Investors in exchange-traded funds are learning that you’d rather be in "what sticks" than what falls by the wayside.
Invesco PowerShares Capital Management announced last week that it would close 19 ETFs on May 18, the single biggest mass killing of exchange-traded funds in the history of the business and the continuation of a small trend that started in 2008 involving the liquidation of tiny funds that can’t attract enough market share.
"After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors," Bruce Bond, president and chief executive of Invesco PowerShares, said in a statement. "We remain fully committed to the ETF industry and expect to offer new, exciting products in the months ahead."
And therein lies part of the problem. The exchange-traded fund business is in the rapid-growth phase where every idea, no matter how scatterbrained, gets a tryout. Fund companies are so eager for market share that they’re throwing every concept at the wall to see what sticks.
In the PowerShares case, the funds that have fallen are a rogue’s gallery of the uninspired and unloved. While the 19 funds represent nearly 15 percent of the PowerShares lineup, their $122 million amounted to less than 0.5 percent of the company’s assets under management. Among the motley crew are PowerShares Dynamic Aggressive Growth, Dynamic Hardware & Consumer Electronics, FTSE RAFI Asia Pacific ex-Japan Small-Mid Cap, High Growth Rate Dividend Achievers and sector funds covering everything from utilities, telecommunications and technology, international real estate, healthcare, consumer goods and more.
Full Story: http://www.star-telegram.com/business/story/1366416.html Closing Of Unloved ETFs Could Start A Trend
Investors in exchange-traded funds are learning that you’d rather be in "what sticks" than what falls by the wayside.
Invesco PowerShares Capital Management announced last week that it would close 19 ETFs on May 18, the single biggest mass killing of exchange-traded funds in the history of the business and the continuation of a small trend that started in 2008 involving the liquidation of tiny funds that can’t attract enough market share.
"After carefully evaluating numerous factors including shareholder considerations, length of time on the market, asset levels and the potential for future growth, we proposed closing certain portfolios that have not gained sufficient acceptance with investors," Bruce Bond, president and chief executive of Invesco PowerShares, said in a statement. "We remain fully committed to the ETF industry and expect to offer new, exciting products in the months ahead."
And therein lies part of the problem. The exchange-traded fund business is in the rapid-growth phase where every idea, no matter how scatterbrained, gets a tryout. Fund companies are so eager for market share that they’re throwing every concept at the wall to see what sticks.
In the PowerShares case, the funds that have fallen are a rogue’s gallery of the uninspired and unloved. While the 19 funds represent nearly 15 percent of the PowerShares lineup, their $122 million amounted to less than 0.5 percent of the company’s assets under management. Among the motley crew are PowerShares Dynamic Aggressive Growth, Dynamic Hardware & Consumer Electronics, FTSE RAFI Asia Pacific ex-Japan Small-Mid Cap, High Growth Rate Dividend Achievers and sector funds covering everything from utilities, telecommunications and technology, international real estate, healthcare, consumer goods and more.
Full Story: http://www.star-telegram.com/business/story/1366416.html The Economic Data Is Better, But The Bears Are Patiently Waiting On The Sidelines!
First, April was not nearly as good as the bulls made it to be. Yes, the Dow Jones Industrial Average ($DJI) surged 5.5% during the first half of the month. But, in the second half, momentum slowed with the average rising just 1.7%.
Even then, the statistics don't tell the whole story. From the Apr 16 close to the Apr 30 close, the Dow gained a mere 43 points, or 0.5%.
That's a big difference in return for someone who bought the Dow Diamonds ETF (DIA) on Apr 16 instead of just a couple of weeks earlier. (DIA is an ETF that tracks the performance of the Dow.)
Secondly, volume is not signaling a lot of conviction on the part of buyers. Throughout March, the SPDR S&P 500 ETF (SPY) experienced average volume of 400 million shares per day. In April, daily volume declined to 287 million shares.
Yet, during this entire time, stocks have risen. And the higher they go, the more the rally is losing steam. That's not good.
Thirdly, I'm worried about the banks.
Yes, everyone passed the stress test, but it was a questionable test to begin with. Plus, Bank of America (BAC) and 9 others have lots of time to raise funds. But, foreclosures are still rising, credit card defaults will get worse and, despite all of the analysis, nobody still knows how to value the toxic assets.
The government might keep the large banks afloat, but their stock prices and earnings could still suffer. And that alone would cause problems for the stock market. Not to mention that financial stocks (and related ETFs such as Financial Select Sector SPDR (XLF)) are overdue for a pullback based on technical analysis alone.
