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Listen in as Tom Lydon joins in on a discussion about where exchange traded funds (ETFs) are headed.
Also featured on the panel are PowerShares CEO Bruce Bond and author/CEO of Portfolio Solutions Richard Ferri.
You can either click above to listen now or save it to your iPod to listen to on your afternoon jog!
Ron Ryan says there’s a problem with bond indexes that are tracked by exchange traded funds (ETFs). In fact, the CEO of Ryan ALM says that there are several problems and he’s out to fix them.
Continue reading "Bond Indexes Are Broke, and He Says His ETFs Can Fix It" »
Tom Lydon appeared on CNBC's "ETF Tracker" segment of Closing Bell earlier this afternoon to discuss how different ETFs may become beneficiaries of new presidential policy with the inauguration of a new president in 2009. Video of Tom's segment appears below:
The stock rating system on the Motley Fool is slowly seeing exchange traded funds (ETFs) making up the top ten. And now, six of the top ten stocks are actually ETFs.
Before we proceed, CAPS is the Motley Fool's rating system where investors work together and pool all their information to help you identify which stocks are the best to buy and when, along with which stocks to avoid.
Players rate stocks and predict which will under perform or outperform all the while The Fool keeps score and rates them. In turn, players receive ratings and based on the performance of their picks. The system is updated every five minutes, so the news is all current.
Todd Wenning for The Motley Fool gives us the top six ETFs as of May 13th, and reminds us that these are not formal recommendations, just start-ups to further your own research. In respective order:
It only underscores the popularity that ETFs have acquired with individual investors.
Wenning points out that some of the individual stocks in the ETF will outperform the ETF, but that's the trouble: how do you choose which stock to go after? Hindsight is 20/20. By investing in ETFs, you remove picking and choosing from the equation.
For the month of April, we had ETF industry growth. Will it keep up?
When a particular "boom" goes "bust", what should investors do with their related exchange traded funds (ETFs)?
Gary Gordon for ETF Expert takes us back to 2000: the dot-com bulls were running rampant, convinced that the stock prices for those companies could do nothing but soar. In more recent years, the same craze spread through the real estate markets: the world is getting more crowded, there are fewer places to build and it can only send prices higher.
We all know very well by now how that turned out. But Gordon says that this isn't necessarily to suggest that the newest booming sector - commodities - is primed for a fall. But he does stress that investors should recognize the psychology of fear and greed.
It's a fact: booms go bust. Therefore, investors need to have a plan to sell.
Some resource ETFs are particularly attractive now, to be sure. Food is scarce. Water is scarce. Oil seems like it can't be stopped. Naturally, investors will be taking a look at such funds as S&P Metals and Mining (XME) or the PowerShares Water Resources Fund (PHO).
It's okay to get in those areas that are moving and above their trendlines. What's not okay is hanging on as it falls below that line or 8% off its high and hoping against hope that things will turn around.
Now that consumer spending is at a stand still and real estate investment trusts are unattractive, what do savvy investors do? They bargain hunt! There are values to be had if you look for them. For instance, the Vanguard REIT Index (VNQ) is above its long-term trendline and has outperformed the broader market for 2008. The Retail HOLDRs (RTH) has followed suit, sitting above its trendline.
For full disclosure, Tom Lydon's clients own shares of RTH.
Exchange traded notes (ETNs) are distant relatives of the exchange traded fund (ETF) and they come with their own unique issues attached.
Matthew Hougan for Index Universe points out that while the credit risk is small, it's still there. The Bear Stearns (BSC) fiasco showed that crazy things can happen. When you invest in an ETN, you're investing in a 30-year debt instrument. They are a promise by the provider to pay the investor the amount reflecting a change in the underlying index.
ETNs do have some tracking error, but the difference is that they will never trade below the value of their index. This is part of what the provider offers to the investor. However, there's no guarantee that they won't trade above their net asset value (NAV). With ETFs, any tracking error is borne by the investor.
Late last year, the iPath MSCI India (INP) traded at a big premium to its NAV after the government clamped down on foreign investing.
The issue of taxes and ETNs is still a matter of ongoing debate. While the IRS has ruled on taxes regarding foreign-currency ETNs, they don't appear to be any closer to a decision, according to Stephanie Carreras at Barclay's. Open discussions are taking place until the middle of this month.
