Vanguard

Vanguard Group Inc. is already the largest U.S. stock and bond mutual fund manager, and now the firm has set out to conquer the ETF industry, one sector at a time. Charles Stein for Bloomberg reports that Vanguard is the third-largest sponsor of ETFs, and has captured more than 30% of the money flowing into the business this year by charging an average fee of 0.15%; the industry average is 0.54%.

Vanguard now has $77 billion in ETFs, after inflows of $17.8 billion this year. The firm’s share of the market rose to 11%, up from 8.5% at the end of last year. (How to choose ETFs).

Their strategy of charging the lowest in fees is garnering the interest of many investors who are educated on the possibility that fees can cut into principal and earnings. (What else is important when selecting ETFs?).

But Vanguard has something else interesting at play: the firm’s founder, John Bogle, has been vocal in his criticism of ETFs. His chief complaint is that they encourage short-term trading. Bogle stepped down as Vanguard’s CEO in 1996.

For more stories about ETFs, visit our ETF 101 category. Among Vanguard’s lineup of funds include:

• Vanguard Emerging Markets ETF (NYSEArca: VWO): up 68.6% year-to-date
  

• Vanguard Europe Pacific ETF (NYSEArca: VEA): up 25.3% year-to-date

• Vanguard REIT Index ETF (NYSEArca: VNQ): up 15.4% year-to-date

The 10.2% unemployment figure is far worse than what economists had expected, and they don’t see any sign of relief until next year. While the pace of layoffs has slowed, the unemployment rate is continuing to climb, reports Javier C. Hernandez for The New York Times.

Unemployment isn’t just as issue here, either; millions around the world don’t expect to see relief in the form of jobs anytime soon. The European Union forecast unemployment in the eurozone to rise to 10.7% in 2010, up from 9.5% this year. Unemployment ranges from 3.5% in the Netherlands to 18.3% in Spain, reports Greg Keller for the Associated Press. In China, the official urban unemployment rate is 4.3% in the third quarter. Brazil’s unemployment was 8.1% in August, almost unchanged from the previous month.

Gold futures have soared to a record $1,100 an ounce today. While some profit-taking briefly sent gold lower, it resumed its course and analysts expect it to continue to move higher, reports Allen Sykora for The Wall Street Journal. SPDR Gold Shares (NYSEArca: GLD) is up about 0.4% year-to-date. (More on gold can be found here).

Businesses slashed inventories for a record 13th straight month in September, although sales rose for the sixth consecutive time. Many hope that improving sales figures will encourage businesses to start lifting production, although a rising jobless rate heightens fears that consumers won’t start spending anytime soon, reports Martin Crutsinger for the Associated Press. (An ETF to play holiday shopping).

The world’s largest insurer, AIG (NYSE: AIG) reported that it was profitable for the second consecutive quarter. Although things have stabilized, the company’s CEO said that earnings will remain choppy while they restructure.  SPDR KBW Insurance (NYSEArca: KIE) is up about 0.6% this morning.

G20 Finance Ministers are meeting this week to discuss financial reform and economic recovery. While these economies have put in place certain policies in order to push along a recovery, they’re not policies anyone wants to keep in place forever. The general consensus is that it’s too soon to reverse the measures, but it’s not too soon to begin talking about when and how it would happen. Government debt in developed G20 countries is likely to reach 118% of annual national income in 2014, reports Andrew Walker for the BBC.

For more stories on the global economy, visit our global ETF page.

In the last couple of years, Turkey economy has been augmented by increased exports to its Middle East and north African neighbors, extending pipelines for transferring energy, more air traffic and a number of infrastructure projects, according to The Economist. (Does Turkey need more support?)

Turkey is starting to utilize the soft power of trade and historical links to stabilize the country’s position in the Middle East. Reform needed to meet EU membership has prodded the government to look inward and what resulted was a greater stability in the region.

The realignment of interests has allowed Turkey to gain greater ties with its Muslim neighbors, and the country help bridge the Western countries with the Middle East.

