Individual Investors Seem to Gravitate to ETFs

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:

• iShares MSCI Canada Index (EWC), up 6.7% year-to-date
• iShares MSCI Taiwan Index (EWT), up 10% year-to-date
• iShares MSCI South Africa Index (EWA), up 6.7% year-to-date
• SPDR S&P Emerging Middle East & Africa (GAF), up 1.5% year-to-date
• iShares MSCI Sweden Index (EWD), up 5.5% year-to-date
• PowerShares Global Water (PIO), down 6% year-to-date

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?

As the Dollar Ticks Up, Picking An ETF Can Be a Challenge

After months of a downhill slide, the dollar is making gains again and it's benefiting some exchange traded funds (ETFs).

It lost a little ground last week, but so far in trading today, it seems to have resumed its climb. The gains have helped calm some worries about inflation, reports Tim Paradis for the Associated Press. When the dollar is weak, it can heighten price increases. Commodities like oil then become more attractive to investors who are looking to hedge inflation.

With that, oil retreated from its record high and fell to $125.41. Last week, it gained $10.

Jack Crooks for Money and Markets points to the G7 meeting in early April as the kick-off point for the dollar's about-face. Traders began to dissect the events of the meeting and perhaps became concerned that a bottom had been hit, and now there's a battle between the dollar bulls and bears.

There are many ways to play your sentiment on the dollar and other currencies around the world. Rydex's CurrencyShares allow investors to hedge the falling dollar relative to a variety of currencies. Market Vectors has two new exchange traded notes (ETNs) that allow investors to go double long or short on the euro. And PowerShares has two ETFs that capitalize on either bullish or bearish sentiment on the dollar.

There's also an all-in-one ETF if you find it hard to pick and choose: the PowerShares DB G10 Currency Harvest (DBV). It contains exposure to the dollar, euro, yen, Canadian dollar, Swiss francs, British pound, Australian dollar, New Zealand dollar, Norwegian krone and the Swedish krona.

Among your other options:

• PowerShares DB US Dollar Index Bearish (UDN)
• PowerShares DB US Dollar Index Bullish (UUP)
• CurrencyShares Australian Dollar Trust (FXA)
• Market Vectors Indian Rupee (INR)
• CurrencyShares Swiss Franc Trust (FXF)

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Currency ETF Moves Depend on Many Factors

One reader wanted to know about foreign currency exchange traded funds (ETFs). Thanks to ETFs, foreign currency is a market the average, everyday investor can get exposure to an area that previously wasn't accessible to them.

The rise and fall of currency has a lot to do with several factors, according to George D. Lambert for Investopedia. The value is impacted by economic growth, government debt levels, oil and gold prices, and more.

Just look at what happened recently in the United States: gross domestic product (GDP) slowed, government debt rose, oil and gold prices spiked. Suddenly, our dollar was hitting record lows against the yen and euro.

Currency ETFs replicate the movements of the currency in the exchange market either by holding currency cash deposits in the currency that's being tracked, or by using futures contracts on the underlying currency.

Currency ETFs can either track the specific currency you'd like, or a group of them, as in the case of the DB G10 Currency Harvest Fund (DBV).

How they operate is cut-and-dry: when you sell it, if the currency has appreciated against the dollar, you'll earn a profit. If the currency has dropped relative to the dollar, it's a loss. Foreign currency ETFs are bought and sold just like regular ETFs, throughout the day.

Keep an eye on the dollar, though: it strengthened yesterday, reports Madlen Read for the Associated Press. Dropping oil prices and the Dow's close above 13,000 for the first time since Jan. 3 are viewed as signs of optimism.

The options investors have for currency ETFs have exploded. Among the many choices:

• CurrencyShares Australian Dollar Trust (FXA)
• WisdomTree Dreyfus Brazilian Real Fund (BZF)
• ELEMENTS British Pound (EGB)
• CurrencyShares Swedish Krona Trust (FXS)

Depending on your feeling about the dollar - will it continue to strengthen, or is this just a temporary lift? - there's also the PowerShares DB US Dollar Index Bearish (UDN) and the PowerShares DB US Dollar Index Bullish (UUP).