If you are too timid to try your luck with an exchange traded fund (ETF) but have heard about all of their benefits, there are now funds-of-ETFs to quell your curiosity while giving you a taste.
It is fair to say that ETFs are generally less expensive than their mutual fund counterparts, more tax efficient and can be flexibly traded throughout the day. But for those of you who still need convincing, many mutual funds offer ETFs within their funds.
Joanne Von Alroth for Investor's Business Daily reports that these funds, when they were first launched, didn't seem to have a clear goal and that doomed them. One of the earliest of their type closed in 2004.
AdvisorOne Amerigo (CLSAX) and the 3-month-old Aston/Smart Allocation are no-loads with expense ratios under 1.5%. Investors are required to dole out 2.27% of assets a year for expenses and foot the underlying ETF fees.
Wouldn't it just be easier and more efficient to invest in a broad-based ETF, and save yourself some management fees?
We all know how oil futures and exchange traded funds (ETFs) that contain them operate. But if you've ever wondered if the markets could ever "stop the madness" that is the rising price of oil, the answer is "kind of."
The New York Mercantile Exchange (NYMEX) has circuit breakers in place when prices move by $10 in either direction for all months. If any contract is traded, bid or offered at the $10 limit, trading is halted for five minutes to allow traders to regroup. When it resumes, a new $10 limit is put in place and if that's reached, trading halts for another five minutes, and so on.
So, it's possible for oil to gain or lose $30 or even more in a day, but the five-minute breaks cool things off a bit before they pick up again.
It's likely trading in ETFs that contain oil futures would halt for five minutes as well. At the very least, the bid/ask of those ETFs would widen out in those five minutes because market makers wouldn't have a "live" price to use.
If you believe oil is in an increasingly fragile bubble that's fixin' to burst, there is an exchange traded funds (ETFs) out there for you.
On Wednesday, oil nearly hit a record $124 a barrel, reports Madlen Read for the Associated Press. Just when it seems the prices couldn't possibly go any higher, there they go. Goldman Sachs earlier this week predicted that oil could even hit $200 a barrel, and that we're in the midst of a "super spike" in prices.
Midday today, oil slipped to $122.55 a barrel.
This is where it gets dicey. Do you agree with Goldman Sachs, or do you believe that the exuberance is at or approaching the level of absolute insanity?
If it's the latter, ProShares has an UltraShort Oil & Gas Fund (DUG). Zoe Van Schyndel for Morningstar says you don't even have to worry about the timing of energy prices, as you can hold the ETF indefinitely.
There are risks involved with short funds, of course. Since oil prices are notoriously volatile, making some of their most rapid movements based on rumors and speculation in addition to the usual factors of supply and demand, these ETFs can swing wildly in one direction to the next. And the effect of high oil prices on the companies isn't always predictable.
Year-to-date, DUG is down 15.9%.
Naturally, if you think that energy is going to continue on the bull run, there are some other options for you, too, including:
Recently, an acquisition between two companies illustrated how HOLDRs are different from exchange traded funds (ETFs).
BEA Systems Inc. (BEAS) was acquired by Oracle Corp. (ORCL) on April 29, 2008. BEAS was deleted from the index on April 30, and $193.75 in cash was distributed on May 5, which in turn caused the Internet Infrastructure HOLDRs (IIH) to fall nearly 33%. BEA Systems had been 31.2% of the fund and was its second-largest holding.
HOLDRs, or Holding Company Depositary Receipts, are a static basket of stocks selected from a particular industry. They don't track an underlying index, but they do represent a narrow slice of a particular sector.
Their components never change, and in the case of BEA Systems and Oracle, when BEA was acquired, the stock was not (and won't be) replaced. This results in more concentration of the remaining stocks, thereby increasing the risk for an investor.
Palash R. Ghosh for Investment Advisor wrote an article detailing how these unique instruments work. It's a few years old, but it's very interesting and informative.
Everyone's looking for signs that the markets have rebounded and some stocks are at rock-bottom prices, but does that mean it's a good idea to get in on financial stocks and exchange traded funds (ETFs) right now?
Matt Krantz for USA Today says that the recent history of financials shouldn't mar your opinion of them too much. The problem now, of course, is calling the bottom. You can never know if the problem is over, or the extent of it, until some time passes.
