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Newest Fed Speak Suggests Web ETFs

Fri, 24 May 2013 17:10:31 EDT

NEW YORK (ETF Expert) -- During Alan Greenspan's tenure at the helm of the Federal Reserve (1987-2006), the investment community created a phrase to capture the former chairman's wordiness. "Fed Speak" aptly described the long-winded ambiguity in his statements. In fact, it is likely that Greenspan was intentionally vague to reduce extreme price swings in the stock market.

In 2013, the new sheriff offers citizens a different kind of Fed Speak. Chairman Ben Bernanke has been remarkably straightforward with his plan to print dollars to buy U.S. sovereign debt. Not unlike his European counterpart's infamous promise to do whatever it takes to protect the euro, Bernanke's Fed will purchase government bonds until unemployment reaches 6.5%.

In spite of an infinitely more direct approach, Bernanke has explained that the Fed reserves the right to increase or decrease the pace of bond purchases. More recently, there has even been speculation that the Fed would stop printing money sooner and/or change the unemployment target to 7.0%. It follows that, in the quest to be more transparent, Fed Speak is as maddening as ever. Investors do not know what the Fed will actually do because they themselves reserve the right to change on the fly. (The positive spin for the right to change one's mind is called, "flexibility.") ...

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3 Reasons to Like the New Cambria ETF

Fri, 24 May 2013 16:33:37 EDT

NEW YORK (ETF Expert) -- Long-time readers and listeners know that I am an active manager of passive index ETFs. I favor exchange-traded index vehicles because the diversification comes with low expenses, exceptional tax-efficiency and intraday liquidity.

The media have regularly inquired why I rarely endorse the use of active ETFs. For one thing, these funds involve more frequent trading, creating a likelihood of adverse tax consequences for the shareholder. There are fewer tax concerns in an index fund that rebalances only quarterly or annually. What's more, indexes do not tend to change much, making it easy to understand what one owns.

An active ETF that you bought five months ago may not share much in common with the one that your portfolio holds today. Perhaps most important, indexing (via index ETFs) often outperforms stock picking (via active ETFs) because of dramatically lower internal expenses. ...

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4 ETFs to Watch When the Fed Speaks

Thu, 23 May 2013 05:30:00 EDT

NEW YORK (TheStreet) -- It's no secret that the bull market over the last several years has been fueled by the loose monetary policies and aggressive quantitative easing of the Federal Reserve. Investors around the globe closely monitor every word of Fed Chairman Ben Bernanke's speeches in order to divine the next big opportunity in their investment portfolios. Often his remarks have an immediate and profound effect on major markets, which is why it is important to pay close attention to key segments of the economic landscape.

From my own experience watching the markets and trading for my clients' portfolios, I have often seen big moves made in a very short time, based on even the hint of a policy shift from the Fed. These swift swings can be either positive or negative for your portfolio, depending on your asset allocation and response to change. By monitoring these four ETFs you can get ahead of the curve and potentially avoid any long-term pitfalls on the road to prosperity.

Stocks ...

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The Hazards of Dividend-Stock ETFs

Wed, 22 May 2013 09:41:50 EDT

NEW YORK ( TheStreet ) -- Searching for reliable income, investors have been pouring into exchange-traded funds that hold large-cap dividend stocks.

Favorite choices include iShares Dow Jones Select Dividend , which yields 3.3%, and SPDR S&P Dividend , with a yield of 2.8%.

But the funds may not be as safe as many shareholders think. The problem is that dividend stocks have rallied sharply. Now many command premium prices. ...

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New Emerging Markets Bond Fund Targets Commodity Countries

Wed, 22 May 2013 07:26:41 EDT

NEW YORK (TheStreet) -- Seasoned ETF investors will be familiar Research Affiliates fundamentally weighted equity indexes as opposed to market cap weighted indexes. The PowerShares FTSE RAFI US 1000 Portfolio was the first fundamentally weighted equity ETF and has done very well since its inception compared to the SPDR S&P 500 .

Fundamental weighting has since been applied to many other equity funds and even a corporate bond fund and the latest fundamentally weight fund is the PowerShares Fundamental Emerging Markets Local Debt Portfolio . Instead of looking at things like cash flow and revenue in the equity funds, PFEM weights sovereign debt by country in the fund on the basis of population, GDP, energy consumption and land. Energy consumption is viewed as a proxy for economic activity and with land the methodology is concerned with a country's natural resources.

The word local in the name of the fund means that bonds owned will be denominated in the currencies of issuance as opposed to U.S. dollars. There are quite a few emerging market bonds funds that only hold U.S. dollar denominated debt including the PowerShares Emerging Markets Sovereign Debt . ...

