Northern Trust Enters ETF Arena With First ETFs To Track Major Foreign Market Indexes

With its new line of exchange traded funds (ETFs), Northern Trust opted to stay true to their principles while traveling around the world.

Is it a sign that ETFs are slowly entering the mainstream and gaining acceptance as more than just a passing fad? An institution as old and well-known as Northern Trust entering the market could be a sign.
 

"We know who we are. We knew what we needed to bring to the market, something that was consistent with our notions of asset management overall," says Peter Ewing, the managing director of Northern Trust's ETF group.

The first batch of funds, the first to track major foreign market indexes, were a year in the making. Ideas were kicked around as the world's third-largest asset manager of institutional index-based assets felt it needed to seriously consider an ETF product line. In 2007, the management committee gave the go-ahead and they filed with the Securities & Exchange Commission (SEC).

"Our opening salvo is traditional," Ewing says. But the provider isn't averse to more inventive ETFs and strategies. But for now, "We want to stay true to our principles."

Northern Trust's ETFs, which all have an expense ratio of 0.47%, are:

• NETS S&P/ASX 200 Index Fund (AUS): Represents Australia
• NETS DAX Index Fund (DAX): Tracks Germany's major exchange
• NETS FTSE 100 Index Fund (LDN): Invests in the largest companies by market cap on the London Stock Exchange
• NETS CAC40 Index Fund (FRC): Represents France
• NETS Hang Seng Index Fund (HKG): Represents Hong Kong
• NETS TOPIX Index Fund (TYI): Represents Japan

At a later date, there will be funds issued that cover Belgium, Ireland, Portugal, South Africa and more.

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.

BRIC ETFs Have Many Access Points for Investors

A reader wrote in recently wanting to know more about BRIC and the related exchange traded funds (ETFs). We're here to help!

BRIC stands for four of the fastest-growing emerging markets out here: Brazil, Russia, India and China. In 2007, these countries delivered some of the biggest returns of any ETFs or exchange traded notes (ETNs) around. So far for 2008, BRIC ETFs and some of the single country funds have been fairly quiet.

But make no mistake: these countries are still growing, and could have plenty to offer down the line.

Foreign Currency ETF Offerings to Pour In Next Month

Exchange traded fund (ETF) providers Dreyfus and WisdomTree are teaming up to offer five actively managed foreign currency ETFs next month.

They will include the WisdomTree Dreyfus Euro Fund, Japanese Yen Fund, Indian Rupee Fund, Chinese Yuan Fund and the Brazilian Real Fund. These will be the first of 12 to be launched under the WisdomTree Dreyfus banner. Two others include two U.S. current income funds, reports Mariana Lemann for Ignites.

Later this year, more funds will launch and cover the Australian dollar, British Pound sterling, Canadian dollar, New Zealand dollar, South African rand and South Korean won. Several of these funds will be a first in currency ETFs.

When they launch, they'll join a growing lineup of both currency ETFs and exchange traded notes (ETNs), including:

• CurrencyShares Euro Trust (FXE)
• CurrencyShares Japanese Yen Trust (FXY)
• Market Vectors Indian Rupee (INR)
• Market Vectors Chinese Renminbi (CNY)
• PowerShares DB G10 Currency Harvest (DBV)

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

London Calling To Be The Biggest ETF Market

London is calling for the reign of the exchange traded fund (ETF) industry, but the struggle will be long and uphill, say analysts.

The London Stock Exchange (LSE) is aiming at becoming the number one ETF market, but they've got some formidable challengers, including the United States and other European rivals.

The total value of the ETFs traded  on the LSE last year was $20.8 billion, an 82% increase from 2006. Tara Loader Wilkenson for Financial News reports that the London exchange gained ground after the U.K. government did away with a stamp duty levied on non-resident ETFs at the end of 2006, which had deterred the funds from listing before.

As the popularity of ETFs grows, they'll begin appearing on more and more exchanges the world over. The Middle East wants ETFs, Japan has made it easier to list them and the Tokyo Stock Exchange says it wants to quintuple its ETF listings before the end of next year.

