iShares Pharmaceutical ETF is exactly 1.0, indicating that a sector index was used instead of the broader market. The calculated beta was 0.77 for the same ETF, with the S&P 500 as the market index. There are problems of inconsistency here, as well. Google estimates a beta of 0.64 for the Merrill Lynch Pharmaceutical HOLDRS (ticker: PPH, not shown on the table), which is much more in line with the S&P 500 based figure of 0.72; and most likely employs the broad market index for the beta calculation. In the paragraphs that follow, it is shown that the anomalies associated with Yahoo! Finance, MSN, and Morningstar betas are almost exclusively in ETF categories other than U.S. equity -- bonds, international or global equities, commodities, and currencies. Table 2 presents the betas for the 6 bond ETFs in the sample. The low betas calculated for bond ETFs are consistent with general expectations, implying little or negative correlation with the broad equity market. Other than Google, however, the S&P 500-based calculations are not comparable with the published betas as found on these finance websites. For the iShares Lehman Aggregate Bond ETF, for example, a beta of -0.02 was calculated compared to betas of 1.01 and 1.04 for Yahoo! Finance and MSN, respectively. With a traditional systematic risk interpretation, this would

imply that the bond ETF has higher market risk than that of the S&P 500 an obvious mischaracterization. Table 3 presents the betas of the 59 international and global equity ETFs in the sample. Again, about a third of Googles betas are exactly equal to 1.0. Once again, a first impression might be that Google was using best-fit indexes, such as country-based indexes as their market measure, but this remains unclear. Googles iShares Switzerland ETF, for example, has a beta of 1.00 compared to our calculation of 0.79. Looking further, however, shows that Googles iShares Sweden ETF has a beta of 1.69, which is in line with the S&P 500-based calculation of 1.60. Setting Google aside, there are still numerous differences between the S&P 500-based calculations and those presented by the other financial websites. With the iShares Mexico ETF, for example, S&P 500 beta estimate of 1.25 is a good bit different than the 0.54 and 0.93 figures provided by MSN and Yahoo! Finance, respectively. In Table 4, the betas of the six commodity ETFs in the sample are shown. Betas close to zero for ETFs such as the SPDR Gold ETF were expected, and that exactly how the S&P 500based calculations turned out to be. The calculated beta estimate of -0.06 for SPDR Gold, however, differed dramatically from the 12.85 beta figure obtained from Yahoo! Finance and the 27.79 beta provided by MSN Money. Table 5 shows betas of the sample of six currency ETFs and reveals additional oversized differences. Google is consistent in assigning 1.0s across the board, while Yahoo! Finance and Morningstar do not present betas for any of these ETFs. The S&P 500-based figures differ dramatically down the line compared to MSN. The average beta presented by MSN for these currency ETFs is 5.27 compared to the 0.11 average of the currency betas that were calculated relative to the S&P 500 index.

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Differences in Market Indexes Used and Inadequate Explanations The wide range of values observed for the betas of categories other than U.S. equity make it clear that there are notable differences in the underlying assumptions of the various website beta calculations. It was determined that the primary reason for the differences in betas is the selection of the index used to proxy the market portfolio. While this paper uses the S&P 500 index as the market proxy for all calculations, this is not the case for all of the sites that were examined. Table 6 shows ten top financial websites and details the conclusions about the market index used for the various categories of ETFs. CNN Money has apparently adopted the premise that beta is dead because this is the only site in the group that does not provide any beta figures for the ETFs whatsoever. Accordingly, CNN Money is not included in the following discussion. As noted before, Google provides beta estimates, but offers no insights into their calculations. For the remaining eight websites examined, the market index employed for the U.S equity ETFs is consistent with the S&P 500 index. The consistent with disclaimer is included because while the presented betas examined are comparable to the S&P 500-based calculations, three of the eight websites offered no insights at all into their beta calculations. On Morningstar, MSN Money, and Bloomberg, the market index employed was clearly noted, while it was identified with some digging at Smart Money and Yahoo! Finance. Extrapolating from the information in Table 6, there appears to be a general consensus of opinion regarding which market index to use for U.S. equity ETFs, however, differences of opinion were the norm for the other categories. For the fixed income (bond) ETFs, Morningstar, MSN Money, and Yahoo! Finance use the Lehman Aggregate Bond Index as their market measure. The market index selected was the primary cause of the bond ETF differences observed earlier. AOL Money and Finance did not provide any beta figures for bond ETFs. The remaining