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ETF Basics Part 3: The Benefits of the ETF Structure

Mon, 20 May 2013 11:00:00 EDT

This is part 3 of 3. Please click here for part 1, and here for part 2.

NEW YORK (WisdomTree) --There are many exchange-traded products on the market today. But would it surprise you to learn that the term "exchange-traded funds" is actually overused? The truth is that although the term "ETF" is now used as a sort of catchall, in reality, we believe only those exchange-traded investments registered under the Investment Company Act of 1940 ("registered") are truly exchange-traded funds.

Designed to ensure managers act in the investors' best interests, the Investment Company Act of 1940 ("'40 Act") is an important piece of legislation that defines how investments registered under the '40 Act are built and managed....

Should You Quit High-Flying ETFs?

Mon, 20 May 2013 06:00:00 EDT

NEW YORK (ETF Expert) -- In 1986, I visited the Philippine Stock Exchange. There were few, if any, computers on the floor. Black markers registered trading activity on a giant whiteboard. The feeling that I came away with was that I had caught a glimpse of an incomplete science experiment. Today, however, a number of frontier economies have upped their level of sophistication. The Philippines recently benefited from credit agency upgrades to its sovereign debt. Direct investment by foreigners has been bountiful. What's more, stock investors have pursued the up-n-comer for greater total return potential. Year-over-year, ETF enthusiasts have garnered roughly 53% from a dedication to iShares MSCI Philippines . That said, EPHE seems to be running on fumes. The Relative Strength Factor score for this exchange-traded vehicle has stayed in the top 5% of all exchange-traded funds for most of 2013, making it vulnerable to a volatile "risk-off" change of heart. Even in the local equities market where one might track the Philippine Stock Exchange Index, the relative strength data have flashed bright yellow warning lights.

Granted, the EPHE is hardly the only overbought ETF on a technical basis, nor is it alone in its questionable fundamentals. Yet, it is one of a select group of unleveraged ETFs that have risen more than 25% in the calendar year. That fact alone may make it ripe for profit takers and short sellers. In truth, downside risks have been largely absent in 2013. The fact that many view Thursday's stock asset stumble as an aberration is reason enough to take a harder look at the year's fastest price appreciators. How vulnerable are they? With the S&P 500 shedding 0.5% on the contemplation of the Federal Reserve slowing the pace of monetary stimulus, the biggest losers did tend to come from the year's highest fliers. The irrepressible WisdomTree Japan Hedged Equity had nearly 46% on the year prior to shedding 1.2% on Thursday. Homebuilders via iShares DJ Home Construction had been up roughly 23% year-to-date before suffering a 1.6% decline. The EPHE gave up 1.9% in the session. It's not uncommon for investors to take profits on ETFs that have far exceeded expectations. The bigger question is, how long should you hold onto the extreme winners that have treated you so well? Are you in danger of falling in love, the way some did with dot-com tech companies last decade? If you were one of the early adopters of a high-flying ETF, do you have an approach for making a graceful exit or will you cling to a misguided notion of hold-n-hope? Hopefully, you have an actual plan for managing downside risk. ...

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Unsupportable Fervor Requires an ETF Wish List

Sat, 18 May 2013 06:00:00 EDT

NEW YORK (ETF Expert) -- "I've never seen this in 34 years of investing," quippedTheStreet's Jim Cramer earlier this week. What was Cramer referring to? For the most part, he expressed excitement over the stock market's ability to reward stocks of companies that missed earnings expectations as well as to reward those that beat expectations by not taking profits.

In other words, regardless of what a corporation has already achieved or anticipates achieving going forward, investors are buying indiscriminately. Need proof that everything is a winner? Take a look at a three-year chart involving the S&P 100. In bullish rallies, one expects the majority of stocks in a major index like the S&P 100 to gain ground in an uptrend. The percentage of S&P 100 stocks that climb above and stay above a long-term 200-day trendline might be 70%, 80%, maybe even 90%.

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3 'Tweaks' to Fortify Your ETF Portfolio

Fri, 17 May 2013 16:16:06 EDT

NEW YORK (ETF Expert) -- Extraordinary rallies off bear market bottoms are typical. Bullish run-ups in March 2003 and March 2009 registered enviable unrealized gains of 35% and 65% respectively; each advance experienced little resistance for roughly nine to 10 months.

Powerful moves off minor corrections are less typical, if not downright suspicious. Since mid-November, investors in the S&P 500 SPDR Trust have witnessed a soothing 22% ride to all-time highs.

In the last quarter century, you could probably count the number of times on your hand when U.S. stocks traveled a similar vertical trajectory for more than a half year without a significant hitch or pullback. ...

