A few things this morning; no big whoop.With a hat tip to Richard Kang the first (in the US) infrastructure ETF is on the way very soon. You can read Richard's write up here and the Bloomberg write up here.
Macquarie is behind this one, you probably know about there other US listed products, none of which are ETFs.
This coming ETF owns stocks as opposed to MIC (personal and client holding) which invests directly in different infrastructure-like assets. Macquarie has funds like MIC listed all over the world, this is something they know how to do very well. My initial reaction is that I would rather not own this new ETF in favor of MIC. The coming ETF has a lot of US exposure so in order to buy it I would need to think it provided unusual access to the US but stay tuned. Macquarie has indices created that would lend themselves to other ETFs from places like Asia, Australia and Europe which could be more interesting, stay tuned.
With a hat tip to Tom Lydon, the ProShares sector funds, the ones that go short, will be coming soon as well. ProShares quietly listed ETFs that go double long, short and double short the Russell 2000 and S&P 600. These funds will open the door to all sorts of very inexpensive market neutral strategies. One big plus is that short exposure can be created with out having to pay interest or the dividend. If the existing inverse ETFs haven't done so already, these funds stand to do some funny things with short interest readings. Going forward the people that follow these things may need to factor the assets in these funds into their analysis.
Marc Faber gave his picks in the Barron's roundtable this weekend. As usual, most of his ideas are not easily accessible to US based, retail investors. He said the 30 year treasury is a great short, he likes Malaysia and some soft commodities among other things.
One reader left a question asking about the run up in Vanguard REIT ETF (VNQ). He noted that it is up 7% YTD, he also said the PE was 45 and wondered if that is high. I can't vouch for the PE but if correct it seems high to me and I also do not know whether it is up 7% or not but will take his word.
Equity Office (EOP) is one of largest names in the fund. EOP is in the middle of being sold and has moved a lot lately. Two other holdings, that I checked, are also up what appears to be 10% YTD. While this may be an unlikely answer, I wonder if the money that has rotated out of bonds, as ten years have gone up in yield, has gone into REITs? That is not how it usually works but maybe and combine that with the deal action and that could be an answer.
Lastly thank you for all the comments about my laptop issue. I got some great input and Joellyn no longer things I am being unusually rough on my laptop. There is an Apple store in Phoenix, I think there's one at the Biltmore, so I will check them out but am dubious about Schwab Institutional's java trading platform. It seems line Think Pads are the way to go if I stick with windows-based. We are taking a trip in April so I hope I will have it all mopped up by then. Seriously, thank you for the input.
6 comments:
REITs shouldnt be calculated in terms of P/E ratios. Due to the unquie nature of income producing properties they have traditionally be valuated in terms of Price / Net Opperating Income. Here is an example/explaination: http://www.investopedia.com/articles/04/112204.asp
REITs have historically traded at low Price/NOI ("P/E") ratios similar to those utilitie's P/E. They provide a good dividen by the nature of the thier tax structure. I saw this a lot durring the holidays. It is Sam Zell's voice who is the founder of Equity Office Properties (EOP). http://yieldsz.com/ He is explaining how the massive amounts of liquidty in the world is driving up the price of income producing properties; ie REITs. The price of many properties have doubled or tripled in the last 3-4 years. And cap rates are so low that the income streams generated by the properties pale in comparision to the price of the securities. About a year ago I read an articile that said many REITs were actually borrowing against their holdings just to pay a dividen. Now thats upside down.
What is your analysis of the comments made against ETFs in the Neil George selection below. What part of his complaints are valid or important (other than knowing what is in the index you're buying and about what percentages) to choose etf's more effectively or to eschew them for individual stock, bonds, or cefs?
Neil George newsletter:
WRONG IDEA
It’s the latest thing that has a lot of advertising cash
behind it, and it’s luring more and more folks into the
quagmire of yet another Wall Street means of picking off the
little guys.