Fourthly, as earnings season comes to an end, we should see fewer positive revisions to profit forecasts. The ratio of positive to negative revisions typically falls after earnings season, even during good times. I don't see any reason for this to change.
A drop in positive revisions would be one less catalyst for stocks to go higher.
Finally, the General Motors (GM) situation remains unresolved. If bankruptcy proceedings turn messy, it will cause a big disruption across the entire automotive industry. This, in turn, could create problems for the market.
Full Story: http://www.zacks.com/stock/news/20018/The+Economic+Data+Is+Better,+But... Huge flows into emerging-market funds in past week: Brazil’s second-biggest inflow ever; China, Taiwan, India and Russia also benefit
NEW YORK (MarketWatch) -- Emerging-market equity funds saw inflows of $4 billion in the week ended May 6, the largest weekly inflow since early December and the eighth largest on record, Merrill Lynch said Friday.
Buying of exchange-traded funds was mostly responsible, but investing in funds that take long-only positions also saw strong inflows, Merrill said. Long-only funds represent one-way bets from investors ready to embrace more risk.
Both the iShares MSCI Emerging Markets Index (EEM) and the Vanguard Emerging Markets Stock ETF (VWO) have rallied impressively, up 8% over the past week. That compares with a 5% weekly gain for the S&P 500 index (SPX).
Brazil, in particular, saw very large flows, garnering its second-largest weekly inflows on record, while China, Taiwan, India and Russia also saw big gains.
Merrill's data show the pace of inflows into emerging-market funds has been strong and accelerating, totaling $14 billion over the past seven weeks.
For the year to date, the MSCI ETF is up nearly 26%, while the Vanguard ETF is up nearly 29%, far and away outpacing the 2.4% gain for the S&P 500.
Merrill Lynch said that its own emerging-markets trading indicator remains in "sell" territory but that this gauge continues to "be wrong-footed" by the big economic and financial policy stimulus being put in place in various emerging markets, as investors go increasingly for reallocation of assets into global equities.
Full Story: http://www.marketwatch.com/news/story/emerging-market-funds-attract-huge-flows/story.aspx?guid=%7BE848D774%2D9D03%2D4585%2D9C43%2D5C84BA51CA65%7D&siteid=yhoof Taxes on Commodity ETF’s
New kids in the old mutual fund biz, Mutual Funds using ETF’s
A few weeks ago, David Wild of Appleton Group Wealth Management, Inc. visited our offices to explain the nuts and bolts of its mutual fund -- the Appleton Group Plus Fund (AGPLX $) -- and how it has performed since its launch in 2005. It's one of just a handful of funds that use exchange traded funds (ETFs) as their main investment vehicles, and given the volatility of ordinary mutual funds these days, they're worth a long look.
Indeed, Wild's visit sparked us to evaluate other funds primarily using ETFs, and our research came up with only three others: Ashton/Smart Allocation ETF Fund (ASENX $), Ashton/New Century Absolute Return ETF (ANENX $), and ETF Market Opportunity (ETFOX $). We combed through ETFConnect.com, Charles Schwab's mutual fund research and Googled "ETF mutual funds" but only came up with these four. Others may exist, but we couldn't find them.
Before we go any further, we need to explain the differences between traditional mutual funds, ETFs, and ETF-oriented mutual funds. Traditional mutual funds hold plain old stocks and bonds. They sell their shares to the public and repurchase those same shares from the public. This type of mutual fund is priced at the end of each trading day.
ETFs, or exchange traded funds, are baskets of stocks, bonds, or other investment vehicles that are in the custody of banks. These so-called baskets -- holding a specific group of stocks like the S&P 500 -- are traded like stocks on the stock exchanges during regular trading hours. Investors don't own the individual shares within those baskets, but rather the entire baskets via custodial arrangements between the bank and the ETF sponsor.
Now the new wrinkle: A few traditional mutual funds, like the four above, are now investing in ETFs rather than stocks and bonds. In essence, they've blended the traditional mutual fund with ETFs. One obvious advantage of this approach is the reduction in specific stock risk; traditional mutual funds can suffer disproportionately if one or more of their stock holdings gets flattened, like Enron or Fannie Mae.
That being the case, the next step for us in evaluating these funds was to look at their investment strategies and their returns.