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What's Wrong With the Biggest Emerging Markets?

Thu, 16 May 2013 11:17:23 EDT

NEW YORK (TheStreet) -- In the years preceding the financial crisis, investors swarmed to the BRICs -- Brazil, Russia, India, and China. But those markets have slipped to the sidelines lately.

This year iShares MSCI Russia ETF declined 8.1%, while iShares FTSE China 25 dropped 6.7%. ETFs from India and Brazil have also dipped into the red. The poor performance of the BRICs is particularly notable because other emerging markets have been thriving. This year iShares MSCI Philippines gained 23.8%, while iShares MSCI Indonesia climbed 16.0%, and iShares MSCI Turkey returned 12.9%.

Can the BRICs regain the lead? Not yet, says James Upton, a portfolio manager for Morgan Stanley. "The BRICs are essentially broken," he said in a talk at a recent investment conference. "They all hit peak growth rates, and they are slowing down." ...

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3 Emerging Market Countries That Are Breaking Out

Thu, 16 May 2013 06:30:00 EDT

NEW YORK (TheStreet) -- Emerging market countries have been a hot commodity for years, as investors have poured billions of dollars into these economies as a way of diversifying their portfolio. These up-and-coming economies offer many attractive qualities over developed markets, which can include: Lower debt burdens, solid economic prospects, high levels of natural resources and a burgeoning workforce.

Two of the largest exchange-traded funds in this space are the iShares MSCI Emerging Markets ETF and the Vanguard FTSE Emerging Market ETF . Both of these funds invest in a diversified basket of large- and mid-cap companies in several emerging-market countries.

Below are the weightings for each of the top 10 countries in their respective ETF. Also see: When It Pays to Hire a Financial Planner >> Emerging markets peaked at the end of 2012 and have been on a slow descent ever since. Despite the double-digit returns of the SPDR S&P 500 this year, emerging markets have not risen at the same pace as the U.S. I believe that this is largely due to the trend of investors shunning risk assets in favor of more stalwart, defensive and dividend-oriented stocks....

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ETF Basics Part 2: Understanding the Differences Between ETFs and Mutual Funds

Mon, 13 May 2013 14:46:00 EDT

This is part 2 of 3. Please click here for part 1 of 3.

NEW YORK (WisdomTree) -- Even though exchange-traded funds (ETFs) have become fairly popular, we're still somewhat surprised by how often people misunderstand the differences between them and mutual funds. It's natural to compare the two, as they are both pooled investments, but we think that understanding the difference in the way the two are structured and traded may help investors choose the investment type best suited to their investment goals.

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TIPS ETFs May Not Protect You From Rising Rates

Mon, 13 May 2013 10:20:16 EDT

NEW YORK TheStreet -- Last week we looked at ways to reduce fixed-income portfolio risks for when interest rates eventually start to move higher.

One segment of the bond market not discussed was Treasury Inflation-Protected Securities, which are more commonly referred to as TIPS.

Simply speaking, the par value of TIPS is increased consistent with the reported rate of inflation. TIPS also pay a lower rate interest at initial auction than comparable Treasuries. By holding TIPS, long-term investors benefit from the inflation adjustments and receive regular interest payments. ...

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Institutional Investors Consider the Convertible Bond ETF

Mon, 13 May 2013 06:00:00 EDT

NEW YORK (ETF Expert) -- There have been precious few opportunities to purchase U.S. stock weakness over the last seven months. Specifically, the smallest dips have reversed course quickly, always finding a way to grind higher. On the other hand, some exchange-traded vehicles along the more modest rung of the risk ladder have caught the attention of institutional buyers. Consider SPDR Barclays Convertible Securities . This ETF seeks the price and yield performance of the Barclays U.S. Convertible Bond Index > $500M -- an index that tracks U.S. convertibles with issue sizes greater than $500 million. With a slight increase in Treasury bond yields pressuring income assets over the past few days, sellers have pushed the price of CWB lower. However, during last week, CWB witnessed $45 million flow into the fund for a 4% increase in assets under management. The trading occurred on nearly five times the average trading volume. At present, CWB delivers an approximate annual yield of 3.75%. It has also been adept at capital appreciation in 2013. Year-to-date, CWB's total return is roughly 8.25%. Since the November elections, CWB has rocketed higher alongside gains in broader U.S. equities. Technical analysts might be more impressed with the exchange-traded fund's ability to bounce higher on every minor pullback to a 50-day moving average.