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Who's Big In The European ETF Circle?

The European exchange traded fund (ETF) market is just as hot as its U.S. counterpart. The European market is capitalizing on the rapid growth of the industry, as major providers have adopted some very different strategies in their efforts. Paul Amery for Index Universe gives a rundown of the top ten European providers.

BGI/iShares: 137 ETFs, $57.65 billion assets under management, 43.3 of the market share; the major area iShares is missing is in the leveraged/inverse ETF arena.

Lyxor: 87 ETFs, $31.48bn AUM, 23.6% market share; Possibly too equity dependent.

db xtrackers: 49 ETFs, $10.66bn AUM, 8% market share.

AXA/BNP: 30 ETFs, $6.69bn AUM, 5% market share.

Credit Suisse: 8 ETFs, $4.97 bn AUM, 3.7% market share.

Credit Agricole: 3 ETFs, $3.02bn AUM, 2.3% market share.

XACT Fonder: 9 ETFs, $2.51bn AUM, 1.9% market share.

ETF Securities: 55 ETFs, $5bn AUM, 1.8% market share.

State Street Global Advisors: 13 ETFs, $2.35bn AUM, 1.8% market share.

UBS: 9 ETFs, $2.14bn AUM, 1.7% market share.

Sweden Has More Than Ikea - It Has Lessons for Financial Sector and ETFs, Too

The financial meltdown in the United States has wreaked havoc on the markets and exchange traded funds (ETFs). At times, it might have seemed that there would be no end to this, but all anyone has to do is look at Sweden to see how a country can emerge from a collapse of its financial system.

It all sounds so familiar: deregulation in the credit markets in 1985 led to a lending boom. Interest rates were low, supervision was lax and lenders were inexperienced. Real estate skyrocketed. Then in the early 1990s, the bubble burst: property values plunged, unemployment quadrupled in three years.

Although it's too late to avoid the kind of bust Sweden experienced, it's not too late for the United States to take a lesson or two from its recovery. Joellen Perry for the Wall Street Journal says Sweden took radical steps to turn things around.

Politicians were united and ensured that a major financial freeze did not occur. Sweden guaranteed its entire banking system of 114 banks from losses, imposed strict credit terms and forced banks getting injections to surrender shares to the government.

The United States isn't in as much danger as Sweden had been, and can still take steps to avoid a protracted downturn. But our government already appears to be applying the lessons of the crisis, evidenced in the government-backed sale of Bear Stearns. An economist says it's exactly how Sweden handled things.

Sweden's economy these days is seen as solid, and the central bank raised its key rate to 4.25% to fight inflation. The country has also managed to dodge the subprime crisis. Year-to-date, iShares MSCI Sweden (EWD) is up 1.9%. In the last month, it has risen 11.8%.

The fund has 23.2% of its assets allocated in the financial sector, the second-largest weighting. The top sector in the fund is industrial materials, which is 35.1% of assets.

Five Global Safe Havens for Risk-Averse ETF Investors

For risk-averse investors, there are still ways to gain exposure to foreign markets with exchange traded funds (ETFs) and minimizing the homework involved with single stock-picking.

Todd Wenning for The Motley Fool points out The Economist's list of the most risk-averse countries, where global operational risk is lower. Criteria studied involved economic, government and systemic factors. Based on that, the publication came up with: Switzerland, Denmark, Finland, Sweden and Singapore.

Interesting: the United States ranked 25th on the list, behind Cyprus and Estonia.

For an all-in-one diversification investment tool, ETFs in foreign developed markets of interest are:

• iShares MSCI EAFE (EFA)
• Vanguard Europe Pacific ETF (VEA)
• iShares MSCI Sweden (SWE)
• iShares MSCI Singaopre (EWS)

The fact that a country or company is operationally safe doesn't make it a definite "buy," though. This information is merely a starting point, and it's a good idea to do your own homework.

