Tuesday Odd N Ends

A reader left a comment over the weekend asking for my opinion about the Barron's article on investing in the water theme. Long time readers know I believe in the concept. I have owned the PowerShares Water ETF (PHO) personally and for clients since a day or two after it listed last year.

As a top down investor I think the important decision is whether to invest in theme at all. PHO may be the best way to invest or it may lag many individual stocks that are related but directionally they should be very similar. I think the theme could be huge over the next ten years so taking single stock risk seems unnecessary to me if I turn out to be right. If the theme is huge then even the index would go up a lot, again if I am right.

For people needing or wanting to make 50% this year on a water play I would say to try to pick a stock they think can deliver because I doubt the ETF will go up that much over the next year.

The NY Times had an article about the covered call funds that were all the rage for a while and that I wrote about quite frequently in late 2004, early 2005 and a couple of times since. Like most articles on the topic the focus is on the various flaws and why this is not the right strategy for most folks.

I think my take on these has been sort of unique. The concept also has plenty of proponents as well as detractors. While I do buy into the concept I have urged moderation every step of the way. Most clients own one of these funds anywhere from 2%-4% of the portfolio. I do not think the strategy or the various funds that invest this way will blow up but at 3% there is not much reason for me to devote too much time to worrying about it.

I had owned Madison Claymore Covered Call Fund (MCN) but I swapped it a short while back for Blackrock Global Opportunities Equity Trust (BOE). The reason for the swap was to maintain the same general effect but have this kind of holding spared (hopefully) if the US economy does go into a recession. Since the swap the two have moved in lockstep. If the economy never goes into recession again the two should trade similarly more often than not, I think.

On a related note European index provider Stoxx Limited just listed the Dow Jones Stoxx 50 BuyWrite Index. The general intention is to create an ETF to track the index. This is something I touched on a few days ago. I think in the next couple of years we will see ETFs on the various buy-write indices, foreign and domestic. And if they do come I'll urge the same moderation.