Keeping Up with Exchange Traded Funds

Are GM and Ford Wrecking Your ETF?

Despite the fact that the managers of the Big 3 auto makers and their unions are in Washington begging for a bailout, the stock prices for General Motors (GM) and Ford (F) both continued their long declines.  How are your ETFs affected?

A tool that we like to use is on SmartMoney.com's website.  Pull up a quote and then click on "Holders" to see which funds have large exposure to the stock.  Click on ETFs to screen out mutual funds.

Checking GM first shows that PowerShares FTSE RAFI Consumer Goods Sector Portfolio (PRFG) still has 3.5% of its portfolio concentrated in America's largest automaker.  PRFG is fundamentally weighted and is rebalanced and reconstituted annual

LVL Gets a Complete Makeover

The Claymore/S&P Global Dividend Opportunities Index ETF (LVL) recently received a complete overhaul.

Until September 30, LVL was known as the Claymore-BBD High Income Index ETF and tracked an index of U.S.

Would You Like Taxes with That?

The Wall Street Journal recently revisited one of the main differences between mutual funds and ETFs - capital gains distributions.

In the article, Fund Investors Face Risk of Tax Hit Despite Losses, the Journal points out that despite a year in which the average U.S.

90% of Mutual Funds Underperform Through Q3

Now that Q3 is over, we now know that 9 out of 10 managers of midcap stock funds failed to beat the S&P MidCap 400 Index according to a report in the Wall Street Journal.

Over the past 12 months ended September 30, the average midcap fund returned a negative 23.2% versus a decline of 16.7% for the index.

The Journal calls the performance of the actively managed funds "abysmal".

Actively managed small-cap mutual funds did little better over the same time period.

Hitting Singles with Small Cap Value ETFs

As the broad market struggles to climb back from new lows, one group of stocks are doing just fine.

Small cap value stocks are up for the week, the month, QTD and 5% YTD while the rest of the market is down 15% on the year.

The Russell 2000 Value Index Fund (IWN) tracks the performance of the small-capitalization value sector of the U.S.

Fannie Freddie Fallout and ETFs

The government bailout over the weekend of Fannie Mae and Freddie Mac has resulted in huge losses today for shareholders of the two firms.

As of mid-day Eastern, the common stock of both Fannie (FNM) and Freddie (FRE) are down over 80% as a result of the takeover.

The takeover was ultimately a result of bad policy and ties that were too close between managers and politicians - for one example, see the 2006 post Crackdown on Fannie Mae Corruptocrats on conservative writer Michelle Malkin's blog.

The ETF with the greatest exposure to Fannie Mae is the PowerShares FTSE RAFI Financials Sector Portfolio (Continue Reading »

Safe Harbor ETFs

In a market that is down for the year and continues to present an uncertain outlook, which ETFs have managed to hold onto their value at this point in the year?

Setting aside the volatile energy and commodities sectors and the idea of shorting financials, we were still able to find five ETF categories that are unchanged or even higher from January levels.

Water

A slow but steady grower, domestic water ETFs haven't gone up much but haven't gone down either.

ETF ACADEMY: Am I Exposed?

Ford Motor Company (F) announced today that it plans to dilute shareholders to the tune of $500 million to buy back debt.  As an ETF investor, you should be asking yourself - "Which of my ETFs are exposed to Ford?".

One way to figure this out is to manually review the holdings of each of your ETFs.  A faster way to get to the answer is to use a reverse look-up tool.

There are 2 main tools that we use at ETF MarketPro and both are free.  (If you have another tool that you like, let us know).

The first tool is from Yahoo Finance.  Open the page for any stock and look in the navigation bar on the left side of the page for "Components".  Click on this link and Yahoo will tell you which indices include the st

$100 Billion a Year Wasted on Trying to Beat the Market

This year's Presidential Address to the American Finance Association (AFA), The Cost of Active Investing, concludes that investors spend 0.67% of the aggregate value of the market each year searching for superior returns.

On a capitalized basis, the cost to society of trying to beat the market is at least 10% of the current market cap.  In dollar terms, investors are spending $100 billion every year on excess fees and trading costs.  Capitalized at 10%, the spending has the cumulative effect of reducing investors' wealth by over $1 trillion.

Where is the money going and how do investors avoid this wealth destruction trap?

Dartmouth Professor Kenneth French, president of the AFA, published the study in the August 2008 edition of the Journal of Finance. 

Another Black Eye for Mutual Funds

The SEC has fined a well respected Mutual Fund manager for allegedly violating its own investment policies.

The Wall Street Journal article Pax Funds Strayed From Its Mission reports that Pax World Management Corp., one of the best-known "socially responsible" investment firms, settled SEC charges that it violated its own rules against purchasing shares in companies involved in such businesses as defense, alcohol, tobacco and gambling.

The SEC alleged that, from 2001 through 2005, Pax World Growth Fund and Pax World High Yield Bond Fund failed to screen 41 stocks and bonds at all to see if they met socially responsible criteria.  Pax agreed to pay a $500,000 fine to settle the charges.

ETFs Do a Better Job of Stay