The new idea? Exchange traded funds (ETFs).
Think about it: When was the last time Wall Street came at us
with a product that was supposed to make our investing
experience “easier” and more profitable and it actually ended
up being all of that for us?
I can’t think of one either.
Instead, whenever brokers, fund managers and advisors roll out
a new product, we should start by asking the simple question:
“What’s in it for them?”
On the surface, ETFs look like a good deal. They’re put
together to track an underlying index, such as a Treasury bond
index or a host of stock indexes (e.g., the S&P 500, Dow Jones
Industrial Average) or numerous other market indexes for
stocks and bonds inside the US and from select markets around
the world.
Rather than going about building a portfolio of stocks to get
exposure to certain expected developments in the economy
and/or markets, all you have to do is buy a few ETFs and the
job is supposedly done.
And the biggies in the business are advertising and promoting
them like there’s no tomorrow, resulting in a surge of
investor buying.
That buying has resulted in a current market of around $350
billion and climbing. By some credible estimates, that sum may
well head over $1 trillion in the coming years.
But just because everyone is doing something in the markets
doesn’t make it the best course of action. Sure, there are
some near-term advantages for using ETFs for shorter-term
trading like many institutional and hedge fund investors do.
But for long-term investors, investing in ETFs isn’t the right
move to make.
As I’ve been writing during the years, investing in any of the
biggies that dominate a market index--whether in bonds or
stocks--is the wrong way to wealth. Whether it’s the generic
US government bond market or the stocks in the Dow Jones or
the S&P 500, all you’re going to get by putting more cash
toward them is meager returns.
Even if you hone in on more-specific market indexes that track
more-targeted industries or market sectors in bonds or stocks,
at best you’re going to get most of the performance of that
index net of fees and commissions. At worst, there’s no
guarantee that even the most-optimistic market will drive an
index and its related ETF higher.
Instead, it pays to focus on investing in the best bonds,
stocks and active funds and not just the index, especially
long term. ...
But ETFs’ underperformance isn’t the only strike against them.
We need to know what’s really behind the index funds. We start
with the first bit of trouble behind the scenes: how they’re
built and traded.
Each ETF is made up of two different traded batches of stocks
and/or bonds. The first is the shares trading on the American
Stock Exchange and other exchanges that represent the basket
of shares, cash and derivatives that are supposed to track the
specified indexes. These are priced by the buyers and sellers
throughout the trading day.
The second is the creation units that are the actual stocks,
bonds, cash and derivatives, which only Wall Street’s biggies
trade.
At the close of each trading session, each ETF manager
publishes the current holdings of its fund, and the select
group of institutional and hedge fund traders can either buy
or sell their basket of the same items to the managers.
This means that during the actual trading day, while ETFs are
supposed to always trade at the net asset value (NAV) to the
tracked market index, they can vary substantially for many of
the foreign stock and less-transparent markets, like bonds.
Institutional traders know this and can trade against the
market and cash in every day against the fodder of the
individual investor.
Even during the trading day, hedge funds and their prime
brokers use ETFs as their prime trading vehicles, making bets
on both sides of the market index. That helps drive up trading
volume and transaction costs for the market and the ETF funds.
The bottom line: When it comes down to the nitty-gritty of
ETFs, investors pay.
It’s always what’s in it for Wall Street. For ETFs, it comes
down to providing another means for the biggies to trade with
individual investors’ capital. But it also gets more
challenging beyond the trading part of the market.
Never put your money down without understanding what’s inside
the investment. This is all the more important when it comes
to ETFs.
Fund companies wanting to pull in more assets and fee income
are stepping up with newer mixes of stocks that are supposed
to track the indexes of either their own making or those with
other axes to grind.
Let’s look at a popular new ETF, PowerShares Global Water,
which Amvescap runs. The ETF’s name implies a major index in
an increasingly attractive market segment.