It should also be noted that these countries are developed markets, so the growth potential within them isn't the same as it would be in emerging economies.

You Can't Always Judge an ETF By Its Name

In December, Barclays added another international exchange traded fund (ETF) to its lineup: the iShares MSCI Kokusai Index Fund (TOK).

 TOK covers 1,203 holdings in 22 developed markets, minus Japan, with the United States taking the most holdings at 50%. The second-largest constituent is the United Kingdom, at 12%. There are also holdings in Austria, Belgium, Ireland, Italy, New Zealand, Spain, Sweden and Switzerland.

The largest holding is ExxonMobil Corp. (XOM) at 2%. It's most heavily concentrated in financials, at 24.7%. When the fund launched, Matt Hougan for Index Universe wondered if it wasn't a strange product to launch on a U.S. exchange since, after all, most U.S. investors are already invested in this market and would instead want exposure to Japan in their portfolios.

But the most intriguing thing about the fund, we think, is its name: "kokusai" is the Japanese word for "international." It's an interesting choice of word for a fund with no holdings in Japan.

The Falling Dollar and Currency ETFs

It is no secret that the U.S. dollar has been falling against other major currencies, as evidenced by exchange traded funds (ETFs) and related investments.

The dollar's value dropped 10% against the euro, and is down 40% from its October 2000 high. David Kathman for Morningstar reports that the dollar also dropped 6% versus the Japanese yen and also hit a 25-year low against the British pound. The pound, as we said earlier today, has fallen on some hard times of its own.

Essentially, this means the investors around the world have lost confidence in the future stability of the dollar, and, as a result, they are more confident in currencies such as the euro. Effects of the weakening dollar are complex, but the good side is that foreign buyers can come into the U.S. and spend their money. With the dollar's weakness, these ETFs have posted great returns the past couple of years (the percentage that follows is their one-year performance unless otherwise noted):

• CurrencyShares Australian Dollar Trust (FXA), up 19.4%

• British Pound Sterling Trust (FXB), up 5.3%

• Canadian Dollar Trust (FXC), up 19.1%

• Euro Trust (FXE), up 18.7%

• Japanese Yen Trust (FXY), up 8.3% since inception

• Mexican Peso Trust (FXM), up 6.5%

• Swedish Krona Trust (FXS), up 14%

• Swiss Franc Trust (FXF), up 16%

Performance chasing is generally not a good idea, especially since currency movements are unpredictable and volatile. Do your research first.

Read the disclosure, as Tom Lydon is a board member of Rydex Funds.

Sweden's ETF Reminds Investors to Know What's in Their ETFs

Before investing in a country-specific exchange-traded fund (ETF), look inside it and see what companies are in it and especially how much they are weighted. The top company might account for more than you think, which can push up or pull down the ETF's performance, says Carl Delfeld for ETF XRAY. A classic example of this is happening now with Sweden's ETF iShares MSCI Sweden Index (EWD). The world’s largest telecommunications equipment manufacturer, Ericsson, accounts for 21% of the basket.

Ericsson's large composition in EWD has been a good thing for the ETF until recently when the company issued a severe profit warning that wiped out a quarter of its market value, sparking a sweeping change to its business strategy, reports David Ibison and Andrew Parker for the Financial Times. Ericsson said operating income is expected to plummet 36% in the third quarter compared with the same period last year. So it comes as no surprise that EWD was down 5.3% yesterday. Fortunately, it's still up 11.9% year-to-date. Hopefully Ericsson's loss won't pull EWD down too much more.

