The Sun's Financial Diary » ETF

Schwab Launches Extra-Cheap ETFs

Sun — Fri, 06 Nov 2009 17:50:09 +0000

One of the biggest advantages of Exchange-Traded Funds (ETFs) over traditional mutual funds is that ETFs usually cost much less to own because of the way ETFs are structured. Also helping to reduce the cost is that not before long, all ETFs are passively managed, meaning that they all track their respective index, minimizing the amount of research the fund manager has to do to select which equities to invest. Among big ETF players, Vanguard has been known for offering funds with rock-bottom fees, not just mutual funds (which most are index funds), but also ETFs, until now.

Early this week, Charles Schwab, who introduced Schwab S&P 500 Index Fund in May with 0.09% Expense Ratio (ER), launched its first batch of exchange-traded funds that are again featured with super-low expense ratios. Four ETFs debut this Tuesday are

Schwab U.S. Broad Market ETF (SCHB): Index - Dow Jones U.S. Broad Stock Market Index; ER - 0.08%
Schwab U.S. Large-Cap ETF (SCHX): Index - Dow Jones U.S. Large-Cap Total Stock Market Index; ER - 0.08%
Schwab U.S. Small-Cap ETF (SCHA): Index - Dow Jones U.S. Small-Cap Total Stock Market Index; ER - 0.15%
Schwab International Equity ETF (SCHF): Index - FTSE Developed ex-US Index; ER - 0.15%

So how are these ETFs compared against similar offerings from Vanguard?

Vanguard Total Stock Market ETF (VTI): ER 0.09%
Vanguard Large-Cap ETF (VV): ER 0.13%
Vanguard Small-Cap ETF (VB): ER – 0.15%
Vanguard Europe Pacific ETF (VEA): ER – 0.16%

Well, Schwab’s ETFs are cheaper, but the difference isn’t that significant (percentage wise it is) except the large-cap ETFs. However, the Vanguard funds have already established a track record (at least two years) in terms of returns. For the new funds at Schwab, there’s no way to evaluate the performance. So I won’t be jumping in any of these funds right away, despite the lower expense ratios.

In addition to the fee charged by the fund in the form of expense ratio, the other part of the cost of owning ETFs is the commission charged by brokers to invest in ETFs. Since ETFs are traded on exchanges the same ways as individual stocks are, buying and selling ETFs usually involve commissions, anywhere from $2.95 per trade to $10+ depending on which broker you are using. That’s why you can dollar-cost averaging mutual funds from fund providers (if you buy mutual funds from a broker, you may also have to pay a fee), but can’t DCA ETFs. However, there’s an exception for these Schwab ETFs if you also use Schwab as your broker because it appears that you can get these funds with zero commission. If you don’t have to pay any commission, then buying ETFs regularly with a small amount makes sense.

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Schwab Launches Extra-Cheap ETFs

All ETF Portfolio Performance – The Power of Dollar Cost Averaging

Sun — Mon, 28 Sep 2009 12:54:29 +0000

Back in August 2008, I designed a diversified, all-ETF portfolio before the collapse of Lehman Brothers triggered the huge sell-off of the stock market. The goal I had in my mind when I built the portfolio was to have a portfolio that covers a wide range of asset classes such that it gives me the diversification I need, with both domestic stocks and foreign equities. The funds I chose for the portfolio and their respective allocations are:

Domestic stocks: SPDRs (SPY): 40%
Foreign stocks: iShares MSCI EAFE Index (EFA): 30%
Domestic REIT: Vanguard REIT Index ETF (VNQ): 5%
Foreign REIT: iShares S&P World ex-U.S. Property Index Fund (WPS): 5%
Precious metal: SPDR Gold Shares (GLD): 10%
Domestic bonds: Vanguard Intermediate-Term Bond ETF (BIV): 5%
Foreign bonds: SPDR Lehman International Treasury Bond (BWX): 5%

As you can see, the ETFs I picked for the portfolio are all index funds (of course, back then only passive, index ETFs are available. Now there are also actively managed ETFs). The reason for choosing index funds is obvious: To have as many securities in the portfolio as possible.

Now, one year later, after what the market has gone through in 2008 and early this year, I am curious about the performance of my portfolio had I followed my plan in making regular investments into each funds. Like I have been doing with my mutual fund investments for years, if possible, I wanted to buy each fund every month on the 5th, but the amount of each new purchase will be based on the pre-determined allocation, not the same amount for all funds, as I do with mutual funds. For example, I would invest $1,000 per month in this portfolio, then $400, or 40%, would go to SPY, and 30% would go to EFA, and so on. There’s no particular reason why I buy on the 5th of the month (that’s my date of making investments) and purchasing based on asset allocation is to have each asset in the portfolio stays as close to its allocation as possible (of course, rebalancing is still needed over time).

So how’s my all ETF portfolio doing? From August 05, 2008 to September 08, 2009, the total invested amount is $14,000 in 14 investments. As the following table shows, of the 7 funds, only 3 have positive returns over the past 14-month period, with the best performance being the gold ETF GLD. The worst performer is VNQ, the domestic REIT fund, which lost more than 33%. However, when purchases were made regularly, the picture changed completely.

Fund	Begin Price	End Price	Fund Return	Shares	Market Value	Gain	Portfolio Return	Current Allocation
SPY	$124.4	$102.45	-17.64%	60.453	$6193.46	$593.46	10.60%	38.69%
EFA	$64.22	$53.54	-16.63%	93.873	$5025.97	$825.975	19.67%	31.40%
VNQ	$57.93	$38.51	-33.52%	20.522	$790.33	$90.33	12.90%	4.94%
WPS	$37.04	$30.89	-16.60%	29.249	$903.50	$203.50	29.07%	5.64%
GLD	$86.08	$97.43	13.19%	16.266	$1584.85	$184.85	13.20%	9.90%
BIV	$73.49	$79.24	7.82%	9.326	$738.99	$38.99	5.57%	4.62%
BWX	$54.37	$57.54	5.83%	13.382	$770.01	$70.01	10.00%	4.81%

With my plan of investing, the total market value on September 8th when I made last purchases was $16,007.15 without dividend reinvestment. With a total of $14,000 invested, the overall return is 14.34%, better than any single fund return. And looking at each fund’s return in the portfolio with monthly purchases, all but one had double-digit returns from August 2008 to September 2009 (the Portfolio Return column in the above table).

Why such a huge difference? It is because of the dollar-cost averaging (DCA) method used in making the investments. I have discussed dollar-cost averaging in details in the past when I looked at a much longer period of the broad stock market. My conclusion at that time was that DCA isn’t really the good way to invest as far as the performance is concerned because in a up market, shares purchased through DCA become less and less than through a lump-sum. However, it’s a different story in a down market, as the market in the past 14 months. In this case, DCA let me purchase more and more shares as the market kept going down until March when it started to rebound. And once the market starts to recover, the shares purchased when the market was tanking will have a bigger impact on the overall return of the portfolio, as it is clearly shown in the above table.

Of course, using dollar-cost averaging isn’t all about performance. Rather, it’s more about making regular investments a habit, in good time and bad, instead of trying to find out when to get in and when to bail out based on the market condition at the moment

BTW, it seems that making purchases based the asset allocation of each fund works pretty well. At the end of the 14-month period, the allocation of each fund in the portfolio only drifted a little bit from the target allocation, despite each fund’s drastic performance.

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Trade Carbon Emissions with ETFs

Sun — Wed, 08 Jul 2009 02:44:34 +0000

The U.S. House of Representatives narrowly passed the American Clean Energy and Security Act of 2009 (ACES) on June 26, 2009. The act mandates a 17% reduction in greenhouse gas (GHG) emissions from 2005 level by 2020. It also requires that by 2020 more than 20% the nation’s electricity should be generated from reusable sources, such as solar, wind, and geothermal. Even though the bill faces a lot of uncertainties in the Senate before it can become a law, the legislation is hailed by many as a milestone in addressing issues related to climate change due to greenhouse gas emissions.

In addition, the bill also presents investors an opportunity to profit from carbon emission trades because, basically, the ACES establishes a carbon emission cap-and-trade program which essentially makes carbon dioxide emission a commodity that can be traded. The cap is the target to reduce GHG emissions by 17% by 2020 and the trade is to create a market for carbon emission allowances that allows polluters turn pollution cuts into revenue as the market will let them trade their allowances (the less they emit GHGs, the more allowances they have) for profits.