As for the United States, at the end of last month, there were 703 exchange traded products available, with a whole lot more in the pipeline.

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.

Everyone, Welcome the New ETF Provider Northern Trust (Hi, Northern Trust)

The exchange traded fund (ETF) industry has a new provider. It's Chicago-based Northern Trust, and the launch of their funds have been anticipated since last winter.

Murray Coleman for Index Universe reports gives the lowdown on the first batch of funds, which will have an expense ratio of 0.47%:

• NETS FTSE 100 Index Fund (LDN): Invests in the largest companies by market-cap on the London Stock Exchange.
• NETS S&P/ASX 200 Index Fund (AUS): It will compete against the iShares MSCI Australia (EWA), which is one of the oldest international ETFs around.

Four more ETFs will follow soon:

• NETS DAX Index Fund (DAX): Tracks the major exchange in Germany.
• NETS TOPIX Index Fund (TYI): Covers Japan
• NETS CAC-40 Index Fund (FRC): Tracks France's market
• NETS Hang Seng Index und (HKG): Follows stocks in Hong Kong

Missing from the list are Northern Trust's anticipated entries into the all-world ETF segment, which was recently joined by both Vanguard and iShares.

The timing of the France-focused single country ETF could bring good things, as France's economy has been holding up well against the international credit crisis. Helen Beresford for Thomson Financial News reports that on the flip side, the GDP growth forecast was cut by the government to between 1.7-2%. The iShares MSCI France (EWQ) is up 8.7% in the last month, although it's down 5.4% year-to-date.

The German economy has been growing, but it needs to make changes if that growth is going to continue. Paul Carrel for Reuters reports that the German economy needs reform to refresh the labor market and education systems, both vital parts of the country's economy.  The iShares MSCI Germany (EWG) is up 6.9% in the last month, but it's down 9% year-to-date.

The European ETF Market Compared To The U.S.

While most of our coverage centers on exchange traded funds (ETFs) listed in the United States, we realize that they aren't just a U.S. phenomenon. We might have the largest market for them, but Europe, Asia and Latin America all boast fast-growing ETF industries of their own.

At the end of 2007, the European ETF market had amassed assets of $128.4 billion in 423 funds, reports Paul Amery for Index Universe.

iShares is the leading ETF provider in both here and in Europe, while State Street Global Advisors is the second-largest provider in the United States. The lack of similarity of product providers within the two markets is interesting, but as time goes on there will be more overlaps.

As for asset class, fixed income has almost three times the amount in fixed income that Americans do, thanks to Europeans' historical preference for bonds. Both markets have a  strong domestic bias, but the European equity sector is less interested in overseas investing than the United States is.

More than half of the ETFs in the United States are held by retail investors; in Europe, it's closer to one-third, but data backing up this figure isn't easy to find.

Europe has special challenges, thanks to differences between the countries. Most of them might be using the same currency, but their cultures and legal systems are not the same. It's also typical to have ETFs cross-listed between exchanges, since each country generally has its own. Often, you'll see primary listings, then secondary ones.

In a country-by-country breakdown, Germany has the largest number of primary listings: 157. It's followed by France (119), United Kingdom (84), Switzerland (21) and Italy (6).

Vanguard Wants to Put Its Arms Around the World With New ETF

On the heels of iShares' new all-world exchange traded fund (ETF), Vanguard is trying to enter the fray with its own similar kind of fund.

They've registered with the Securities and Exchange Commission (SEC) for the Vanguard Global Stock Index Fund, which would offer three share classes: investor shares, institutional shares and ETF shares. It's anticipated to launch in the second quarter of 2008.

The fund aims to track the FTSE All-World Index, a market-cap weighted index of large- and mid-cap global stocks in 48 countries. About 55% of the index will be made up of stocks outside the United States.

