A View of ETFs In An Obama White House

If Barack Obama were to win the election for presidency this November, what would happen to the investment world, particularly exchange traded fund (ETF) investors?

Awhile back, we talked about funds that could benefit in a McCain win, as well as an overall Democratic win.

Jonathon Bernstein for ETFZone believes that the most immediate and powerful impact of an Obama win would be the within the area of foreign policy. He could help to ease tensions with the Middle East and Venezuela, which would in turn calm oil prices and shift the overall momentum of the markets. Currently, oil is at all-time highs, so just the thought of Obama in the White House would send oil lower in funds such as Unites States Oil (USO).

The dollar might end up in a stronger state, as a major reason the dollar fell against the euro is oil imports. If the United States were to import less oil, or or pay less for the oil it does import, we might see an improved trade deficit, thus upping the demand for U.S. dollars. CurrencyShares Euro Trust (FXE) would reflect the dollar-euro ratio.

Obama says he would keep tax cuts for the middle class, and doesn't support Bush's tax cuts for the wealthy. Both those and his dividend tax cut expire in 2010. Dividend-focused ETFs such as iShares Dow Jones Select Dividend Index (DVY) or the State Street SPDR Dividend (SDY) could be vulnerable if the tax cuts aren't renewed.

Obama also supports working to put an end to global warming and a push to reduce U.S. carbon emissions by 80% by 2050. He also supports ending the ban on stem cell research.  Both iShares Nasdaq Biotechnology (IBB) and the WildersharesClean Energy (PBW) could experience positive movement if these issues are addressed.

Qualities to Look for in Your High-Yield ETFs

When considering a high-yield exchange traded fund (ETF), what are the most important characteristics to keep in mind?

Phillip Yockey, President of Tactival Analytics, says "quality, yield and safety" should be the biggest considerations. Michael Krause of AltaVista Research agrees but adds that it's also important to analyze the underlying composition of these ETFs.

Billy Fisher for The Street says that while there are a high number of high-yield ETFs to choose from, some due diligence should be done in looking at the alternatives. Remember that the expense ratios are important because they take away from dividend payments.

Among the number of high-yield ETFs available are:

• Claymore/Zacks Yield Hog (CVY), up 0.14% year-to-date; 6.3% yield
• SPDR S&P Dividend (SDY), down 2.9% year-to-date; 3.9% yield
• iShares Dow Jones Select Dividend Index Fund (DVY), down 6.8% year-to-date; 4.2% yield
• WisdomTree High-Yielding Equity Fund (DHS), down 5.4% year-to-date; 4.6% yield

Dividend ETFs Have a Range of Applications

The choices and types of dividend stocks available are numerous, and there's an exchange traded fund (ETF) for many of them.

A dividend is a payment that a company makes to you as a shareholder. Judy Alstar for Rightside Advisors explains that most payments are made at predictable rates, at regular intervals. Generally, firms make special dividend payments at year's end, offer additional stock as payment, or spin-off ownership of another company. That might not be what you want, though, if you would prefer to take the payout.

Among the most commonly used dividend-generating equities are real estate investment trusts (REITs), closed-end funds and royalty trusts.

Dividend ETFs can be an excellent source of retirement income, says Dobromir Stoyanov for Seeking Alpha. At the beginning of this decade, 12% of the U.S. population was 65 or older, and the baby boomer generation is booming into retirement age. Social Security isn't a sure thing anymore, and this could lead to a major demand shift in favor of dividend stocks and ETFs.

Among the many dividend ETFs:

• iShares Dow Jones Select Dividend Index (DVY)
• PowerShares International Dividend Achievers (PID)
• SPDR S&P Dividend (SDY)
• iShares Dow Jones EPAC Select Dividend (IDV)
• First Trust DB Strategic value Index (FDV)

Baby Boomers Might Consider Dividend ETFs

The first crop of baby boomers are reaching the age of retirement and will most likely shift their investment focus to fixed-income products, including bond exchange traded funds (ETFs).

While fixed-income products provide dependable income, there's a drawback: they don't account for the eroding value of inflation.

According to the U.S. Census Bureau, the baby boom segment of the population will rise over the next 20 years, accounting for 42% of the population. This will drive a major demand shift to dividend-paying vehicles, along with price appreciation as a result, reports Dobromir Stoyanov for Seeking Alpha.

Historically, dividends have accounted for 40% of the total stock returns over the past 80 years. Stoyanov says that if retirees hold funds that have the ability to grow their dividend payments over time, they could be set for retirement.

Dividend-paying ETFs and their yields:

• PowerShares High Yield Dividend Achievers (PEY), 5.4%
• PowerShares High Growth Rate Dividend Achievers (PHJ), 2.9%
• PowerShares Dividend Acheivers (PFM), 2.1%
• SPDR Dividend ETF (SDY), 3.8%
• Utilities Select Sector SPDR (XLU), 2.9%
• iShares Dow Jones US Real Estate (IYR), 4.6%

Sorting Out Oil ETFs; What To Buy With Oil North of $100 a Barrel

The worst-performing oil exchange traded fund (ETF) might be tops when distributions are factored in.