Even though currently there isn’t a marketplace in the U.S. for corporates to trade carbon emission credits, that could change if ACES becomes the law. Nonetheless, there are a few options available for investors to trade carbon emissions. Hopefully, one day there will be a tradable U.S. carbon credit plan as well.

iPath Global Carbon ETN (GRN)

iPath Global Carbon ETN (GRN) (learn more about exchange-traded notes) tracks the Barclays Capital Global Carbon Index Total Return (”BGCITR”), an index that is designed to “measure the performance of the most liquid carbon-related credit plans and is designed to be an industry benchmark for carbon investors.” BGCITR’s objective is to provide exposure to the global price of carbon emission credit. It is composed of only two carbon-related credit plans that are currently available in the carbon emission market:

European Union Emission Trading Scheme Phase II (EU ETS )
Kyoto Protocol’s Clean Development Mechanism (CDM)

with the European plan making up 79.35% of the index and 20.65% for CDM. As new carbon-related credit plan being developed (maybe a new plan will come out of the Act), they will be incorporated into the BGCITR index to broaden its coverage. The index’s composition is adjusted annually.

iPath GRN are senior, unsubordinated, unsecured debt securities issued by Barclays Bank. The ETN has an yearly fee of 0.75% (investors fee is calculated as the yearly fee times the principal amount of securities times the index factor). GRN was introduced on June 24, 2008 and will mature on June 24, 2038.

GRN’s YTD return is -5.97% and 1-year return -40.23%.

AirShares EU Carbon Allowances Fund (ASO)

ASO is an exchange-traded fund launched by XShares Advisors LLC on March 31, 2009. The fund invests in future contracts for European Union Allowances (EUAs) traded under the EU ETS scheme mentioned above. The objective of ASO is to provide investors with investment results that correspond to “the performance of a basket of exchange traded futures contracts of EUAs.

Even though ASO is an ETF, it doesn’t track an index like most other ETFs do. Rather, it is a commodity pool that is passively managed. The fund’s portfolio consists of a basket of up to four listed December EUA futures contracts that will expire in December 2009 through December 2012. Each contract provides for delivery of 1,000 EUAs at a specified price (however, AirShares don’t take physical delivery of the EUA contracts). In addition, ASO also holds long positions in a portfolio of ECX CFI futures contracts listed on the ICE Platform.

Since its inception, ASO has a 1-month return of 16.75% and YTD return -24.63%. The fund charges 0.85% management fee and it’s rebalanced annually by replacing expiring contracts with contracts of later expiration dates.

*Stock chart from INO MarketClub

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PowerShares Shut down 19 ETFs

Sun — Mon, 04 May 2009 20:05:12 +0000

On one hand, the exchange-traded fund (ETF) industry continues to expand at a record pace (the total number of ETFs at the end of 2008 grew to 747, up 118 from 2007); on the other hand, funds that get no love from investors are being eliminated. Last Friday, PowerShares, one of the major players in the ETF world, announced that it will shut down 19 funds. Even though the number of funds to be closed is roughly 12% of PowerShares’ total 154 ETF offers, the assets in those funds represent less than 1% of the PowerShares’ total assets, which is exactly what the problem is. According to Morningstar data, of those 19 ETFs listed below, at most only a few thousands shares changed hand each day for some while most having trading volumes in the hundreds. This is also the case when Claymore Securities closed 11 ETFs last year.

PowerShares Dynamic Aggressive Growth Portfolio (PGZ)
PowerShares Dynamic Asia Pacific Portfolio (PUA)
PowerShares Dynamic Deep Value Portfolio (PVM)
PowerShares Dynamic Europe Portfolio (PEH)
PowerShares Dynamic Hardware & Consumer Electronics Portfolio (PHW)
PowerShares FTSE RAFI Asia Pacific ex-Japan Small-Mid Portfolio (PDQ)
PowerShares FTSE RAFI Basic Materials Sector Portfolio (PRFM)
PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG)
PowerShares FTSE RAFI Consumer Services Sector Portfolio (PRFS)
PowerShares FTSE RAFI Energy Sector Portfolio (PRFE)
PowerShares FTSE RAFI Europe Small-Mid Portfolio (PWD)
PowerShares FTSE RAFI Financials Sector Portfolio (PRFF)
PowerShares FTSE RAFI Health Care Sector Portfolio (PRFH)
PowerShares FTSE RAFI Industrials Sector Portfolio (PRFN)
PowerShares FTSE RAFI International Real Estate Portfolio (PRY)
PowerShares FTSE RAFI Telecommunications & Technology Sector Portfolio (PRFQ)
PowerShares FTSE RAFI Utilities Sector Portfolio (PRFU)
PowerShares High Growth Rate Dividend Achievers Portfolio (PHJ)
PowerShares International Listed Private Equity Portfolio (PFP)

Since most ETFs are still taking the passive approach, an index has to be created first before an ETF can be launched. However, there are just so many sectors and some countries/regions, it’s just unrealistic to expect every new ETF to become attractive to investors. In fact, nearly half of the ETFs on Morningstar’s complete ETF list don’t get more than a few thousands of shares traded each day. I doubt how many of them at the bottom of the list probably will survive.

I am gald that three PowerShares ETFs I own, PowerShares Golden Dragon Halter USX China (PGJ), PowerShares Water Resources (PHO), and PowerShares Intl Dividend Achievers (PID), are not included in the list, though they aren’t that popular.

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Vanguard Launched FTSE All-World ex-US Small-Cap ETF

Sun — Thu, 09 Apr 2009 15:43:00 +0000

Mutual fund giant Vanguard Group launched a new exchanged-traded fund (ETF) last week. The Vanguard FTSE All-World ex-US Small-Cap ETF (VSS), incepted on April 2, tracks the performance of the FTSE Global Small-Cap ex-US Index. According to FTSE, the Global Small-Cap ex-US Index is a freefloat-adjusted, market-capitalization-weighted index that covers more than 3,300 small-cap stocks across 47 countries, including both emerging and developed markets. As of October 31, 2008, the largest markets in the Index were the UK, Japan, Canada, France, and Switzerland, based on market capitalization.

The investment objective of VSS is to use a passive method to track the performance of the above mentioned index that measures the investment return of stocks of international small-cap companies. The fund currently holds about 1,500 of the 3,300 stocks in the index. The ETF has an expense ratio (ER) of 0.38%. With the ER, the cost of owning the fund for one year is $39, and $122 for three years, according to the fund’s prospectus.

Besides the ETF, Vanguard also introduced a mutual fund version of the fund, Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSVX). The mutual fund costs a little less to own comparing to its ETF counterpart, as for all ETF-mutual fund pairs. However, you can dollar-cost averaging mutual fund as there’s usually no additional cost to buy/sell mutual fund shares if it’s done with the fund company (such as Vanguard). With ETFs, you will usually need to pay your broker commissions to trade ETFs.

If you are interested in small-cap ETFs, there are a few other options in addition to VSS:

SPDR S&P International Small Cap (GWX)
SPDR S&P Emerging Markets Small Cap (EWX)
iShares FTSE Developed Sm Cap ex-North America (IFSM)
iShares MSCI EAFE Small Cap Index (SCZ)

They all, however, charge a higher fee than the Vaugard fund does. When it comes to cost, Vanguard is hard to be, whether you are investing in ETFs or mutual funds.

*Chart from INO MarketClub

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Individual Country ETF First Quarter Performances

Sun — Fri, 03 Apr 2009 19:39:23 +0000

The first quarter of 2009 is in the books. Thanks to the strong rally in the second half of March, the U.S. stock market ended the month on the positive note, even though it wasn’t enough the pull the market out of the red for the quarter. For the quarter, the S&P 500 Index lost 11.7% after reaching fresh 12-year low on March 9. If the quarter were end on March 9, then the loss would have more than doubled at 25.1%

Looking around the world, U.S. apparently isn’t the best place for investors (I still remember the” no safer investment than U.S.” comment made by White House Press Secretary early last month). In fact, based on returns of iShare individual country ETFs calculated by Morningstar, a few countries even showed positive numbers for the first three months of 2009, led by iShares MSCI Chile Investable Market Index(ECH)’s 15.76% gain as shown in the following table.