The European Commission estimated Turkey’s GDP will contract 5.8% this year, followed by a 2.8% growth for 2010 and a 3.6% growth for 2011, as stated in Hurriyet Daily News and Economic Review. The commission also expected public debt-to-GDP ratio to rise above 51% of GDP in 2011

The Turkish economy was constrained by exports and investments, which dropped 8.5% and 17.6% respectively, as well as a 5.3% decline in private consumption. The banking sector is well-capitalized but loan growth is decelerating, which could slow the recovery of private consumption and investment. High requirements for public sector borrowing may further limit credit for the private sector.

For more information on Turkey, visit our Turkey category.

• iShares MSCI Turkey Invest Mkt Index (NYSEArca: TUR): up 83% year-to-date

• Market Vectors Gulf States ETF (NYSEArca: MES): up 11.9% year-to-date

Max Chen contributed to this article.

There are three reasons in particular to watch China as its economy continues to evolve into a global powerhouse:

• In October, Chinese manufacturing rose at its fastest pace in 18 months.  China’s PMI was at 55.4, marking the seventh straight month that the index has risen, reports Chris Oliver at MarketWatch.

• Export orders climbed to 55.6 from 54.4, the fifth straight month of gains, and the most robust pace seen since June 2007.

• The government has said that gross domestic product increased by 8.9% in the third quarter and 7.9% in the second. (Five things China needs).

• A sharp rebound in new housing construction starts in September boded well for the months ahead, reports Kathrine Hille for The Financial Times.

• China’s economy has been strengthening on improved domestic demand, a nice change for the export-driven country. (More about China’s economy).

• The nation’s contribution to global economic growth in 2008 amounted to 22%, surpassing the United States to be the world’s number one contributor, states Wang Zongkai and Xie Peng of China View. That figure is expected to reach 50% this year.

For more stories on China, visit our China category.

• SPDR S&P China (NYSEArca: GXC): 55.8% year-to-date

• iShares FTSE/Xinhua China 25 Index (NYSEArca: FXI): up 47.5% year-to-date

• Claymore/AlphaShares China All-Cap ETF (NYSEArca: YAO)

Kevin Grewal contributed to this article.

Van Eck

Van Eck now manages about $9.7 billion in assets. Their varied lineup includes about 20 funds that range from gambling companies to alternative energy to the Persian Gulf, reports Ian Salisbury for The Wall Street Journal.

Their strategy involves “nibbling at the edges”  which enables them to offer products that dabble in niche markets that generally aren’t available elsewhere. While both Van Eck and the fund industry giants with which it competes offer narrowly focused funds, the giants tend to offer slates of ETFs that, taken together, cover the entire market. (ETF portfolio basics).

Van Eck’s offerings don’t cover the spectrum, though. They have funds that cover steel, Russia and the gold mining industry, but you won’t find funds aimed at Japan or Western Europe. What most of their ETFs do have, as the company says, is some kind of relationship to “hard assets.” (The benefits of hard assets).

For more stories about ETFs, visit our ETF 101 category.

• Market Vectors Russia (NYSEArca: RSX): up 116.6% year-to-date

• Market Vectors Gold Miners (NYSEArca: GDX): up 36.3% year-to-date

• Market Vectors Agribusiness (NYSEArca: MOO): up 38.9% year-to-date

Holdings: EEG holds companies domiciled in emerging markets; some of the top companies in the fund include Russian natural gas company Gazprom, Brazilian energy company Petroleo Brasileiro, Latin American wireless provider America Movil and Bank of China.

Objective: EEG seeks to track the Dow Jones Emerging Markets Titans Composite Index, which is an index composed of a representative sample of 100 emerging market companies deemed by Dow Jones to be leaders in each of 10 sectors.

Things to Know

• Brazil is the top country, with 24.9% of the weighting. China has 24.3%, Russia has 13.4% and India has 13%. Other countries include Mexico, South Africa, Chile and Indonesia.
• Oil and gas is the top sector, weighted at 30.8%; financial is 22.1%; telecommunications is 11.6%; and basic materials is 9.3%.
• The expense ratio is 0.75%.
• EEG is a relative newcomer on the ETF scene – the fund launched on July 22.