11

five sites, including Google, use the S&P 500, or something comparable, as the market index, although this is clearly stated only at Bloomberg. The Smart Money site states that the Lehman Aggregate Bond Index is used as the market measure for bonds, but observations actually suggest that they use an index comparable to the S&P 500. Table 6 also reveals differences in market indexes used for calculating the betas of international ETFs. It appears that four sites use the MSCI EAFE 6 index while three others use the S&P 500 index. Bloomberg uses a variety of different indexes, which are all noted with their beta figures. With global funds, there are additional differences to contend with. Smart Money and TheStreet.com both report betas comparable to our S&P 500-based figures. The remaining websites use different indexes for different global funds. For example, both MSN and Morningstar measure the iShares Global Utilities ETF against the S&P 500 index; and both sites measure the iShares Global Industrials ETF against the MSCI EAFE index. Differences are also noted in the market indexes employed for computing the betas of commodity and currency ETFs. Two of the sites base their betas solely on the S&P 500 index, and two others use the three-month LIBOR rate index. MSN uses the MSCI EAFE equity index for gold and silver commodity ETFs, but it uses the S&P 500 equity index for the iShares Commodity ETF and the iShares U.S. Oil ETF. Morningstar uses the three-month LIBOR or the S&P 500 equity index for the commodities. MSN, which clearly identifies the index used for every other ETF category, inexplicably does not do so for currency ETFs. Purpose of Beta If the purpose of beta is to measure the systematic risk of securities and portfolios for U.S. investors, then a broad market index, such as the S&P 500 index, is appropriate in the

Morgan Stanley Capital International Europe, Australia and the Far East equity index.

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calculations. The reason that Morningstar, for example, uses more focused indexes to calculate betas is that their ultimate goal is not to determine a measure of systematic risk. Instead, they want to determine alphas as measures of portfolio performance. If one is gauging the performance of a bond investment, the S&P 500 Index is not an appropriate benchmark, but the Lehman Aggregate Bond index may be. Using equations 1 or 2, if the returns of a benchmark portfolio are used in place of the broad market returns, measures excess returns on the part of the investment. Funds generating positive alphas are sought after, and sites such as Morningstar specialize in providing this information to the marketplace. So the issue relates to the true purpose of the betas in the calculations. Morningstar and some other sites present betas that are actually generated as a byproduct of the calculation of performance-measuring alphas. If the benchmark used for performance evaluation purposes is something other than a broad market index that encompasses U.S. equities, the betas that are calculated in the process will obviously not be appropriate measures of overall systematic risk for U.S. investors. For U.S. equities, the S&P 500 index is a widely recognized benchmark portfolio, so the betas calculated during the alpha-generating process also do a good job measuring systematic risk. Not surprisingly, the problem of the divergent goals of the calculations only manifests itself for categories other than U.S. equity. While this alpha-beta issue may be obvious to sophisticated investors, some financial websites exacerbate the problem and end up inadvertently misleading investors by providing the traditional market risk definition of beta in conjunction with betas that do not actually measure the systematic market risk. Morningstar, for instance, suggests that a portfolio invested primarily in gold would be expected to have a low beta. The beta of -0.06 that we calculate for the SPDR Gold ETF supports this contention, but Morningstars reported beta of 12.43 certainly does not.

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What should a typical investor who reads Morningstars beta definition and then examines their Gold ETF beta conclude? Betas can also be used to measure the systematic risk of a portfolio. A portfolio beta is simply the weighted average of the betas of the securities that comprise the portfolio, with the weights being the percentage of the portfolio invested in each asset. Unfortunately, this portfolio beta calculation is rendered meaningless if the individual betas are calculated differently. An investor who uses the Morningstar site, for example, to determine the overall beta for a portfolio of U.S., international, global, commodity, and currency ETFs would generate a completely useless number. The use of different market indexes used in the derivation of betas means that they cannot be used for calculating meaningful portfolio betas. Conclusions Transparency of financial information is essential to its usefulness. This is one of the key tenets of standardized financial reporting. If there is no understanding of how data is developed, then it has no value. Financial websites exist because they can make reliable financial information more accessible to investors, but it does not appear that these websites understand the importance of the transparency of their own data. Based on our examination of ETF betas and reporting, none of the websites we reviewed deserves an A in this regard, although Morningstar would merit a B, in opinion of the authors. As noted earlier, there are numerous alternatives regarding the calculation of beta, and a user of this information should be able to readily determine how it was developed. Providing this information would not be a monumental task. Some of the calculation decisions that should be noted include: the use of excess versus raw returns, the market index used, the estimation window used, and the return frequency applied.

