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

Monitoring the flow of money into ETFs can provide an early indication of the next market trend.

That’s the conclusion of MarketWatch’s John Spence in his blog post Greenlight’s Einhorn buying options on gold-miners ETF. Spence reports that hedge fund manager David Einhorn is buying call options on the Market Vectors Gold Miners ETF (GDX) in anticipation of future inflation caused by the Fed’s exploding balance sheet.

Spence also points out that record levels of investment are pouring into SPDR Gold Shares (GLD) and into oil funds. A popular oil ETF is the United States Oil Fund (USO).

For more, see the special report Investing in Oil with ETFs or the Commodities ETF Directory.

Continue Reading

Two new Exchange Traded Notes or ETNs are coming to market that will make buying volatility indexes and derivatives as easy as buying a share of stock.

According to SmartMoney’s Jonathan Hoenig in the article Trillionaire on a Dime, Barclays expects to launch the iPath S&P 500 VIX ETNs at the end of the month. The ETNs will track the implied volatility of the S&P 500 at two different points on the volatility curve and enable investors to take a long or short position.

The volatility index or VIX tends to rise when stocks drop. ETNs are unsecured promissory notes backed by the credit of the underlying issuer – in this case, Barclays.

For a complete listing, see the iPath ETN Directory.

Continue Reading

Forbes magazine recently tasked their investor panel with the challenge of coming up with sectors and ETFs to buy and hold in anticipation of the next up cycle.

In the article Funds to Hold Through 2014, David Serchuk cites the chief investment strategist for Deutsche Bank’s DWS Securities who is looking for the Dow to hit an all-time high within the next 5 years. He believes that the coming global boom is likely to benefit financials, energy, materials, industrials and technology the most.

ETFs that provide exposure to these sectors include the iShares S&P Global Energy Sector Index Fund (IXC) and Vanguard Energy ETF (VDE) for energy. For financials, the Forbes panel likes iShares S&P Global Financial Sector Index ETF (IXG) and the Vanguard Financials ETF (VFH).

Technology ETFs mentioned include the iShares S&P Global Technology Sector Index Fund (IXN), Vanguard Information Technology ETF (VGT) and the Vanguard Telecommunications Services ETF (VOX).

Also highlighted – the Vanguard Industrials ETF (VIS) and the Vanguard Materials ETF (VAW).

Continue Reading

Conventional investing wisdom these days is to go with dividend paying stocks. The logic is that even if the market moves sideways, you’ll get paid to wait.

However, SmartMoney’s Roya Wolverson cautions that investors should tread carefully among the three dozen dividend ETFs due to their heavy concentration in the troubled financial sector.

In the article Beware the Dividend ETF, Wolverson notes that, although banks and insurance companies have historically paid some of the highest dividends, they have recently been cutting back.

Wolverson recommends looking for ETFs that re-evaluate the portfolio often and for funds that are not overly exposed to financials.

The First Trust Value Line Dividend Index Fund (FVD) re-evaluates monthly and has a 17% exposure to financials. The Vanguard Dividend Appreciation Fund (VIG) has only 8% of portfolio holdings in financials.

Continue Reading

Investors are asking questions about the future direction of iPath ETNs and the health of parent bank Barclays according to Ian Salisbury and the Wall Street Journal.

According to the article Trouble at Barclays Raises ETN Worries, the recent decline in Barclays PLC’s share price is spreading worry that investors in iPath ETNs could face steep losses if the bank defaults. ETN investors have been wiped out in the past with the bankruptcy of Lehman Brothers.

According to Salisbury, Barclays dismissed the concerns pointing out that it expects to post a before-tax profit for 2008.

ETNs are junior, unsecuritized debt issued by banks with the promise to deliver a return that tracks a specific index. ETNs have proven useful in providing access to hard to reach asset classes such as India equities and Global Carbon credits.

A popular iPath ETN is the $500 million iPath S&P GSCI Crude Oil Total Return Index ETN (OIL). See the ETF MarketPro Directory for a complete listing of iPath ETNs.

Continue Reading

2008 was a watershed year for the running battle for investment dollars between ETFs and mutual funds. While ETFs saw net inflows of $158 billion, actively managed equity mutual funds had their worst year in history suffering net outflows of $208 billion.

This is according to the story Amid gloom, ETFs’ future looks brighter by Sue Asci in InvestmentNews. Asci interviewed several money managers who point out that investors and advisors lost patience with the high fees and poor performance of actively managed mutual funds.

State Street recently reported that the SPDR S&P 500 (SPY) saw $39 billion of net cash flow in 2008 while SPDR Gold Shares (GLD) saw net cash flow of over $5 billion for the year.

Continue Reading

The Wall Street Journal’s Ian Salisbury is reporting that the recent launch of Direxion’s 300% leveraged ETFs are a hit.

In the article ETFs that Magnify are Warm, Salisbury notes that in a little more than two months, Direxion’s family of leveraged ETFs have attracted hundreds of millions of dollars of assets and trade millions of shares a day.

Direxion recently introduced the Mid Cap Bear 3x Shares (MWN) and Mid Cap Bull 3x Shares (MWJ). Both funds provide a leveraged return relative to the daily results of the Russell 1000 index.

See the ETF Directory for a complete listing of Direxion ETFs.

Continue Reading

Money Magazine’s undercover financial planner recently answered the question How to Make Money in ETFs (and how not to).

The undercover planner believes that financial advisers are not big fans of ETFs and regard them as a threat. With ETFs, individual investors can create a simple, low-cost portfolio that beats the pants off professionally designed plans. Why pay advisors 1.5% to 2% a year to do something that you could manage yourself?

The Mole recommends using ETFs that own the whole market at the lowest cost and have the greatest tax efficiency such as Vanguard Total Stock Market (VTI), Vanguard FTSE All-World Ex-U.S. (VEU) and Vanguard Total Bond (BND).

Continue Reading

A new report on the mutual fund industry is projecting that the number of mutual funds will decline by 70% over the next 5 years.

In the report The Global Credit Crisis: Implications for North American Wealth Management, Boston research firm Celent points out that North American equity mutual funds have seen negative returns of 30% to 50% recently, and most have not shown a positive return since the Internet bubble.

Facing projections of no real returns in the next decade, many redundant mutual fund families will disappear as retirement accounts and mass affluent portfolios shift to stable value, annuities, cash and bank deposits, fixed income instruments and exchange-traded funds.

Financial Planning magazine quotes the author of the report as saying “with the exception of retirement accounts, ETFs will eventually replace index funds”.

Continue Reading

A Money Magazine reader recently posed the question – ” I don’t understand why ETFs are better than mutual funds.”

In the article The best (and cheapest) funds around, Money’s undercover financial planner compares and contrasts index mutual funds and ETFs. The Vanguard Total Stock Market ETF (VTI) is matched up against Vanguard’s comparable mutual fund to illustrate the differences.

In highlighting the differences between mutual funds and ETFs, the mysterious financial planner gets most points right.

However, they miss some important negatives aspects of mutual funds including tax inefficiency, the secret nature of mutual fund holdings and the fact that investors are forced to trade with the mutual fund management company at a price that is only revealed after the fact.

Continue Reading