Hard Assets Investor for Seeking Alpha took a look at oil-focused ETFs and ETNs and noticed that the PowerShares DB Oil Fund (DBO) underperformed competing funds, as well as spot oil for the past year:

• PowerShares DB Oil Fund (DBO), up 53.8%
• United States Oil (USO), up 73.5%
• United States 12 Month Oil (USL), up 73.5%
• West Texas Immediate Spot, up 66.2%

It's no slouch - it is in positive territory, after all. But holders of DBO received a distribution of $1.28 per share last December, meaning that on a total return basis, DBO is ahead of its peers, and is up 83%.

The distributions come from two sources:

1. A proprietary "optimum yield" roll methodology used by Deutsche Bank.
2. Interest earnings and gains passed to shareholders from the 3-month Treasury Bill market, which are used to collateralize the futures contracts in DBO's portfolio.

But the tax question can't be ignored: what benefits are still there when Uncle Sam comes calling? If this is a sector you're considering, use your IRA or qualified plan.

Claymore Declares Final Proceeds on Closed ETFs

Claymore Securities has officially closed 11 of their weakest-performing exchange traded funds (ETFs) and they ceased trading on Feb. 20.

All shareholders of those closed funds should have received the value of their shares as of that date, The exact breakdown can be found here.

Vanguard's Leadership Shift Mean Interesting Times Are Ahead for Their ETF Division

Jack Brennan is leaving Vanguard Group just as their exchange traded fund (ETF) segment is ready to take off and the company is humming along.

Brennan is leaving on a high note, says Matthew Hougan for Index Universe. Will the new guard continue the momentum?

• Assets quadrupled during Brennan's tenure.
• The company ended 2007 as the best-selling mutual fund company in the world.
• The company is fast becoming a leader in ETFs.
• Costs are down, capital gains distributions are low.

With Vanguard moving into the competitive institutional market, the appointed new leader is William McNabb III, who has institutional experience at the firm under his belt.

The company is branching into the advisor market with its ETF platform. The main challenges include the fundamental indexers and beat-the-market indexing variants, along with the Baby Boomers transitioning from accumulation to distribution.

Keep an eye on the firm - interesting times could be ahead.

Some Dividend ETFs Going Down With Financial Sector

Dividend-focused exchange traded funds (ETFs) are experiencing a meltdown of their own.

These types of funds have large plays in high-yielding financial stocks and this is the sector that has been hit hard by the sell-off in banks exposed to the subprime meltdown and credit crunch, reports John Spence for MarketWatch.

The largest dividend-paying ETF is the iShares Dow Jones Select Dividend Index Fund (DVY), which has been one of the industry's greatest success stories, enhanced by dividend tax breaks and low bond yields. DVY tracks an index of the 100 highest dividend-yielding securities listed in the United States.

The fund went down in late January along with the broader market, and hit a 52-week low of $50.85 on Jan. 22 - 33% off its high in May 2007.

These types of ETFs were first brought to the broad market as an alternative to traditional market exposure. What investors are now learning is that these funds have huge sector bets. There may be opportunity in buying low at this point.

Matthew Hougan, editor at Index Universe, points out the need for investors to look behind the funds, as dividend ETFs can be heavily weighted over just a couple sectors. It's sound advice: always know what you own.

No ETF for Israel Yet, but You Can Still Get Exposure

There's no direct exposure to Israel via exchange traded funds (ETFs) - at least not yet. What's an investor to do?

Zack Miller for Israel Opportunity Investor says that the SPDR Emerging Middle East (GAF) is the best chance to capture exposure to the market at this point. The fund is heavily weighted in three countries especially: South Africa at 65%, Israel at 17% and Egypt at 6%.

Israel, while not putting up the huge growth that other countries have been in the last year, has still giving good numbers: close to 4-5% GDP growth.

Several opportunities to invest in Israel directly could be coming soon. Many investors are wary of the country, though, because of the political risks, says Gary Gordon for ETF Expert. He says the First Israel Fund (ISL) is a closed-end fund (CEF) gives a fairly diversified exposure to the Israeli economy that comes with a 6% dividend. Teva Pharma (TEV) has the top spot at a 10% weighting.

As for Israel ETFs, several are currently in registration with the Securities and Exchange Commission (SEC):

• iShares MSCI CAPPED Israel
• iShares MSCI Israel
• Wilder Israel
  

Indexing and ETFs Get a Fresh Perspective in Outsider's Report

The indexing and exchange traded fund (ETF) industry recently was privy to the observations of an outside observer.

Adam Sussman, a senior analyst for the TABB Group, wrote an exhaustive report titled "Performance Anxiety: A Buy-Side Study on Benchmarks and the Investment Process." You can buy it for $8,000 - or just read summary here for the bargain price of free.

Heather Bell for Index Universe sorted out the report's 38 pages so you don't have to and highlighted some of its most illuminating findings:

• Index providers could gain more market share by differentiating their indexes with better services and more information.

• Index subscribers want more data accuracy, and they want information on things like dividends, mergers and acquisitions and stock buybacks.

• Index providers can compete in the area of analytics. Sussman cites MSCI's acquisition of Barra, along with S&P's acquisition of CariFI. Having the analytics in-house could be a big selling point for a provider.

• By 2009, nearly 70% of all pension plans will use customized benchmarks.

• Customized benchmarks also will be driven by socially responsible investing, since more restrictions are being placed on pension funds in regard to where they can invest.