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There are significant differences in the beta estimates of ETFs on financial websites, which are primarily attributed to the selection of the market index used in the calculations. Yahoo! Finance, one of the leaders amongst the various finance portals, puts the notation against standard index along with its beta figures. Unfortunately, the Yahoo! Finance site keeps its users in the dark regarding many of these standard indexes. For seven of the nine financial websites examined, it was not possible to locate information about the market index utilized for some or all of the ETF betas that were available. Given that this review of financial websites suggests that the market indices used for ETF betas are anything but standard, this is not acceptable. As noted earlier, the Smart Money site actually reported incorrect information on the index used for bond ETFs. In a similar vein, Yahoo! Finance and Morningstar provide short discussions of beta and mention gold funds as an example of an investment that would be expected to have a low beta relative to the S&P 500 index. This sounds perfectly reasonable, except that the betas they actually present for two gold ETFs average about 12.0, because of their use of alternative indexes. Google Finance adds to the confusion with its perplexing set of betas that are exactly equal to 1.0. Since they also do not provide any insight regarding the market index used or how their beta calculations are carried out, avoiding this site for ETF beta information is advised. The financial websites examined use a variety of market indexes for beta calculations of ETF categories other than U.S. equity. This not only means that there are different beta figures for bond, international, global, commodity, and currency ETFs, but that the interpretation of the resulting betas should change, as well. Beta is typically defined as a measure of market risk that is appropriate for securities that are added to well-diversified portfolios. If the beta is based on the S&P 500 index or a more comprehensive U.S. equity index such as the Russell 3000, then the

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beta measure provides an estimate of the risk level associated with adding the particular security to a well-diversified portfolio of U.S. stocks. If the market proxy is something like the MSCI EAFE index, then this changes the interpretation. A U.S. investor who primarily holds U.S. equity can no longer look at beta and see whether or not the security in question has above or below-average market risk relative to their current portfolio. The correct interpretation of this alternative beta is now that it shows risk relative to a well-diversified portfolio of international equity. Above (below) average market risk relative to international equity may or may not translate to above (below) average market risk relative to the U.S. investors stock portfolio. Another issue with the use of different indexes for calculating security betas relates to the overall portfolio beta. A portfolios beta is calculated as the weighted average of the betas of the securities that make up the portfolio. Unfortunately, this does not hold true if the betas themselves are calculated differently, as can happen in a U.S. based portfolio comprised of U.S. and international ETFs. The differences in betas due to the different market indexes are even more pronounced for bond, commodity, and currency ETFs. Financial websites that continue to use alternative market proxies should clearly explain the implications for interpreting the resulting non-standard betas. In summary, the ETF betas provided by the leading financial websites are a confusing mess. Most websites provide little or no useful explanation of their beta calculations, and may actually have information that could be misleading to the retail investor, who is not well versed with the various nuances of modern portfolio theory. There are currently no standards in place regarding which indexes to use for ETF categories other than U.S. equities. Any change in the market index used to calculate betas immediately alters the values, interpretations, and usefulness of this widely used measure of systematic risk. Changing the index without

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highlighting that this is being done, as is the case with many financial websites, is even worse. Users of these websites should demand more transparency regarding the financial information provided and ensure that they are correctly interpreting the information provided.