Name	Symbol	3-month return(%)	1-year return(%)
iShares FTSE/Xinhua China 25 Index	FXI	-1.93	-35.38
iShares MSCI Australia Index	EWA	-4.43	-44.53
iShares MSCI Austria Investable Mkt Idx	EWO	-5.61	-61.87
iShares MSCI Belgium Investable Mkt Idx	EWK	-8.13	-63.68
iShares MSCI Brazil Index	EWZ	7.72	-48.52
iShares MSCI Canada Index	EWC	-5.57	-44.46
iShares MSCI Chile Investable Mkt Idx	ECH	15.76	-33.52
iShares MSCI France Index	EWQ	-17.82	-47.78
iShares MSCI Germany Index	EWG	-22.11	-50.45
iShares MSCI Hong Kong Index	EWH	-1.93	-40.43
iShares MSCI Israel Cap Invest Mkt Index	EIS	8.72	-30.80
iShares MSCI Italy Index	EWI	-22.88	-54.29
iShares MSCI Japan Index	EWJ	-17.54	-35.32
iShares MSCI Malaysia Index	EWM	-4.12	-38.39
iShares MSCI Mexico Investable Mkt Idx	EWW	-15.34	-52.71
iShares MSCI Netherlands Investable Mkt Idx	EWN	-16.49	-53.67
iShares MSCI Singapore Index	EWS	-10.64	-48.08
iShares MSCI South Africa Index	EZA	-3.45	-31.02
iShares MSCI South Korea Index	EWY	1.75	-48.02
iShares MSCI Spain Index	EWP	-20.62	-48.01
iShares MSCI Sweden Index	EWD	-10.22	-51.21
iShares MSCI Switzerland Index	EWL	-17.85	-39.96
iShares MSCI Taiwan Index	EWT	6.32	-45.00
iShares MSCI Thailand Invest Mkt Index	THD	-6.47	-54.02
iShares MSCI Turkey Invest Mkt Index	TUR	-10.99	-47.18
iShares MSCI United Kingdom Index	EWU	-14.45	-48.86

However, beware that returns of these ETFs do not represent the actual performances of those country’s stock markets. For example, China’s Shanghai Stock Market Composite Index surged more than 30% in the first quarter, one of the best performing markets so far this year. Yet, iShares FTSE/Xinhua China 25 Index (FXI) is still down 1.93%, as well as other China ETFs, such as PGJ and FCHI.

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China ETFs

Sun — Tue, 17 Mar 2009 03:06:20 +0000

The economic crisis around world has put China under the spotlight. The world’s third largest economy, who also holds nearly $2 trillion in foreign exchange reserve, has started to use its nearly $600 stimulus package to revive its economy, building highways and railroads, investing in educations, and improving social welfare. While banks in the U.S. are struggling to clean up their books, banks in China have made $156 billion new loans in February after lending $237 billion in January (Bloomberg.com) to support the 8% growth target. And the government’s action has produced some encouraging results: Retail sales have stabilized in the first two months and power output actually increased 5% in February.

And Chinese stocks are the best performers so far in 2009. The Shanghai Composite Index has gained 18% this year after falling more than 65% in 2008, while the S&P 500 index, coming off fresh 12-year low last week, lost nearly 9% during the same period. Some economists predicted that China will be the first country to come out of this recession. If China indeed takes this economic downturn as an opportunity to strengthen its ability to compete globally for the long-term (NYT), investors can expect to profit from China’s recovery and expansion.

For investors who want to tap into the growth of the Chinese economy, there are a few options in the exchange-traded funds (ETFs) arena which provide the much needed diversification (see Investing in China with Cautions). In addition to two popular that mainly invest Chinese companies, iShares FTSE/Xinhua China 25 Index (FXI) and PowerShares Golden Dragon Halter USX China (PGJ), which I have discussed before along with MCHFX, you may also want to check out:

Claymore/AlphaShares China Real Estate (TAO)
Claymore/AlphaShares China Small Cap (HAO)
iShares FTSE China (HK Listed) Index (FCHI)
SPDR S&P China (GXC)

Claymore/AlphaShares China Real Estate (TAO)

TAO tracks the AlphaShares China Real Estate Index, which measures performances of public traded companies in real estate development and property management in mainland China and Hong Kong and Macau. The fund usually invests at least 90% of its assets in common stocks traded on both Chinese stock exchanges (China and Hong Kong) and American Depositary Shares (ADSs).

The AlphaShares index uses a modified float-adjusted market capitalization weighting methodology to weight individual stocks. To be included in the index, a company must have a minimum market capitalization of $500 million. The index currently has 41 components, with weighting heavily tilted toward Hong Kong (88.92%). The only ADS component of TAO is E-House Holding (EJ). Rebalancing of the index occurs once every year.

Since the inception on December 17, 2007, TAO has lost nearly 60%, at the same level as iShares Dow Jones US Real Estate (IYR). YTD, TAO has a return of -11%, outperforming both the S&P and IYR. TAO has a maximum expense ratio of 0.65%.

Claymore/AlphaShares China Small Cap (HAO)

HAO invests in primarily small, publicly traded companies based in China (only mainland China based companies will be considered for inclusion) with a maximum market cap of $1.5 billion. The fund’s underlying index, the AlphaShares China Small Cap Index, is a modified float-adjusted market capitalization weighting index. It currently consists of 148 securities, with ADRs such as Ctrip International (CTRP), Netease.com (NTES), Mindray Medical International (MR), Soho.com (SOHO), and New Oriental Education (EDU) among the top 10 holdings. The index is rebalanced annually.

Since the HAO was launched on January 30, 2008, the fund has lost nearly 50% of its value, underperforming both the S&P 500 and the iShares Russell 2000 Index (IWM) during the same period.

HAO charges a fee of 0.70%.

iShares FTSE China (HK Listed) Index (FCHI)

Unlike other exchange-traded funds discussed here, FCHI invests exclusively in Chinese companies listed on the Hong Kong Stock Exchange. Its top 10 holdings include red-chip stocks (the equivalents of blue-chip stocks in U.S.) China Mobile, China Life Insurance, ICBC, Bank of China, China Construction Bank, PetroChina, Ping An Insurance, CNOOC, China Petroleum & Chemical, and China Unicom.

The underlying index of FCHI is the FTSE China (HK Listed) Index, which consists of 87 largest Chinese companies, many of which are also traded on U.S. stock exchanges. Securities in the index are weighted based on their market capitalization.

Since the fund’s inception on June 24, 2008, FCHI’s price has dropped nearly 38%, slightly better than iShares FTSE/Xinhua China 25 Index (FXI), which also consists of stocks listed on HKSE. Actually, all stocks in FXI are included in FCHI. FCHI has an ER of 0.74%.

SPDR S&P China (GXC)

GXC tracks the S&P China BMI Index, which is a market capitalization weighted index. Stocks included in the index are listed on mainland China stock exchange, Hong Kong Stock Exchange, or NYSE/NASDAQ (ADRs). The index consists of 342 securities as of December 31, 2008, but the fund only includes 131 stocks with China Mobile, China Life Insurance, China Construction Bank, PetroChina and ICBC being the top 5.

Since the fund was launched on March 19, 2007, its performance is almost identical to that of FXI, both are down a little over 20%. GXC has a gross expense ratio of 0.59%.

*Stock charts from INO Market Club

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Gold and Silver ETFs

Sun — Tue, 17 Feb 2009 17:08:15 +0000

As I mentioned early, gold has made a tremendous run lately. The main force behind the gold rally is the deterioration of economies around world. Despite the passage of the $789 billion economic stimulus package over the weekend, gold price keeps climbing up after the holiday. Currently spot gold is traded at $967 an ounce, up more than $10 from last Friday’s close, breaking the key $950/ounce level. That’s the seven-month high for gold, while major stock benchmarks are likely to test the November lows amid jitters in the financial sector. Even though there are predictions that gold could back after the stimulus plan became a law, that didn’t happen. In contrasts, investors are increasing their holdings of gold as a safe heaven to preserve their wealth as the stock market keeps declining. Right now, gold is trading well above its 50- and 200-day moving averages, a clear indication of the uptrend of gold.

And investors’ appetite for physical gold, such as bars and coins, has driven up share prices of exchange-traded funds (ETFs) specializing in precious metal as well. Take a look at SPDR Gold Trust Shares (GLD), for instance, the world’s largest gold-backed ETF. GLD gained 3% in 2008 and 6.9% so far in 2009. The reason investors are also chasing GLD is that it offers investors an easy way to invest in the bullion without having to hold the metal themselves (you will have a lot more things to consider, such as storage and insurance, if you want to hold physical gold yourself). If you invest in GLD instead, your investment will reflect directly the price of gold because GLD’s share price is determined based on 1/10th of an ounce of gold. SPDR Gold Trust buys and stores physical gold to back GLD prices. In fact by tracking holdings of SPDR Gold Trust, you can get a sense of the demand for gold. Currently holding 985.86 tones of gold, which is a record level for GLD, the demands are strong.