The overall conclusion of the report? Benchmarks once were an afterthought, and now they are front and center. Indexing has opened, and will continue to open, new doors.

Pay Attention To Earnings-Weighted ETFs

WisdomTree rolled out a family branch of exchange traded funds (ETFs) fundamentally weighted on the basis of trailing earnings. So the more a company earns, the more it's weighted in the index.

Roger Nusbaum for TheStreet reports that these ETFs actually track closer to the makeup of a traditional cap-weighted index than WisdomTree's dividend-weighted ETFs.

WisdomTree Low P/E Fund (EZY) weights stocks with the lowest price-to-earnings ratio most heavily. The ETFs within this family are great for a broad-based portfolio. Over time, sector makeup changes so watch closely. Right now, energy dominates the four funds, with 13%-21% making up the four large-cap funds, such as the Dividend 100 Fund (DTN).

PowerShares Hands Out Zero Capital Gains for ETF Portfolios in 2007

Exchange traded fund (ETF) provider PowerShares announced that no capital gains distributions were made for any of its equity and fixed-income based ETF portfolios for 2007.

According to Market Wire, since inception the company has not made a capital gain distribution to holders of those portfolios.

Shareholders of an ETF generally only trigger a taxable event when the shares are sold. Asset managers often use the "in kind" method of share transferring, which allow portfolios to avoid year-end capital gains payouts.

ETFs Dishing Out Some Capital Gains

Exchange traded funds (ETFs) are touted for their tax efficiency. In fact, it's one of the major selling points for the funds.

Ian Salisbury for The Wall Street Journal explains that the rapid growth taking place within the ETF industry along with the increasing complexity of some funds, is making the goal of tax-friendliness harder to reach. Now that 2007 is finished, it is easier to get a good picture.

Last year, 95 ETFs, or 18% of ETFs tracked by Morningstar, passed along capital gains distributions to investors. In 2006, it was merely 6%, and 2005 presented only 3% of ETFs with capital gains taxes. The waning "tax efficiency" is a byproduct of the explosive popularity if ETFs.

The dynamic involves the newer funds that are traded too thinly, thus making it more difficult for managers to maneuver holdings in order to keep from realizing gains. Many of the newer funds are such a narrow slice of the market that they are more volatile, which leads to big gains and losses, and the gains equal distributions.

However, ETF capital gains taxes are minor when compared to actively managed mutual funds, some of which amounted to 10% or more of fund assets in 2007.

ETFs Can Help Deal With Uncle Sam

The holidays are over and the next event to consider is how tax-savvy an investor you were with exchange traded funds (ETFs) in 2007

Ian Salisbury for The Wall Street Journal reports that the year-end tax statements arriving from mutual fund companies during the next few weeks could have some steep capital gains tax bills attached. This is the culmination of good stock market returns during the past few years and it is too late to adjust fund-related taxes for April.

It isn't too late to consider 2008 for the next time around, however, because paying Uncle Sam is inevitable. Here are a few pointers:

• Shop tax payer-friendly funds: Some fund aim specifically at avoiding passing out capital gains.
• Consider ETFs: Broad-based ETFs are great because they don't trade much and rarely pass out capital gains.
• Check out after-tax returns: It's a good indicator of a fund's performance.
• Put active funds into retirement accounts: Keep your tax-friendly funds in a taxable account and other that trade frequently in an individual retirement account.
• Tax-loss selling: Harvesting losses by selling them can be effective. Take a look at our how-to on the subject.
• Think twice about buying in December: This is a quick tax bill, so hold out and wait until January.

ETF Creations and Redemptions for December

Many investors are now using exchange traded fund (ETF) flows to get a feel for where the most money is focused on Wall Street.

Matthew Hougan for Index Universe says that there is a new report that captures the largest creation/redemption activity within the ETF space. IndexUniverse will publish the report each Tuesday.

The largest net creation for the week ending December 28 goes to the Energy Select SPDR (XLE). $1.29 billion in new shares were created, showing that investors feel confident in the energy flow for 2008. Two gold funds hit the top 20, streetTracks Gold Trust (GLD) and the Market Vectors Gold Miners (GDX), possibly because investors are searching for safe haven assets.

Largest net redemptions were seen by the SPDR S&P 500 (SPY), which lost nearly $6 million, and the iShares S&P 500 (IVV), which lost $1.8 billion. iShares Dow Jones Select Dividend Index (DVY) is trading at a two-week low, possibly because investors are harvesting tax losses before the end of 2007.

For full disclosure, some of Tom Lydon's clients own GDX.

Look At The Bright Side With ETFs

A recession is still looming over the U.S. economy, but it isn't doom and gloom for investors, as exchange traded funds (ETFs) still present opportunities.

Gary Gordon for ETF Expert reports that with the Purchasing Managers Index (PMI) below 50, a recession is 80% likely. As of January 2, the PMI was at 47.7, putting us dangerously close to the horrible 47, a sign of negative economic growth.

The Fed will do what it can to help mitigate the severity of any slump. In the meantime, ETFs can give investors a reason to see the glass as half-full. Some of the ETFs Gordon cites as opportunities are:

• These worked in 2007 and should continue working in 2008: Foreign fixed-income, which can be accessed through PowerShares Emerging Markets Sovereign Debt Fund (PCY) and SPDR Lehman  International Treasury Bond ETF (BWX). And don't forget about commodities, they should continue to do well in 2008.

