ETF Prime Archive

US Dollar ETFs For The New Year

Many currency experts are expecting the U.S. dollar to rally in 2010 and gain back some of the ground that it lost in 2009 and for good reason.

One reason for the expected rally is due to the Federal Reserve’s decision to hold interest rates steady, states Alexandra Zendrian of Forbes.  Traditionally, when interest rates are low, currencies perform poorly, but in this case, keeping interest rates low may be a good thing for the dollar when compared to the Euro and the British Pound. 

The Euro and Pound, both which gained enormous ground against the dollar, are both facing uphill battles as fiscal problems in some of the Eurozone nations like Spain and Greece are expected to put a damper on the strength of the region’s economic recovery.  Additionally, signs of economic strength in the U.S. appear to be more evident than in Europe.

A second reason that the dollar is expected to gain some appeal is the desire of foreign investors to utilize the currency as a safe haven.  Although many international regions are expected to post GDP growth in 2010, these regions are still somewhat unstable and many investors are likely to turn to the dollar for protection. 

From an investor’s perspective, ways to play this anticipated trend in the dollar include the following:

• PowerShares DB US Dollar Index Bullish (UUP), which uses futures contracts to go long in the dollar against a basket of currencies including the Euro and the Pound and carries an expense ratio of 0.50%.
• ProShares UltraShort Euro (EUO), which enables investors to gain twice the inverse performance of the Euro against the dollar and carries an expense ratio of 0.95%.
• CurrencyShares British Pound Sterling Trust (FXB), which seeks to track the price of British Pound Sterling and carries an expense ratio of 0.40%.  An investor can short this ETF to bet against it.

Real Estate ETFs Suffer A Blow

At a time when exchange traded funds (ETFs) continue to innovate and providers continue to launch new products, two ETFs that were the only true plays on residential real estate have decided to close their doors. 

MacroShares has decided to close its MacroShares Major Metro Housing Up Trust (UMM) and its MacroShares Major Metro Housing Down Trust ( DMM), two ETFs that tracked U.S. home prices based on the S&P/Case Shiller Composite-10 Home Price Index.  The underlying value of these trusts will be determined based on the November 24, 2009, release of the Reference Value of the S&P/Case-Shiller Composite-10 Home Price Index,  plus adjustments up or down for interest and expenses accrued in the trust for the period. 

A final distribution payment, based on this underlying value, will be made on January 6, 2010, to shareholders on record as of December 31, 2009.  It doesn’t come as too big of a surprise that these funds are closing their door since their trading volume had remained relatively low, with total volume exceeding 10,000 shares in a day only three times in the last three months and some days seeing no shares being traded at all.

This is a blow to real estate ETFs, but there are still plenty of ways to play the sector.  One can utilize the SPDR S&P Homebuilders (XHB), which carries an expense ratio of 0.35% and holds companies like Lowe’s (LOW) and Home Depot (HD).

Another ETF to consider is the iShares Dow Jones US Real Estate (IYR), which holds companies like Simon Property Group (SPG) and Public Storage (PSA) and carries an expense ratio of 0.48%.

A third play is the Vanguard REIT ETF (VNQ), which carries an expense ratio of 0.15% and holds companies like Vornado Realty Trust (VNO) and Boston Properties (BXP).

Getting Religious With ETFs

As the appeal of ETFs continues to grow, so to does the innovation in and the types of ETFs offered to investors.

In an attempt to differentiate themselves and gain appeal with religious-minded investors, ETF provider FaithShares recently launched a line of five ETFs which enable investors to invest with religious tendencies in mind. All five of the funds follow the beliefs of the Christian denomination, carry an expense ratio of 0.87%, hold 100 large-cap well known stocks and avoid companies that are involved in pornography regardless or whether it’s in a magazine or on an online website like https://www.tubev.sex/?hl=de, gambling both online and in the real world such as casino’s or betting shops for example, firearms, tobacco, alcohol, etc. Additionally, all of the ETFs track custom created indexes developed by FTSE and KLD Research and Analytics.

