Questions From Yesterday

A lot of questions came in on yesterday's post that I'll try to answer here.

One reader asked about separately managed accounts from a firm called XTF that the reader says does sector and country rotation along the lines of the funds from Claymore (XRO and CRO). Specifically he wanted to know my take on paying for management versus just buying the funds. Well knowing nothing about XTF makes it difficult to offer too much here but...

My inclination about XRO and CRO is to wonder whether they can offer a slightly different, and better, twist on SPY and EFA for people who use broad-based products and to be clear I don't. XRO may be on its way to proving out to be better and we'll have to see about CRO. If they pan out they are better for the do-it-yourselfer.

The idea behind the separately managed account is probably that the XTF people believe they can add value above and beyond what was out there when they started and probably taking into consideration anything new that comes along. Any active manager (or quasi-active) that can consistently deliver a return (all things considered) that is right for you is will be worth the fee.

One reader is bugged by not being able to determine yield for some of the dividend products out there. For WisdomTree; go to the site, go to the index page for the ETF you care about and it says it right there. However that yield number is for the index. You then need to subtract the fee to get what the fund yields.

There seems to be a quirk with the WisdomTree dividends that I have not about other fund companies having to deal with and I am not sure I can even articulate well. If you look at Exxon Mobil you will see that it $1.40 annually. If you own 100 shares on ex-date you get $0.35 times 100 shares. If you buy another 100 shares after ex-date you still only get $35 in dividends on the paydate. As a function of new money coming in and only getting paid on the first 100 shares some of that funds have been/are paying less that what the index yields minus the fee.

I only use one of their funds as an across the board holdings and for smaller accounts I use a couple of sector funds and DNH and quite candidly the results have been very good compared to competing funds dividend quirks notwithstanding.

The most important thing to me is looking under the hood and making a judgment about whether this mix will be better than other mixes on a total return basis. This is sort of like stock picking in a way.

To get the yield info for Claymore just call them is all I can say.

LindaP asks about tax issues with the Claymore foreign stuff. I don't really know the mechanics here, but my hunch is that this is all netted out in the dividend you receive (this is nothing to due with paying tax here from your 1099). I would say to call and ask them for a better answer than this one.

Someone asked what I could dig up about "those lipper etf funds." What information have you found so far that you can leave here?

One little extra item. Very rarely does the difference between funds boil down to a 20 basis point difference in fees or a quirky tax thing. Often people don't see the forest for the trees (especially in a lot of articles I read) on these things. The back test on the new WisdomTree Earnings 500 ETF (EPS) has outperformed the S&P 500 by 1.89% annualized over the life of the back test (five years). I concede all of the ifs you can possibly think of but if it repeats that over the next five years that extra 19 basis points in fees for EPS over iShares S&P 500 (IVV) becomes the wrong thing to worry about.

Fees matter but they are not the most important thing the vast majority of the time.