Krantz suggests some ETFs that aren't 100% focused on financials. For example, the Vanguard Value (VTV) is 27% financial. If the crisis has hit bottom, you could stand to benefit from any recovery. If it worsens, your entire portfolio won't be sunk, as the fund is also allocated in energy, health care and industrials.
Year-to-date, this fund is down 3%.
We say: pack up the crystal ball.
The surest way to protect yourself is by firmly sticking to your investment plan. Don't allow thought, hope, emotion or speculation to cloud your decision-making. Low prices are very tempting, but if a fund, be it a financial ETF or something else, is not above its 200-day moving average, keep an eye on it but pass it by until it does.
Instead of wondering if there's a turnaround in a certain sector and rolling the dice, why not just be in those areas that are already performing?
The economic downturn has hit some municipalities, illustrating the risks of municipal bonds and exchange traded funds (ETFs) that hold them. But it also highlights the opportunities for investors willing to take on risk.
The city of Vallejo in Northern California has voted to declare Chapter 9 bankruptcy, which allows municipalities to continue to deliver services while adjusting or refinancing debts.
Vallejo is the largest city in California to declare bankruptcy, reports Carolyn Jones for the San Francisco Chronicle.
Municipal bonds are considered among the safest investments one can make, after U.S. Treasury bonds. Unlike with corporate bonds, municipalities and the government can draw
money from plenty of other sources when they get into a bind - raising
taxes, for example. This ability to generate money on a whim makes it
significantly less likely that the bond issuer is going to default.
Unlike a corporation, Vallejo can't simply shut down and sell off its assets. But it can take a lesson from Orange County, a now-thriving area that declared bankruptcy in 1994: it issued municipal bonds that allowed the county to emerge from Chapter 9 a few years later.
Municipal bonds haven't been an active area for "distressed investing," say Nicholas Kajon and Lee E. Buchwald for Mondaq. But such bonds would give opportunistic investors a chance to get in at low prices. Recovery rates for these municipal bonds are greater than those of corporates.
Vallejo and other municipalities can take a hit in rocky economic times because they're often reliant on volatile revenue streams such as property taxes and real-estate transaction taxes, reports Liz Gunnison for Portfolio. Add in a housing crisis, and you've got a mess.
A default is rare, but it's never good news, Glenn Smith at Van Eck told us last month. "When it does happen, it can throw markets out of whack because people get jittery." According to NPR, it's only happened in the United States 32 times since 1980.
Hey, NASCAR star Jeff Gordon is from Vallejo. Maybe he wants to kick in a few bucks to help out?
When it comes to exchange traded funds(ETFs), is it in style to be green?
The clean energy market is growing faster than ever, and fund companies are right on the money, launching so-called green funds. Some say that being green means being too narrow, too focused and just plain volatile.
Claymore S&P Global Water Fund (CGW) has been criticized for being too focused on small companies within a narrow sector. The fund is down 5.3% year-to-date. Likewise, the solar energy ETFs that have hit the market can also take the narrow path, with both the Claymore/Mac Global Solar Energy Index (TAN) and the Market Vectors Solar Energy (KWT) offering similar solar exposure, with the same expense ratios.
As Gary Gordon on ETF Expert points out that, by definition, a sector fund is supposed to be concentrated. And as the awareness grows, the number and selection of funds will, too. That's the beauty of ETFs - you can pick and choose what works for you. It's been a rough year so far for this sector, but many are feeling optimistic about the long-term prospects as concern about global warming gathers steam.
Just be sure not to have your portfolio overweight in a particular sector, and always keep an eye on those areas that are performing. Protect yourself by not getting in until the 200-day moving average has been crossed and get back out when it drops below that line or 8% off its high.
Other green ETFs include:
ProShares wins the race to be the first inverse bond exchange traded fund (ETF) in the world. Deutsche Bank was hot on their heels, after announcing plans a day earlier to issue a new ETF in Europe that short Eurobonds, says Murray Coleman for Index Universe.
The two new ETFs to hit American markets are:
Both ETFs are set up to measure the inverse of their daily performance of their underlying index. Remember, with a bond fund, the interest earned on cash and financial instruments figures into the overall performance results. Many investors are looking to ProShares' inverse bond ETFs to neutralize market valuations and as portfolio protection against price fluctuations.