The five ETFs include:

• FaithShares Catholic Values ETF (FCV), which includes Capital One Financial (COF) and American Express (AXP) in its top holdings.
• FaithShares Christian Value ETF (FOC), which includes Nordstrom (JWN) and Southwest Airlines (LUV) in its top holdings.
• FaithShares Methodist Values ETF (FMV), which includes Starbucks (SBUX) and Aflac (AFL) in its top holdings.
• FaithShares Baptist Values Fund (FZB), which includes Ingersoll Rand (IR) and Cummins Engine (CMI) in its top holdings.
• FaithShares Lutheran Values Fund (FKL), which includes Google (GOOG) and FedEx (FDX) in its top holdings.

For additional exposure to religious themed ETFs, one can also take a look at the JETS Dow Jones Islamic Market International Index ETF (JVS). JVS consists of 100 non-U.S. companies and gives diversified international exposure. The ETF carries an expense ratio of 0.68% and includes British Petroleum (BP) and Novartis (NVS) in its top holdings.

The Benefits Of ETFs

One of the most favorable characteristics that ETFs have is their flexibility, or ability to be traded like stocks (Forget Stocks). 

This characteristic is beneficial because it enables an investor to get continuous intraday pricing and the ability to buy or sell a basket of securities throughout the trading day.  This further translates to pricing transparency, in that at any given time, an investor knows exactly what the price of an ETF is.

Additionally, ETFs can be sold short, just like stocks.  This characteristic enables investors to bet against an entire sector, region, etc., as opposed to just one stock.  For example, if an investor wants to bet against financials, they can short the Financial Select SPDR (XLF) which will give them short positions in Bank Of America (BAC), JP Morgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) all in one trade; this will also reduce transaction costs.

Some other characteristics of ETFs include that they can be traded on margin and investors have the ability to buy/write call or put options on the ETFs.  ETFs also enable one to manage risk relatively easily through the use of limit and stop loss orders (Something To Consider With ETFs). 

When it comes to choices, there are plenty of ETFs to choose from.  There are basic indexes like the S&P 500 SPDR (SPY), sector specific indexes like the iShares Dow Jones US Real Estate (IYR), commodity based indexes like the US Oil Fund (USO), country specific indexes like the iShares MSCI Malaysia Index (EWM), currency specific indexes like the CurrencyShares Japanese Yen Trust (FXY) and many more.

In fact, ETFs continue to gain popularity as illustrated by the total net inflows of $14 billion in November, which marked the ninth straight month of net inflows into ETFs.

ETN Market Gets A Boost

Barclays Capital recently announced the launch of the first exchange traded note (ETN) that is traded in the Asian region (Other Ways To Play Asia).  This new ETN will be traded on the Singapore Exchange and will track the Dow Jones-UBS Commodity Index.  The ETN will enable investors to gain exposure to energy, industrial metals, precious metals, livestock and agriculture and will come with the benefit of not having tracking errors (More on Tracking Errors). 

The launch of this new product comes at a time when the iPath family of ETNs has been facing some hurdles.  U.S. listed commodity based ETNs linked to oil and natural gas, like the iPath S&P GSCI Crude Oil Ttl Rtn Idx ETN (OIL), came under pressure a few months ago when investors feared that the Commodities Future Trade Commission (CFTC) was going to impose strict position limits and restrictions that would eventually distort prices. 

A second blow to ETNs came last week when Barclays stopped issuing new shares of the iPath MSCI India ETN (INP) after Indian regulators barred it from trading offshore derivatives that were linked to Indian stocks (More on India).

Despite these temporary setbacks, the iPath ETNs continue to attract assets and offer investors an easy, cheap and relatively liquid way to access hard to reach markets.  As a result, there are more than 30 different iPath ETNs which comprise over $5 billion in market capitalization.