But in reality, the ETF merely tracks a new index created by
two investment banking companies, Hydrogen Ventures and
WaterTech Capital. The resulting Palisades Water Index is made
up of a collection of companies that have little or nothing to
do with water.
Would it surprise you to know that the index tracks companies
like 3M, General Electric, ITT Corp, Ashland Corp and Emerson
Electric? Perhaps somebody in the water industry will use some
of their parts, but these aren’t the major water companies of
the world.
Some of the other companies in the index, including clients of
Hydrogen Ventures and WaterTech Capital, have done deals with
select members of the index. Are the index and the ETF meant
to provide true global exposure to major water companies or
were they created for some other purpose?
Two of the leading owners of global water resources—Suez and
its peer across town in Paris—represent barely 1 or 2 percent
of the index.
For my money, buy the water companies--not the PowerShares
Global Water ETF.
But there’s more bad news on ETFs.
The whole idea of ETFs is to buy into indexes that represent
the market in an efficient and low-cost vehicle. But you need
to know what you’re buying.
The newest version of ETFs aren’t even indexed but are
actively managed like mutual funds.
PowerShares and WisdomTree Investments are leaders in ETFs
that use “dynamic indexing.” This is a euphemism for allowing
them to put any stocks they please into the ETF and changing
them along the way.
This may solve the problem that ETFs merely perform with the
market rather than better than the market. But that’s not what
ETFs are being pitched to do.
If you’re buying into a dynamically indexed (read actively
managed) ETF, you’d better get to know the managers behind the
fund and the index because you’re buying the stock-picking
skills of the managers rather than getting a straightforward
index investment.
You also need to know how the management of the dynamic or
static index is picking its stocks and its weightings. First
it was mutual funds, then annuities and now ETFs. Two simple
words for investors: caveat emptor.
Neil J. George, Jr.
FYI - You can get free access to Wall Street Journal, Zacks, Morningstar etc with a free Netpass from:
http://news.congoo.com
amazing financial news too.
Sharon,
That was an odd post I have to say. Is Mr. George's newsletter something he sells or does it support something he sells?
A few things. ETF providers make a big business out of ETFs. The Wall Street "biggies" aren't the ones making ETFs.
I'm not sure meager is word to describe indexed returns over long periods of time when compared to a lot of active management. How many studies show indexing is better long term?
He notes the assets are $350 billion, now it is above $400 which is smaller than XOM. Even at $1 trillion it is not too big.
Only Wall Street "biggies" trade the creation units? No kidding, they are 50,000 to 100,000 shares.
Why would knowing what is in an ETF be more important than anything else. Looking under the hood is crucial for any investment, not more so with ETFs.
His comments on the Water ETF strike me a a half truth. Some holdings are very involved and some less so. PHO (personal holding) is a good way to capture the general effect. I have said many times that I doubt it will be the best way forever.
WisdomTree has some quirks but the the midcap dividend ETF is always going to capture the higher yielding segment of the mid cap segment.
ETFs provide a way to access many markets. For some markets ETFs are the best way to go and for many others it is not. I have said continuously that i am not a fan of all ETF portfolios.
I have to wonder if Mr. George has and agenda here.
Neal George is the current editor of the newsletter Personal Finance. Prior to Mr. George, Personal Finance was edited by Stephen Leab, and prior to Leab it was edited be Richard Band, prior to Band it was Adrian Day. This thing goes way back to the mid 1980’s at least. According to my last issue of The Hulbert Financial Digest, which is many years old, Personal Finance is a slightly underperforming newsletter with slightly lower than average risk. The newsletters income oriented portfolios tend to perform best.
Thanks Roger and Anon,
I was certainly surprised at the tone of the article. I don't buy his (or any) newsletter so...but I do read the ones I get as part of the investblog premarket and a couple of other free things.
It sounds as though you don't see a great deal of information to help us choose in it either. I just wondered if I was missing it.
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