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

Ken Heebner, portfolio manager of the CGM Focus Fund (up 80% in 2007), is making a strong long term investment case for steel.

A small bit of research confirms Ken’s advocacy. Steel consumption, according to the International Iron and Steel Institute (IISI), was up 6.8% in 2007. Although we are likely to see some slowing in 2008, IISI is projecting consumption growth to remain above 6% as China, Brazil and India continue to build out infrastructure and produce steel-intensive products at a rapid pace. IISI has promised to publish an updated forecast in mid-April.

On the production side, continued heavy investment in China resulted in world production growth of 7.5% in 2007. With production outpacing demand, the outlook for steel prices is uncertain. However, the real growth of the steel industry has positive implications for the outlook for steel producers, even in a flat pricing environment.

Source: IISI

Steel ETFs offer a low-cost way to establish a diversified exposure to the growth in the steel industry. Van Eck Global’s Market Vectors Steel ETF (Amex: SLX) tracks a modified market-cap weighted index of 21 companies that are engaged in the production of steel products or mining and processing of iron ore.

The top holding as of March 28 was steel industry giant Arcelor Mittal (NYSE: MT) which represents over 15% of the fund’s holdings. Other top investments include Korean steel maker POSCO (NYSE: PKX) and Brazilian steel maker Companhia Siderurgica Nacional (NYSE: SID). See our post The Case for a Brazil ETF for more on SID.

See the Market Vectors website for more information on SLX.

SLX is the only pure Steel ETF play at the moment. We’ll cover other Metal ETFs in a future post.

Continue Reading

As part of your hedge against a falling dollar, you may want to take a position in the Indian rupee. Here’s why.

One consquence of India’s booming growth has been upward pressure on prices or inflation. India’s equivalent of the U.S. Fed has publicly stated that controlling inflation is more important than maintaining the current 9% rate of GDP growth. As a result, India’s equivalent of the Fed Funds rate is well over 7% and has not come down in concert with U.S. interest rates.

As you would expect would happen in this environment, the Indian rupee has strengthened against the U.S. dollar and will likely continue to do so until India’s Fed gets inflation under control or the U.S. Fed suddenly starts paying attention to inflation.

As you can see in the chart below, the Rupee has pulled back somewhat as a flight to quality occurred during the recent credit crisis.

US Dollar in Indian Rupees (12 month chart)

A recently launched Indian Rupee ETF (or in this case, ETN) gives investors a low cost way to quickly gain exposure to the movement in the dollar-rupee exchange rate. Van Eck Global is sponsoring the Market Vectors Indian Rupee/USD ETN (NYSEArca: INR) which is based on the S&P Indian Rupee Total Return Index.

Total return means that interest earned on funds deposited are reinvested rather than distributed. Learn more at the Market Vectors website. Also check with your financial advisor and tax advisor before investing in currency ETFs and ETNs.

Continue Reading