One advantage of a fund that automatically shorts an index is that investors can only lose what they put in. By taking short positions in long ETFs, the losses can go unchecked.
To learn more about long/short ETFs, check out our interview with ProFunds' CEO Michael Sapir.
Asset allocation is an important factor within a portfolio, and now Invesco PowerShares offers this strategy all wrapped up in an exchange traded fund (ETF). Their latest ETFs are designed to give investors access to long-term, core asset allocation strategies.
The newest portfolios are based on three distinct risk profiles, targeting a specific percentage of an investment in equity and fixed-income securities. Balanced, balanced growth and growth are set for a May 15 debut on the NYSE Amex, according to PowerShares.
Asset allocation is an important consideration for any investor - it helps one maintain their desired risk/reward profile. Depending on your desired level of risk and long-term goals, investments are spread over several types of asset classes, including equities, fixed-income and non-equity correlated assets.
The anticipated fund names and ticker symbols are:
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:
Michael Krause has ESP for ETFs (exchange traded funds).
Instead of using a crystal ball, though, the president of AltaVista Independent Research looks at the fundamentals of every one of an ETF's constituents.
Continue reading "ETF Holdings' Fundamentals Go Under the Microscope" »
The exchange traded note (ETN) has been carving its own niche within the investment community and launches of them so far for 2008 have been outpacing those of exchange traded funds (ETFs).
Barclays managing director and head of investor solutions, Phillipe El-Asmar, revealed certain points on the creation of the iPath family. On Seeking Alpha, he speaks with Heather Bell of Index Universe.
El-Asmar says they created the iPath family of ETNs as a compliment to the iShares series of ETFs, which would facilitate access for hard-to-reach asset classes.
Most plans are discussed three to six months in advance, sometimes more, and decisions are based upon client needs and investor feedback. Whether an ETF or ETN is created depends on the gaps needing to be filled. Sometimes an ETF and an ETF that track the same underlying index will be created. The ETN will provide the means to access hard-to-reach areas, while ETFs provide the more traditional exposure.
As the ETN offerings expand, El-Asmar says the primary consideration is what the clients want and providing them with choices, rather than a "see what sticks" approach.
Barclays anticipates heavy growth in the ETN area. The first note launched in June 2006. Less than two years later, there are 58 ETNs and nearly $6.2 billion in assets.
Commodity
exchange traded funds (ETFs) and exchange traded notes (ETNs) have come
a long way since Nov. 18, 2004. That's when the first single-commodity
ETF - streetTRACKS Gold Shares (GLD) - was launched.
Continue reading "Energy-Focused ETFs Capitalize on a Booming Sector" »
Among the exchange traded funds (ETFs) that focus on a particular company size and investing style, mid-cap growth seems to be leaving the others in the dust lately.
In the last three months, mid-cap growth has risen 10.2%. In the same time period, large-cap growth is up 7.2% and small-cap is up 6.2%. Gary Gordon for ETF Expert reports that one might find it tricky to locate any other size/style ETFs that are above their 200-day moving averages.
Some of these funds have been bolstered by strong performance from their top holdings:
Gordon says investors who believes the U.S. market is going to recover in a big way from the current mess may like a mid-cap growth fund. Since all of these are at or above their trend lines (200-day moving average), take a look and see what works best for your portfolio.
For full disclosure, some of Tom Lydon's clients own shares of IJK.
Read the disclosure, Tom Lydon is a board member of Rydex Funds.
This Wednesday, listen and look in on a live webcast about actively managed exchange traded funds (ETFs).
Active ETFs are something you might want to learn more about, as they're an entirely new breed of ETF. Many investors might not understand how they work or how they might find a place in their portfolios.
Along with Tom Lydon, there will be two other speakers at this event: Ben Fulton, the executive vice president of global product development at Invesco PowerShares and Ed McRedmond, senior vice president of portfolio strategies at Invesco PowerShares.
"Active ETFs: The Revolution Continues" will take place this Wednesday, April 30, at 4 p.m. ET. Visit the Invesco PowerShares website for details on how to sign up. See you there!
When you're looking at charts tracking the performance of exchange traded funds (ETFs), do you ever wonder how the moving averages for them are calculated?
They're one of the simplest ways for investors to follow trends, and we even use them in our own investment strategy.