Rising Interest Rates Can't Stop Sweden's ETF

Although Sweden's exchange traded fund iShares MSCI Sweden Index (EWD) has a reputation for strong fiscal discipline, it's still susceptible to economic influences such as rising interest rates. Sweden's Riksbank recently increased interest rates by a quarter point to 3.75%, which is the ninth tightening since January 2006, reports Jonas Bergman for Bloomberg. On Thursday, the Swedish government downgraded its economic forecast for its gross domestic product (GDP) to 3.2% for this year and next. The original prediction in April expected the the economy to grow 3.7% this year and 3.3% next year, according to the Associated Press. These revised expectations are another factor that could influence EWD's performance. Currently, EWD is up 11.7% year-to-date.

What could be saving EWD is the fact that it is full of top global companies that trade at attractive valuations. The top holding in EWD is the telecom equipment-maker Ericsson, which accounts for 16.0% of the basket. Ericsson has a 25% return on equity and a much stronger balance sheet than its peers, says Carl Delfeld for ETF XRAY. Other top companies in the Sweden ETF include Sandvik, Volvo and Atlas Copco.

Investors interested in currency ETFs can buy the Swedish krona through the CurrencyShares Swedish Krona Trust (FXS).

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

International Small-cap ETF Could Make a Big Rebound

For the last five years, small-cap exchange traded funds (ETFs) have outperformed large-cap ETFs worldwide. For investors looking to invest in international small-caps, one option to consider is the WisdomTree International SmallCap Dividend (DLS). This ETF invests 22.3% of its holdings in Japan, 20.5% in the U.K., 18% in Australia, 4.7% in Sweden and 4.7% in Singapore. It has increased 3.4% since the market low on Aug. 15 and is almost at its 200-day trend line.

Low Inflation and High Demand Helps Sweden's ETF

Besides Spain, iShares MSCI Sweden Index (EWD) is another country-based exchange traded fund (ETF) that has withstood market volatility fairly well so far this year. It's up 10.7% year-to-date. It also holds well-known, worldwide companies such as Volvo (VOLV) and H&M (HMRZF.PK).

Demand and employment continue to increase in the Swedish economy, according to the National Institute of Economic Research for Sweden. Strong sectors for July included the service industry and construction. In addition, Swedish consumers showed confidence in the economy during July. Another reason EWD has done so well is because it's a fierce inflation fighter. However, inflation has increased recently over the last couple of months and is now approaching a rate of 3%.

For full disclosure, some of Tom Lydon's clients own H&M.

European ETFs Blow Past U.S. in Performance

Europe has been kicking our butts lately when it comes to exchange traded funds (ETFs) and their performances. But why? 

One reason could be the new wave of political reform across several European countries, including Germany, Sweden, Belgium and France. The newly-elected, center-right leaning leaders tend to drive bull markets, says Carl Delfeld of ETF XRAY. And although our market has hit new highs, so have the European markets.

In addition, Europe's overall economy has been stronger than ours. Since the end of 2006, Europe's GDP has outpaced America's. The euro is at new highs against the dollar (today it reached $1.38) and the yen. Unemployment is down to 7%, which is the lowest it has been since the euro was created in 1999, according to The Economist.

Every dog has its day; it's only a matter of time before the United States is in the lead again.

• iShares MSCI Germany Index (EWG) - up 29% year-to-date
• iShares MSCI Sweden Index (EWD) - up 21% year-to-date
• iSHares MSCI France Index (EWQ) - up 17% year-to-date
• iShares MSCI Belgium Index (EWK) - up 11% year-to-date

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

Swedish ETF Shifts Toward Capitalism

When looking at country-specific exchange traded funds (ETFs), you want to know what is going on in that country.  Sweden for example is in the midst of privatization.  Carl Delfeld of ETF XRAY reports the newly elected center-right government has started the selling, which by the way is open to foreign investors.  The first sell was an 8% stake in TeliaSonera, a telecommunication company, and was oversubscribed.  Be on the look out for more sells in the next three years.

On the economic front, the central bank in Sweden has been a fierce inflation fighter - with inflation at 1.9%.

iShares MSCI Sweden (EWD) is full of companies known across the globe.  The top holding is Ericsson at 21%.  Other holdings include Volvo, Sandvik, Atlas Copco, and the trendy fashion store, H&M.  EWD, like many other areas, has felt the affects of the market decline over the past few days, but it is up 8% year-to-date.