• Two ETFs that go against the overall domestic trend: FocusShares ISE SINdex Fund (PUF) and iShares Global Infrastructure Fund (IGF).

• International income producers from WisdomTree: WisdomTree Communications Fund (DGG) and WisdomTree Materials Fund (DBN) and WisdomTree Utilities Fund (DBU).

Mutual Fund Taxes Are Going to Hurt, But ETFs Could Give Pain Relief

Exchange traded fund (ETF) investors will appreciate this: the tax tab on mutual funds this year will be a doozy.

Every year at this time, mutual funds pass on dividends and capital gains to their investors. Since the numbers are predicted to be especially high, the taxes are going to be similarly large, reports Eileen Ambrose at the Orlando Sentinel.

It's too late for 2007, but Ambrose offers up some suggestions for next year. Among them is to take a look at ETFs, thanks to their tax efficiency. You typically only pay taxes when you redeem your ETF at a profit, not when investors sell their shares, giving you more control over your tax situation. ETFs are tax efficient, but not tax-free, so it is possible to have capital gain distributions, however, their percentages are lower than conventional mutual funds.

Digging Deeper Into International Small Cap ETFs

International small-cap exchange traded funds (ETFs) are the latest frontier that providers have captured. There are now five choices in this space and ETFs that have the same asset class are not always the same underneath. Matthew Hougan for Index Universe takes us on an expedition, to dig deeper into these small-cap ETFs and discover what is behind the ticker symbols and their index returns.

iShares MSCI EAFE Small-Cap (SCZ) launched last week and has an expense ratio 0.40%. Industrials make up 23.5% of the ETF, followed by financials at 20.7% and consumer discretionary at 16.1%. Top countries represented are Japan at 24.8%, the U.K. at 19.8% and Australia at 8.9%.

iShares FTSE Developed ex-U.S. Small-Cap (IFSM) began trading last month with an expense ratio 0.50%. Top sectors represented in this ETF include industrials at 28.5%, financials at 22.4% and consumer services at 12.9%. The U.K. makes up 24.1% of the ETF, followed by Japan at 15.9% and France with 6.1%.

PowerShares FTSE RAFI Developed ex-U.S. Small-Mid (PDN) hit the market in September with an expense ratio of 0.75%. Consumer discretionary makes up 18.3% of this ETF, while consumer staples is 9.4% and energy is 3.8%. Japan is the top country represented with 34.4%, the U.K. is 11.9% and Hong Kong makes up 7.0%. PDN also includes mid-cap companies.

SPDR S&P International Small-Cap (GWX) launched earlier this year in April and has an expense ratio of 0.60%. GWX consists of industrials at 25.8%, consumer discretionary at 19.4% and financials at 16.9%. Japan is again the top weighted country at 24.0%, followed by the U.K. at 12.0% and Canada at 10.9%.

WisdomTree International Small-Cap Dividend Fund (DLS) was the first to launch in June 2006. It has an expense ratio of 0.58%. The top sectors are industrials at 25.3%, consumer non-cyclical at 18.1% and financials at 17.8%. Japan's weight in DLS is 22.6%, Australia follows with 18.5% and then the U.K. at 18.3%.

This illustrates that there can be many choices within a certain asset class. The conclusion is to dig deep to find out what the differences are and what fits with your portfolio and your financial goals.

A Closer Look At A Foreign Dividend ETF

First Trust is the latest to join the foreign-dividend focused exchange traded funds (ETFs), with its launch of First Trust Global Select Dividend Fund (FGD).  Other ETFs in this arena include iShares EPAC Select Dividend Index (IDV), PowerShares International Dividend Achievers (PID) and WisdomTree DEFA High Yielding ETF (DTH).

Roger Nusbaum for The Street.com reports that FGD is heavy in financials, but does have the least exposure of the foreign dividend ETFs.  Compared to the other ETFs, it has a higher weighting in utilities.  The country weightings include Australia at 28.41%, Great Britain at 22.14%, 20.08% to the U.S., and 8.01% to Canada. 

If you are looking for dividends and foreign exposure, it is important to know what is in each of these ETFs and how that may or may not fit into your portfolio.

Market and ETF Facts to Consider

There's a lot going on in the markets and exchange traded funds (ETFs).  Matt Hougan for Index Universe looks at 10 interesting market facts and we've added some ETF related information.