Full Story: http://www.madison.com/tct/news/stories/450399 The Ultimate Commodities ETF Guide
Commodities have received greater exposure in recent years thanks to a major bull rally in commodity prices coupled with new products designed to make these securities available to common stock investors. Many investors are familiar with precious metals and energy exchange-traded funds (ETFs), such as SPDR Gold Shares (GLD), PowerShares DB Oil (DBO), U.S. Oil (USO) and iShares Silver Trust (SLV), but they now have the option of investing in a variety of individual commodities and have a choice between several indexes that offer unique commodity weightings.
When oil prices rallied to $150 per share and corn prices advanced on ethanol demand, investors looked to grab a slice via ETFs and exchange-traded notes (ETNs). When commodities slid at the start of a major global recession, prices fell as much as 75 and 80 percent. Recently, several commodities have climbed off their lows, and some investors are starting to look at the sector in anticipation of an economic recovery. Commodities tend to outperform during the early phases of an economic expansion, when the rising demand outstrips the supply, due to recessionary cutbacks, and during the later stages, when demand again outstrips available supply. The point of this article is not to assess whether the economy is on the verge of a recovery—that’s a topic unto itself—but to compare the relative strengths of different indexes and investment approaches.
Any decision to invest in commodities should begin with the index funds. For the vast majority of investors, indexing makes the most sense. As with equity indexes, the securities providers have designed a plethora of ways to gain commodity exposure.
Full Story: http://seekingalpha.com/article/136509-the-ultimate-commodities-etf-guide Oil Setting Up For A Spill (USO, XES)
The price of crude is beginning to look like it might be setting itself up for a spill in the short-term.
The United States Oil Fund ETF (NYSE:USO) has soared 39.1% since hitting a 52-week low in mid-February. This run is somewhat unexpected given lagging underlying demand. It is also opening up opportunities for investors.
Excessive Inventory
On May 7, the price of crude broke above $58 for the first time in 2009. I am a bit leery of this rally given the lack of a fundamental basis to support the climb. On May 6, the Energy Department reported that crude inventories reached their highest level in 18 years.
The move up in crude appears to be based more on the optimism that equities have been experiencing recently as well as lower-than-expected increases in crude stockpiles. Over the long run, I believe the price of crude will recover, but this current rally may be a bit premature.
Full Story: http://community.investopedia.com/news/IA/2009/Oil-Setting-Up-For-A-Spill-USO-XES-VLO-TSO-SUN-WNR0508.aspx Chineese ETF’s on the move: ADRA, CAF
Thin ETFs Can Have Wide Bid-Ask Spreads
Aside from comparing holdings and expense ratios in selecting ETFs, also watch out for wide spreads, which tend to vary with an ETF's average daily trading volume and the amount of assets.
ETF providers are loath to admit that liquidity or average daily trading volume matter because they can theoretically create and redeem shares as necessary to meet demand.
They claim an ETF's liquidity is based on the liquidity of the holdings. If the underlying components are thinly traded and have wide bid-to-ask spreads, so will the ETFs.
(The bid-ask spread is the difference between the price sought by buyers, i.e. the bid, and the price at which they're being offered in the market, the ask.)
But in reality, the more thinly traded an ETF, the wider its spread. Wide spreads can dramatically affect your returns because you could be automatically in the red by the amount of the spread once you buy, even if the stock's price remains the same.
The most highly traded ETFs such as the S&P 500 SPDR (NYSEArca:SPY - News), ProShares QQQ (NasdaqGM:QQQQ - News), the iShares MSCI EAFE (NYSEArca:EFA - News) and the sector SPDRs have spreads of just one or two pennies.
But the most thinly traded ETFs, in which only a few hundred shares change hands a day, have spreads of as much as $1 to $5.
For example, the spread on the thinly traded Claymore U.S. Capital Markets Bond (NYSEArca:UBD - News) showed a gap in bid-ask prices of more than $8 at the close on May 1, according to NYSE Arca. Divide the spread by the spread's midpoint, and that works out to 23%.
Full Story: http://finance.yahoo.com/news/Investors-Corner-Thin-ETFs-ibd-15176767.html?.v=1 ETFs are a boon to buy-and-hold investors. Just don’t get suckered into one of the flaky ones.
The exchange-traded fund is maybe the fastest hit in the history of financial products. In the decade and a half since its inception the category has attracted $450 billion in assets. The ETF is a cross between a closed-end fund and an openend fund. It offers diversification, low cost, high tax efficiency and the convenience of trading on a stock exchange throughout the day.