Sweden ETF Reflects Nordic Market

In Stockholm, Sweden, there has been a high increase in trading volume and the Swedish exchange traded fund (ETF) has been increasing as well.  iShares MSCI Sweden Index (EWD) is up 7.4% this year and was one of the top performers for 2006.  EWD includes companies such as Ericcson, Volvo and H&M Hennes & Mauritz. A press release states the sector with the strongest growth for March was consumer staples.  The Swedes also like ETFs as there was 155% increase in ETF trading in March 2007 compared to March 2006. 

Sweden ETFs - To Be Appreciated

Considering Sweden as an investment option?  There are two exchange traded funds (ETFs) that focus on the country, iShares MSCI Sweden Index (EWD) and the CurrencyShares Swedish Krona Trust (FXS).  Ericsson (ERIC) accounts for 21% of EWD.  Volvo, Copco, Svenska and Sandvik are familiar holdings with capital goods, technology and banking. The sector exposure is good, with diversification and balance.  FXS seeks to track the price of the Swedish Krona.

Carl Delfeld of Chartwell Advisors researched Sweden and found that many companies are primarily in private hands, with a center-right coalition led by Mr. Fredrik Reinfeldt promising to privatize up to 47 companies.  Seventy percent of the economy is service-driven and ample natural resources such as zinc, lead, gold, copper, iron-ore, timber, and hydro-power round it out. The stability of the Krona is a big attraction for Sweden, as they opted out of the Euro in 2003.  The Kingdom of Sweden could be appreciated by many investors.  Delfeld will be taking a group of private investors to Sweden and Denmark this June, if you are interested in learning more, contact him through his website.

Read the disclosure, as Tom Lydon serves on the board at Rydex Funds.

Top Performing ETFs for 2006

Once again, global exchange traded funds (ETFs) were the top performers for 2006. 

Booming economic growth in China helped push the China ETFs to the number one and two spots for the year.  iShares FTSE/Xinhua China 25 Index (FXI) and PowerShares Golden Dragon Halter USX China (PGJ) were up 81% and 51% respectively.  Part of the growth in China is due to cargo - manufactured goods need to move throughout, in and out of the country; construction - infrastructure needs to be built; and consumers, also known as chuppies - consumption of high end goods is the current trend.

On the other side of the globe, Spain was one of the fastest growing economies in Europe, due to a wave of mergers and acquisitions, a surge in construction and a real estate boom.  All factors helped boost iShares MSCI Spain (EWP) ending the year up 48%.

Back in Asia, doing business with your neighbor certainly can be a plus, as it was for Singapore.  The country has the the world's busiest port and enjoys a healthy economy.  iShares MSCI Singapore (EWS) represents the region and was up 43% for the year.

Mexico made the top performing list last year and does so again in 2006.  iShares MSCI Mexico (EWW) was up another 43% this year.  Even with uncertain election results for part of the year, the Mexican economy boomed with abundant trade and infrastructure development.

Since China took up the top two spots we thought we would include number six, iShares MSCI Sweden (EWD), up 42%.  Sweden's economy was strong this year, even with an election this past fall.  The ETF has a bit of exposure to financial service companies, which were key performers for the year.

For full disclosure, some of Tom Lydon's clients own FXI, EWS and EWW.

Sweden ETF Solid Like Economy

One of the top performing exchange traded funds (ETFs) for 2006 is iShares MSCI Sweden Index (EWD). The fund is up 42% year-to-date and the country's economy has grown 4.3% this year. In 2007, there is an expected growth of 3.6% and 3.2% in 2008.

An article in Nasdaq states the Nier, a think tank that advises the government, says labor supply and employment have shown increases. Rising employment, moderate and accelerating wages, low inflation and tax cuts will help boost disposable income per household. The Nier said inflation will reach only 1.5% in December 2008 due to a mild build up of cost pressure, rapid appreciation of Swedish currency and the low-cost of oil. Sweden's economy is looking solid past, present, and future.

