Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

That’s a strategy Ben Levisohn explores in the article A Four-Month Rally: Time to Protect Profits?.

A Merrill Lynch study shows that allocating 10% of a portfolio to the index underlying the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ) while keeping the balance in the S&P 500 would have gained 5.6% per year since December 2005 versus a 3.7% annualized gain for the S&P 500 alone.  That strategy would have also lowered volatility over the same time period.

Levisohn points out that a VIX cushion doesn’t necessarily work in the short term.  For example, in 2010 a 10% allocation to the VIX ETN would have lowered portfolio performance by 1.4%.

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Lambert Advisors’ service is implemented on a discretionary basis managed by the firm through investments in individual equities, mutual funds, ETFs, bonds, cash-equivalents and other instruments. Based on client-specific factors Lambert Advisors may recommend using a separate account investment manager. Depending on the suitability for the client, Lambert Advisors may also recommend hedge funds/funds of funds and privately placed investments. Lambert Advisors provides investment advisory services that relate to matters such as allocation of assets among different classes, global portfolio diversification, management of portfolio risk and other general economic and financial topics.

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The market is embracing a short maturity ETF as exchange traded funds bid to compete with money market mutual funds.

John Spence writes that the Pimco Enhanced Short Maturity Strategy Fund (MINT) has added more than $800 million in assets in a little more than a year.  The fund invests in government bonds, mortgages and corporate debt, typically with a duration of under 0ne year.

Spence points out one important difference between an ETF and a money-market fund — MINT and other ETFs have a floating net asset value, so investors can see a loss of principal.

Forbes’ William Baldwin has a prescription for investors who would like to double their money in the stock market – be very patient and use exchange traded funds.

Baldwin recommends different portfolios for a taxable and tax-sheltered account.  In the $100,000 taxable account, put $10,000 each into Vanguard funds that track large, medium and small companies in both growth and value categories.  Add $15,000 each into Vanguard’s European and Pacific index funds and another $10,000 into Vanguard’s emerging markets fund.

For the $100,000 tax-free account, put $70,000 in Vanguard’s Total Bond Market ETF (BND), $20,000 in the SPDR Barclays Capital High Yield Bond ETF (JNK) and another $10,000 in the Vanguard REIT ETF (VNQ).

The tickers for the taxable portfolio are:

Vanguard Mega Cap 300 Growth ETF (MGK)

Vanguard Mega Cap 300 Value ETF (MGV)

Vanguard Mid-Cap Growth ETF (VOT)

Vanguard Mid-Cap Value ETF (VOE)

Vanguard Small-Cap Growth ETF (VBK)

Vanguard Small-Cap Value ETF (VBR)

Vanguard European ETF (VGK)

Vanguard Pacific ETF (VPL)

Vanguard Emerging Markets ETF (VWO)

The relatively small size of the silver market means that silver prices are sensitive to investor inflows according to Liam Pleven and Carolyn Ciu.

At $19 billion, the silver market is just a fraction of the $170 billion gold market.  The largest silver exchange traded fund – the $10 billion iShares Silver Trust (SLV), took in $1.1 billion in the first 11 months of 2010.

International funds trailed US funds in 2010 performance and the outlook for 2011 isn’t any better according to Sam Mamudi.

High valuations in the emerging markets and the continuing debt crisis in Europe continue to drag on international equity performance.  One bright spot – Canada.

According to Mamudi, the iShares MSCI Canada Index (EWC) added 18% in 2010.

Although useful as hedging tools, the exchange traded notes that track market volatility, the VIX, can potentially burn individual investors.

That’s the conclusion drawn by the WSJ’s Brendan Conway in the article Caveat Buyer: ETNs Tied to VIX.  Conway highlights the use of the S&P 500 VIX Short Term Futures ETN (VXX) by Forward Management, a $5 billion San Francisco money manager.

However, Conway also points out that some ETNs are leveraged or inverse, which means that the funds are designed to deliver multiples or the opposite of the VIX return.  Other concerns – ETNs don’t necessarily track the VIX index exactly and, because they are notes, ETNs are unsecured debt obligations of the bank that issues them.

John Spence reports that Rydex has expanded its lineup of equal-weight ETFs to 15 with the addition of 5 new funds.

The new exchange traded funds include:

Rydex Russell 1000 Equal Weight ETF (EWRI)

Rydex Russell 2000 Equal Weight ETF (EWRS)

Rydex Russell Midcap Equal Weight ETF (EWRM)

Rydex MSCE EAFE Equal Weight ETF (EWEF)

Rydex MSCI Emerging Markets Equal Weight ETF (EWEM)

According to Spence, equal weight portfolios are outperforming the market-cap weighted benchmarks in 2010.

What’s the best way to turn the yellow metal into green?  That’s the question the WSJ recently asked four prominent investors.

Turns out that Greenlight Capital‘s David Einhorn, in addition to a Queen’s warehouse full of gold bars, also likes the Market Vectors Gold Miners ETF (GDX) where he owns 2% of the fund.

The $7 billion exchange traded fund carries a net expense ratio of 0.53%.  Top holdings include Barrick Gold Corp, Goldcorp, Newmont Mining and Kinross Gold Corp.

According to the fund’s manager Van Eck Global, GDX has a correlation with the S&P 500 of only 0.34 over the past 3 years.