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Leveraged ETFs Beat Margin

leverage2Leveraged ETFs are convenient, but are they more efficient and effective than traditional margin leverage? In this report we compare performance of both in up and down markets and consider qualitative differences. Overall, we find that leveraged ETFs are still the preferred method for making big bets on market direction. Traditionally leverage is obtained by borrowing money from a broker at margin loan rates and then either buying an ETF or selling it short. Alternatively, one can buy so-called leveraged ETFs which contain all leverage and margin costs. They come in long and short flavors and typically ratchet leverage up by a factor of two. First let us compare how the two strategies handle the ubiquitous S&P 500 in bull and bear markets. On the one hand we buy SPDR 500 (NYSEArca:SPY), the giant S&P 500 ETF, once with cash on hand and again on margin for double exposure. On the other hand we buy Rydex 2x S&P 500 (NYSEArca:RSU), a leveraged ETF targeting double daily returns (discussed later). RSU wins handily in the bear market of 2008 and just slightly in the March 2009 bull run: 
  Bear market: 2008 Bull market: March 9-31
SPY return - 34.6% 17.6%
SPY 2X -69.2% 35.2%
less 5% margin 5.0% 0.3%
net return -74.2% 34.9%
RSU -65.2% 36.5%
 When we consider a shorting scenario, results are mixed. Here we compare Rydex 2x Inverse S&P 500 (NYSEArca:RSW) which targets the inverse of double daily S&P 500 returns against a double short position where cash on hand is posted as collateral to short once and another short position is made with a margin loan. RSW trails by 8% during the 2008 bear market and wins in the 2009 spring bull market by 4%. 
  Bear market: 2008 Bull market: March 9-31
SPY return 34.6% -17.6%
SPY 2X 69.2% -35.2%
less 5% margin 5.0% 0.3%
net return 64.2% -35.1%
RSU 56.3% -31.5%
 Now we turn to the closely watched sector of financials. Here we compare ProShares Ultra Financial (AMEX:UYG), which tracks double daily returns of the Dow Jones Financial Index, against going long twice on iShares Dow Jones US Financial Sector ETF (NYSEArca:IYF), which tracks the same index without leverage. UYG wins handily during the 2008 bear market and again less dramatically during the Spring 2009 bull market: 
  Bear market: 2008 Bull market: March 9-31
IYF return -47.7% 35.6%
IYF 2X -95.3% 71.2%
less 5% margin 5.0% .03%
net return -100.3% 69.9%
UYG -83.3% 74.0%
Full Story:  http://www.etfzone.com/?template=viewarticle&article_id=949
ETF BASIC NEWS April 26, 2009 7:55am

How to Be a Better Investor With ETFs

investorGetting back into the market is nerve-wracking enough, let alone picking the stocks that you think are winners; by using exchange traded funds (ETFs) you can take the guesswork out and mitigate some of your risk. If you are thinking about getting back into the market but do not want to play a guessing game, a low-cost indexing approach may be the answer for your portfolio. Index funds take the guesswork out of investing by tracking the performance of an entire market sector, says Barbara Drury for the Sydney Morning Herald. The cost is much lower than paying a manager to pick the stocks for you in a traditional mutual fund, giving the ETF another plus. There are two types of index fund: listed exchange-traded funds (ETFs) and unlisted index funds, and there are about 800 or so in the United States. ETFs can also be used as a tactical tool as they allow investors to trade them throughout the day just as you would a single stock. ETFs also have good tax advantages where earnings are given untaxed to investors. Full Story:  http://www.etftrends.com/2009/04/how-to-be-a-better-investor-with-etfs.html
ETF BASIC NEWS April 25, 2009 9:51pm