Sweden ETF (EWD) Would Make Vikings Proud

Swedish experts have confirmed the finding of over 1,000 Viking-era silver coins after their chance discovery by two brothers on the Swedish island of Gotland. The vikings were always known to be wealth accumulators and it looks like their homeland continues to thrive.

Sweden's economy has outpaced most European countries as far as GDP growth while maintaining a low unemployment rate. After its recent election, many questioned whether Sweden could keep up its positive momentum.

iShares MSCI Sweden Index Fund (EWD) is an index fund that seeks to provide investment results that correspond generally to the price and yield performance of publicly traded securities in the aggregate in the Swedish market, as measured by the MSCI Sweden Index (the Index) compiled by Morgan Stanley Capital International Inc. (MCSI).

Global ETF Investing

Exchange traded funds (ETFs) are categorized into country-specific, ADR, global, global sector, regional, foreign currency and the new international sector ETFs.  Carl Delfeld of Forbes looks at the differences between the categories and find it is important to look at the ETF to see what is going on.  He gives examples of how a global ETF is dominated by two countries, while a regional ETF is evenly distributed among countries.

Country specific ETFs tend to be market cap weighted, such as iShares MSCI Sweden (EWD), which holds 18% of Ericsson (ERIC).  Country specific ETFs can also target specific sectors, such as iShares MSCI Canada (EWC), which is 32% energy.

Global sector ETFs tend to be market value weighted, but the new WisdomTree ETFs are based on a company's record of increasing dividends.

With a little research and understanding of the ETFs, a little international exposure can go a long way.

European ETFs Growing Performance

Exchange traded funds with an international focus have enjoyed better returns than their U.S. counterparts.  European ETFs have been performing well and reaching new highs this month.  The top country performers are iShares MSCI Spain (EWP) up 9% for the month, iShares MSCI Austria (EWO), up 8%, iShares MSCI Belgium (EWK) and iShares MSCI Sweden (EWD) with a 5% gain each.

Sam Patel reports on these ETFs in TheStreet.com and shows that each are heavy weighted in the banking sector, which has been doing well globally.  Spain and Sweden have the fastest grwoing economies.  Spain's economy is the biggest of the four countries.

Sweden ETF (EWD) Voting In

Carl Delfeld looks at the role politics can play on an economy, focusing on the exchange traded fund iShares MSCI Sweden (EWD) as an example.  With an election on September 17th, campaign issues revolve around big changes such as deregulation, tax cuts, privatization and job creation.  Many of Sweden's big industrial companies are pushing for the change.

The ETF has been performing well this year, up over 16%.  Leading up to election day, EWD is up 2% over the last two weeks.  Ericsson, the top holding makes up 18% of the ETF, was the first to support the economic changes through the election campaign.

Sweden ETF (EWD) Reviewed In Investor's Business Daily

Investor's Business Daily's reported on investment opportunities in Sweden.  "The region has steady employment, better economic growth and higher per-capita wealth than most of Europe ... Scandinavia as a whole has been growing at the same pace as emerging markets in Eastern Europe.  Sweden offers less political risk and more established companies that compete on a global basis."

We spoke with Murray Coleman about the iShares MSCI Sweden (EWD) exchange traded fund.  This ETF has been a top performer this year, as we discussed in an earlier post.

Sweden (EWD) ETF Top Monthly Performer

Sweden's population may be small, but the company brand names are known and used worldwide.  These companies, are part of what makes up the Swedish ETF, iShares MSCI Sweden (EWD).  Ericsson (ERICY) is the top holding in the exchange traded fund, making up 20%.  Financial services also make up a large portion of the fund.  Other well-known brands included in EWD are Volvo, H&M and Electrolux.  Ericsson added 3% on Monday after making an offer on a network router maker.  EWD has been the top performing ETF over the last month with gains of 8%.