All ETF Daily News Articles

Thin ETFs Can Have Wide Bid-Ask Spreads

simpletradingAside 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:
ETF BASIC NEWS May 8, 2009 9:05am

ETFs are a boon to buy-and-hold investors. Just don’t get suckered into one of the flaky ones.

suckerThe 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:
ETF BASIC NEWS May 8, 2009 8:45am

Direct Edge wants to launch two US stock exchanges

sellbuyFast-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:
ETF BASIC NEWS May 8, 2009 8:40am

The Wrong Way to Invest in China (FXI)

china2According 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:
NYSE:FXI May 8, 2009 8:27am

Are You Ready for the Next ETF Bull?

bullmoneyIn 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:
ETF BASIC NEWS May 7, 2009 4:27pm

Commodity ETPs & ETFs Closing In On A Bull Market

commoditiesOver 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:
ETF BASIC NEWS May 7, 2009 2:19pm

Ascensus Adds ETFs to Increase Fee-Based Platform Flexibility

retirement-plansAscensus, 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.
ETF BASIC NEWS May 7, 2009 1:50pm

Are ETFs and CEFs Good for Dividend Investing?

dividendsDividend investing is not about buying high-yield stocks to generate a high income. Instead, dividend investing is all about finding solid dividend stocks that are reasonably priced and are expected to continue raising their dividends in the future. Most of the time their current yields aren’t eye-popping, but the growing divdends over time will more than compensate for the current yield. So, are Exchange Traded Funds (ETFs) and Closed Ended Funds (CEFs) a good fit for this strategy?   A couple of years ago, I started adding select ETFs and CEFs to my income portfolio. At the time, my thought process was that these funds would diversify my risk and add a degree of stability to my income portfolio. Initially, I had high hopes for their success. Here’s what I am holding and a synopsis of how they have performed: Vanguard Financials ETF (VFH) Vanguard Financials ETF seeks to track the performance of a benchmark index that measures the investment return of financial stocks. I first purchased VFH in August 2007. Like the financials it tracks, VFH’s dividend has steadily fallen from $0.45/share in October 2007 to $0.06/share in March 2009. PowerShares International Dividend Achievers Portfolio (PID) PID seeks to match the performance of the International Dividend Achievers Index by investing at least 90% of its total assets in dividend paying common stocks of this index. This index tracks the performance of dividend paying American Depositary Receipts or ordinary stocks trading on the NYSE, NASDAQ or AMEX. Full Story:
NYSE:PID May 7, 2009 1:38pm

5 Small ETFs Showing Large Results

gradeWhile we were distracted by the bigger names in the world of exchange traded funds (ETFs), some smaller ETFs you might not know about have been on fire for the last month. With everyone’s minds preoccupied by the real estate sector, financial news, or the economy in general, most smaller ETFs are not getting the limelight they deserve. Well, here are five lesser-known ETFs that have produced large results in a short amount of time. Warning: Understand that while the assets are low, the holdings within these funds are still liquid. There can be wide bid/ask spreads, so be sure to use limit orders if you buy funds with low assets. Rydex S&P Smallcap 600 Pure Value (RZV): $14.8 million in assets; up 52.8% in the last month; expense ratio of 0.35%; 115 holdings. It tries to mirror the performance of the S&P SmallCap 600/Citigroup Pure Value Index. Small-caps could be leading the way out of the recession, since they’re more nimble and quick to react. Full Story:
NYSE:RZV May 7, 2009 10:52am

Mutual fund execs: brace yourself for ETFs hitting the $1 trillion mark in assets

trillionA trillion dollars (US$) in exchange-traded funds or ETFs? If you're a mutual fund executive, the prospect of the new kid on the block achieving such a milestone would be a nightmare. But the combination of investor acceptance and resurgent equity markets could make it a reality sooner than you might think. "This trend of asset inflows into ETFs will most likely continue and take the market to the trillion dollar market," writes ETFtrends this week in a piece entitled "The Numbers Don't Lie: Why Investors are Warming up to ETFs." It always used to irk Canadians that we couldn't buy Vanguard's index mutual funds, whose Management Expense Ratios (MERs) are about as rock bottom as you can get. As the full and empty glasses indicate in the illustration, the less the investment management company takes in fees, the more money the investor gets to keep.   When Vanguard added ETFs, it no longer mattered that Canadians couldn't buy its index funds  The day Vanguard expanded into ETFs was when I realized how big ETFs were going to be. And while Canadians still can't buy Vanguard index funds, it's a moot point because they CAN buy its ETFs, no matter what stock exchange they trade on.   Admittedly, ETFs still have a way to go before they reach $1 trillion. They were around US$593.3 billion by February of this year, according to this article in the Financial Times published late in April. But that's hardly reason for mutual fund execs to let their guard down. Consider that in the last ten years, ETFs assets have surged 15-fold from just US$39 billion in 1999. They now account for almost 25% of the trading volume in American markets. Add that growth rate from new money thrown at ETFs from investors to the kind of market growth we've seen since early March, and $1 trillion is hardly a fantasy number. Full Story:
ETF BASIC NEWS May 7, 2009 10:33am