What's not to like? Plenty. Many of the 850 ETFs now vying for your attention suffer from one or more of the same cardinal sins seen in other Wall Street products: an excessively narrow focus, high leverage, misleading packaging and tax inefficiency. First Trust Global Wind Energy, for example, sells itself as a clean-energy ETF. But the pool of wind-energy producers is so shallow that it owns significant stakes in carbon polluters BP and Royal Dutch Shell just to maintain liquidity.
United States Oil Fund purports to track the price of West Texas Intermediate Crude Oil. The futures market in which it trades is so thin, however, that pros can front-run it each month, knowing that the ETF will have to roll over its positions. Two highly leveraged funds, Ultra Oil & Gas ProShares and UltraShort Oil & Gas ProShares, are supposed to move in opposite directions; they lost 74% and 30%, respectively, last year.
"If you're hell-bent on using leverage for longer than a day, use a margin account," suggests Paul Justice, a Morningstar analyst.
Full Story: http://www.forbes.com/forbes/2009/0525/082-investment-guide-09-sticking-to-basics.html?feed=rss_news Direct Edge wants to launch two US stock exchanges
Fast-growing U.S. stock trading venue Direct Edge said on Thursday its wants to turn itself into two stock exchanges later this year.
The company said it filed applications with the U.S. Securities and Exchange Commission late on Wednesday. It is now an electronic communication network, or ECN, that matches equity transactions on two separate platforms......
......Direct Edge has consistently offered low prices in exchange-traded funds, or ETFs, products whose popularity has bloomed along with the venue. ETF volumes recently surpassed that of Nasdaq-listed stocks for the first time.
The New Jersey-based company is backed by Goldman Sachs Group Inc (GS.N), Citadel, Knight Capital Group Inc (NITE.O), and the International Securities Exchange, the second-biggest U.S. options market.
The backers drive trading to Direct Edge in an attempt to keep overall fees lower. The fee revenues U.S. venues derive from Nasdaq-listed stocks have fallen about 35 percent in two years, according to Equity Research Desk.
Full Story: http://www.reuters.com/article/rbssInvestmentServices/idUSN0750702820090507 The Wrong Way to Invest in China (FXI)
According to Morningstar, the iShares FTSE/Xinhua China 25 Index ETF (FXI) is not only one of the 25 most popular exchange-traded funds on the market today, it's also the most-traded China-focused ETF. Despite the volatile Chinese market, this ETF attracted a net $3 billion of inflows in 2008.
"That's great," you might think. "Investors are finally realizing that China is a place where they need to be invested." That might be true, but if so, they're going about it the wrong way.
Seriously red tape
Some investors confuse FXI with a proper way to invest in the Chinese growth story. That just isn't the case, for a variety of reasons.
By investing in FXI, you're not sufficiently tapping into the entrepreneurial spirit of the Chinese people. See, FXI tracks a FTSE/Xinhua index mainly comprising state-owned enterprises (SOEs). In fact, of the top 10 holdings of the exchange-traded fund, 10 are SOEs (or are subsidiaries of SOEs, which for my purposes are one and the same).
In terms of past performance, that hasn't been so bad. Despite the recent plunge in the Chinese markets, which has sent names like PetroChina and China Mobile down considerably, the iShares FTSE/Xinhua China 25 ETF has averaged returns of 11% per year over the past three years versus the S&P 500 -- tethered to our own megacaps like General Electric (NYSE: GE) and Microsoft (Nasdaq: MSFT) -- which has lost 10% a year over the same period.
But while FXI holdings like China Life Insurance and Sinopec have outpaced American counterparts like Prudential Financial (NYSE: PRU) and Devon Energy (NYSE: DVN) since December 2005, looking to the future, FXI isn't the right train on which to hitch your China investment dreams
Full Story: http://www.fool.com/investing/international/2009/05/08/the-wrong-way-to-invest-in-china.aspx Are You Ready for the Next ETF Bull?
In recent weeks, we’ve been seeing some exchange traded funds (ETFs) start to pop above their 200-day moving averages. Eventually, we will be in a new bull market. What can you do to be ready for it?
There is no way to tell when the market will definitely turn around and re-enter bull territory, but there is no question that it will eventually.
As an investor, there are some things you can do to be prepared. Brett Arends for The Wall Street Journal has 12 tips to share:
Go Global. Staying on domestic ground is not the safest or smartest strategy. Two-thirds of the world’s market cap lies outside the United States. By putting your eggs in a few different baskets and covering overseas markets you can diversify and spread out your risk.