Vanguard's new fund will join the iShares MSCI ACWI Index Fund (ACWI) as the first two true all-world ETFs. The country breakdown for the iShares fund has the as its top five countries the United States, 41.8%; the United Kingdom, 9.6%; Japan, 8.6%; France, 4.7%; Germany, 4.1%.

Across the sectors, it's most heavily weighted in financials at 22.5%. Energy is 11.7% and Industrials are 11.2%. Exxon Mobil (XOM) is the largest constituent, representing 1.6% of the holdings. General Electric (GE) is 1.2%.

It'll be interesting to compare the two funds side-by-side once Vanguard's is up and running.

Latin America, Brazil ETFs Are Bucking the Trend

Most single-country exchanged traded funds (ETFs) are sitting below their 200-day moving averages. Many, particularly those in Asia, are in the double digits in their positions below their trend lines.

Two funds are above, and they're sticking out like a sore thumb: iShares MSCI Brazil (EWZ) and the iShares S&P Latin America (ILF), which are 2.8% and 2.3% above their trend lines, respectively.

How is it that when the rest of the world seems to be dogged by economic woes, Latin America is still continuing to grow and perform relatively well? It turns out, lots of reasons.

1) UK integrators are gravitating toward the region, reports Doug Woodburn for vnunet, and they're setting up shop there.

2) Domestic demand is strong, fueling economic growth, say Carla Simoes and Romina Nicaretta for Bloomberg. Brazil is forecast to create more than 1.8 million government-registered job this year after posting a record last year of 1.62 million. The surge in these types of jobs, which provide full benefits, are considered a sign of Brazil's strengthening economy.

3) Brazil's fourth-quarter growth was 6.2%, surpassing expectations. It's the biggest year-over-year gain since June 2004.

4) Latin America is gearing up for some major infrastructure action, according to Public Works. The Latin American Leadership Forum will be held in early April and will feature the top 50 infrastructure projects that have a total value of $40 billion.

U.S. Credit Crisis Delivers a Punch to Some Global ETFs

The problems aren't just here in the United States: the credit crisis is also hitting markets in other countries and taking some of their exchange traded funds (ETFs) down with it.

Investors are wary of the acquisition of Bear Stearns by JPMorgan, reports Toby Anderson for the Associated Press. One bank was saved, but what does it mean for the banks that are still standing? The challenge now for investors is knowing if the bottom has been reached, or if the markets will continue to fall even further.

While the Federal Reserve scrambles to prevent an all-out meltdown, global markets still reflected a nervous sentiment:

• iShares MSCI United Kingdom Index (EWU): down 3.7% intraday, down 11.2% year-to-date
• iShares MSCI France Index (EWQ): down 2% intraday, down 12% year-to-date
• iShares MSCI Australia (EWA): down 2.8% intraday, down 12.8% year-to-date

Asian stocks fell today, as well. Japan's benchmark index lost 3.7% to hit its lowest point in more than two and a half years. Interestingly, the iShares MSCI Japan Index (EWJ) was up 2.5% intraday. The fund is down 12.8% year-to-date. Hong Kong's Hang Seng index fell 5.2%, and the iShares MSCI Hong Kong (EWH) was down 1.9% intraday. Year-to-date it's down 22.3%.

U.S. Dollar Falls Further and Currency ETFs Rally

It could be just what exchange traded fund (ETF) investors who are bearish on the U.S. dollar want to hear: another day, another low.

After two days of setting records, the euro once again set one on Thursday, reports Erin Conroy for the Associated Press.

The dollar's decline could complicate the Fed's decision-making progress in regards to the economy. That's because when the Fed cuts rates in an attempt to jump-start the economy, those cuts also drive the dollar lower.