Stock Charts has a great article detailing the different moving averages and how they're assembled. The two most popular are the simple moving average (SMA) and the exponential moving average (EMA).
Until last week, we had been using charts illustrating the SMA. Now, we've switched to the EMA. It's as good a time as any to explain the differences between the two for curious investors.
The SMA is calculated by tracking the price of a security over a specified time period. Over time, the averages are assembled into a smooth line giving an investor a clear picture of a trend. For a five-day moving average, one would take the closing prices for the last five days, then divide by five. As time marches on, the old data is dropped and new data is factored in.
The EMA is a bit trickier and comes with a formula that might make your head hurt.
Courtesy of Casey Murphy for Investopedia, here it is:
The idea is essentially similar to the SMA, but more weight is given to the most recent data, according to Investopedia.
The difference between the two is that the EMA is consistently closer to the actual price. The EMA is also quicker to notice a trend, since it reacts more quickly than the SMA.
Which moving average you use depends on your personal preference as well as your investing style.
Some prefer the EMA for shorter time periods so they can identify trends more quickly. Others like the SMA to track trends over long time periods. Which moving average you use is also dependent on the security you're tracking and how it has reacted to changes in the past.
Stock Charts suggests trying both types of trend lines and see what works for you. Just be aware that choosing a short time frame for your moving average or a more sensitive indicator will generate more buy and sell signals.
Our investing strategy is to stick to the 200-day EMA to help us identify trends so we know when to be in and when it's time to get back out.
Investors who haven't yet discovered or considered exchange traded funds (ETFs) might be inclined to after checking out a new book that performs a scathing examination of the mutual fund industry.
The Investor's Dilemma: How Mutual Funds Are Betraying Your trust and What to Do About It, by Louis Lowenstein, is reviewed by Harry Hurt III for the New York Times.
The book points out a conflict of interest in the mutual fund industry, because management companies are independently owned and separate from the funds themselves. Managers profit by maximizing the funds under management, because the fees are based on assets and not performance. For that reason, Lowenstein says, the majority of mutual funds are more interested in taking money from investors instead of making money for them.
From 1980 to 2004, the assets of stock funds increased from $45 billion to $4 trillion. In that same time period, the fees investors paid grew from $288 million to $37 billion. And the fund managers were paid whether the prices of the stocks they picked went up or down.
Performance ranges from dismal to atrocious, says Lowenstein, particularly when one compares the performance against the profit coming in.
One reason the funds haven't served the interest of their investors is that the managers don't "eat their own cooking."
Thankfully, 90% of new investor money heading into mutual funds is going into the four- and five-star funds (Morningstar). And not all funds are bad - some small and mid-sized fund companies have rewarded investors consistently by outperforming the markets.
Read the disclosure, as Tom Lydon is a board member of Rydex Funds and U.S. Global.
The actively managed exchange traded fund (ETF) doesn't seem to be turning any heads.
After all, we've heard it all before. First, actively managed mutual funds can be the market. Then, hedge funds can beat the market. And now, ETFs are up to bat.
Ron DeLegge for ETF Guide doesn't sound too impressed, and here is his list of pluses and minuses:
DeLegge says that looking to large-cap companies to beat the market probably won't be successful, as studies have shown that most large-cap fund managers consistently underperform corresponding indexes.
The available actively managed ETFs are:
Several other providers are waiting their chance to launch their own actively managed funds, including Barclays, State Street, Vanguard and WisdomTree.
More ETFs equal more choices for investors and greater competition between fund providers. Once they're armed with the tools, performance history and knowledge to make a wise decision, investors will ultimately decide if these funds are right for them.
There are big discrepancies between assets and revenues, as analysts point out, but do expense ratios really matter to investors when it comest to investing with exchange traded funds (ETFs)?
Matthew Hougan for Index Universe shows evidence that investors seem to overlook expenses:
This may be a case where the ETFs with the greatest assets in each category are also the first ETFs to hit the market, since this is the case in these examples.
Another clue Hougan cites as evidence that investors might not care much about expense ratios is that, with some exceptions, fund companies generally don't market toward it. Some ETFs are launching today with fees of 0.70% or more.
Do investors know, but just not care? Perhaps. Expense ratios are just one factor in the equation. Spreads, in some cases, can outweigh any advantage a low expense ratio might offer.