1. The U.S. stock market is uneasy. Volatility is the best performing index this year, up 138.7% on the CBOE Volatility Index, compared to a year ago.
2. Technical analysis aside, the Dow Theory says "If the train slows down, the economy soon follows." iShares Dow Jones Transportation Average (IYT) is up 0.4% year-to-date.
3. Utilities are going off, as you may know from those huge checks you write each month. Utilities Select Sector SPDR (XLU) is up 15.7%.
4. Some indexes following Europe aren't as pretty as you may think, even with a strong currency.  Although we find the iShares S&P  Europe 350 Index (IEV) is up 14.7%. Isn't the euro worth more than gold right now?
5. European countries and their markets aren't always in sync. Performance ranges up and down, depending which country you're in. iShares MSCI Germany Index (EWG) is up 32% and iShares MSCI Belgium Index (EWK) is down 0.5%.
6. The China/Japan dichotomy, with such proximity, what gives? iShares MSCI Japan(EWJ) is down 1.3% and iShares MSCI Xinhua/China 25 Index (FXI) is up 66.9%.
7. Understanding contango in commodity investing is important.  It's confusing and has investors angry.
8. One of best domestic sector ETFs is Aerospace & Defense -PowerShares Aerospace and Defense (PPA) is up 24.6%. The worst sector is homebuilding - SPDR S&P Homebuilders (XHB) is down 53.4%.
9. Small-cap growth is doing well, maybe not as well as in recent past, but they are holding their own. iShares S&P SmallCap 600 Growth (IJT) is up 5.4%, compared to the S&P 500 which is up 3.6%.
10. Dividends aren't offering the safe haven thought of through tough markets. iShares Dow Jones Select Dividend Index (DVY) is down 6.0%.

Dividend Index Gets an ETF of Its Own

Everybody, get out the welcome mat for the newest exchange traded fund (ETF) in town: It tracks the Dow Jones Global Select Dividend 100 Index. The index tracks the performance of the top 100 dividend-paying companies in the world, reports PrimeNewswire.

The First Trust Dow Jones Global Select Dividend 100 Index Fund (FGD) began trading today on the American Stock Exchange.

To gain entree into the index, companies need to have a positive dividend growth rate over the past five years, plus a dividend-to-earnings-per-share ratio of less than or equal to 60% for U.S. and European companies and 80% for all others. The weight of each holding in the index is held to 10%, so no particularly high-paying stocks can dominate. Each December, the index will undergo a review.

Dealing With Correlation Via ETFs

Where can an exchange traded fund (ETF) investor find shelter? Once upon a time, foreign markets and energy moved independently of stocks, but these days, they tend to move in the same direction, writes Trang Ho at Investor's Business Daily.

One place to look is in foreign bond ETFs, which can provide good returns while shunning the trend. Two offerings are:

• SPDR Lehman International Treasury Bond Fund (BWX) 
• PowerShares Emerging Markets Sovereign Debt Portfolio (PCY)

Other ways to hedge inflation, deflation and a falling dollar are through currencies, foreign dividends and the traditional gold.  Some ETFs focusing in on these areas include:

• CurrencyShares Japanese Yen (FXY)
• streetTRACKS Gold Shares (GLD)
• WisdomTree International SmallCap Dividend Index (DLS)
• WisdomTree DEFA High Yielding Equity (DTH)

For full disclosure, Tom Lydon is a member of the board of Rydex Investments.

Dividend Rotation ETF Paying Out

Dividend-paying stocks no longer have to be a buy-and-hold investment, and are accessible in an exchange traded fund (ETF) basket. The one-month old  Claymore/Zacks Dividend Rotation ETF (IRO) holds 100 stocks divided into two groups and are chosen because they are about to make a shareholder payment. Joseph Lesanti for NY Daily News reports the stocks are held around 61 days to meet IRS requirements for the lower dividend tax rate. The stocks are held long enough to qualify for this tax rate and then they are sold and new dividend-paying stocks are bought. The tax rate is 15%, and the process is repeated every month with one of the two groups.

This may sound like active management for the portfolio, but the index follows hard rules concerning yield, liquidity, company growth and payout ratio. Back testing shows that it is beating the Dow Jones select dividend index over the past decade. Now only time will tell.

A Dividend ETF Match

The Claymore/Zacks Dividend Rotation (IRO) exchange traded fund (ETF) began trading this week, and it brings a new level of complexity to dividend ETFs. IRO tracks the Zacks Dividend Rotation Index, which is a domestic index designed to maximize dividend income at the lowest possible tax rate. The index's 100 components are divided into two subindexes of 50 components that are rebalanced monthly on an alternating basis. The selected 50 components are then weighted based on yield and liquidity, says Heather Bell for Index Universe. In addition to maximizing dividend income, the index is also designed to select stocks that will outperform other benchmark indexes, including the Dow Jones Select U.S. Dividend Index specifically.

It comes as no surprise that there's an ETF that tracks the Dow Jones Select U.S. Dividend Index: the iShares Dow Jones Select Dividend Index (DVY). The biggest difference IRO has over DVY is that every month, half of the IRO's index is eligible for replacement. By contrast, the DVY's index is reviewed annually. However, DVY's advantage is that its expense ratio is 0.4%, which is 20 basis points cheaper than IRO's.

WisdomTree to Launch Emerging-market Small-cap ETF

WisdomTree announced today that it will launch a new small-cap dividend-weighted exchange traded fund (ETF) tomorrow under the ticker symbol (DGS). DGS will trade on the NYSE Arca and will have an expense ratio of 0.63%. The ETF is designed to track the WisdomTree Emerging Markets SmallCap Dividend Index and will be the first ETF to offer pure international exposure to primarily small-cap stocks selected from 19 emerging market nations, including countries in Europe, Asia and Latin America.

Dividend ETFs Are The Flavor of the Month

In September it was municipal-bond exchange traded funds. This month it's dividend-based ETFs. There's a ton of them and some could be destined for an untimely demise, says Gary Gordon for ETF Expert.