Currency ETFs rallied on Wednesday thanks to the weakness of our money, says Wanfeng Zhou for Thomson Financial. Most CurrencyShares funds have been seeing positive territory this week:

• CurrencyShares Euro Trust (FXE), up 3% in the last week
• CurrencyShares British Pound Sterling Trust (FXB), up 2.2% in the last week
• CurrencyShares Swiss Franc Trust (FXF), up 3.8% in the last week
• CurrencyShares Japanese Yen Trust (FXY), up 1.8% in the last week

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

It Could Be Time to Take a Global View with Healthcare ETFs

While the United States is still trying to sort out its own health care system, perhaps it's time to take a more global perspective with health exchange traded funds (ETFs).

Here, we're trying to figure out who will be insured and to what extent, and the FDA approval process can hinder the rate of new drug development by biotechnology companies.

With that, Gary Gordon for Seeking Alpha singles out the iShares S&P Global Healthcare Index Fund (IXJ) for several reasons:

• It's one-third less volatile than the S&P 500
• There's exposure to England, Switzerland and France (France has the world's third-largest health care budget; England provides free health care to all residents of the United Kingdom; health care is compulsory in Switzerland)
• Its five-year returns are within a few percentage points of the broader S&P 500, and with less risk

This fund sits far below its trend line (200-day moving average), so wait until it migrates back above before taking a look.

South Korean ETF Positioned To Benefit From Capital Act

South Korea and its related exchange traded fund (ETF) are constrained by an over-regulated financial sector.

This may be causing the iShares MSCI South Korea (EWY) ETF to have a trading pattern that looks a lot like Japan's, reports Carl Delfeld for Forbes. The ETF's top three holdings are Samsung, Posco and Kookmin Bank. They are facing many obstacles, and make up for 30% of the fund's holdings.

But last year, the "Capital Markets Integration Act" came into effect and could be a start for a reform. South Korea's banking sector was liberalized a decade ago. However, many financial markets are off-limits to foreign institutions. In an effort to become more of a regional financial services hub, legislation is aimed at keeping up with competitors, as outlined in the act.

The biggest change in the act will be in full force by January 2009: financial groups may do anything that is not expressly prohibited. Some have been comparing the changes to London's "big bang" 20 years ago, in which the complete structure of the market was altered because of rules changes.

G-7 Summit Keeps Financial Market Hopeful

The G7 Summit meeting takes place this weekend and we'll have to wait and see what effect decisions made there will have on the economy and exchange traded funds (ETFs).

The dollar was slightly weaker while holding onto recent gains made earlier in the week while investors awaited the meeting, where finance leaders from the world's most industrialized nations get together, according to Dan Molinski for The Wall Street Journal.

Topics of interest at the Summit meeting:

• how to handle recent financial market turmoil
• health of the U.S. economy
• necessary steps to ensure sustained growth in the U.S.

G-7 financial leaders are, in particular, seeking to calm credit fears. Discussions will be about how to disclose and enhance finance-related information by institutions along with how to compensate for losses caused by the U.S. home loan crisis, reports DPA for EarthTimes.

Nations must work together to keep the global economies growing and to stabilize the financial markets. Climate change will be discussed in Hokkaido at the Group of Eight summit.

Meanwhile, finance minsters of Britain, Japan and the U.S. asked officials from other countries to join in an initiative to help developing nations cut greenhouse emissions through clean-energy technologies. The World Bank reports that by pooling efforts to support a new clean technology fund, administered by The World Bank, developing nations can cut their emissions.

Several ETFs could feel the impact of decisions made at the meeting:

• Financial Select Sector SPDR (XLF)

• iShares Dow Jones US Financial Services (IYG)

• PowerShares Global Clean Energy (PBD)

• PowerShares Wilderhill Clean Energy (PBW)

Golden Expectations In 2008 For Related ETFs

Gold-focused exchange traded funds (ETFs) will gleam from the idea that the precious metal will likely peak at just more than $1,000 per ounce in 2008, according to a London-based consultancy firm.

Gold is likely to continue to benefit from a weakening U.S. economy as investors continue to seek out safe havens for their money, writes James Macharia for Reuters.

If the United States can manage a turnaround in middle-term, then the price could begin to decline about 3 years from now, according to consultancy firm GFMS CEO Paul Walker.