It doesn't seem a lack of understanding as far as ETFs go is the problem. A survey we summarized yesterday reported that of the investors who participated, 16% use ETFs. A large portion of these ETF users, 87%, said they understood how fees impacted their returns. This was quite different compared to all the survey respondents; 88% felt fees for the fund industry overall were unclear.
Which single ETF feature is most important to you among the following? Expense ratio, brand name, past performance or assets under management? Feel free to answer in the comments!
Exchange traded fund (ETF) provider iShares recently conducted a survey of affluent investors and found that, overall, they're none too pleased with the fund industry. That's lead to low levels of trust.
But ETFs come out of the survey smelling like a rose. iShares reports that ETF users have significantly higher confidence scores than non-ETF users when it comes to understanding the impact of fees and the tax implications of funds they own.
The survey targeted individuals who had at least $500K in assets (excluding employer-sponsored retirement plans and real estate), have mutual funds in their portfolios and are at least 22 years of age.
Some of the findings:
Among the 16% of survey respondents who use ETFs:
Could it be that the strong numbers here are a result of the many benefits ETFs have over the old school mutual funds? Namely, instant diversification, transparency, lower fees and ease of use.
Among the 84% of respondents who don't use ETFs, there was a lower level of understanding how the financial markets work, less love for managing investments, less understanding of fees and less attention paid to diversification.
The survey affirms what we discovered when we conducted our own survey: smart people like ETFs. 42.4% of our readers have graduate degrees, and 38% possess bachelor's degrees.
ETF Trends' readers love ETFs, too: 55.1% have at least 25% of their portfolios dedicated to ETFs. 83.8% plan to use ETFs even more in 2008 than they currently do.
Some investors want to use exchange traded funds (ETFs) to exploit short-term movements in the markets.
Loren Fleckenstein for Trading Markets gives a primer on using 10-day and 30-day moving averages and the crossovers as a signal of a trend change.
The crossover occurs when a shorter moving average (the 10 day, in this case) traverses the longer moving average. But Fleckenstein says this information shouldn't be considered alone. Instead, consider price breakouts and volume as confirmation of a trend shift.
One example can be seen in the chart above: while the 10-day line is well above the 30-day, volume fell - an indication that the market wasn't convinced that there was an uptrend.
This strategy differs from how we manage money. We let each sector, asset class and global region identify its own trend and when something crosses above its 200-day moving average, we consider that the time to buy.
With regard to volatility, there's nothing magical about the 200-day moving average. If the markets are rocking and rolling, you can consider the 50-day moving average. Bear in mind that it will be more sensitive to movements and it could mean you'll be trading more.
Some might find a 10- or 30-day moving average is a bit too short-term for their tastes. It would require much more discipline, and for the average investor, it wouldn't work.
Did you know you can save for college with exchange traded funds (ETFs)?
iShares has an iShares 529 College Savings plan that's built around its ETFs. The cost of college is getting more expensive every year, and it's not a good idea to cross your fingers and hope for the best.
If you want to know what it's going to run you, visit the calculator at CNN Money. Just make sure you're sitting down first.
Morningstar also came out with their annual list of the best and worst 529 College Savings Plans.
A 529 account has federal tax advantages that will make it possible to defer taxes as long as the money is sitting in that account. And better yet, when the money is taken out, it remains tax-deferred so long as it's used for higher education expenses.
Bond exchange traded funds (ETFs) can be a solid way to take the hassle out of buying individual bonds, which can be costly and time-consuming for individual investors.
Heather Bell for Index Universe sat down with Ron Ryan, CEO and found of Ryan ALM Inc., an asset management firm. Ryan has been developing fixed-income indexes for years.
Ryan says bond ETFs are like having an instant portfolio in a single fund.
Short duration funds have a relationship with short-term rates, and with the Federal Reserve guiding those rates, short-term rates are at very low levels. Today's yields are around .50 % from the lowest yields in modern history.
In an attempt to measure interest rate risk, there is the Treasury yield curve. This is the best expression of the risk with maturity and duration leading the outcome of risk. If you have a product that is not clear about the risk, then there is a problem. With ETFs, the transparency is great because you can see the risk involved and you know exactly what you are purchasing. Then it is a fair game, as Ryan says.