Why would an institution that purchases in large blocks pursue convertible bonds in the first place? After all, the annual yield is not necessarily a steal at 200 basis points above comparable Treasurys, at least not with the potential for convertibles to sell off sharply alongside a stock scare. The most likely reason is the pressure that institutional investors face with respect to putting cash to work. Consider the money manager who has waited patiently all year for stocks to correct a modest 5% -- an event that has happened each year in the first five calendar months since 1996. Alas, the market has kept on climbing like the Energizer Bunny on his way to the peak of Mount Everest. The institutional money manager may continue to wait with a higher-than-desired cash allocation, or he/she can look for a middle-of-the-road compromise. I believe that a cautious institution determined that if the market keeps rising, CWB will garner some of that upside; if markets sell off, CWB should not experience as much of the downside. Moreover, the monthly payouts of a decent annual yield could work well if the summertime moves sideways. In other words, someone may have made the decision to participate without chasing. The question that an individual investor may need to ask himself/herself is whether CWB is a reasonable compromise for excess money market dollars. Personally, I would be more inclined to wait for a modest pullback to a price point of $42.1 at the 50-day. What's more, I would be equally cognizant of an exit approach, utilizing a stop-limit loss order near $39.1. When the S&P 500 fell 19.8% from top to bottom in the summer of 2011, CWB dropped roughly 17.8%. That may be more downside risk than a number of income enthusiasts have in mind.

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Protecting ETF Portfolios From the Currency Wars

Sat, 11 May 2013 06:30:00 EDT

NEW YORK (ETF Expert) -- The last week has witnessed a renewed interest in foreign equities. In spite of a deepening recession in Europe, questions about China's growth, declining worldwide demand for commodities and little evidence of a self-sustaining global economy, some investors are filling their suitcases with overseas shares. Valuation "wonks" might describe the phenomenon in simplistic terms; that is, investors obviously recognize the earnings yields are compelling. The problem with this assertion is the fact that price-to-earnings bargains relative to U.S. stocks have existed for at least two years. More likely, investors love activist central banks and they expect foreign central banks to lower rates and/or devalue currencies. Back in December, before many folks caught up with the trend, I discussed why a hedged investment in Japanese stocks had enormous potential. (See "A Foreign Stock ETF for a Rapidly Declining Currency." Since that time, WisdomTree Japan Hedged Equity has packed on an astronomical 41.5%. Similarly, one should not be surprised when declining foreign currencies help pique desire for foreign equities. Recently, the European Central Bank cut its target rate from 0.5% to 0.25%. The Bank of Australia also lowered its benchmark to 2.75%. New Zealand's central bank explained that it is actively intervening in its currency markets to reduce the value of the New Zealand dollar. While Thailand has yet to act to depreciate the "baht," its central bank is widely expected to cut rates or implement other measures to devalue its currency. Rate cutting, quantitative easing and obvious efforts to devalue currencies are the primary reason for stock price appreciation in the United States and Japan since the bull's March 2009 inception. In contrast, less-aggressive central bank activity in some countries and regions have hindered interest in the market-based securities of those areas. WisdomTree India Earnings has been one of the biggest year-to-date losers due to the country's trade deficits, inflationary woes and currency appreciation. There is a reason that many are suddenly smitten with funds like iShares MSCI Pacific and iShares MSCI All-Country Asia excl Japan. In essence, it is the signals being sent out of by the central banks and governments of Asia-Pacific sovereign nations. They plan on fighting back.

Countries like South Korea, the Philippines and Thailand rely on exports to fuel their growth. While more mature countries such as Australia and New Zealand may be less-dependent on exports than emerging market counterparts, Australia and New Zealand depend a great deal on exporting natural resources/materials. It follows that alongside the massive decline in the Japanese yen, investors should expect a substantial increase in Asia-Pacific central bank intervention to depreciate respective currencies. Although stock investors may be looking out at the currency landscape and placing trades accordingly, currency ETFs representing countries in the Asia-Pacific region have yet to make dramatic moves. But they will. In fact, some analysts believe that a fallout from these currency wars may be less than 18 months away. Nevertheless, you might want to steer clear of excessive exposure to Asia-Pacific currencies where central bankers are determined to knock them down several pegs.

The problem for investors is determining how long to continue investing in the stock ETFs of depreciating currencies. One can go with WisdomTree Europe Hedged Equity to protect against the possibility of a rapidly declining euro; one can go with DXJ to protect against a rapidly declining yen. Perhaps one can short CurrencyShares Australia Dollar while simultaneously owning iShares MSCI Australia. In the end, however, a race to the bottom in the currency wars could wreak havoc on the global financial system. An astute investor better know how and when to exit riskier assets if he/she expects to be successful over the longer term. ...

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