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ETF Updates Archive

Beware Closed End Funds

You may be looking over the jaw-dropping discounts and dividend yields for closed-end funds and be tempted to jump in with both feet.

According to the Wall Street Journal, who quotes Morgan Stanley Research, the weighted average discount for the 650 U.S.-listed closed-end funds has widened from 6.2% to 15.6%.

In the past, when discounts widened on closed-end funds, it was a buying opportunity.   The logic was that eventually the discount would narrow again and in the mean time, since most closed-end funds pay dividends, you would be paid to wait.

This time it is different.  Investors are jumping ship from closed-end funds because most of them, 72% to be exact, are levered with debt.

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Time to Revisit TIPS

One of the side-effects of the recent market tumult is the drop-off in demand for government securities tied to inflation or TIPS.

As a result, prices have dropped and real yields are back above 2%, the recommended minimum to offset expenses and tax implications.

According to the Wall Street Journal, the yields on 10- and 20- year TIPS jumped to recent highs of 2.3% and 2.6% last week after factoring in inflation, from 1.2% and 1.8% respectively, just six months ago.

With asset and commodity prices dropping, near term inflation expectations are very low if not negative.  However, the massive printing of money by central banks around the world to address the credit crisis will eventually create a new inflation

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Is Anything Going Up? Try Apartments

With almost all asset classes and sectors coming down in value, it is getting harder to find anything that is going up.

One place to look is in a few subsets of REITs.  As you might expect, REITs that specialize in healthcare, storage, and apartment buildings have either held their own or have even gone up YTD.

In hindsight, this makes sense.  Hospitals tend not to go out of business or move across town, so health care real estate is pretty stable.  The high number of foreclosures are causing people to put their stuff in storage and move into apartments.

An ETF that specializes in multifamily residential is the FTSE NAREIT Residential Index Fund (REZ).

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Rydex and ProShares News is a Non-Issue

The decision by ProShares and Rydex to stop creating new shares of their short financial ETFs shouldn't affect most individual investors and can actually be viewed as a sign of maturity and confidence in the ETF Industry.  Here's why:

1. Cutting off new money is a long-established practice by conscientious fund managers.  When investment opportunities dry up, good managers stop taking new money.

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Flight to Safety

Continuing nervousness over banks drove stocks down and caused investors to flee to the relative safety of gold and US treasuries in trading on Wednesday, September 17.

The $15 billion ETF SPDR Gold Trust (GLD) jumped nearly $10 or 13%.  Competing funds COMEX Gold Trust (IAU) and PowerShares DB Gold Fund (DGL) also rose 13%.

Investing in short term US Treasuries is also easy with ETFs.  The SPDR Barclays Capital 1 - 3 Month T-Bill ETF (BIL) trades at just under $46 and changing treasury yields are reflected in the dividend.  The h

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Showing 81 - 85 of 110 Articles

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