If you are interested in investing in precious metal ETFs, check out these funds in gold and silver:

SPDR Gold Shares (GLD)
iShares COMEX Gold Trust (IAU)
Market Vectors Gold Miners ETF (GDX)
PowerShares DB Gold (DGL)
iShares Silver Trust (SLV)
PowerShares DB Gold Double Long ETN (DGP)
PowerShares DB Precious Metals (DBP)
PowerShares DB Silver (DBS)

Among them, GLD has the largest daily trading volume based on Morningstar data, followed GDX and SLV. Remember volume matters when trading an ETF, not only because of the bid/ask spread, but also the survival of the fund

*Stock chart from INO Stock Analysis

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Random News: Northern Trust to Close 17 ETFs, More Bank Closures, and $1,000 Gold (?)

Sun — Sat, 14 Feb 2009 16:13:59 +0000

In the exchange-traded fund (ETF) world, things have happened fast and furious. According to an article on Financial Planning, a total of 434 ETFs were launched in 2006 and 2007. In 2008, a very bad year for stock and mutual fund investors in general, another 164 new ETFs were introduced, as financial firms try to grab a piece of the ever growing pie. While companies kept luring investors with creative offerings, not all the new comers can survive. For instance, 46 ETFs were shut down in 2008 due to the lack of investor interests. Late this month, another 17 ETFs from Northern Trust Corp will join them. After getting into the ETF business for less than a year, Northern Trust will shut down its entire ETF division and liquidate all its 17 ETFs on February 20, 2009.

As a ETF investor, we shouldn’t be attracted to a fund just because it invests in a certain area or tracks a fancy index. We also have to pay attention to the fund’s trading volume. If nobody is trading a fund, it’s unlikely it will survive, just like these Northern Trust ETFs. You can go to Morningstar to find out a ETF’s daily trading volume.

Yesterday, the Congress, after intense negotiations, has passed the final, compromised version of the economic stimulus plan. In addition to the $789 billion stimulus package, the Treasury Department has already been authorized $700 TARP fund to rescue troubled banks. However, with all these government efforts, the pace of bank closures showed no sign of slowing down. To the contrary, bank closures have accelerated since 2009. After 6 banks being shut down in January, another 7 have been closed so far in February (see the full list of 2009 failed banks). With 14 days left of the month, the number of failed bank this month could reach double-digit.

Finally, did you notice how fast gold has risen lately? After closing at $810 an ounce on January 15th, the precious metal has surged $120 to close at $936.50/ounce on Friday. What’s behind the latest gold rush? Obviously, the fight over the stimulus package played a role. Now that the stimulus is a done deal, gold may pull back, but gold investors have many reasons to believe the bullion will reclaim the $1,000 mark soon (the last time gold broke $1,000 an ounce was nearly a year ago on March 14, 2008) . One of them is if the $789 billion package does stimulate the economy and, thus, the inflation, the appeal of gold will go nowhere but up. If you are interested in gold, you can follow the move of gold using INO’s free stock analysis (symbol XAUUSDO) and receive daily trend update.

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New Bond ETFs

Sun — Tue, 10 Feb 2009 16:51:22 +0000

When I discussed how to build a Lazy Portfolio with ETF last December, I mentioned that the reason why one of the Lazy Portfolios outperformed (still negative though) the S&P 500 index last year was its relatively large position is bonds, which did quite well in 2008 comparing to equities. Now you just got more choices in bond ETF to build a diversified portfolio. Last month, Barclays Global Investors and State Street Global Advisors introduced four new fixed-income ETFs to investors.

iShare S&P/Citigroup 1-3 Year International Treasury Bond Fund (ISHG)

The iShare S&P/Citigroup 1-3 Year International Treasury Bond ETF tracks the S&P/Citigroup International Treasury Bond Index Ex-US 1-3 Year, which is created and managed by Citigroup Index LLC. The fund’s index provider, however, is the Standard & Poor’s. The underlying index is a market value-weighted index that is designed to measure the performance of treasury bonds issued in local currencies by developed market countries outside the U.S. with maturity from one to three years. As of December 31, 2008, the index consists of bonds issued in 19 countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland,Italy, Japan, The Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and U.K.

ISHG is a passive fund that generally invests 80% of its assets in securities of the underlying index, but it could invest up to 20% of its assets in futures, options, swap contracts or cash. The holdings of the fund and their respective ratings from Moody’s and S&P are shown in the following table.

Securities	% of Fund (Moody’s rating)	0% Fund (S&P rating)
Aaa/AAA	47.40	38.64
Aa1/AA+	4.76	9.41
Aa2/AA	13.04	24.22
Aa3/AA-	24.22	0.00
A1/A+	0.00	13.04
A2/A	4.66	0.00
A3/A-	0.00	4.66

According to Morningstar, ISHG currently holds 22 securities and has an expense ratio (ER) of 0.35%. The average maturity of the fund’s holdings is 1.9 years.

iShare S&P/Citigroup International Treasury Bond (IGOV)

Unlike ISHG, the iShares S&P/Citigroup International Treasury Bond ETF mainly invest in long-term bonds with maturities up to 25 years. The fund tracks S&P/Citigroup International Treasury Bond Index Ex-US, which consists of bonds issued by the same 19 countries as those of ISHG. The fund, however, does invest a small portion in U.S. Goverment/Agency bonds, which is not the case for ISHG. The holdings and ratings of the fund are shown below.

Securities	% of Fund (Moody’s rating)	0% Fund (S&P rating)
US Gov’t/Agency	1.24	1.24
Aaa/AAA	47.02	36.07
Aa1/AA+	4.83	9.47
Aa2/AA	14.87	24.30
Aa3/AA-	24.30	0.00
A1/A+	4.58	14.87
A2/A	0.00	0.00
A3/A-	0.00	4.58

IGOV has an ER of 0.35%. As of February 6, 2009, the fund holds 44 securities with an average maturity of 8.29 years.

SPDR Barclays Capital Mortgage Backed Bond ETF (MBG)

The State Street SPDR Barclays Capital Mortgage Backed Bond ETF uses a passive approach to invest investment-grade securities issued by U.S. government agencies such as Government National Mortgage Association (”GNMA”), Federal National Mortgage Association (”FNMA”) and Federal Home Loan Mortgage Corporation (”FHLMC”). The fund tracks the Barclays Capital U.S. MBS Index which measures the performance of the U.S. agency mortgage pass-through segment of the U.S. investment grade bond market.

The top holdings of MBG and their respective weights are as following.

FNMA Single Family 30yr 5.5: 29.73%
FGLMC Single Family 30yr 6: 19.99%
FGLMC Single Family 30yr 5 : 13.77%
FNMA Single Family 30yr 6.5: 6.06%
FNMA Single Family 15yr 5: 4.97%
FGLMC Single Family 15yr 4.5: 4.93%
GNMA Single Family 30yr 6: 4.00%
GNMA Single Family 30yr 5.5: 3.98%
FGLMC Single Family 30yr 4.5: 3.61%
FNMA Single Family 15yr 6: 2.02%
GNMA Single Family 30yr 6.5: 2.02%
FGLMC Single Family 15yr 5.5: 2.00%
GNMA Single Family 30yr 5: 1.98%
Cash: 0.92%

MG charges 0.20% as an expense ratio. The fund has an average coupon yield of 5.52% and average maturity of 4.98 years.

SPDR Barclays Capital Short-Term International Treasury Bond (BWX)

The SPDR Barclays Capital International Treasury Bond ETF tracks the Barclays Capital Global Treasury ex-US Capped Index. The underlying index includes investment-grade government bonds issued in local currencies by countries outside the U.S., including Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Sweden, Taiwan, and United Kingdom. The average remaining maturity of securities in the index is one year or more.

BWX has an ER of 0.50%. The average credit quality as of February 6, 2008 is AA2 with average maturity 8.21 years. The current yield of BWX is 3.88%.

*Stock chart from INO Free Stock Analysis

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Oil ETFs: Time to Invest in Anticipation of a Rebound in Oil Price?

Sun — Tue, 13 Jan 2009 19:31:19 +0000

Last week, I talked about CGM Focus Fund (CGMFX) and how the fund was hammered after oil prices plunged. Currently traded around $37 a barrel, crude oil prices have lost more than $100 since last July. Even though the OPEC has pledged deep cut in oil production, demands for oil were hampered as global economies entered recession. Today, the Commerce Department reported the slimmest trade deficit in November since 2003 at $40.4 billion, thanks to falling demands for foreign goods include crude oil.