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References Agrrawal, Pankaj, and John Clark. 2007. ETF Betas: A Study of their Estimation Sensitivity to Varying Time Intervals. Institutional Investor, Exchange-Traded Funds & Indexing Innovations Issue, Vol. 41, 10 (Fall): 96-103. Burton, Jonathon. 2008. MarketWatch: Financial Advisors Shift to ETFs. Wall Street Journal. (September 7): 3. Corhay, Albert, 1992. The Intervalling Effect Bias in Beta: A Note. Journal of Banking and Finance. 16, 1 (February): 61-73. Groenewold, Nicolaas, and Patricia Fraser. 2000. Forecasting Beta: How well does the 'FiveYear Rule of Thumb' do? Journal of Business Finance & Accounting. 27, 7/8 (Sep/Oct): 953-982. Graham, John R. and Harvey Campbell. 2001. The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics. 60, 2 (May/June): 187-243. Hawawini, Gabriel A. 1980. An Analytical Examination of the Intervalling Effect on Skewness and Other Moments. Journal of Financial and Quantitative Analysis. 15, 5 (December): 1121-1127. Hawawini, Gabriel A., and Ashok Vora. 1980. Evidence of Intertemporal Systematic Risks in the Daily Price Movements of NYSE and AMEX Common Stocks. Journal of Financial and Quantitative Analysis. 15, 2 (June): 331-339. Ho, Li-Chin Jennifer and Jeffrey J Tsay. 2001. Option Trading and the Intervalling Effect Bias in Beta. Review of Quantitative Finance and Accounting. 17, 3 (November): 267-282. Investment Company Institute. 2009. Exchange Traded Fund Assets, November 2008. www.ici.org/stats/etf/

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Levy, Haim, Ilan Guttman, and Isabel Tkatch. 2001. Regression, Correlation, and the Time Interval: Additive-Multiplicative Framework. Management Science. 47, 8 (August): 1150-1159. Reilly, Frank K., David J. Wright. 1988. A Comparison Of Published Betas. Journal of Portfolio Management. 14, 3 (Spring): 64-69. Smith, Keith V. 1980. The Effect of Intervalling on Estimating Parameters of the Capital Asset Pricing Model. Journal of Financial and Quantitative Analysis. 13, 2 (June) 313-332.

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Figure 1: Yahoo! Finance Betas vs. S&P 500 Calculated Betas

14.0

12.0

Correlation coefficient = -0.2313 p = 0.0039

10.0

8.0

6.0

4.0

2.0

0.0 -0.5 0.0 0.5 1.0 S&P 500 Calculated Beta 1.5 2.0 2.5

20

Figure 2: MSN Money Betas vs. Calculated S&P 500 Betas

35.00 30.00 25.00 20.00 15.00 10.00 5.00 0.00 -5.00 -1.00 -0.50 0.00 0.50 1.00 Calculated S&P 500 Betas 1.50 2.00 2.50 3.00

Correlation coefficient = -0.3234 p = 0.0000

21

Figure 3: Morningstar Betas vs. S&P 500 Calculated Betas

14.00

12.00

Correlation coefficient = -0.2247 p = 0.0047

10.00

8.00

6.00

4.00

2.00

0.00 -0.50 0.00 0.50 1.00 S&P 500 Calculated Beta 1.50 2.00 2.50

22

Figure 4: Google Finance Betas vs. S&P 500 Calculated Betas

2.5

2.0

1.5

1.0

0.5

0.0

Correlation coefficient = 0.6416 p = 0.0000

-0.5 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0

S&P 500 Calculated Beta

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Table 1: Comparative Betas of U.S. Equity ETFs where Google Assigned a Beta of 1
Yahoo! Finance --0.98 ------------------1.01 ------------------------0.92 --------0.98 ----------------MSN Money 1.17 0.97 1.62 1.71 1.04 0.35 0.57 0.76 0.75 0.56 0.95 1.00 1.08 1.24 1.44 1.53 0.82 0.74 0.77 0.82 1.05 1.44 1.17 1.24 0.90 1.91 2.15 3.10 1.97 1.04 0.49 1.12 1.54 0.87 0.70 0.95 0.44 0.72 Beta Source Google Morning Finance star 1.00 --1.00 0.97 1.00 --1.00 --1.00 --1.00 --1.00 --1.00 --1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 ------1.00 1.17 ----------------------0.93 --------0.98 ----------------VS S&P 500 1.14 0.97 1.39 1.77 0.94 0.67 0.56 0.74 0.74 0.77 0.83 1.06 1.16 1.46 1.23 1.29 0.64 0.88 0.82 1.04 1.06 1.45 1.19 1.24 0.95 1.97 2.04 2.78 1.99 0.98 0.91 0.99 1.63 0.67 0.76 0.86 0.86 0.73