For example, there are at least 12 large-cap, U.S. dividend ETFs. Do we really need this many? And let's not forget the three similar high-yield dividend ETFs. However, within the giant heap of dividend ETFs, a couple stand out from the competition, according to Gordon. They are:

• iShares Dow Jones Dividend Fund (DVY) - This generates a reliable 3.3% of income by holding 100 of the highest dividend-yielding securities in the Dow Jones U.S. Total Market Index. Currently, it's down 1.4% year-to-date.
• SPDR S&P Dividend (SDY) - SDY also offers 3.3% annually and pays out quarterly, tracking the S&P Dividend Aristocrat Index. Currently, it's down 3.4% year-to-date.

ETFs Can Buffer a Temperamental Market

Let's face it: The market is temperamental, but exchange traded funds (ETFs) can be at your rescue.

Since the Federal Reserve slashed short-term interest rates in an attempt to rescue the economy, the market and investors have received a second chance. In other words, that bull might have gotten a second wind, reports Paul J. Lim for CNN Money. However, more turbulence is unavoidable. Now it's time to position your portfolio so that emotions won't play a role in the event of another downturn. Lim offers these suggestions to consider:

• Change the types of stocks you own, not the amounts.
  Shifting to more stable investments such as big, domestic stocks and blue-chip companies can keep things smoother. The average investor is likely overweighted in emerging markets and small-cap stocks, and while these are great when times are good, they're really bad when the markets are bad.
• Change the type of stocks you own,  and invest in those less risky.
  Dividend-paying funds have fallen about a third less than those funds that don't since 2002. One option to consider is the iShares Dow Jones Select Dividend Index ETF (DVY). It invests in stocks that not only pay dividends, but that haven't cut payouts in the past five years.
• Reduce overall exposure to equities.
  This can help you sleep better if the market dips. However, you also can lose out on larger gains. For example, by going from an aggressive 80% stock/20% bond portfolio to a 60-to-40 mix, your worst short-term losses would have been cut in half over the past 10 years. This option might not be for everyone, but it is another avenue to consider.

An ETF Passport

                      Broad-based exchange traded funds (ETFs) could lead you to believe that you own a small piece of the world, but indexes such as the EAFE might have a few too many gaps. The $49 million iShares MSCI EAFE Index ETF (EFA) is the second-largest ETF in the world, and it covers 21 developed nations with Britain, Japan, France and Germany making up 62%. Because the index value is weighted by market capitalization, the larger nations get over-weighted. Countries such as Mexico, Canada and Russia are not even in the index. Lynn O'Shaughnessy for BusinessWeek reports other options are available for investors who want to invest in foreign stocks. Now there are 124 foreign-based ETFs, which is up from about 50 over the past year. Check out four ways to expand a portfolio's global reach:

• Emerging Market ETFs
  Consider the Vanguard Emerging Markets ETF (VWO) or iShares Emerging Markets Index Fund (EEM). These ETFs merge developed and emerging markets, giving investors broad exposure, especially to growing economies.
• Single-country ETFs
  Single country ETFs also offer an easy way to add some foreign exposure to a portfolio. Examples include the iShares MSCI Canada Index (EWC), iShares MSCI Mexico Index (EWW) and iShares MSCI Brazil Index (EWZ).
• Small-caps
  Many investors generally don't associate small-cap stocks with emerging markets, but they are out there. One example is the SPDR S&P International Small Cap (GWX) that has nearly 500 companies that are scattered around the world and have a market capitalization of less than $2 billion.
• Dividend ETFs
  Some international-based ETFs even pay dividends. Some examples include the iShares Dow Jones EPAC Select Dividend Index Fund (IDV) and the WisdomTree International Real Estate Fund (DRW).

For full disclosure, some of Tom Lydon's clients own EEM and EWC.

WisdomTree Moves Its ETFs to Arca

WisdomTree is one of many exchange traded fund (ETF) providers that is moving its ETFs to the New York stock exchange (NYSE) Arca online listing and trading platform. WisdomTree announced yesterday that starting Oct. 11, 2007, it will begin transferring its ETFs to Arca. Currently, there are more than 200 ETFs listed on Arca, which launched April 4, 2007. The first 14 WisdomTree ETFs to make the move include:

• WisdomTree DEFA High-Yielding Equity Fund (DTH)
• WisdomTree DEFA FUND (DWM)
• WisdomTree Europe SmallCap Dividend Fund (DFE)
• WisdomTree Japan SmallCap Dividend Fund (DFJ)
• WisdomTree International MidCap Dividend Fund (DIM)
• WisdomTree International SmallCap Dividend Fund (DLS)
• WisdomTree International LargeCap Dividend Fund (DOL)
• WisdomTree International Dividend Top 100 Fund (DOO)
• WisdomTree Pacific ex-Japan Total Dividend Fund (DND)
• WisdomTree Pacific ex-Japan High-Yielding Equity Fund (DNH)
• WisdomTree Japan High-Yielding Equity Fund (DNL)
• WisdomTree Japan Total Dividend Fund (DXJ)
• WisdomTree High-Yielding Equity Fund (DHS)
• WisdomTree Total Dividend Fund (DTD)