But will oil prices stay this low if the economy recovers later this year, as some economists have predicted? The answer is likely to be No. Some analysts said oil could be traded $60 a barrel on average this year, according to Bloomberg. If that’s indeed the case, now may be a good time to position your investment (if you are investing oil at all) for the upward swing. For small investors, the easiest way to invest in oil and oil related services is using exchanged-traded funds (ETFs) because anybody can buy and sell ETFs from any broker, with no or a small initial deposit required to open an account at places like TradeKing or Zecco. As for what to invest, check out these oil and oil service ETFs:

ProShares UltraShort Oil & Gas (DUG)
Oil Services HOLDRs (OIH)
United States Oil (USO)
PowerShares Dynamic Oil & Gas Services (PXJ)
PowerShares DB Oil (DBO)
iShares Dow Jones US Oil & Gas Ex Index (IEO)
iShares Dow Jones US Oil Equipment Index (IEZ)
SPDR S&P Oil & Gas Equipment & Services (XES)
SPDR S&P Oil & Gas Exploration & Prod (XOP)

Morningstar.com has listed more oil ETFs than what I am showing above. I left out those with very small trading volumes. As it happened last year to some Claymore ETFs, if nobody trades an ETF, it won’t last, no matter how good the concept is. So when you choose an ETF, make sure you select the ones with trading volumes.

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Lazy Portfolios Built with ETFs

Sun — Wed, 31 Dec 2008 15:32:59 +0000

Are you familiar with the idea of Lazy Portfolios?

I first read about Lazy Portfolios a few years on MarketWatch and since then have been following them. The idea of Lazy Portfolios is to use low-cost, index mutual funds to build well-diversified portfolios so that you can be “lazy” with your investments, without having to actively manage them. If you want to know more about Lazy Portfolios and how to build one yourself, check out MarketWatch’s article on 6 rules to build your own Lazy Portfolio, which I cite below for your easy reference:

Swing For Singles & Bet on Every Horse
Buy “Quality” and Never Sell
No Market Timing, No Active Trading
Trust the Explosive Power of Compounding
If You’re Not Saving 10%, You’re Spending Too Much
Keep Investing Very Simple, Then Enjoy Doing What You Love

Anyway, I am not going to discuss how to build Lazy Portfolios here. Rather, I am interested in having a portfolio, a Lazy Portfolio, that is built with exchange-traded funds (ETFs), like what I did before with some model portfolios and my own all-ETF virtual portfolio. The reason for me to do this is again an article on MarketWatch yesterday with the title, Lazy Portfolios vote for a winning 2009 by Paul B. Farrell. From there, I went to check out the 2008 returns of Lazy Portfolios to see how they are holding up in a dismal environment where nothing went up.

Well, don’t expect positive returns from Lazy Portfolios either because it appears that no industrial sector will be in positive territory this year. However, that being the case, all 8 Lazy Portfolio did manage to beat the S&P 500 index so far. Of the 8 portfolios, FundAdvice.com’s Ultimate Buy & Hold portfolio scored the largest margin of 18%, which is quite impressive (I’d be happy with this kind of result). The Buy & Hold portfolio has 11 funds, all Vanguard mutual funds:

Vanguard Intermediate-Term Treasury Fund (VFITX): 20%
Vanguard Short-Term Treasury Fund (VFISX): 12%
Vanguard International Value Fund (VTRIX): 12%
Vanguard Developed Markets Index Fund (VDMIX): 12%
Vanguard Inflation-Protected Securities Fund (VIPSX): 8%
Vanguard Small-Cap Index Fund (NAESX): 6%
Vanguard Small-Cap Value Index Fund (VISVX): 6%
Vanguard Value Index Fund (VIVAX): 6%
Vanguard 500 Index Fund (VFINX): 6%
Vanguard Emerging Markets Stock Index Fund (VEIEX): 6%
Vanguard REIT Index Fund (VGSIX): 6%

By looking at the asset allocation of the portfolio, it doesn’t really surprise me why it outperformed the S&P by 18%: 40% of the portfolio’s assets are invested in Treasury securities, the highest among 8 Lazy Portfolios, with three funds: VFITX (YTD return 11.34%), VFISX (YTD return 6.27%) and VIPSX (YTD return -4.14%). On the other hand, the worst performer of the group is the Second Grader’s Starter which consists of three funds and invests only 10% in bonds. But it still edged out the S&P by 3%.

Now I want to see if I can rebuild the Buy & Hold portfolio with ETFs instead. When selecting exchange-traded funds, my first choices are Vanguard ETFs for their low-cost, just like their mutual funds counterparts. However, Vanguard ETFs don’t have the broad coverage as Vanguard mutual funds do, so I have to look elsewhere to get what I need. So after some searching, I came up this list of ETFs for the Buy & Hold portfolio:

SPDR Lehman Intermediate Term Treasury (ITE)
Vanguard Short-Term Bond (BSV)
iShares MSCI EAFE Value Index (EFV)
iShares MSCI EAFE Index (EFA)
iShares Barclays TIPS Bond (TIP)
Vanguard Small-Cap (VB)
Vanguard Small-Cap Value (VBR)
Vanguard Value (VTV)
SPDRs (SPY)
Vanguard Emerging Market (VWO)
Vanguard REIT (VNQ)

I wonder how this all-ETF portfolio did in 2008

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Time to Invest in Alternative Energy?

Sun — Wed, 05 Nov 2008 18:35:17 +0000

So the election is finally over.

When President-elect Obama takes the office in January, we can expect changes in policies on many fronts (if he means what he meant “Change”) and one of them could be the current administration’s energy policy, which has been criticized by many for favoring big oil companies. According to a Wall Street Journal article back in June, Obama’s energy policy, on the hand, favors clean, reusable energy. During the campaign, he promised

to invest $150 billion over the next decade in alternative fuels such as cellulosic ethanol that can be made from materials such as switchgrass and wood chips. He’d push a requirement that the U.S. by 2025 get at least 25% of its electricity from renewable sources like the wind, the sun and geothermal energy (which together currently account for less than 1% of U.S. electricity supply).

If that promise comes true, then alternative energy stocks could see some good days ahead. Actually, solar energy stocks have risen sharply this week in anticipation for a Obama victory. For example, First Solar (FSLR) gained 24% in first two trading sessions this week, SunTech Power (STP) 16%, and JA Solar (JASO) 37%, etc (check out this Reuters article on sectors likely to benefit from Obama administration).

In addition to individual stocks, another option (and a better one) to invest in clean energy is exchange-traded funds (ETFs). Now, using my newly discovered ETF research tool from ETFMarketPro, I found the following ETFs that invest in solar, wind, or nuclear energy. Since it’s a short list, it won’t be too difficult to identify the fund to invest.

Of these ETFs, PowerShares WilderHill Progressive Energy Portfolio (PUW) and PowerShares WilderHill Clean Energy Portfolio (PBW) are the largest in assets. A word of caution when choosing which ETF to invest is to pay attention to the asset size of the fund, in addition to cost (expense ratio) and investment holdings. Early this Claymore Securities had to close 11 ETFs because nobody traded them.

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Past Performance of My All-ETF Portfolio and A Little Modification

Sun — Thu, 14 Aug 2008 14:21:50 +0000

Yesterday, I posted an all-ETF portfolio that I’d like to have if I have to start all over again to build my investments. What I want to achieve with that portfolio are:

Diversification: I want to have key asset classes included in the portfolio so it will provide balanced risk-reward with relatively high growth potential;
Low cost: Compared to their mutual fund counterparts, ETFs already have the advantage on expenses, and I am still looking to reduce the overall cost of ownership.

As I mentioned in my previous post, I didn’t pay much attention to the performance of the fund I selected, except that I picked a couple of popular ones. Then today, I got a email from Sean Muir from SogoTrade, who back tested my portfolio for the past three years for those funds that have been around long enough:

WPS, BIV and BWX haven’t been around yet for three years so I put your for full 10 percent for REITs into VNQ and distributed your 10 percent for bonds between SPY and EFA.

The verdict?

Over the last three years the portfolio earned a 26.54 percent return, beating the S&P 500 (even though it was in the portfolio) by 16.59 percent. It would have even approached 50 percent in September of last year. This of course doesn’t include your periodic readjustments and their related costs. But on a $10,000 portfolio, you would be looking at a $2,654.24 return (minus the $12.00 commission to buy into the four ETFs.)

The screenshot of the 3-year performance of my all-ETF portfolio is attached (click to enlarge).

Though the performance doesn’t reflect exactly what I have in the portfolio because of the absences of several fund, it Isn’t too bad, is it?