Avoid Big Moves. Buying and selling heavily in one session is not a smart thing. Wait, watch and follow market trends, be thoughtful and methodical. This way your decisions will not be rash or emotional.
Investors Are the Markets. Remember that when everyone is trying to predict “the market,” they are effectively chasing themselves through a hall of mirrors.
Past, Present, Future-Be Aware. Shares are rising, have risen, will rise, all have different meaning. Pay attention, and do not follow the leader. This ties into point number three - watch the trends for signals.
Diversification That means investing across a spread of different asset classes and strategies. Asset class blends do not equal diversification. On the flip side, be aware of over-diversification and taking on more than you can manage.
Forecasts Are Simply That. Nobody has a crystal ball-NOBODY. Take forecasts with a grain of salt, and wait for actualities before making your move.
Understand What You Are Doing. The stock market has infinite risk tolerance and an infinite time horizon. Real people can’t compete with market indexes, and shouldn’t try. Don’t buy things you don’t understand - a case in point is short and leveraged ETFs. Some investors have bought them and gotten burned because they didn’t understand how they should be used.
Who Is TINA? Sooner or later someone will urge you to buy shares, even at very high prices, because There Is No Alternative. There are always alternatives.
Full Story: http://www.nasdaq.com/newscontent/20090507/are-you-ready-next-etf-bull.aspx?storyid=9267 Commodity ETPs & ETFs Closing In On A Bull Market
Over the past trading week, one thing's become quite clear: Risk trades are back. A resurgent stock market, for one thing, attests to a definitive shift in investor expectations. Monday's market action brought the S&P 500 Composite past the breakeven mark for the year after being down more than 33%.
The eight-week rally spilled over into other equity markets, but rising stock prices aren't the only marker of investors' sharpening appetite for risk.
Credit spreads have also tightened, indicating a greater willingness on the part of commercial banks to lend. Tuesday, three-month dollar LIBOR (London Interbank Offered Rate) slipped below 1%, shedding 44 basis points (0.44%) since the beginning of the year. At the height of the credit crisis in October, three-month dollar loans were priced as high as 4.82%.
Traders have moved from the relative safe haven of the greenback to higher-yielding resource-linked currencies like the Aussie and Kiwi dollars and the South African rand. Yields on U.S. Treasury securities, as a consequence, have jumped to levels not seen since November.
The Fed Funds traded rate - the actual price at which excess reserves are loaned between banks - has risen toward the top of the Federal Reserve's 25-basis point target range, after being offered at bottom-scraping rates for weeks.
Commodities - that is, certain commodities, such as crude oil, base metals and the softs - have awakened to turn upward. At the same time, interest in safe-haven gold has been eroding.
The renewed interest in commodities has been reflected in the price trends of broad-based exchange-traded products (ETPs).
Among the half-dozen notes and funds with trading histories of at least 200 days, five have broken to the upside of their 50-day moving averages. None has yet risen above its 200-day mark, the threshold for heralding a primary bull market. The one exchange-traded note (ETN) now trading below its 50-day average is paradoxically the one closest to starting a bullish trend.
So, which commodity exchange-traded fund (ETF) or note is the most sensitive bellwether of a nascent commodity bull market?
Full Story: http://www.hardassetsinvestor.com/features-and-interviews/1/1555-commodity-etps-closing-in-on-a-bull-market.html Ascensus Adds ETFs to Increase Fee-Based Platform Flexibility
Ascensus, the nation's largest independent recordkeeper and administrator for retirement plans in the micro- to large-market segments and a leading provider of regulatory expertise, plan document services and participant enrollment support, has enhanced its PrudentAdvisor(TM) and PrudentLink(TM) fee-based advisor retirement plan solutions with the addition of exchange traded funds (ETFs). Through this development, financial advisors and third party administrators have more investment options and increased flexibility to design a truly customized retirement program for their clients.
Unlike other defined contribution programs that offer ETFs, the Ascensus offering has several key distinctions. ETFs are available to plans of all sizes and can be offered in conjunction with a broad selection of mutual funds. In addition, ETFs are directly traded, allowing participants to own actual shares of the ETFs. Ascensus' trade platform aggregates and nets trades before going to market, providing an innovative and cost-effective solution. Recognizing these advantages, iShares, a leading provider of ETFs, selected Ascensus as a Preferred Provider for advisors looking to use ETFs in 401(k) plans.