The Latest News

• Emerging Global Advisors CEO Bob Holderith feels that interest in emerging markets should continue to expand. “It’s a 25-year growth story in its sixth year.” The positive growth outlook for emerging markets goes hand-in-hand with the changing demographic picture in these countries.
• Holderith notes that in most of these countries, there’s a huge young population, all looking for the “Western experience”: cell phones, iPods, dining out and more. (More on Emerging Global Advisors).
• Although the pace may eventually slow down, Barron’s reports that emerging markets still have room left to grow in the long haul. And for the time being, they may be the place to hide out as developed markets still work toward normalcy.
• Emerging markets already account for one-third of the global GDP and 10% of the world’s market capitalization.

Many executive pension fund managers worldwide are pouring assets into emerging markets in an effort to gain more bang for the buck. As the recession has wound down, emerging markets generally have fared better than developed ones, making them an appealing destination for cash, reports Thoa Hua for Pensions & Investments.

Recently, long-held assumptions about emerging markets have been challenged, including their level of volatility, liquidity limits and their overall ability to survive an economic crisis. (Why ETFs are ideal as emerging market plays).

To the surprise of many, it was the emerging markets that recovered before the developed world even begin to dream of a turnaround. Gary Gordon for ETF Expert notes that while it’s true that emerging markets were among the first to fall, they were also the first to recover. (Six things you’re missing by not being global).

In the long-term, many expect that emerging markets will only continue to become major contributors to the health of the global economy. They already account for one-third of the global GDP and 10% of the world’s market capitalization. To ignore them would be to lead a gigantic hole in your portfolio.

Although emerging markets are recovering handsomely and are well ahead of developed market ETFs, it’s still wise to proceed with caution. Protect yourself by using an exit strategy, which you can read about here.

For more stories about emerging markets, visit our emerging markets category.

• iShares MSCI Emerging Markets (NYSEArca: EEM): up 54.1% year-to-date

• Vanguard Emerging Markets (NYSEArca:VWO): up 61% year-to-date

For full disclosure, Tom Lydon’s clients own shares of EEM.

The Central Bank will keep rates unchanged, but the widening yield spreads between mortgage-backed securities (MBS) and federal agency debt against Treasuries may be an essential factor in determining the Fed’s stance on the direction of interest rates, reports Julie Haviv for Reuters. The Fed will buy $1.25 trillion allotted for its MBS program by the end of the first quarter of 2010. (ETFs to shelter against a weak dollar).

Purchase programs have inflated some securities to the point that investors are beginning to turn to the risk/reward of alternative spread products like corporate bonds. For instance, the yield spread on the 30-year Fannie Mae 4.5% current coupon stood at 1.47% over the 5- and 10-year Treasury blend, says Arthur Frank, director and head of MBS research at Deutsche Bank Securities.

The Fed’s decision ultimately could keep the dollar weak for the time being. To capitalize on continued weakness in our currency, consider some of the following ETFs:

• PowerShares DB U.S. Dollar Bearish (NYSEArca: UDN). UDN is up 7.2% year-to-date. This ETF seeks to reflect the performance of the short side of U.S. dollar – basically, the dollar goes down the fund goes up. (More on UDN and a weaker dollar).

• CurrencyShares Euro Trust (NYSEArca: FXE). FXE is up 5.4% year-to-date. A straight forex play on the appreciating euro. As the dollar depreciates against the euro, the euro gains in strength. FXE tries to reflect those gains. (More on FXE and the euro)

• iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). EEM is up 54.1 % year-to-date. By holding non-dollar-denominated assets, such as emerging market equities, investors  can hedge against weakness. Emerging market investments get the benefit of the “dollar kicker” since assets denominated in foreign currencies are eventually converted back to weaker U.S. dollars. (More on EEM and emerging markets).

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG). GSG is up 12.5% for the year. This fund, like other commodity funds, can be a weak dollar hedge. GSG owns futures for 24 different commodities. (More on GSG and commodities).

• SPDR Gold Shares (NYSEArca: GLD). GLD is up 23.1% year-to-date. Gold is another weak dollar hedge because it’s considered a store of value. The current high supply of the dollar in the economy can result in high inflation and many investors have turned to gold as a way to protect against inflation. (More on GLD and gold).