Saudi Tadawul index, is considering introducing exchange-traded funds (ETF)

saudi(INTERNATIONAL ETF NEWS) SAUDI ARABIA. Saudi stocks surged over 3% as petrochemical and banking shares led the index to a higher close on Saturday, paring losses incurred last week after a raft of negative quarterly earnings. The all-share index finished 3.13% higher at 5,380 points, having ended the trading week to Wednesday down almost 3%. All sectors made gains with the leading petrochemicals sector up 4.66%, banks 3.22%, retail 1.77%, real estate development 1.64% and telecoms 2.46%. Petrochemicals giant Saudi Basic Industries (SABIC) advanced 5.83%, having lost 11% in the previous trading week on worse-than-expected earnings. Alinma Bank, which saw the heaviest volumes of the day, closed 2.17% higher at SAR11.7 per share. The Tadawul index, the largest and busiest bourse in the Middle East, said this week it is considering introducing exchange-traded funds (ETF) and taking further measures to boost transparency and ensure all listed firms comply with governance rules. Full Story: http://www.bi-me.com/main.php?id=35258&t=1&c=35&cg=4&mset=1011
ETF BASIC NEWS April 25, 2009 2:09pm

This Volatility Is Off the Charts!

etf-news7The Motley Fool community is weighted toward investors, as opposed to traders. As such, it has been hard for many of us to stomach the constant drumbeat of the financial media's daily mantra that "buy-and-hold is dead." Whether they surface on CNBC, investing websites, or blogs, these diatribes generally focus on the trailing 10-year period, an admittedly tough one for stock returns. But they make it sound as if each of the past 10 years, rather than just the last 20 months, has been straight downhill for long-term investors. And they ignore the brutal past six months we long-term investors have endured, which have simultaneously provided more speculative traders with the closest thing to paradise-on-earth they've likely ever seen. As if we were not in the midst of a stupendous singularity In fact, our current level of volatility is unprecedented in most of our lifetimes. According to Yahoo! Finance, which lists high-low-close data for the S&P 500 index going back to March 1950, the average daily change in the value of the index over the previous 60 years has been a tad less than 0.6%. In 2006, it was 0.5%. In 2007, it was 0.7%. In 2008, the average daily change in the value of the S&P index was 1.7%. This is a huge variation: 300% of normal volatility, on average, day in and day out, for a year! Given the staggering trading volume of highly liquid (and relatively new) exchange-traded funds, this may not come as a surprise. After all, Proshares QQQ Trust (Nasdaq: QQQQ), SPDRs (NYSE: SPY), and the iShares Russell 2000 (NYSE: IWM) do more than 70 million shares per day in trading volume Full Story: http://www.fool.com/investing/general/2009/04/24/this-volatility-is-off-the-charts.aspx
NASDAQ:QQQ April 25, 2009 9:45am

Sticking to ETFs? Take this refresher course

exchange-traded-fundsI am sure followers of this column also follow Don Vialoux's Tech Talk, which is a brisk and refreshing daily commentary on the capital markets. On Wednesday, Don quoted a recent study by Standard & Poor's titled "Indexes beat most managers." Apparently, over the past five years, 70 per cent of U.S. large-cap fund managers who use the S&P 500 as a benchmark for comparisons have failed to match the performance of the index over that time. Vialoux recommends sticking to exchange-traded funds. Aside from the higher fees, the major difference between a managed (or active) mutual fund and an exchange-traded fund is an active manager directing the mutual fund's holdings. An exchange-traded fund (ETF) is basically a buy-and-hold basket of stocks. The manager of a mutual fund is paid to outperform his or her "peer" group, which can be other related mutual funds or a relevant index such as technology, energy, large-cap value or small-cap growth. For example, the manager of a U.S. large-cap value fund should strive to outperform the S&P 500 or the related ETF such as the NYSE-listed SPDR S&P 500 exchange-traded fund (SPY). The active fund manager has the disadvantage of higher costs because of his or her fee piled on top of trading and marketing costs. The active fund manager must overcome this by adding value in the form of risk management. Risk management implies the active manager can weed out overpriced stocks in the portfolio and replace them with overlooked "cheaper" stocks. The buy-and-hold index and the ETF peers ignore the changing valuations within the holdings. Full Story:  http://www.thestar.com/Business/article/624252
ETF BASIC NEWS April 25, 2009 8:19am