Ryan also says the average investor overlooks the importance of fixed income. Is it time to think about your retirement? It could be - even if it's 20 years from now, is your portfolio going to be where you want it to be by then?
One way to do the math is with Yahoo's retirement calculator. Then see if bonds have a home in your portfolio. They just might.
Everyone knows about short and leveraged exchange traded funds (ETFs), but some might be wondering "How do they do that?"
Michael Sapir, CEO of ProFunds, gave us a call and explained it. "The best way to understand how a [short or leveraged] fund works is to compare how an S&P fund works."
Continue reading "The Long and Short of Long and Short ETFs" »
The pope's visit got us to thinking about exchange traded funds (ETFs) that invest with Catholic values in mind.
Why go socially responsible? If, for example, you're anti-smoking, would you feel comfortable holding stock for a tobacco producer in your fund and profiting from those things you don't believe in?
Boycotting the stock of such companies can eventually have an impact on those companies, too, if enough investors feel the way you do, says Michael Bluejay. If no one wants the stock, the price will go down.
There currently are no such ETFs that invest with a lean toward Catholic ideals, but there is a line of mutual funds:
George Schwartz, an investment advisor for Ave Maria, says most socially responsible funds are geared toward such things as environmentally friendly companies or those companies with a certain number of women on their boards, reports William Baue for Social Funds.
Ave Maria Funds screen out companies that contribute to Planned Parenthood, deal with pornography and those companies that offer non-marital partner benefits.
Whatever your investment philosophy, a list of socially responsible mutual funds of all types can be found at Social Funds.
While there aren't any U.S.-listed religion-based ETFs yet, there are indexes based on certain religions. Dow Jones launched its first Dharmic religious indexes earlier this year, Index Universe reported on Seeking Alpha. They target members of the Dharmic religious: Hinduism, Buddhism, Jainism and Sikhism. Dow Jones also offers the Dow Jones Islamic Indexes.
It's "termination day" for a couple of oil exchange traded funds (ETFs).
Last week, we reported that the MacroShares Oil Down (DCR) and MacroShares Oil Up (UCR) would terminate if the price of oil reached or passed the price of $111 for three straight days.
We're here: on Monday, oil closed at $111.75. Tuesday, it closed at $113.30. Today, it closed at $114.93.
The last trading day for the funds will be June 25, reports Matthew Hougan for Index Universe. On June 30, shareholders of record will receive payouts based on the fund's net asset value (NAV). If the price of oil reaches or surpasses $120 a barrel by then, holders of UCR would get $40 per share (each share is valued at one-third the price of a barrel of oil) and holders of DCR wouldn't receive anything.
Oil briefly topped a record $115 after supply concerns arose, reports John Wilen for the Associated Press. Gas inventories fell by 5.5 million barrels last week, according to the Energy Department's Energy Information Administration, and it was a bigger drop than analysts had been expecting. Crude oil inventories also fell last week by 2.3 million barrels, instead of the increase that had been expected.
Gas demand has dropped off, falling 1% a week for the last four weeks. One analysts says it would normally be rising at this time of year as the travel season begins picking up. But at a record $3.39 a gallon, suddenly staying home and watching the Travel Channel is looking like a much better bargain.
If you aren't crying yet, this may move you to: Charles Maxwell, the "Dean of Energy Analysts" predicts $180 oil by 2015 and $300 by 2020, reports Aaron Task for Tech Ticker.
Other ETFs available to hedge oil and gas are:
A survey by Charles Schwab Institutional confirmed it: financial advisors are digging exchange traded funds (ETFs).
The survey asked 1,006 independent investment advisors, "Which types of investments do you plan to put more of your clients' money into during the next six months?"
The top choices were:
After two months of lost assets in ETFs, March saw them slowly making a turnaround. Will it continue? It just might, if those advisors keep sending out the good vibes.
Admittedly, our post on the Dow Theory and exchange traded funds (ETFs) was a bit unclear. A few commenters specifically questioned the "new high" determination.
"New high" in this case does not mean the same thing as "all-time high." It instead is used to determine when the market is on an uptrend and conversely, when it's on a downtrend.
Backtracking a bit, Dow Theory is based on a few assumptions, outlined in an article from Stock Charts:
The market has three movements:
So, how does one spot those primary trends? One of the people who refined the Dow Theory, William Hamilton, used peak and trough analysis to identify them: an up trend is defined by prices that form a series of rising peaks and rising troughs. In other words, higher highs and higher lows. A downtrend is the reverse of that: lower highs and lower lows.