For full disclosure, Tom Lydon’s clients own shares of EEM and GLD.

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

Max Chen contributed to this article.

Russia’s GDP is expected contract 7.5% this year, and the government is forecasting 2% growth in 2010 while many independent economists are estimating growth of as much as 5% next year, reports Jason Bush for Forbes. (Stumbling blocks for Russia’s growth).

Russia’s economy grew 0.6% in the third quarter from the previous three months, but GDP was 9.4% lower than last year’s levels, writes Nataliya Vasilyeva for BusinessWeek. The Economic Development Ministry stated that the improvements were attributed to less capital outflow and to companies replenishing stocks.

Manufacturing and agriculture have been the main industry drivers, with agricultural activity increasing by 10% and industrial production increasing by 5.1%. Retail sales diminished 9.9% on the year in September. (Four things going for Russia).

The downturn hit Russia hard for three primary  reasons, Bush at Forbes says. These are reasons to use caution when investing in Russia and to have an exit strategy in place. (How to follow trends).:

• One reason is oil prices – they plummeted, and Russia plummeted along with it. They recovered somewhat, and so did Russia.

• Another reason is their companies’ idiosyncrasies, which include holding copious stocks of inventory and engaging in cost-plus accounting, which means companies initially resist price cuts by reducing wages. These two reasons helped explain why Russia’s output plummeted early in the downturn. (Ways to play oil and Russia).

• Furthermore, Russia’s financial sector is still struggling and bad loans are expected to reach 20% by the end of the year.

For more information on Russia, visit our Russia category.

• Market Vectors Russia ETF (NYSEArca: RSX): up 119.9% year-to-date

• iShares Emerging Markets Eastern Europe Index Fund (NYSEArca: ESR): down 8.4% in the last week, recently launched; Russia is 75%

• SPDR S&P Emerging Europe (NYSEArca: GUR): up 68.5% year-to-date ; Russia is 65%

• Dow Jones Emerging Markets Energy Titans (NYSE: EEO): up 5.9% in the last three months; Russia is 36.3%

Max Chen contributed to this article.

Leveraged and inverse ETFs aim to have the funds’ movements correspond to the inverse of the relevant market indicator on a daily basis.  One must keep in mind that these ETFs come with risks, as well. The biggest issue to understand is the meaning of the word “daily” when it comes to these ETFs: daily, they will track their benchmarks. The further out an investor gets, the greater the risk that the fund won’t track its benchmark perfectly. This effect is heightened in volatile markets. (Check out our special report on these investment tools).

There are a growing number of providers of such ETFs today, including Direxion, ProShares and Rydex.

These funds can be appealing to investors with the risk appetite for several reasons:

• They can be used as a hedge if an investor believes the market is due for a short-term correction. If an investor is holding a position, but doesn’t necessarily want to sell it, then a leveraged or inverse ETF can be used to hedge against any potential loss.
• They can be used to capitalize on market movements. If an investor believes that the S&P 500 is due for a nice run, a leveraged ETF to maximize this movement might be just what the investor wants. (How leveraged ETFs are misunderstood).

These funds aren’t for everyone – always be fully aware of the risks and know how they work before you invest.

For more on leveraged and inverse ETFs, visit our leveraged ETFs category.

Some examples of common inverse and leveraged ETFs are:

• ProShares Short S&P 500 (SH), which seeks to give 100% of the inverse daily performance of the S&P 500.

• ProShares Ultra S&P 500 (SSO), which seeks to give 200% of the daily performance of the S&P 500.

• Emerging Markets Bear 3x Shares (EDZ), seeks to give 300% of the inverse daily performance of the MSCI Emerging Markets Index
  

• Technology Bull 3x Shares (TYH), seeks to give 300% of the daily performance of the Russell 1000 Technology Index

• Rydex 2x Russell 2000 (NYSEArca: RRY), seeks to give 200% of the daily performance of the Russell 2000 Index

• Rydex Inverse 2x S&P MidCap 400 (NYSEArca: RMS), seeks to give 200% of the inverse daily performance of the Mid Cap 400 Index

Kevin Grewal contributed to this article.