5 Reasons Why ETFs Are Superior to Stock Picking

5Should exchange traded funds (ETFs) be avoided? While we know the benefits of ETFs, sometimes people need a little convincing about their merits when it comes to these funds vs. active management. According to Wayne Pinsent for Investopedia, index investing is not the way to reach personal investing goals. He makes the case that buying an index and letting it ride is all well and good, but that stocks aren’t always rational. We’ll list his points first, then counter with our own: 1. Pinsent Says: Downside protection. ETFs will go up when the markets are up, but an investor may be caught in the downward spiral when the markets are down. ETF Trends Says: If you have an exit strategy and use it faithfully, you won’t be vulnerable on the downside. There are also long/shorts that allow you to hedge your current positions, if you’d like to. 2. Pinsent Says: Reactive ability. At times, one company may do well and pull everyone one up, which could create a sector that is overvalued, and vice versa. Investors can gauge companies individually if they are undervalued or overvalued. ETF Trends Says: ETFs offer so many different strategies to help investors minimize this risk. There’s value-weighting, but there’s also equal weight, revenue weight and more. And again, if one company sinks the whole ship, bring out the exit strategy. Also, there’s not a limited number of indexes out there. Another upside to ETFs is that they help spread around the risk a little. Full Story: http://www.nasdaq.com/newscontent/20090424/5-reasons-why-etfs-are-superior-to-stock-picking.aspx?storyid=8927
ETF BASIC NEWS April 24, 2009 8:45pm

Earnings, banks lift Wall St; Nasdaq up for 7th week

bullmoneyThe KBW Bank index (.BKX) rose 2.9 percent while the Select Sector SPDR Financial ETF (XLF.P) gained 2.6 percent. NEW YORK (Reuters) – Stocks rallied on Friday as earnings showed companies have weathered the recession and economic data raised hopes the economic cycle may have hit a bottom. Investors were also undeterred by a government release of a much anticipated concept paper on stress tests for the 19 biggest U.S. financial services companies. American Express (AXP.N) gave the most fuel to the Dow's rise, shooting up nearly 21 percent to $25.30 a day after reporting results that topped analysts' expectations, helped by aggressive cost cutting. Ford Motor Co (F.N) also posted a smaller-than-expected first-quarter loss and said it was on track to at least break even in 2011 and did not expect to seek U.S. government loans, sending its shares up 11.4 percent to $5. Economic data also fed the buying frenzy after durable goods orders slipped in March, but fell far less than Wall Street expected. Sales of new single-family homes dropped, but inventories plummeted at a record pace. Full Story: http://news.yahoo.com/s/nm/20090424/bs_nm/us_markets_stocks_71
NYSE:XLF April 24, 2009 4:20pm

Health Care ETFs Drop on Profit Concerns

healthcare-etfsEarnings season looks more like flu season as sneezing health care stocks sickened the performance of exchange-traded funds. During the five trading days that ended Thursday, the 79 health care ETFs we track lost 2.9%, on average. The only exception was the ProShares UltraShort Health Care Fund (RXD), which sells the sector short to generate an inverse performance. The S&P 500 Index was little-changed during the week. The worst-performing health care fund was the Rydex 2X S&P Select Sector Health Care ETF (RHM), which dropped 6.8%. The fund's two largest holdings Johnson & Johnson (JNJ) and Pfizer (PFE) slipped 1.5% and 4.5%, respectively......... ............The ProShares Ultra Health Care Fund(RXL) and the ProFunds Health Care UltraSector ProFund (HCPIX) had the second- and third-biggest declines of the group. Both portfolios aim to track the daily performance of the Dow Jones U.S. Health Care Index with 200% and 150% leverage, respectively. Full Story:  http://www.thestreet.com/story/10491714/1/health-care-etfs-drop-on-profit-concerns.html?cm_ven=GOOGLEFI
NYSE:RXD April 24, 2009 3:52pm

Emerging-Market Short Sales Climb Most Since 2007

black-bearShort sellers are increasing bets against developing-nation stocks by the most since March 2007, a signal the biggest rally in 16 years may fizzle as profits plunge from Brazil to Taiwan. Short interest in the iShares MSCI Emerging Markets Index fund, which tracks equities in 23 developing nations, climbed 51 percent in March, the biggest jump in two years, according to New York Stock Exchange data compiled by Bloomberg. Wagers against Rio de Janeiro-based oil company Petroleo Brasileiro SA’s U.S.-traded shares were the highest since August 2005. Those against display maker AU Optronics Corp. of Hsinchu, Taiwan surged to an eight-month high, the data show. The growth in short sales, where investors borrow stock and sell it on the expectation prices will fall, marks a shift from the last three rebounds in emerging-market stocks. In those cases traders closed out their bets. The MSCI gauge, up 35 percent from its 2009 low on March 2, may drop 10 percent in coming weeks as falling earnings damp investor optimism, ING Investment Management SA’s Eric Conrads said. “We aren’t out of the woods,” said Conrads, a Mexico City-based hedge fund manager at ING, which oversees $12 billion in emerging-market assets. Conrads started betting against developing-nation equities this month, convinced the stocks are in a “bear-market rally,” he said. Full Story:  http://www.bloomberg.com/apps/news?pid=20601080&sid=aOfDmOcqfFfY&refer=asia
ETF BASIC NEWS April 24, 2009 11:14am