Ticker XRO DIA ITA IAI IHF ITB IHI IEO IEZ IHE IAT NYC IWC SLX PPA PZD PJB PXE PTH PXJ PRF PSP PIV PHO PWC DDM MVV QLD SSO ELG XHB KBE KCE KRE XBI SDY XME XES

ETF Name Claymore/Zacks Sector Rotation DIAMONDS iShares Dow Jones U.S. Aerospace & Defense iShares Dow Jones U.S. Broker-Dealers iShares Dow Jones U.S. Health Care Providers iShares Dow Jones U.S. Home Construction iShares Dow Jones U.S. Medical Devices iShares Dow Jones U.S. Oil & Gas Exploration & Production iShares Dow Jones U.S. Oil Equipment & Services iShares Dow Jones U.S. Pharmaceutical iShares Dow Jones U.S. Regional Banks iShares NYSE 100 iShares Russell Microcap Market Vectors Steel PowerShares Aerospace & Defense PowerShares Cleantech PowerShares Dynamic Banking PowerShares Dynamic Energy E&P PowerShares Dynamic Heathcare PowerShares Dynamic Oil Services Powershares FTSE RAFI US 1000 PowerShares Listed Private Equity PowerShares Value Line Timeliness PowerShares Water Resource Port PowerShares XTF: Dynamic Market ProShares Ultra Dow30 ProShares Ultra MidCap400 ProShares Ultra QQQ ProShares Ultra S&P500 SPDR DJ Wilshire Lg Cap Growth SPDR Homebuilders SPDR KBW Bank SPDR KBW Capital Markets SPDR KBW Regional Banking SPDR S&P Biotech SPDR S&P Dividend SPDR S&P Metals & Mining SPDR S&P Oil & Gas Equip & Service

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XOP XRT XLI VIG VOT VTV DTN DHS DLN

SPDR S&P Oil & Gas Explor & Product SPDR S&P Retail SPDR Select Sector - Industrial Vanguard Div Appreciation Vanguard Mid-Cap Growth Vanguard Value WisdomTree Dividend Top 100 WisdomTree High-Yielding Equity WisdomTree LargeCap Dividend Average

----0.96 ----1.01 ------0.98

0.76 0.89 1.04 0.77 1.09 0.95 1.00 1.05 0.94 1.09

1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

----0.96 ----1.01 ------1.00

0.77 0.95 0.98 0.80 1.12 1.01 1.00 1.07 0.98 1.10

Note: Google provides no explanation of their beta calculations. All betas as of Sept 12, 2008

25

Table 2: Comparative Betas of Bond ETFs

Yahoo! Finance 1.20 0.49 2.72 1.69 1.01 1.53 1.44 MSN Money 0.80 0.79 2.53 2.07 1.04 1.79 1.50 Beta Source Google Morning Finance star -0.07 1.19 -0.04 0.49 -0.26 2.73 -0.20 1.70 --1.01 -0.15 1.49 -0.14 1.44 VS S&P 500 0.08 -0.06 -0.25 -0.20 -0.02 -0.19 -0.11

Ticker LQD SHY TLT IEF AGG TIP

ETF Name iShares GS $ InvesTopTM Corporate Bond iShares Lehman 1-3 Year Treasury Bond iShares Lehman 20 Year Treasury Bond iShares Lehman 7-10 Year Treasury Bond iShares Lehman Aggregate iShares Lehman TIPS Bond Average