Meanwhile, the South African government asked mining firms on Tuesday to cut their consumption to ease the power crisis, Macharia for Reuters says. Could this also have an impact on the price of gold?

Shortages since January halted mines in the country, a major gold producer and the world's top platinum producer. Mining companies are now operating on 90% of their normal power, which threatens output and profits.

The iShares MSCI South Africa Index (EZA) has dropped sharply since the crisis began. Even though mines are back in business, the economy may have already seen some damage.

ETFs that are likely to feel the ups and downs of gold's path this year:

• streetTracks Gold Shares (GLD), up 6.3% year-to-date
• iShares COMEX Gold Trust (IAU), up 6.5% year-to-date
• Market Vectors Gold Miners (GDX), up 2% year-to-date

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.

Are ETFs And Gold In Danger Along With South Africa's Mines?

Gold and platinum prices hit a new high on Friday, as one of South Africa's main metal mines was forced to shut down because of a lack of power, which could affect focused exchange traded funds (ETFs), such as the streetTRACKS Gold (GLD).

Gold in London was pushed to a spot price of $923.40 a troy ounce, and mining executives are calling for a six-week halt as electricity will be rationed with only 50% of South Africa's needs being met, reports Alec Russell for Financial Times.

Other gold ETFs that could be affected by the halt are:

• PowerShares DB Gold (DGL)
• Market Vectors Gold Miners (GDX)
• iShares COMEX Gold Trust (IAU)

Meanwhile, gold has also been the safe harbor of choice by investors, and with the current state of disarray among global markets, the precious metal will be in demand. Bud Conrad and David Galland for HoweStreet report that as we seem primed to enter a period of stagflation: a term that refers to a general economic slowdown, but coupled with rising prices by massive infusions of liquidity into the market.

Climbing prices make stagflation a positive environment for gold, and gold is typically seen as a "safety net" against inflation. However, in a typical recession, demand for everything slows. Will that include gold? No one can really say: there is no historical precedent that demonstrates gold will fall during a recession.

Silver ETF Takes A New Shine

Silver has long been in the shadow of its golden counterpart, and focused exchange traded funds (ETFs) mirror that from 2006. Last year, gold finished up 28% while silver added 18%. That was after suffering a few volatile swings, though.

iShares Silver Trust ETF (SLV) has seen its rate of accumulation slow, but the addition of a silver ETF in the UK and Switzerland are turning the trend around, reports Jane Louis for Resource Investor. Demand for the commodity dipped somewhat with the advent of digital photography, as silver is a major component in developing film.

But there is still no shortage of other uses for the metal. Industrial applications are the main source of silver demand in the market, as it is a good thermal conductor, electrical conductor, batteries use it, along with water filtration systems.

Silver will be growing in popularity as new uses are being developed, such as a wood preservative. In addition to SLV, PowerShares DB Silver (DBS) tracks the metal.

British ETF Overcast With Economy

The British economy isn't looking so cheeky right now, as the economy is mirroring that of the United States', and its exchange traded fund (ETF) is bearing the brunt of it.

iShares MSCI United Kingdom (EWU) is a 12-year-old fund that has $1.2 billion in assets and tracks the index performance of MSCI United Kingdom. In 2006 it returned 30% and nearly a year later only managed to give back 8%. What happened?

Joanne Von Alroth for Investors Business Daily reports that the same credit crisis haunting the United States can be seen in the United Kingdom. Add to that a troubled housing market and a reduction in consumer spending and the outlook is glum. Last week the Bank of England froze rates at 5.5% in anticipation of slower growth and inflation. Sound familiar?

Also, the hardest hit sector has been the financials. What's more, the British rely heavily on credit, much more than their U.S. counterparts. British officials are looking to other nations for help before the bleeding gets unstoppable.

Investing in Dharma With ETFs

Dow Jones Indexes, together with Dharma Investments have launched the Dow Jones Dharma Indexes to underlie exchange traded funds (ETFs).