ETF Plans To Ease Credit Crunch Take Shape

toxicWith trillions of dollars in U.S. government funding already committed to combating the worst recession since the Great Depression, regulators are increasingly enlisting private sector support. Along those lines, lawmakers and Treasury officials are reportedly listening to—and in some cases soliciting—outside views from key leaders in the financial sector. Asset managers focusing on exchange-traded funds are being included in this movement to broaden the scope of U.S. economic recovery plans. As detailed in an IndexUniverse.com analysis of key developments in the effort to thaw credit markets, large ETF sponsors as well as small-yet-influential players are involved. (The full 21-page Special Report, three months in the making, can be viewed here.)  Two ETF Plans Emerge At the heart of the issue is resolving so-called "toxic" debt related to mortgage-backed securities. That alone is estimated to represent more than $1 trillion of regulators' efforts. MBS markets are made upon debt obligations that "represent claims to the cash flows from pools of mortgage loans, most commonly on residential property," according to the Securities and Exchange Commission. The Treasury's plan to breathe new liquidity into this market is called the Public-Private Partnership Investment Program, or PPPIP. While the Treasury was developing the PPPIP program, which was unveiled in March, ETF companies began working on an alternative. Over the past two months, two plans have emerged: One from Invesco PowerShares and the other from Murray Stahl (CEO of Horizon Asset Management) and Robert Holderith (CEO of Emerging Global Advisors). Full Story: http://www.indexuniverse.com/sections/in-the-spotlight/5765-etf-plans-to-ease-credit-crunch-take-shape.html
ETF BASIC NEWS April 24, 2009 11:03am

ETF-Based, Sherwood Forest Long/Short Fund (SFCMX) Launched By Sherwood Forest Capital Management

etf-news7Effective February 11, 2009, Unique ETF Fund, With About $10 Million AUM, Evolves From Adviser's Composite With Returns Of 32.03% in 2008, And 41.09% Since Inception 04/01/2007.  CHARLOTTESVILLE, Va., April 24 /PRNewswire/ -- Sherwood Forest Capital Management announced today that effective February 11, 2009, it has launched no-load, Sherwood Forest Long/Short Fund (SFCMX), investing in exchange-traded funds ("ETFs"), both U.S. and overseas.  In making the announcement, Douglas Stewart, Portfolio Manager, said, "This unique ETF fund commences with some $10 million in assets, which we managed previously as separate accounts for our Firm's clients." The previous composite returns (net of fees) were +32.03% for the year ending 12/31/08; and, +41.09% since inception in 04/01/07.  "Now, with this new mutual fund structure," Mr. Stewart said, "We have made our 'proprietary methodologies' for investing in ETFs more widely available to investors." Full Story: http://au.sys-con.com/node/934682
ETF BASIC NEWS April 24, 2009 10:27am

VERSACE: ETFs A Unique Investment Plan

etf-news7The financial and investing worlds both suffer from a number of similar problems including the one that drives the non-professional investor nutty, I suspect. I'm not talking about intricate trading strategies and complex instruments but rather all the acronyms. There's "PE" (price to earnings), "EBITDA" (earnings before interest, tax, depreciation and amortization), "DCF" (discounted cash flow), "WIP" (work in process) and a host of others, including "ETF" or exchange-traded fund. It is that last one, ETF, that has grown tremendously in not only product offering but in acceptance over the last several years and it appears that trend will continue. While ETFs have been available in the U.S. since 1993 and in Europe since 1999, in May 2008 there were 680 ETFs in the U.S. with $610 billion in assets, an increase of $125 billion over the previous year per the Investment Company Institute. In the same month, a survey conducted by State Street Research and Wharton underscored how ETFs are changing the investment industry. Per the study, 67 percent of surveyed investment professionals called ETFs the most innovative investment vehicle of the last two decades, and 60 percent of these investment professionals shared that ETFs have fundamentally changed the way they construct investment portfolios. Needless to say, ETFs are worth paying attention to. Full Story:  http://washingtontimes.com/news/2009/apr/24/etfs-a-unique-investment-plan/
ETF BASIC NEWS April 24, 2009 10:08am