26

Table 3: Comparative Betas of International and Global ETFs

Beta Source Yahoo! Finance --1.91 1.49 1.35 1.36 1.14 1.96 1.14 0.99 1.52 1.08 1.06 1.12 --1.18 1.01 0.82 0.73 0.93 1.10 1.29 1.19 1.88 1.44 0.99 1.38 0.68 1.15 0.94 --0.99 0.79 --1.02 1.30 0.49 ----1.34 MSN Money 2.17 2.54 1.46 1.43 1.36 1.08 2.14 1.20 0.99 1.57 1.12 1.08 1.15 0.99 1.53 1.02 0.69 0.77 0.54 1.14 1.43 1.36 1.64 1.58 1.18 1.26 0.56 1.31 0.95 0.99 1.01 0.82 0.58 1.10 1.32 0.40 0.84 0.87 1.42 Google Finance 1.00 1.62 1.54 0.96 0.73 1.22 1.63 1.00 1.75 1.30 1.24 1.00 0.98 0.99 0.54 0.82 1.36 1.34 0.97 1.10 1.48 1.73 1.09 1.69 1.00 1.13 1.00 1.00 1.13 0.96 1.00 0.77 1.19 0.55 1.00 1.00 1.50 Calculated vs S&P 500 2.00 2.09 1.55 1.40 1.44 1.41 1.93 1.22 1.10 1.60 1.34 1.29 1.38 1.05 1.44 1.22 0.67 0.91 1.25 1.37 1.40 1.47 1.80 1.39 1.12 1.60 0.79 1.26 1.05 1.16 1.08 1.00 0.67 1.13 1.31 0.51 1.05 1.01 1.44

Ticker EEB FXI ILF EWA EWO EWK EWZ EWC EFA EEM EZU EWQ EWG EFG EWH EWI EWJ EWM EWW EWN EPP EWS EZA EWY EWP EWD EWL EWT EWU EFV IEV IOO KXI IXC IXG IXJ EXI MXI IXN

ETF Name Claymore/BNY BRIC iShares FTSE/Xinhua China 25 iShares Latin America 40 iShares MSCI Australia iShares MSCI Austria iShares MSCI Belgium iShares MSCI Brazil iShares MSCI Canada iShares MSCI EAFE iShares MSCI Emerging iShares MSCI EMU iShares MSCI France iShares MSCI Germany iShares MSCI Growth iShares MSCI Hong Kong iShares MSCI Italy iShares MSCI Japan iShares MSCI Malaysia iShares MSCI Mexico iShares MSCI Netherlands iShares MSCI Pacific Ex-Japan iShares MSCI Singapore iShares MSCI South Africa iShares MSCI South Korea iShares MSCI Spain iShares MSCI Sweden iShares MSCI Switzerland iShares MSCI Taiwan iShares MSCI United Kingdom iShares MSCI Value iShares S&P Europe 350 iShares S&P Global 100 iShares S&P Global Consumer Staples Sector iShares S&P Global Energy iShares S&P Global Financial iShares S&P Global Healthcare iShares S&P Global Industrials Sector iShares S&P Global Materials Sector iShares S&P Global Technology

Morningstar --1.94 1.52 1.35 1.35 1.10 1.99 1.11 0.99 1.55 1.09 1.06 1.15 0.98 1.20 1.02 0.81 0.82 0.97 1.06 1.30 1.26 1.85 1.54 1.03 1.37 0.69 1.15 0.92 1.02 1.00 0.77 --1.03 1.28 0.49 ----1.34

27

IXP JXI ITF ADRD ADRE PGJ PID FEZ DGT FEU VWO VGK VPL DWM DTH DOO DOL DIM DLS DND

iShares S&P Global Telecommunications iShares S&P Global Utilities Sector iShares S&P/TOPIX 150 PowerShares BLDRS Developed Markets 100 ADR PowerShares BLDRS Emerging Markets 50 ADR PowerShares Golden Dragon Halter USX China PowerShares Intl Dividend Achievers SPDR DJ EURO STOXX 50 SPDR DJ Global Titans SPDR DJ STOXX 50 Vanguard Emerging Markets Vanguard European Vanguard Pacific WisdomTree DEFA WisdomTree DEFA High-Yielding Equity WisdomTree International Dividend Top 100 WisdomTree International LargeCap Dividend WisdomTree International MidCap Dividend WisdomTree International SmallCap WisdomTree Pacific ex-Japan Total Dividend Average

1.07 --0.84 1.00 1.56 1.86 --1.02 0.66 0.94 1.52 0.99 0.94 --------------1.16

1.14 0.68 0.70 1.01 1.64 1.41 0.94 1.11 0.68 1.00 1.61 1.00 0.90 1.06 1.06 1.07 1.07 0.93 0.94 1.46 1.15

