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

Ian Salisbury is reporting that a new study finds exchange traded funds missed the indexes they follow by a wider margin in 2009.

In the article ETFs Were Wider Off the Mark in 2009, Salisbury writes that the study suggests investors closely monitor how many stocks or bonds an ETF owns relative to its benchmark as a way to avoid funds that may be subject to higher than average tracking error.

Example funds reporting higher tracking error include the iShares MSCI Emerging Markets Index ETF (EEM), SPDR Barclays Capital High Yield Bond ETF (JNK) and the Vanguard Telecom Services ETF (VOX).

Continue Reading

A recent Morgan Stanley report concluded that the weighted average tracking error for ETFs in 2008 was 39 basis points or 0.39%.

In the blogpost ETFs stuck close to indexes despite 2008’s volatility, MarketWatch’s John Spence summarizes the findings from the report that looked at how well ETFs stayed close to their tracking indexes.

One ETF that delivered very low tracking error was the Vanguard Total Bond Market ETF (BND). Although the fund holds only 3,731 of the 9,168 securities in the index, the tracking error was only 5 basis points or 0.05%.

Funds that delivered higher tracking errors were hampered by diversification requirements. For example, Spence points out that the Vanguard Telecom Services ETF (VOX) had a big negative tracking error because it was underweight in AT&T.

The large telecom returned 28% in 2008 compared to the fund’s overall return of 10.5%, however, SEC rules prevented VOX from fully matching the index’s 50% weighting of AT&T.

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