January 27, 2007: Weekend musings and ETFs

As many are aware, there are almost 375 new ETFs being considered for launch. To capture a following, I suspect that many of the new funds will be based on strategies the average investor will find appealing (sexy?). Funds that utilize shorting tactics, "fourth world" markets, etc. may make for great social banter, but could be a pox on your portfolio. As mentioned in this blog before, never invest if, 1. you do not understand the investment and, 2. you do not have an exit strategy for the investment before you purchase it.

MSCI is intent upon producing 20,000 new indices over and above the 80,000+ they presently have. This will provide even more micro-focus content for world investment opportunities, thus creating many new ETFs. Creating sub-sectors from sectors is a good thing, in my opinion. This will allow the investor even more freedom of choice to pursue valid security bundles in heretofore unavailable spectrums. Importantly, the investor should examine the contents of the ETF before investing. Several ETF's with similar themes may have entirely different portfolios. For example, I found this to be true with oil service ETFs. Or, you may find that very few holdings make up a large part of the portfolio.

Investors may want to monitor the following ETFs. They could be attractive additions to your portfolio at the appropriate time.

Powershares Value Line Sector Rotation ETF (PYH) www.powershares.com
My reservation is that the fund may not be nimble enough to change course.Value Line is the grandfather of stock and sector rankings for quality and timeliness..

Powershares International Dividend Achievers ETF (PID)
This could be a good defensive investment with decent growth prospects. The portfolio is heavy in financials, as expected. I like the portfolio. Good currency hedge.

WisdomTree International Utilities Sector ETF (DBU) www.wisdomtree.com
Good worldwide portfolio. Not a home run, but decent currency hedge and a nice place to make a defensive stand without going to cash in a recession, if necessary.

Powershares Dynamic MagniQuant Portfolio ETF (PIQ)
Investing mechanism too detailed to summarize in one sentence. Very interesting portfolio mix that could provide solid growth and international exposure.

iShares Switzerland ETF (EWL)www.ishares.com
I own it. Really like the gold-plate portfolio.

Powershares Dynamic Buyback Achievers (PKW)
I own it. Ordinarily, I like to have a fund become seasoned before considering purchase. I like the concept, I like the portfolio and I bought it out of the shoot. US exposure and a sound criteria for the fund.

For those interested in a "green" ETF, the Claymore/LGA Green ETF (GRN) is available.www.claymore.com
Examine the portfolio carefully. The top holding is Exxon/Mobil with Wal-Mart and "big money" banks included amongst the top ten holdings. If you drive a bicycle to work and still have old Al Gore campaign literature about the house, this fund may not include companies you hold dear. Then again, it may outperform the hemp and solar power stocks of others.


New readers may want to review the post of January 25 for more specific portfolio commentary and ideas.