1.07 1.00 0.53 1.15 1.74 2.11 1.00 1.36 0.87 1.11 1.44 1.01 0.82 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.13

1.06 --0.82 0.99 1.56 1.85 --1.05 0.65 0.95 1.55 0.99 0.94 --------------1.16

1.08 0.82 0.69 1.09 1.68 2.26 1.11 1.28 0.91 1.11 1.51 1.08 0.89 1.12 1.16 1.22 1.11 1.07 1.06 1.33 1.25

28

Table 4: Comparative Betas of Commodity ETFs

Yahoo! Finance 11.85 ------12.85 --12.35 MSN Money 27.34 0.23 30.83 32.14 27.79 0.69 19.84 Beta Source Google Morning Finance star -0.18 11.42 1.00 --1.00 --1.00 --0.41 12.43 1.00 --0.71 11.93 VS S&P 500 -0.07 -0.32 -0.14 -0.01 -0.06 -0.24 -0.14

Ticker IAU GSG SLV GDX GLD USO

ETF Name iShares COMEX Gold iShares GSCI Commodity iShares Silver Market Vectors TR Gold Miners SPDR Gold United States Oil Average

29

Table 5: Comparative Betas of Currency ETFs

Yahoo! Finance --------------MSN Money 1.05 8.22 3.10 2.88 5.80 10.56 5.27 Beta Source Google Morning Finance star 1.00 --1.00 --1.00 --1.00 --1.00 --1.00 --1.00 --VS S&P 500 0.38 0.21 0.05 0.42 -0.04 -0.34 0.11

Ticker DBV FXA FXB FXC FXE FXF

ETF Name PowerShares DB G10 Currency Harvest Rydex CurrencyShares Australian Dollar Rydex CurrencyShares British Pound Sterling Rydex CurrencyShares Canadian Dollar Rydex CurrencyShares Euro Currency Rydex CurrencyShares Swiss Franc Average

30

Table 6: Financial Websites Market Indices Used for Different ETF Beta Calculations US Fixed Site US Equity Income International Global ? ? AOL Money & N/A Not disclosed S&P 500 MSCI EAFE Finance
money.aol.com

Commodity Not disclosed

+ +

Currency N/A
+

Bloomberg
www.bloomberg.com

S&P 500 N/A

S&P 500 N/A

?

Varies by fund N/A

Varies by fund N/A

Varies by fund N/A

Varies by fund N/A

CNNMoney.com
money.cnn.com

Google Finance
finance.google.com

Varies by fund S&P 500 S&P 500 S&P 500

+ +

S&P 500

Varies by fund MSCI EAFE MSCI EAFE S&P 500 S&P 500
? ? ? ? + +

Varies by fund Varies by fund Varies by fund Not disclosed S&P 500 S&P 500
? ?

? + +

Varies by fund ML USD + LIBOR 3M Varies by fund Not disclosed S&P 500 S&P 500
? ?

Varies by fund ML USD 3 LIBOR 3M Not disclosed Not disclosed S&P 500 S&P 500 N/A
? ?

Morningstar1
www.morningstar.com

MSN Money
Money.msn.com

Lehman + Aggregate Bond Lehman + Aggregate Bond S&P 500 S&P 500
? ?2 ?

Reuters
www.reuters.com

SmartMoney.com
www.smartmoney.com

S&P 500* S&P 500

?

TheStreet.com
www.thestreet.com

S&P 500

S&P 500

Yahoo! Finance
finance.yahoo.com

S&P 500*

Lehman Aggregate Bond*

MSCI EAFE

Varies by fund

ML USD ? LIBOR 3M

+ * ?
1 2

N/A

Market index used is clearly identified along with the beta estimate. Market index used can be found on the financial website with some searching. No indication of market index used was found on the financial website itself. This is what we believe the market index to be based upon comparisons of betas of other sites or our calculations, or by searching information from other sites. Morningstar also presents betas based on best fit indices. SmartMoneys glossary definition of beta states that their fixed income betas are calculated using the Lehman Aggregate Bond Index, but as far as we can tell, this is not the case. No Morningstar betas were shown for currency ETFs in our sample, but an index was noted. Not available. Betas were not supplied for our sample ETFs in this category.

31