Get Some Extra Cash with Dividend ETFs

As we've mentioned before, dividend exchange traded funds (ETFs) can be attractive to investors because they generally pay out extra money to shareholders. Many different dividend ETFs are available, so for interested investors, shop around to see which one fits best with your portfolio and investment goals. These ETFs come in all sizes, regions, sectors or a combination of these. For example, here are a couple that WisdomTree offers along with their dividend yield and year-to-date performance:

• WisdomTree International Utilities (DBU) - offers a 3.7% yield and is up 12.4%.
• WisdomTree Emerging Market High-Yielding Equity Dividend Fund (DEM) - gives a 5.8% yield and is up 8.3% for the last three months since it launched in July

WisdomTree isn't the only ETF provider that offers dividend ETFs. In fact, some ETFs pay dividends that we don't always consider to be "dividend ETFs." For example, the iShares MSCI Emerging Markets Index (EEM) and the iShares MSCI EAFE Index (EFA) provide 1% and 2% yields respectively, says Gary Gordon for ETF Expert. Year-to-date, EEM is up 27.9%, and EFA is up 10.6%. A few other dividend ETFs with their yield and performance include:

• iShares Dow Jones Select Dividend Index (DVY) - offers a 3.4% yield and is up 0.1%
• SPDR S&P Dividend ETF (SDY) - gives a 3.1% yield and is down 0.3%
• Vanguard Dividend Appreciation ETF (VIG) - offers a 1.6% yield and is up 7.6%

For full disclosure, some of Tom Lydon's clients own EEM.

5 New ETFs That Deserve Attention

It's an exciting time to be investing in exchange traded funds (ETFs) as new products launch practically every day. With so many newbies on the market, Matt Hougan for Index Universe offers his opinion on the top five ETFs that could change the industry:

• PowerShares DB G10 Currency Harvest (DBV)
  Granted it might not be the best time to highlight this ETF because it sold off sharply during the recent market turmoil, but it has brought institutional strategies to the average investor at low costs more successfully than most. As a "carry trade ETF," DBV buys various currencies with high interest rates (such as the popular Japanese yen) and shorts currencies with low interest rates, which has proven an effective strategy so far.
• PowerShares DB Commodity Index Tracking Fund (DBC)
  DBC is a revolutionary ETF because it's the first broad-based commodity futures ETF and provides an "optimum yield" strategy. This broad-based ETF should help protect against contango and backwardation issues that lurk in the commodities sector.
• Vanguard Europe Pacific ETF (VEA) and Vanguard Emerging Markets ETF (VWO)
  These ETFs are direct competition to Barclays' iShares MSCI Emerging Markets Index (EEM) and iShares MSCI EAFE Index (EFA). It all comes down to expense ratios: VEA's is 0.15% compared to EFA's 0.35% and VWO's is 0.30% compared to EEM's 0.75%.
• UltraShort QQQ ProShares (QID)
  Leveraged ETFs are riskier than the average ETF, no doubt about it. For those investors who can handle the risk and understand these investment options, QID has had an impressive performance. It offers 200% short leverage for 0.95% in expenses.
• WisdomTree Emerging Markets High-Yielding Equity ETF (DEM)
  Dividend ETFs are nice because investors are guaranteed regular dividends. DEM gives a lovely 6.5% yield.

5 ETF Areas to Follow Closely

The exchange traded fund (ETF) industry has seen a lot of major developments since July 12. ETFs are on the move, and if investors aren't paying attention, they could miss some opportunities. Jim Wiandt for Index Universe gives five ETF areas to watch:

1. WisdomTree ETFs
   WisdomTree has been a pioneer in many areas, especially international ETFs. International and emerging-market companies are having great margins, which translates to great dividend payouts for investors. It'll be interesting to see if WisdomTree can keep rolling out some gems.
2. Alternative Indexing Strategies
   From the RAFI Index to WisdomTree's dividend-based weightings to PowerShares, Claymore and First Trust launching essentially active funds, the time for fundamental indexing is upon us. Comparing the performance of fundamental and market-cap indexing will be most interesting over the next five to 20 years.
3. Hot New Investment Areas
   Ah, it's so nice to see ETFs one wishes for come into fruition. The timber ETF is on the way, and the new Market Vectors Nuclear ETF (NLR) just launched this month.
4. Muni-bond ETFs
   What a race it's been in this area! Barclays, State Street Global Advisors, PowerShares and Van Eck all have been competing to get these products on the market. Lots of choices among ETFs is always nice.
5. Exchange traded notes (ETNs)
   Expect to see a bunch more of these coming now that Goldman Sachs is in the business.

First Trust to Launch New International ETFs

First Trust is coming out with two new exchange traded funds (ETFs) that are scheduled to launch Aug. 30th: the First Trust DJ STOXX Select Dividend 30 Index Fund (FDD) and the First Trust FTSE EPRA/NARIET Global Real Estate Index Fund (FRR).

FDD will track the Dow Jones STOXX Select Dividend 30 Index, which weighs companies in it by their dividends. It comprises 30 high-dividend yielding stocks across 18 European countries. FDD's net expense ratio is 0.6%. Top holdings include Lloyds TSB Group at 5.8%, Vodafone Group at 5.5% and United Utilities at 5.3%. Financials make up the most of FDD at 38.5%, followed by telecommunication services at 23.0% and utilities at 12.2%.