As far the costs of the ETFs I chose, here are their expense ratios:

SPDRs [[SPY]]: 0.08%
iShares MSCI EAFE Index [[EFA]]: 0.34%
Vanguard REIT Index ETF [[VNQ]]: 0.10%
iShares S&P World ex-U.S. Property Index Fund [[WPS]]: 0.48%
SPDR Gold Shares [[GLD]]: 0.40%
Vanguard Intermediate-Term Bond ETF [[BIV]]: 0.18%
SPDR Lehman International Treasury Bond [[BWX]]: 0.50%

Actually, I am considering making a small change on the domestic stocks fund. My current choice is SPY, which is a large-cap fund. But I also like small-cap a lot, despite the recent lackluster performance of this category. In the long-term, the small-cap has shown to proivde better return than the large-cap. What I want to change is reducing SPY’s allocation to 30% and adding Vanguard Small Cap Value ETF [[VBR]] to the mix with a 10% allocation.

What do you think?

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Past Performance of My All-ETF Portfolio and A Little Modification

Creating a Virtual All-EFT Portfolio

Sun — Tue, 12 Aug 2008 13:18:46 +0000

I like ETFs.

I bought my first ETF, PowerShares Golden Dragon USX China (PGJ), in December 2004 and since then, I have gradually added a few more exchange-traded funds to my investment portfolio, such as PGJ, PHO, and VBR. In the past, I have thought about creating an all-ETF portfolio and attempted to build model ETF portfolios, but have never put my thoughts into action because

I already have a sizable portfolio built with mutual funds from the day I started investing and I have no plan to give it up and switch to ETFs only;
It won’t be cost efficient dollar-cost averaging ETFs because of the trading costs (unless a commission-free broker such as Zecco is used), though DCA isn’t necessarily the best investment method.

But I still love the idea of setting up my own all-ETF portfolio. Last year, when I discussed the idea of building model portfolios with ETFs, there weren’t a lot of choices in some asset classes, especially in the fixed income area. Things changed quite a bit since then with the introductions of a few bond ETFs, so there are more choices available, making the task of building my portfolio a little easier.

Asset Allocation

The asset allocation I want to have for this all-ETF portfolio is like this:

Domestic stocks: 40%
Foreign stocks: 30%
REIT: 10%
- Domestic REIT: 5%
- Foreign REIT: 5%
Precious metal: 10%
Bond: 10%
- Domestic bonds: 5%
- Foreign bonds: 5%

Here, as you can see, I have 30% allocated for foreign stocks, not including those in the REIT and precious metal categories. I always feel that stocks from companies outside the U.S. offer greater growth opportunity (and, of course, the risks that come along with the opportunity), therefore a bigger exposure to foreign stocks will provide long term benefits for my investments. On the other hand, the bond allocation is relatively low. Well, given my time frame, I don’t want to go too conservative.

ETF Selections

So, I have the allocation. Now to implement my investments, I go to Morningstar’s ETF list, as well as my previous coverage on ETFs, and pick my selections for this all-ETF portfolio:

Domestic stocks: SPDRs (SPY)
Foreign stocks: iShares MSCI EAFE Index (EFA)
Domestic REIT: Vanguard REIT Index ETF (VNQ)
Foreign REIT: iShares S&P World ex-U.S. Property Index Fund (WPS)
Precious metal: SPDR Gold Shares (GLD)
Domestic bonds: Vanguard Intermediate-Term Bond ETF (BIV)
Foreign bonds: SPDR Lehman International Treasury Bond (BWX)

I want to have the funds that 1) provide broader coverage of the markets; 2) cost less to own. Among my selections, some are popular (SPY and EFA) that have been established a long time and some are new (BIV and BWX) which don’t have tracking records. At this point, however, performance isn’t my top concern. Rather I want a low-cost, diversified portfolio with reasonable returns.

How to Invest

Since this is a virtual portfolio, I am not going to actually buy any of these ETFs. Other than that, I will treat it as a real investment and do what I am doing for my real investments: make regular purchases and rebalance the asset allocation periodically. As I mentioned early, buying ETFs, like buying individual stocks, involves trading costs. Thus, it’s not realistic to buy a few shares of ETF every month and pay anywhere from $4.95 (TradeKing) to $7.00 (Scottrade) per trade. The only exception is Zecco, which doesn’t charge any commission for the first 10 trades every month. Therefore, I will build this portfolio using Zecco (there are 7 funds in the portfolio, below the 10 trades per month limit) to purchase all 7 ETFs of my choices every month following the asset allocation.

I wonder how this portfolio will perform in 1 year, 2 years, 5 years ……

Any suggestions?

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Add Wind to Your Portfolio with PowerShares Global Wind Energy ETF

Sun — Wed, 16 Jul 2008 02:46:47 +0000

So what are alternative energies?

According to Wikipedia, alternative energy sources include biomass, geothermal, solar energy, wind energy, and wave power.

In late April, Glaymore Securities launched a Solar Energy exchange-traded fund, TAN, which lets investors in solar energy providers as well as solar energy related equipment and material suppliers. Early this month, PowerShares introduced its own alternative energy ETF, the PowerShares Global Wind Energy Portfolio (PWND), giving investors an option to invest in another fast-growing alternative energy source.

PWND tracks the NASDAQ OMX Clean Edge Global Wind Energy Index (QWND) (PDF file). The index, which was created on June 26, 2008, is modified market-cap based index that includes 32 companies with market capitalization between $201 million and $279 billion traded in Belgium, Canada, Denmark, France, Germany, Greece, Hong Kong, Japan, Spain, Switzerland, the United Kingdom and the U.S.

Currently, the fund holds the following stocks (and their weights):

Gamesa Corporacion Tecnologica S.A. (10.44%)
Iberdrola Renovables S.A. (10.10%)
Vestas Wind Systems A/S (10.07%)
Nordex AG (6.71%)
Hansen Transmissions International N.V. (5.03%)
EDF Energies Nouvelles S.A. (4.35%)
American Superconductor Corp. (4.22%)
China High Speed Transmission Equipment Group Co. Ltd. (4.18%)
Theolia S.A. (4.12%)
Clipper Windpower PLC (4.05%)
Greentech Energy Systems A/S (3.90%)
Canadian Hydro Developers Inc. (3.74%)
Zoltek Cos. (3.34%)
REpower Systems AG (2.48%)
Gurit Holding AG (2.34%)
Fersa Energias Renovables S.A. (2.01%)
Composite Technology Corp. (1.81%)
C. Rokas S.A. (1.75%)
E.ON AG (1.62%)
Siemens AG (1.60%)
General Electric Co. (1.57%)
ABB Ltd. (ADS) (1.45%)
Renewable Energy Generation Ltd. (1.42%)
Japan Wind Development Co. Ltd. (1.32%)
FPL Group Inc. (1.23%)
Plambeck Neue Energien AG (1.15%)
China WindPower Group Ltd. (1.15%)
Centrica PLC (0.97%)
Mitsubishi Heavy Industries Ltd. (0.66%)
AES Corp. (0.52%)
Xcel Energy Inc. (0.41%)
Acciona S.A. (0.26%)

PWND has an annual operating expense ratio of 0.75% and dividend, if any, is paid on an annual basis.

The underlying index, QWND, is rebalanced every quarter.

photo credit: tellmewhat2

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International ETFs Suffer as US Stocks Plunge

Sun — Wed, 18 Jun 2008 04:04:42 +0000

International ETFs, especially emerging market ETFs, have been generous to investors in the past couple of years (remember the good “old” days of high-flying Chinese stocks?). However, things turned a little bit sour since the financial crisis triggered by subprime mortgage in the summer of 2007. On surface, the trouble here in this country seems affecting developed countries, such as U.K. and Switzerland, whose banks were exposed in this mess. But the suffer is not just limited in the developed world. Developing markets also took a hit as the slowed U.S economy tempered the demands from these countries.

In a little over a month, this crisis will be one year old. In the past year, the Dow lost 10.8%, the S&P dropped 11.9%, and the NASDAQ did a little better, downing 6.4%. Looking around the world, where’s the place for U.S. investors to put their money? The following table has performances of iShares MSCI individual country ETFs of the past 1 year, 3 years, and so-far this year.