China buying boosts gold to 3-week high

chinagoldYou may note our story on April 16th where we showed the largest holders of gold in the world, and SPDR Gold Trust (GLD). At that time GLD was the sixth largest holder of gold in the world trumping Switzerland, Japan, The Netherlands, and China in that order. This is a huge swing by China to increase their overall gold holding  from the 10th to 5th position worldwide. http://etfdailynews.com/blog/?p=1153
LONDON, April 24 (Reuters) - Gold surged to a three-week high on Friday, boosted by the prospect of further purchases by China, after the country revealed it had been buying the precious metal since 2003. Spot gold was bid at $908.10 an ounce at 1325 GMT from $902 late in New York on Thursday. Earlier on Friday it hit $912.80, a rise of more than 5 percent this week and the highest since April 2. China has raised its gold reserves by three-quarters since 2003 to 1,054 tonnes, confirming speculation that it had been buying in the market for some years. "The massive accumulation of foreign exchange reserves meant gold as a proportion of total reserves had fallen below 1 percent compared with a norm of about 2 percent," said Michael Lewis, head of commodities research at Deutsche Bank ( DB - news - people ). "It could be a short term supportive story because they want to get back to where they were with quite a substantial amount of purchasing for their reserves." China's reserves are now the fifth biggest in the world, with only six countries holding more than 1,000 tonnes. Full Story: http://www.forbes.com/feeds/reuters/2009/04/24/2009-04-24T135154Z_01_LO625427_RTRIDST_0_MARKETS-PRECIOUS-UPDATE-5.html
NYSE:GLD April 24, 2009 9:49am

Homebuilder ETFs Run On Housing Data (XHB, ITB)

housing1The new home sales data is showing a very mixed bag, with a bit of a positive twist to it. We are seeing a run up in the SPDR S&P Homebuilders (NYSE: XHB) and the iShares Dow Jones US Home Construction (NYSE: ITB) as a result.  March-2009 new home sales came in at a rate of -0.6% down to 356,000 on an annualized basis.  We had consensus estimates pegged at 337,00 from Dow Jones and 330,000 from Bloomberg.  February was given a sharp revision to its already high +4.7% to a higher +8.2%. Full Story:  http://247wallst.com/2009/04/24/homebuilder-etfs-run-on-housing-data-xhb-itb/
NYSE:ITB April 24, 2009 9:36am

Twelve ETF charts with dividends in excess of 5%

dividend3Bigger is better. We see it on all the commercials, bigger burgers, bigger muscles and now The Correct Call brings you bigger dividends. In this week’s ETF screener, we found a dozen ETF charts with dividends in excess of 5% displaying technical analysis buy signals. Ten of the 12 buy candidates are paying stock holders more than 7%. Those are some fat or is it phat? dividends. ETFs with 5% plus dividends:
  • Claymore/Zacks Country Rotation CRO: 5.21%
  • Claymore/Sabrient Stealth STH: 5.39%
ETFs with 7% plus dividends:
  • WisdomTree Dividend Top 100 DTN: 7.01%
  • WisdomTree SmallCap Dividend DES: 7.65% This one really intrigues us as we saw numerous buy signals on small cap ETF charts, especially value. If we had to pick just 1 of the 12 to invest in, this is it.
  • First Trust Morningstar Dividend Leaders Index (FDL) 7.70%
Summary:
  • CRO      5.21%     
  • STH      5.39%
  • DTN      7.01%
  • DES      7.65%
  • FDL      7.70%
  • DEB      8.35%
  • DHS      8.62%
  • PEY      9.17%
  • DEW      10.13%
  • CGW      10.29%
  • REZ       11.82%
  • PGX       13.54%
Full Story: http://www.istockanalyst.com/article/viewarticle/articleid/3205949
NYSE:CGW April 24, 2009 9:25am

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