FRR will track the FTSE EPRA/NAREIT Global Real Estate Index that is designed to measure the stock performance of real estate-based companies in North America, Europe and Asia. The index holds stocks based on market capitalization, and it is rebalanced and reconstituted quarterly. FFR's net expense ratio is 0.6%. Top holdings include Westfield Group Australia at 3.4%, Mitsubishi Estate at 3.2% and Mitsui Fudosan at 2.8%. The U.S. has the largest weighting in FRR at 37.9%, followed by Japan at 12.7% and Australia at 12.0%.

Dividend ETF with Fundamental Indexing

Dividend exchange traded funds (ETFs) offer the perk of extra income to shareholders. What would happen if a dividend ETF used a fundamental indexing approach to investing?

ETF provider WisdomTree took this approach when it began offering its ETFs based on dividend yield a little over a year ago. There are currently 38 WisdomTree ETF offerings, including WisdomTree Dividend Top 100 (DTN). DTN is made up of the 100 highest-yielding of the 300 largest companies by market capitalization in WisdomTree's LargeCap Dividend Index, according to Tim Hanson for The Motley Fool. DTN weighs its holdings by yield instead of market capitalization. This combination of dividend ETFs with a fundamental indexing approach was created by Jeremy Siegel.

Buyer beware though: This fund has a large holding in Bank of America (BAC) that might be feeling the effects from the credit crisis. The stock might appear to have a high yield only because investors are wary, and the price has dropped. DTN is currently down 1.3% year-to-date and is below its long-term trend line.

Dividend-Based ETFs Give Back Bucks

When market morale is low, dividend-based exchange traded funds (ETFs) tend to offer some relief because they generally give investors dividends regularly. They also tend to be more financially sturdy than nondividend payers because they have the extra cash to pay the shareholders. One ETF provider that offers dividend-based ETFs is WisdomTree. Some other dividend-based ETFs to watch, according to Sonya Morris for Morningstar, include:

• PowerShares High Growth Rate Dividend Achievers (PHJ) - On average, this ETF has a record of growing earnings and cash flow of more than 10% per year. It follows the Mergent Dividend Achievers Index with the highest 10-year annual dividend growth rate. It ranks the 100 stocks within the index by market capitalization.
• Vanguard Dividend Appreciation ETF (VIG) - This ETF also follows the Mergent Dividend Achievers Index however it aims to identify and eliminate those companies that might have trouble increasing their dividends in the future. It's sector weightings are similar to the S&P 500's.
• WisdomTree Large Cap Dividend (DLN) - This ETF tracks the largest 300 dividend payers and ranks them by market capitalization. Unlike some of the other dividend ETFs, it does not screen for companies that have increased dividends over time.

Dividend ETFs Pay Out

Dividend focused exchange traded funds (ETFs) specialize in stocks that payout extra income to shareholders. Rob Wherry for SmartMoney.com points out one of the latest trends is investing in dividend-paying stocks, mostly due to legislation introduced four years ago.  The Jobs and Growth Tax Relief Reconciliation Act cut the tax rate on qualified dividends 15% from up to 38.6%.  ETF providers who offer dividend focused ETFs include WisdomTree, Barclays, PowerShares, State Street and Vanguard.

The iShares Dow Jones Select Dividend Index (DVY) has an annual gain of 16% over the last three years. Some of the high dividend-paying companies in the ETF include, AT&T (T), Bank of America (BAC), and Altria (MO).  One of the broadest ETFs available is WisdomTree Total Dividend (DTD). It holds 770 stocks such as Exxon Mobil (XOM), General Electric (GE) and Citigroup (C).

Preferred ETF Hits Market

Barclays Global Investors new exchange traded fund (ETF), the iShares S&P U.S. Preferred Stock (PFF) began trading last Friday.  This new ETF provides exposure to a diversified basket of preferred stocks.  Preferred stock generally offers a higher yield than common stocks, with expected volatility and returns between common stocks and bonds.  They also deliver a set, guaranteed dividend payment.  This could just be the beginning of a new line up of ETFs from Barclay's.

A Closer Look At Dividend ETFs

There are a variety of dividend exchange traded funds (ETFs) available however, risk and return objectives vary. Dividend ETFs perform differently since they track indexes from different providers and some may be concentrated in specific industries. The Star Ledger points out that financial stocks are a common holding in dividend funds, and they can be sensitive to interest rates and inflation.

The iShares Dow Jones Select Dividend (DVY) was the first dividend ETF and invests in 100 of the highest yielding dividend securities in the Dow Jones U.S. Total Market Index.  It is currently up 2% for the year.

First Trust Morningstar Dividend Leaders (FDL) is relatively new and invests in top dividend companies that show dividend consistency and sustainability.  It is also up 2% for the year.

State Street SPDR Dividend (SDY) also another new ETF is up 2% this year.  This ETF invests in long-term dividend paying stocks.

For full disclosure, DVY is held in some of Tom Lydon's managed accounts.

Dividends Pay Out In ETFs

There is an exchange traded fund (ETF) that primarily seeks dividend income by investing only in dividend paying stocks. The iShares Dow Jones Select Dividend Index (DVY)