Knowing the difference between a simple correction and a trend isn't easy, but Hamilton suggested ignoring moves of less than 3%.
As the Dow begins to turn around and steadily make its climb back to where it was before (and perhaps beyond), investors who want to use the Dow Theory to help them make decisions should therefore look for those "new" highs - not the all-time high (or the all-time low, for that matter).
The Securities and Exchange Commission (SEC) is always amending and changing rules to be useful to current market conditions, and exchange traded funds (ETFs) have been the recent focus. Two new rules under the Investment Company Act of 1940 were re-examined in reference to the creation of and investment into ETFs.
The first rule would an ETF to begin operations without first getting exemptive relief from the commission. The rule would apply to traditional index-based ETFs and actively managed ETFs, which have recently gained approval, explains Paul Hastings.
If an ETF provider wants to rely on the first rule, there are some conditions that must be met. Among them:
The second would facilitate investments by other investment companies into ETFs in excess of limits currently in place without getting permission first. Current limits are capped at 3%.
The limit can be exceeded if the following conditions are met:
After a few months of lost assets, some are asking if exchange traded funds (ETFs) have become victims of their own success.
A landmark year in 2007 has led to a weaker success in 2008, amplified by rocky market conditions. During the first quarter of 2008, the number of ETFs coming to market fell 70% to 27 new funds. In the first quarter of 2007, 94 funds were launched, reports Shefali Anand for the Wall Street Journal.
When things get rocky, it doesn't take long for blame to be passed around: gimmicky indexes, lack of seed capital, the number of investment alternatives available, and so on.
But the fact is, ETFs are just like any other market product. Last year, the markets were moving and shaking - can you fault the providers for wanting to jump in and capitalize? Now that things have become more volatile, there's nothing wrong with investors and providers wanting to throttle back until the situation is resolved.
While ETFs are down about 10% assets-wise, consider that the markets are off by as much or more than that.
Everything operates in cycles, and ETFs are no exception to the ebbs and flows. When the market begins performing again, more investors will once again look to ETFs to put their money to work. Perhaps a turnaround has already begun: last month, ETFs assets rose by $20.1 billion.
The Investment Company Institute (ICI) has been trying to convince lawmakers to take tax advantages away from exchange traded notes (ETNs). But Thomas Humphreys, a partner at Morrison & Foerster LLP in New York, said at a conference that this issue isn't likely to be settled in 2008.
Jeff Benjamins for Investment News explains this all started when Richard E. Neal introduced federal legislation that would end tax deferrals for ETNs. Foreign currency ETNs lost their tax breaks last December.
Not only are ETNs tax treatment under scrutiny, all investment products tax advantages are under debate. The IRS has opened up debate for the public comment until May 15, but the mutual fund industry, which attempted to take a swat at ETNs, has actually shot itself and the entire "global derivatives market" right in the foot.
The exchange traded fund (ETF) industry is currently brimming with excitement over a couple of new all-world funds.
But can keeping it too simple be a wise strategy? Gary Gordon for ETF Expert doesn't think so.
An obvious pro to an all-world fund is simplicity of it all. Plus, there are fewer fees and fewer numbers to keep track of. This way you avoid higher fees and the increasing complexity of too many ETFs. Plus, with ETFs you get total flexibility and transparency.
On the flip side, there is the fact that just one ETF is not great for a buy-and-hold investor. Portfolios have to be more dynamic than what one fund can offer and equity investors should not stay handcuffed to one type of index.
Penelope Wang for Money Magazine points out that some of the newer and more narrowly focused ETFs may not be actually investing in an index, but using a strategy. While ETFs are made to track an index, providers may have to optimize the ETF when, for any number of reasons, replication is not possible.
All ETFs may not be right for all investors, but the opportunity and choice is there. Being an educated investor is also important. When it comes to your portfolios core, everyone has suggestions. Keep in mind everyone has their own financial goals and strategy to reach them.
Take a look at Money Magazine's:
Gordon would rather see something a bit more diversified, with some exposure to small- and mid-size companies both domestically and globally:
It's an event like Halley's Comet, although with a little more frequency: municipal bond y