Fidelity Independent Adviser to Interview Five Star Fund Manager Today

phone2Donald R. Dion, Jr., the president and chief investment officer of Dion Money Management and publisher of The Fidelity Independent Adviser will be interviewing ETF Market Opportunity Fund (ETFOX) manager Paul Frank in a live investor conference call today at 3 PM EDT. Investors can call (866) 939-8416 and enter code 4273178 at 3 PM today to participate. ETFOX Is a mutual fund comprised of ETF's whose goal is to Outsmart the S&P 500 Fund’s top holdings: * PowerShares QQQ 14.31% * iShares Russell 1000 Growth Index 10.17% * Vanguard Growth 9.41% * Vanguard Small Cap 8.44% * iShares G.S. Semiconductor 7.94% * Vanguard Info. Tech. 7.00% * Vanguard Value 5.03% * iShares Dow Energy 4.55% * Vanguard Small Cap Growth 4.27% * Ultra Russell 2000 Proshares 3.27% Full Story:
ETF BASIC NEWS May 7, 2009 10:25am

The New MacroShares ETFs Revealed

housing-etpThe biggest news in ETF-land over the next month could be the launch of the MacroShares home price ETFs. Or, maybe we shouldn't say ETFs.  MacroShares is going to great lengths to remind people that these are not technically ETFs; they're exchange-traded products, or ETPs. Understanding that difference is the key to understanding how these products will work—and where they should be priced. I suspect that a lot of ink will be spilt over the coming months trying to do just that. Because they are different from traditional ETFs, and because the initial pair of MacroShares was poorly handled, MacroShares are widely misunderstood. The prospectus for these things reads like Finnegan's Wake, and the structure is unique, adding to the confusion. But that confusion is not needed. When you get right down to it, these products are pretty simple and will work well if people understand what they are designed to do.  Here's a primer. Home Price ETFs The new MacroShares Major Metro Housing Up (ticker: UMM) and Major Metro Housing Down (ticker: DMM) ETPs are designed to deliver 300% and -300% of the return of the leading national home price index, the S&P/Case-Shiller 10-City Composite Home Price Index, over a specific period of time. The last part of that sentence is critical.  Most ETFs are designed to track the performance of an index on a daily basis. The S&P 500 SPDR (NYSEArca: SPY), for instance, is designed to track the S&P 500's return today, tomorrow and forever. The fund does that by holding all of the securities in the index. Arbitrage mechanisms exist to ensure that SPY stays close in value to the S&P 500 on a minute-by-minute basis. UMM and DMM are different. For one, they don't hold "housing." All they hold is Treasuries. They deliver the return of the Case-Shiller index because they are contractually obligated to shift those Treasuries back and forth between the two funds based on the direction of the index: If the index goes up, Treasuries go from DMM to UMM; if it goes down, the opposite happens. This unique structure—often called a "teeter-totter"—is what lets MacroShares track nontypical financial metrics like "house prices." Theoretically, they could be tied to anything. Full Story:
NYSE:DMM May 7, 2009 10:08am

Why ETFs Beat Mutual Funds By A Mile

stinkI’ve been trading and investing in mutual funds for most of my life, and I’ve had some success. Yet I have to admit that mutual funds have some shortcomings as an investment vehicle. I’ll bet you’ve noticed the same things, too …  Limited Liquidity. You can only buy and sell mutual funds at the end of the day. Even worse, you don’t know the price until after you’re already committed. How crazy is that?  Exorbitant Fees. In a stock fund it’s common to pay out 1.5 percent of your hard-earned capital every year to a manager who — to put it kindly — probably isn’t missing any meals. And that doesn’t count the “loads” and “advisory fees” that go to the broker or financial planner who helps you select your funds.  Information Gap. When you buy a mutual fund, you have no idea what you’re getting. Managers are only required to disclose their holdings twice a year, usually with a 30-60 day delay. A few are generous and give out monthly updates. As far as I’m concerned, this is absolutely ridiculous in today’s fast-moving markets. See the problem? Mutual funds were a fantastic idea in the beginning, back when it was hard for individual investors to build their own stock portfolios. Like many good ideas, they had their day. Now a new generation is taking the lead. So do you want to stay out front? Then you need to learn about ETFs. SPY: The First ETF Back in the 1980s, index investing started becoming popular. More than a few people were doubtful about the ability of mutual fund managers to “beat the market” over long periods of time. And if you can’t beat the market, why not just buy the market? Back then Vanguard dominated the index fund business. But their funds still had limitations — especially if you wanted to buy and sell frequently. So along came a Spider. Full Story:
NYSE:SPY May 7, 2009 10:06am

Why Some Think Natural Gas ETF Could Be Seeing a Spike

naturalgasNatural gas prices are low, but one CEO is predicting a big rebound that could benefit related exchange traded funds (ETFs). Chesapeake Energy Corp.’s CEO Aubrey K. McClendon said that the current price levels aren’t strong enough to support a North American rig count, which is setting the stage for a “dramatic” reversal, reports Randy Ellis for News OK. How high prices will go, no one is claiming to know. But McClendon points out that a year ago, prices were too high at $12 to $13 per thousand cubic feet; now they’re far too low, at $3.50 per thousand cubic feet. Full Story:
ETF BASIC NEWS May 6, 2009 4:20pm

Year to Date Performance of Leveraged ETFs

report-cardIn our last post we looked at non-leveraged ETFs, and below we highlight the best and worst performing leveraged ETFs so far in 2009. Even though the market is trading close to flat year to date, only 27 of the 110 leveraged ETFs that we track are up for the year. The double long technology ETF (ROM) is up the most at 36.37%, followed by the double long semiconductor ETF (USD), the double long QQQs (QLD), and the double short long-term Treasury ETF (TBT). The second best performing double short ETF is the Japanese Yen (YCS).  click chart below to enlarge Full Story:
ETF BASIC NEWS May 6, 2009 2:54pm

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