They will measure the performance of selected companies according to value systems and principles of Dharmic religions, mostly Hinduism and Buddhism, reports HedgeWeek. Companies that can participate are in compliance with the Dharmic religious traditions. The series also has four country-specific indexes: the United States, United Kingdom, Japan and India.

The ETFs that are created to follow these indexes should be interesting.

British Pound and ETF Slide Backward

One of last year's strong currencies seems to have taken a bit of a stumble along with its exchange traded fund (ETF) and for once, it's not the U.S. dollar.

The British pound was a powerhouse at one point, trading nearly double the rate of our own dollar. Today, reports Gary Gordon of ETF Expert, the currency is trading near 52-week lows and is worth only slightly more than its value at the start of 2007.

What's going on? The British economy is in the doldrums - the housing market is in trouble, consumer spending is down and the European Union hasn't yet signaled any need to lower rates, while the Bank of England may follow the United States' lead.

The troubles are spreading beyond the CurrencyShares British Pound Sterling Trust (FXB), too, which is below its 200-day moving average. The iShares MSCI United Kingdom Fund (EWU) is also close to a bear trend. CurrencyShares Euro Trust (FXE), on the other hand, has been on an upward trend and is well above its 200-day moving average.

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

Are U.S. Economy and ETFs as Down and Out as You'd Think?

When comparing the U.S. economy to the rest of the world lately, investments and exchange traded funds (ETFs) focusing on the foreign markets have been in favor. The U.S. housing collapse and credit meltdown have taken headlines everywhere, but the reality is behind the numbers, which take on a different story.

The Wall Street Bully reports that the output from state to state in the U.S. in contrast to the rest of the world, confirms that the states are still a world force.

One of his readers says that during the midst of our mortgage crisis, the U.S. economy still grew by 3.9% during the third quarter. This followed a 3.1% second quarter jump. In perspective, this is like "adding a Saudi Arabia to our economy" since the beginning of April.

This doesn't mean the U.S. economy is perfect, nor is it devoid of any future problems. The U.S. is the wealthiest nation by GDP and the rest of the world isn't even close. India and China are growing fast, but they have a long way to go. The U.S. economy is as large as bundling the next four largest economies in one - Japan, Germany, China and the United Kingdom.

A map, via strange maps, gets the point across in a fascinating way:

(Tisha)

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.

U.S. Dollar and ETF Show Signs of Life

Finally, a bit of good news for anyone who was bullish on the dollar and held the corresponding exchange traded fund (ETF): the British pound dropped below $2 for the first time in three months on Wednesday.

The dip came after the Bank of England unanimously decided to cut interest rates, says Peter Garnham of the Financial Times. The dollar, overall, has been showing a little strength: last week, it rose to its highest levels in more than a month against the euro and the yen.

More good news for the dollar came this week as the price gauge (excluding food and energy) rose 2% from July through September. The gauge is a key inflation indicator.

If you're bullish on the dollar, there's the PowerShares DB US Dollar Index Bullish (UUP). The ETF, introduced in March, is made up of long futures contracts, and is designed to replicate being long on the dollar against the euro, yen, British pound, Canadian dollar, Swedish krona and Swiss franc. Another option to capitalize on the strengthening dollar is by shorting Rydex's CurrencyShares.

Below is a chart of the U.S. Dollar to the British Pound:

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

Europe Has Some Decisions to Make, and ETFs Could Be Affected

The European economies are in a bit of "good news/bad news" situation, and exchange traded funds (ETFs) that track their currencies could be feeling the effects while the region weighs its options.

On the one hand, the European economy is doing very well. Rising prices for oil and other commodities have equaled higher headline inflation and the consumer price index (CPI) is expected to continue to rise in the next six months, BusinessWeek reports. But on the flip side is that the rising exchange rates of the euro and British pound sterling against the U.S. dollar so far hint that Europe is going to be the hardest hit by our slowing economy and the rebalancing of our trade deficit.