Fund Name	YTD return(%)	1-yr return(%)	3-yr return(%)
FTSE/Xinhua China 25 Index (FXI)	-18.84	19.92	37.69
Australia Index (EWA)	-6.00	0.97	20.59
Austria Index (EWO)	-1.08	-7.02	18.13
Belgium Index (EWK)	-8.03	-15.56	11.33
Brazil Index (EWZ)	12.54	55.23	59.85
Canada Index (EWC)	5.76	15.39	25.67
Chile Index (ECH)	1.28	N/A	N/A
France Index (EWQ)	-8.75	-7.21	14.47
Germany Index (EWG)	-10.81	0.67	22.58
Hong Kong Index (EWH)	-17.05	10.52	17.03
Israel Cap Invest Mkt Index (EIS)	N/A	N/A	N/A
Italy Index (EWI)	-12.08	-12.39	8.53
Japan Index (EWJ)	-2.33	-9.46	9.52
Kokusai Index (TOK)	-7.53	N/A	N/A
Malaysia Index (EWM)	-14.22	-4.78	19.81
Mexico Index (EWW)	6.66	-2.49	33.13
Netherlands Index (EWN)	-7.08	-3.28	18.09
Singapore Index (EWS)	-7.61	-3.36	23.17
South Africa Index (EZA)	-9.32	-2.81	21.36
South Korea Index (EWY)	-14.79	-7.42	19.67
Spain Index (EWP)	-7.89	3.41	22.29
Sweden Index (EWD)	-3.94	-12.58	16.52
Switzerland Index (EWL)	-4.31	-3.11	15.02
Taiwan Index (EWT)	1.73	4.49	9.99
Thailand Invest Mkt Index (THD)	N/A	N/A	N/A
Turkey Invest Mkt Index (TUR)	N/A	N/A	N/A
United Kingdom Index (EWU)	-9.80	-10.92	10.34

Brazil, whose economy is boosted by the booming commodity markets, is the clear winner here in all three periods. Biggest lowers are China and Hong Kong.

Are you investing in any individual country? I have PowerShares Gloden Dragon Halter USX China (PGJ) and for once, it was a great ETF to own, riding high with Chinese stocks. While investing in single county (the right country of course) can have tremendous result, it can also be very volatile. A better choice could be investing in a block of countries such as BRIC instead.

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International ETFs Suffer as US Stocks Plunge

Vanguard to Split Three ETFs

Sun — Fri, 06 Jun 2008 02:52:11 +0000

I often heard of stock splits, but this is the first time I learned splits of shares of exchanged-traded funds (anybody else has done that already?). Of course, since ETFs are traded just like stocks, the split shouldn’t be a surprise at all.

Mutual fund giant Vanguard, which is also becoming a major player in ETF, announced yesterday that it plans to make a 2-1 split on three of its most popular ETFs on June 17:

Vanguard Total Stock Market (VTI)
Vanguard Emerging Markets (VWO)
Vanguard Extended Market (VXF)

The reason for the split is to make these funds, which are all traded above $100 now, “more affordable” for small investors. The splits will cut the price of each of the three ETFs in half, so investors with small funds can buy more shares, one way to attract more investors.

Then again, ETFs are actually mutual funds, but I never heard of mutual fund splits. The reason for that is, as I can think of, that we can buy fractional shares of a mutual fund. If I only have $50, then I can buy 0.5 shares of a fund. That’s not the case for ETFs, though.

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State Street Launched Global Real Estate ETF (RWO)

Sun — Wed, 04 Jun 2008 14:47:25 +0000

Investing in global real estate just got a little easier.

Early last month, State Street Global Advisors launched yet another global real estate ETF. The SPDR DJ Wilshire Global Real Estate ETF (RWO) is the third REIT exchange-traded fund introduced by SSgA (the other two are DJ Wilshire REIT ETF (RWR) and DJ Wilshire REIT ETF (RWR)), focusing on global commercial and residential real estate markets. In addition to RWO, there are several international REIT ETFs being offered to investors in the past couple of years after the real estate boom in the early part of this decade. In the long-term, investing in real estate helps investors diversify their portfolio and, thus, reduce risk. Diversifying away from the U.S. markets makes even more sense after the collapse of the U.S. housing market.

RWO tracks the Dow Jones Wilshire Global Real Estate Securities Index (RESI), which was incepted on March 1, 2006. The RESI is a float adjusted market capitalization index. Among 25 countries/regions that make up the RESI, the U.S. market has the heaviest weight, at 43.51%, followed by Japan at 11.11%. The breakdown of the rest country weights is as follows:

Australia: 10.24%
United Kingdom: 7.29%
Canada: 5.60%
Hong Kong: 5.54%
France: 5.30%
Singapore: 4.33%
Austria: 2.42%
Sweden: 0.69%
Switzerland: 0.69%
Belgium: 0.48%
New Zealand: 0.37%
Germany: 0.35%
South Africa: 0.32%
Italy: 0.17%
Spain: 0.05%
China: 0.04%

RWO currently has 223 stock holdings and has an expense ratio of 0.50%. RESI is rebalanced annually.

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State Street Launched Global Real Estate ETF (RWO)

Green Your Portfolio with Claymore’s Solar Energy ETF

Sun — Wed, 23 Apr 2008 03:20:33 +0000

Today, April 22nd, is Earth Day and one of the topic being discussed is how to live a green life and save our environment. On this year’s Earth Day, the government also announced a plan to boost fuel efficiency by 25%, increasing per gallon mileage from 27.5 to 35.7, on the same day when the price of crude oil reached another record high, only a few cents away from breaking the $120/barrel milestone.

I don’t know how much impact this new proposal will have on the nation’s oil consumption, especially when the net standard won’t take effect until 2015. As an investor, one way we can save our planet is investing in companies that are in the business of exploring renewable energy such as solar power. For that, the newly incepted Claymore/MAC Global Solar Energy Index ETF (TAN) comes handy.

TAN, which was launched on April 15th, is a passive exchange-traded fund (as oppose to active ETF) that uses MAC Global Solar Energy Index (ticker SUNIDX) as benchmark. The index mainly tracks companies that either manufacture solar power related equipment or supply materials used in solar power system, or provide consulting, integration, or financing for solar power industry. Currently, the fund currently invested in 25 stocks, including many popular Chinese solar power players such as JA Solar and LKD Solar, etc. Companies covered by SUNIDX have market caps from $300 million to nearly $18 billion. Specifically, 42.65% of the components are small-cap stocks, 29.67% mid-cap, and 27.68% large-cap. According to the fund’s prospectus, the index is rebalanced on a quarterly basis.

The complete list of TAN’s components and their respective weightings in the index are as following:

First Solar (FSLR): 8.87%
Renewable Energy: 8.25%
Q-Cells: 6.65%
Suntech Power (STP): 6.32%
Solarworld: 5.51%
JA Solar (JASO): 5.39%
Yingli Green Energy (YGE): 4.81%
Sunpower (SPWR): 4.73%
LDK Solar (LDK): 4.55%
Memc Electronic Materials (WFR):4.45%
Solaria Energia Y Medio Ambiente: 3.63%
Centrotherm Photovoltaics: 3.44%
Trina Solar (TSL): 3.27%
Energy Conversion Devices (ENER): 3.25%
Ersol Solar Energy: 3.14%
Solarfun Power (SOLF): 3.03%
Canadian Solar (CSIQ): 2.85%
Solon Ag Fuer Solartechnik: 2.78%
Evergreen Solar (ESLR): 2.75%
Meyer Burger Technology: 2.43%
Roth & Rau: 2.17%
Conergy: 2.09%
Manz Automation: 2.09%
China Sunergy (CSUN): 1.94%
Emcore (EMKR): 1.60%

The fund has an expense ratio of 0.65%.

Note: Claymore has also created some exotic ETFs in the past, but had to shut them down early this year after the funds failed to get investors attention. Hope this new offering can avoid that fate. The average daily volume of TAN, 530K, is indeed much higher than those funds that have been closed.

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PowerShares Launched Four Active ETFs

Sun — Wed, 16 Apr 2008 02:31:58 +0000

Less than a month after Bear Stearns became the first firm ever to offer actively managed exchange-traded fund (ETF), PowerShares, an major player in the ETF arena, introduced its own active ETFs last Friday. The four new ETFs, including both equity and fixed income funds, are:

PowerShares Active AlphaQ Fund (PQY)
PowerShares Active Alpha Multi-Cap Fund (PQZ)
PowerShares Active Mega Cap Fund (PMA)
PowerShares Active Low Duration Fund (PLK)

Following are brief summaries of the new funds.
The Active AlphaQ Fund invests in companies, both domestic and international traded in the U.S., with more than $400 million market cap. Currently PQY consists of 50 stocks listed on NASDAQ. The fund’s investment objective is to seek long-term capital appreciation. PQY has an expense ratio (ER) of 0.75%.

The Active Alpha Multi-Cap Fund seeks long-term growth of capital. Similar to PQY, PQZ also invests in domestic companies as well as foreign companies listed on U.S. exchanges. It has 50 stocks with 35.76% in large-cap, 46.1% in mid-cap and 16.22% in small-cap. The fund’s ER is 0.75%.

