Quarter End

The wrapping up of the quarter allows me to provide a little evidence to a point I have been making since the start of the blog, which is that predictions about the market are useless. The S&P 500 finished the quarter up 3.73%. If you add in the quarterly dividend the total return would be about 4.13% (ETFconnect has the yield of IVV as being 1.59%). I have been saying all year that I think the S&P will finish the year between 1180 and 1219, down a little. I have not changed my opinion nor am I likely to. The prediction will either be right or wrong but for now it is looking very wrong. Despite being wrong my generic portfolio that I maintain on Yahoo Finance was up 5.28% including dividends, but excluding interest earned on cash. It probably makes sense to subtract 0.30% as a management fee (this is my guess of the average fee charged to clients), keep in mind that any one client may have done better or worse. This is not fantastic but it makes a couple of points. I wrote all along that the market showed no signs of cracking and that I was not going to try to outguess a big move in the market that may never come. If you can think of the quarter as being successful it was because I stuck to the same things that I always stick to which is being diversified, not making a lot of trades and relying on big picture themes to make overweights and underweights. I thought that telecom might be in for...

The Deficit Trade

FT.com / Your money – Philip Coggan: Rates solution may be hidden behind the fringe This is a good article about the high yielding currencies and some of the problems they are encountering right now. One important note to add here is that I find most of these places to be interesting investment destinations which is why I write about them. However this is not the right time to be heavy in them. I touched on this the other day and I would add that this is a time to learn, watch and above all be patient. A little exposure is fine and at some point they will become more attractive and have less risk than they have now. Going heavy right here would be a gutsy contrarian play, and not one I am...

More Narrow ETFs

When I wrote this morning about the very narrow healthcare sector ETFs I had no idea that the WSJ had a similar article (sub req’d), although the Journal did not mention the proposed Ferghana-Wellspring funds. At the end of the article there was a quote from someone at Barclays who said the bank is exploring Eastern European and Indian ETF. Something along either of these lines would be more useful than a gastrointestinal ETF (no offense to my client who is in that field). The article questioned whether PowerShares was offering funds that are too narrow. I was amused by a quote from a planner in Scottsdale who said that he stays away from them, the article implied this guy leaves the specialized ETFs for the bigger institutional investors. While my initial reaction to the ETFs I wrote about this morning was negative, I will still check them out. It is possible that the names of the fund will be narrower than the actual holdings in the funds. For example, a company like Pfizer might reasonably have a foot print every sub ETF proposed by Ferghana-Wellspring. We may see bigger more familiar names showing up in several funds. I don’t know but I am willing to wait and see. Perhaps most interesting in this article was that Gus Sauter said that Vanguard is closer to the end than the beginning of its rollout of ETFs. This is interesting because they were slow to get in, may not have gained the traction they were looking for and seem to be discounting the future of...

Odds N Ends

Yesterday on CNBC Asia, a graphic ran across the bottom of the screen quoting Australian treasurer Peter Costello as saying a single Asian currency is still a long way off. That it might be a long way off means it is on the table. I have been hearing about this for a while. I’m not sure which countries would be interested and which countries would not but a strong single Asian currency would yet another challenge to the US’ role as currency superpower down the road. I stumbled across this article on IndexUniverse.com about some new ETFs that have been filed for by a company called Ferghana-Wellspring. FW Autoimmune-Inflammation Index FundFW Cardiology Index FundFW Central Nervous System Index FundFW Derma And Wound Care Index FundFW Diagnostics Index FundFW Gastrointestinal/Genitourinary/Gender Health Index FundFW Infectious Disease Index FundFW Metabolic-Endocrine Disorders Index FundFW Ophthalmology Index FundFW Respiratory/Pulmonary Index FundFW M-Cancer Index FundFW T-Cancer Index Fund That is some pretty narrow action. According to the article each of the ETFs would have twenty stocks and be equal weighted. I’m not sure I could name twenty ophthalmology stocks but I assume that Ferghana-Wellspring has found that many. I forget who, maybe State Street, is going to have a medical device ETF which I can see, most clients own a device stock but do most folks need a wound care ETF? I don’t know. On issue I see with these would be that the diversification could actually create more risk than owning one company. I imagine that in the endocrine ETF there would be one or two huge winners and a lot of stocks that...

Morningstar

Greg Newton has a great article up at his site about the flaws with Morningstar’s attempt to apply its star rating system to ETFs. The article was also covered on ETF Investor and on the WSJ’s Market Beat page. I have picked on Morningstar here and on RealMoney.com more times than I can remember. Greg’s take seems to be similar to mine, it is very close to worthless. The big issue, as I see it (and Greg touches on this) is that the ratings are based on past performance. Morningstar has a lot of CFAs in its stable. Weaving together a reasonable forward looking analysis on a country, cap size or style is not that difficult to do. Clearly any effort to do this across the board would yield some conclusions that are correct and some that are wrong. If they are right more often than they are wrong they would be adding value. A while back I wrote a piece for RealMoney about Sweden possibly getting ready to have a run of outperformance. The forward looking analysis applied was quite simple. Higher GDP growth is expected (which is good for the economy) and the Riksbank (the Swedish central bank) was just starting a tightening cycle (good for the currency). So far this turned out to be correct. EWD has outperformed SPY buy about ten percentage points and the dollar is down a couple of krona cents vs. the Swedish currency. I pay attention to Sweden on a regular basis, which is how I was in touch with the idea. I can guarantee that at some point the same...