The conundrum has put Europe's central banks in a bit of a pickle and all eyes are on them to see what they'll do. BusinessWeek predicts that both the ECB and the Federal Reserve will cut interest rates at least once, in the second half of 2008. They also expect that the U.S. dollar will stabilize by that time.

Keep a close watch on the euro funds. It could be an interesting year around the corner.

• CurrencyShares Euro Trust (FXE) up 15.5% year-to-date
• iPath EUR/USD Exchange Rate ETN (ERO) up 9.2% for past 3-months

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

Hey Look, Kids, LSE Doubles Its Number of Listed ETFs

The London Stock Exchange more than doubled up its number of listed exchange traded funds (ETFs), topping 100 for the first time. The exchange is in a battle with NYSE Euronext and Deustche Borse AG to become the leader in ETF listings, reports Luke Jeffs of the Wall Street Journal, and the LSE just got a big boost in the race.

Meanwhile, the LSE launched eight new ETFs from PowerShares on Thursday. They're the first funds the manager has launched outside the United States, and judging from the looks of things, they've picked a good time to do so.

ETFs and the Pros and Cons to a Weak Dollar

Foreign currency exchange traded funds (ETFs) continue to benefit from the weak U.S. dollar. The dollar hit a new low against the euro in Friday trading. In the end, the dollar was higher against the euro and it slipped against its other major counterparts, as the Group of Seven leading industrial nations' finance ministers gathered to meet in Washington. Although financial officials will likely discuss the dollar's recent weakness, analysts are not expecting any policy actions to directly address it, reports Lisa Twaronite for MarketWatch. Interest rate expectations also have added to the dollar's woes. Lower rates bite into the returns on dollar-denominated assets and are therefore usually negative for a currency. Other factors that are negative for a weak dollar, according to the Federal Reserve Bank of Chicago, include:

• Consumers face higher prices on foreign products and services.
• Higher prices on foreign products contribute to higher a cost-of-living.
• U.S. consumers find traveling abroad more costly.
• Harder for U.S. firms and investors to expand into foreign markets.

However, there are some other advantages that occur from a weak dollar, such as:

• U.S. firms find it easier to sell goods in foreign markets.
• U.S. firms find less competitive pressure to keep prices low.
• More foreign tourists can afford to visit the U.S.
• U.S. capital markets become more attractive to foreign investors.

Some of the foreign currency ETFs that are doing well and their year-to-date performance include:

• CurrencyShares Euro Trust (FXE) - up 11.5%
• CurrencyShares Australian Dollar Trust (FXA) - up 19.0%
• CurrencyShares British Pound Sterling Trust (FXB) - up 9.0%

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

Exchange Traded Commodities (ETCs) Launch in London

Earlier this week, London-based ETF Securities launched a range of exchange-traded commodities (ETCs) on the London Stock Exchange, allowing access to commodity futures at differing maturities. The ETCs will track 29 individual commodities and baskets of commodities, with two maturities available that would give investors access to energy, agriculture, precious and base metals, Reuters reports. The only difference between ETCs and ETFs is that ETCs are securities and not funds.

The first ETCs to track DJ-AIG Commodity Indexes were listed on the LSE in September last year. Since then, the existing 29 ETCs tracking DJ-AIG Commodity Indexes have accumulated more than $1.2 billion in assets.

How Do Foreign ETFs Benefit from a Weak Dollar?

Some exchange traded fund (ETF) investors might wonder how emerging markets benefit from our dollar. How it works is investors put their money to work in markets with a relatively stronger currency, and when that local currency strengthens even more, it enhances returns for the funds, explains Barbara Kollmeyer for MarketWatch.

Essentially, when you buy European stocks, those euros buy more U.S. currencies when you want your money back. Similarly, countries with strong currencies tend to have strong economies, which reflects in their country-based ETFs. It currently takes more than $1.41 to buy one euro and almost two dollars to buy one British pound. Also, the Canadian loonie is on par with the U.S. dollar, which hasn't happened since 1976. Some ETFs that follow these countries and their year-to-date numbers include:

• iShares MSCI EMU Index (EZU) is up 17%
• iShares MSCI United Kingdom (EWU) is up 10%
• iShares MSCI Canada (EWC) is up 29%
• S&P 500 SPDR (SPY) is up 8%.