The Active Mega Cap Fund holds stocks in the Russell Top 200 Index and other mega-cap stocks. Therefore, nearly 99% of the fund’s investments are in large-cap companies. PMA’s top five holdings are Exxon Mobil (XOM), Pfizer (PFE), Merck (MRK), Intel (INTC) and Verizon (VZ). PMA also has an ER of 0.75%.

The Active Low Duration Fund is a fixed income ETF that invests 80% of its assets in U.S. government, corporate, and agency debt securities. Nearly 98% of the fund’s investments have a maturity between 0 and 5 years, with a weighted average effective maturity of less than 3 years. As a fixed income investment, PLK has a low ER of 0.29%.

Before the introduction of active ETFs, all exchange-traded funds are passive investments, tracking their respective indices. Now we have the first actively managed stock ETF and more are expected to come, I am wondering if someday ETFs can completely replace mutual funds, given their advantages in trading and costs.

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Jonathan Clements’ Rules of “Getting Going”

Sun — Tue, 11 Mar 2008 02:44:31 +0000

Jonathan Clements, who writes the Getting Going column on The Wall Street Journal, recently celebrated his 1000th column. In his milestone piece, Mr. Clements reflected his journey of the past 1o years for writing the Getting Going and summarized what he has observed from the developments in the financial industry in the past decade.

According to the article, Mr. Clements is a firm believer of investing in low-cost index funds, which can essentially be simplified to a three-fund portfolio: a US equity fund, a world equity fund, and a bond fund. While these three funds can, and should, be the core investments for any investor who wants to build a diversified portfolio, adding new elements, especially specialty funds offerings in the form of exchange-traded funds (ETFs), to the mix properly can reduce investment risk, which will in turn reward investors with healthy long-term performance.

But new, exotic ETFs are be introduced every day and some disappeared as quickly as they came out, how should regular investors embrace the flood of new investments? Mr. Clements offered his rules in the article that I think are quite useful:

Stick with specialized index funds that you can see holding for the long-term. WisdomTree International Real Estate Fund makes the cut. WisdomTree International Consumer Non-Cyclical Sector Fund doesn’t.

Add specialized funds in quantities that won’t leave you desperately unhappy if the market goes against you. Given that we’re talking here about volatile sectors like emerging markets and REITs, earmarking maybe 5% of your stock portfolio for each is probably plenty. As you add funds, write down your new target portfolio, spelling out what percentage of your money will be invested in each.

Look to rebalance regularly, adding to those funds that have fallen below their designated percentage and lightening up on highflying funds that are above your written targets.

When everyone’s ebullient, build your new fund positions slowly. You don’t want to be making short-term market predictions. But you also don’t want to be throwing great wads of money at overheated sectors.

So when should you add new funds? That brings me to my final rule. Purchase new funds not for their return potential, but because they will reduce risk.

What do you think?

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Platinum is Surging, but Why no Platinum ETF?

Sun — Thu, 06 Mar 2008 03:31:35 +0000

Gold isn’t the only hot precious metal in town these days.

Spot silver surpassed the psychological $20 an ounce today to its highest level since October 17, 1980. Currently, silver is traded at $20.80/ounce (Kitco.com). So far this year, silver has gained more than 39%.

Then, there’s platinum which is also on fire since the beginning of 2008. Yesterday, platinum traded above $2300 an ounce in New York. Year to date, spot platinum has surged more than $750 an ounce.

As hot as platinum has been so far, I am wondering why there isn’t any platinum exchange traded fund (ETF) available. I searched in the past several times, but didn’t find any. There’s gold ETFs (GLD and IAU) and silver ETFs (SLV and DBS) (check out a list of precious metal ETFs), but nothing for platinum even after the metal keeps breaking record highs.

Then I read an article on ETFtrends today which explains why there’s no platinum ETF in US. According to Kevin Rich, CEO of DB Commodity Services:

“[Platinum] is not liquid enough to support an ETF,” is the simple answer. “There are not enough players transacting it.”

The last thing anyone would want, Rich says, is for a fund to take money in but find that it couldn’t buy the underlying asset. Platinum is scarce enough that it’s possible for an investment product to take away the supply. “When you bring in an ETF, you make sure the supply and demand of the commodity are still driving the market,” Rich says.

Gold, on the other hand, is in a different situation. For gold ETF such as StreetTracks’ GLD, the shares are backed buy the metal itself. The trust holds gold bars in bank vaults to support the shares issued to its clients (currently the trust holds 647.73 tonnes of gold, according to StreetTracksGoldShares.com). So by investing in GLD, investors owns gold without having to hold and store the precious metal themselves.

There probably isn’t such a large amount of platinum available for a company to create a platinum ETF without disrupting the market

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State Street Launched S&P International Dividend ETF (DWX)

Sun — Mon, 25 Feb 2008 15:55:59 +0000

The family of dividend-paying ETFs just got a little larger.

State Street Global Advisors on February 12th launched a new dividend-oriented exchange-traded fund, S&P International Dividend ETF (DWX). The new fund tracks the S&P International Dividend Opportunities Index, which was introduced a month ago on January 25, 2008. According to the fund prospectus, the benchmark consists of 100 highest dividend-paying stocks and American Depositary Receipts (ADRs) listed in stock exchanges included in the S&P/Citigroup Broad Market Index. The 5-year backtested performance of the index, which is measured by a 31% return, is showing in the following plot.

To be included in the index, a stock must have at least $1.5 billion in market capitalization, three-month daily trading value at least $5 million, and average monthly trading volume of 300,000 shares for six months. The index is rebalanced semi-annually in January and July.

The breakdown of new dividend ETF’s top 10 country weights is as follows.

United Kingdom: 24.91%
Canada: 18.29%
Australia: 8.79%
Sweden: 8.21%
Italy: 7.69%
Finland: 6.47%
Norway: 3.69%
Belgium: 3.66%
Hong Kong: 3.65%
Indonesia: 2.88%

Currently, DWX holds 98 stocks and has a gross expense ratio of 0.45%.

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Just Too Many ETFs out There: Claymore to Close 11 Funds that Nobody Wants

Sun — Tue, 05 Feb 2008 15:59:00 +0000

Do you think there are just too many ETFs out there?

Apparently, there are. The latest evidence came from Claymore Securities Inc, one of the major issuers of exchange-traded funds (ETFs), which in an announcement last week says it will close 11 of its 37 ETFs on February 20th and liquid assets in these funds on February 28th.

The following is a table of those Claymore ETFs to be closed, together with each fund’s inception data and daily trading volume (volume data from XTF). Except one, all the other10 funds are less than one year old with very thin volume.

Fund name	Symbol	Inception	Daily volume
Claymore/BIR Leaders 50	BST	04/02/07	1,100
Claymore/KLD Sudan Free Large-Cap Core	KSF	06/25/07	300
Claymore/Robeco Boston Partners Large-Cap Value	CLV	06/28/07	1,300
Claymore/LGA Green	GRN	12/15/06	2,600
Claymore/BIR Leaders Mid-Cap Value	BMV	04/02/07	1,000
Claymore/Clear Mid-Cap Growth Index	MCG	04/26/07	1,200
Claymore/BIR Leaders Small-Cap Core	BES	04/02/07	1,600
Claymore/IndexIQ Small-Cap Value	SCV	04/26/07	1,700
Claymore/Zacks Growth & Income Index	CZG	04/02/07	800
Claymore/Clear Global Vaccine Index	JNR	06/27/07	200
Claymore/Robeco Developed World Equity	EEW	03/01/07	5,500

A product that nobody wants will be pulled off the shelf and that’s the same for a ETF that nobody trades.

In 2007, the total number of ETF offerings almost doubled, growing from 359 in 2006 to 613. However, many new, exotic ETFs failed to attract investors attention. If you take a look at Morningstar’s ETF page, you will be surprised to see many ETFs are barely traded at all. The closure of those Claymore funds reminds us that when researching which ETF to invest, we should also pay attention to the fund’s trading volume. After all, we don’t want to be in a situation that we are forced to sell our positions.

As ETFs gaining popularity among investors, I wonder whether the ETF industry has reached a point that they roll out new products just for the sake of rolling out new products to collect more fees from investors. Like John Bogle, founder of Vanguard, previously described in his book The Little Book of Common Sense Investing,

ETFs are clearly a dream come true for entrepreneurs, stock brokers, and fund manager.

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Just Too Many ETFs out There: Claymore to Close 11 Funds that Nobody Wants