The GlobalX China Materials ETF (CHIM) is now up and running. I had a chance to look under the hood a few days ago and was impressed by the fact that I recognized very few names in the fund.I made that observation to one of the execs at GlobalX (the one who sent me the index info as a heads up) and he said that the index provider did a good job of populating the fund without overly relying on the mega caps. As a follow up to yesterday's post I would say that materials could be considered as part of the build up and out of the country's infrastructure.
I'm in the process of exploring whether or not to swap a stock out for an ETF of the same theme. There are two ETFs I could choose from. They are both very similar but one's assets are over $1 billion and the other is double digit millions. The respective volumes are lopsided as well. As it turns out the slim differences between the two have not mattered performance wise and the smaller one is a little more expensive.
So if I do the swap I'll buy the bigger fund. In this case the choice of funds is unlikely to matter and an individual investor looking at the same two funds could easily buy 200-500 shares as a position to hold. In order to do the swap I have in mind I would have to buy in the low to mid five figures (share amount) but not enough for a creation unit. It would probably not make sense for me as a small portfolio manager (I mean AUM not my height) to buy the smaller fund.
In concluding this I had a small epiphany; most portfolio managers looking for access to the space will have no choice from a logistics standpoint but to buy the larger fund making it very difficult for the smaller fund to ever gain traction. Yes there is an element of stating the obvious here but a fund forced to rely on getting by 300 shares at a time has a good shot of ending up on Ron Rowland's deathwatch. In this light why would an individual buy the smaller fund? Unfortunately this makes the case for fund providers avoiding me-too specialty funds altogether which I do not view as a positive.
The picture is from the Dakar Rally and is of Robby Gordon's H3 Hummer. If I understand what I am hearing on the video from the Versus website (we have Directv and Versus was pulled) then this year he is running it with a two-wheel drive H3 which is why he had to go through this spot like that. He would have bogged down in the sand had he not gone up the side. Who am I to second guess the two-wheel drive decision (if I even have that right) but it is a neat picture.
Short post today.
7 comments:
THanks for the death watch link. Any thoughts on the news out of FPL?
L.D.
Roger,
the FXI was the worst BRIC country in performance last year by a wide margin -- but it STILL went up more than 2x the amount of XLE or XLF or XLU and others. So owning China was bad relative play vs its niche but a great relative play in big picture sense. Does owning specifically a materials China ETF really make sense for most people? this is a sub-sector of a single emerging market country. relative to a diversified portfolio, is it really worth the liquidity issue?
i have no idea if it makes sense for most people. I don't want financial exposure in China so FXI is out as far as I am concerned.
that it went up doesn't necessarily mean anything. if you put 100% into one stock that then doubled did you take a risk? yes but the risk worked out. i am not willing to take the risk of Chinese financials personally or for clients. I have no idea what you should do.
thanks. ok, I didn't get that your main thought was to avoid specifically Chinese financials.
I agree on the 100% issue, diversification the core of our portfolios.
I came up with a low-risk strategy idea to capture that 'idea' tell me what you think if you get a chance:
Long Emerging Asia Tilt. Risk of underperformance limited to big outperformance by Chinese stocks --- which is unlikely if Chinese financials have trouble. Note 'risk' (volatility) of this long/short tilted strategy is low.
http://tinyurl.com/yj9d4x8
Nice post regarding the insight for marketing dynamics of size for ETF's. PS: Bought some SDS about two weeks ago as downside insurance.
Thanks,
Sam
Size and liquidity of a fund certainly do make a difference: In the end its just a product like any other and if sales are insufficient then it will be pulled from the shelves. Wish more investing consumers understood this.
For that matter it would do most investors good if they understood what the product they were buying was supposed to do; e.g., everyone knows what buying a refrigerator is supposed to do but why exactly are you (speaking figuratively) considering purchase of that emerging market infrastructure fund?
Gordon's 2WD Darkar Rally decision is interesting -- an H3 is hardly a dune buggy -- would love to see the calculation from his team but assume the increased probability of getting stuck was worth the tradeoff for fuel efficiency or whatever parameter they were looking at (from personal experience I can say that 4WD can get you into a lot more trouble than it can get you out of so I doubt the tradeoff was nonsensical, just not sure what they might be looking at).
2WD is better for high speed steering and maneuvering I would think. The little I know about rally racing with cars is that smoother AWD and limited slip differentials are more prevalent than 4WD and locking diffs.
I guess, as long as you don't get stuck, then driving in 2WD is less "grabby" than 4WD. Auto-4WD and certain traction control systems can introduce unpredictable handling which might cause a professional driver to prefer 2WD.
I haven't driven an H3 but in my Explorer the electronic locking "hubs" can lock up pretty quick at the push of a button. Presumably Gordon could switch to 4WD quickly enough when needed...
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