The euro has been one of the biggest benefactors from the U.S. rate cuts because it is growing in popularity as the currency of choice among international transactions. CurrencyShares Euro Trust (FXE) is up 10.0% year-to-date. The CurrencyShares British Pound Sterling Trust (FXB) is up 7.1% year-to-date.

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.
For full disclosure, some of Tom Lydon's clients own EWC and SPY.

U.K. ETFs Could See a Rate Change

It seems the U.S. isn't the only one considering an interest rate reduction to help boost the economy and its exchange traded funds (ETFs). The U.K. has had banking and real estate problems that have pulled down its currency. Investors wonder if the Bank of England will cut interest rates to stimulate the economy, according to Carl Delfeld for ETF XRAY. The pound fell to a 14-month low against the euro and dropped below $2 against the dollar for the first time in a month.

The pound's decline came in conjunction with the British government's intervention to guarantee Northern Rock bank customers their savings, according to Peter Thal Larsen and Chris Giles for the Financial Times. The government's move, which is unusual for the country, came because of signs that the lack of confidence in Northern Rock was spreading to other lenders. Overnight, the cost of borrowing funds surged to its highest level for six years.

The financial problems in the U.K. could affect the country-based ETF iShares MSCI United Kingdom Index (EWU) and its currency-based ETF CurrencyShares British Pound Sterling Trust (FXB). Year-to-date, EWU is up 3.0% and FXB is up 5.9%.

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

18 ETFs Launch in London

Eighteen exchange traded funds (ETFs) were launched on the London Stock Exchange (LSE), increasing the index's offerings by one-third. This brings the total number of ETFs to 76. One of the newly-launched ETFs gives investors access to Latin America: Deutsche Bank's MSCI Latin America ETF. Deutsche Bank representatives say they plan to provide U.K. investors with more innovation and choice through ETFs with strategies, such as short indexes and asset classes like bonds and commodities. The value traded in ETFs on the LSE during the first half of this year increased by 79% on the first half of 2006, according to the LSE. The number of U.K. institutions using ETFs has grown by 58% in the last two years.

We Need Your Feedback: Do You Want News on European ETFs?

Although mutual funds never caught on in Europe as much as they have here, exchange traded funds (ETFs) are just as popular in Europe as in the U.S., if not more so. As of May 30th, Europe had 312 ETFs with $105.5 billion in assets under management, according to Morgan Stanley.

We're seeing more visitors from Europe come to ETF Trends and wonder if there is demand for coverage of European ETFs. Please let us know!

I'll be speaking at the Worldwide Business Research conference on ETFs in London this November.

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.

Cash Injections Worldwide Attempt to Calm Markets and ETFs

Central banks in Europe, Asia and the U.S. injected more cash into their country's banking systems today to help calm the market and exchange traded funds (ETFs) concerned about the tightening credit crunch and continuing housing market problems.

The European Central Bank added $370.6 billion to its market, Japan gave $7.01 billion today in addition to the $8.71 billion it added yesterday and the U.S. injected another $3.75 billion in the latest of its transfusions that total more than $100 billion since last week, according to Matt Moore for the Associated Press. Other central bank injections for today included:

• The Reserve Bank of Australia added $3.64 billion to its banking systems.
• The Bank of England added $622.3 million to its banking systems, which marks its first emergency intervention.

Seemingly impervious to the U.S. subprime disease, China's central bank had to raise its benchmark deposit and lending rates for the fourth time this year to curb inflation amid its flourishing economy. China's economy has grown 11.9% in the latest quarter and the Shanghai benchmark stock index closed at its eighth record-high close this month today, the Associated Press reports.

ETF Profile: United Kingdom (EWU)