NEW YORK (
) -- Don Dion posts his current insights on the stock, bond, commodity and currency markets in his
blog, anticipating which ETFs will be in play next. Among his blogs this week were the following, in which he wrote about Van Eck's new gold miner ETF, a negative development for networking ETFs and the asset that would benefit from an appreciating Chinese currency.
Van Eck ETF Captures Golden Moment
Posted 11/11/2009 6:31 a.m. EST
Great timing. Traders and investors will be able to buy Van Eck's Market Vectors Junior Gold Miners ETF (GDXJ) at the open, just days after gold crossed $1,100 an ounce.
This fund will be very popular, and it will be interesting to see how the junior miners behave, but I'm even more interested in the network effects.
During speculative periods, an increase in the supply of an asset often allows greater participation. The junior miners ETF will grab headlines, but will it increase the interest in
Market Vectors Gold Miners
and bullion funds such as
iShares Comex Gold
SPDR Gold Shares
For investors concerned about investing in small-caps, I wrote
about the junior miners ETF: "While the underlying components in the Junior Miners portfolio have small market-caps, they have high trading volumes. Creation of the Junior Miners ETF, done in blocks of 50,000 shares, will likely not impact the trading of the underlying stocks."
Still, GDX is riskier than bullion funds such as IAU, and GDXJ is riskier than GDX. GDXJ will often gain more and lose more than GDX, and it may sometimes correlate to stocks more than it correlates to gold. This ETF is appropriate as a speculative position in a portfolio, but I wouldn't buy shares here given the recent run-up in gold stocks. Investors who don't even own GDX or a bullion ETF would do better to start there, but again, I'd wait for a pullback.
At the time of publication, Dion owned GDX and IAU.
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Time to Take Profits in Networking ETFs
Posted 11/13/2009 10:26 a.m. EST
Positive news failed to spark a sector rally in networking, a bad sign for a networking ETF with heavy exposure to the companies involved.
is planning to sell more business lines as the company seeks a return to profitability. This will affect
iShares S&P North American Technology-Multimedia Networking Index
, which holds 8% of assets in the firm, its second-largest holding after
The company's desire to shed its handset business has been known for some time, but now Motorola is talking about selling its home entertainment business, a division responsible for one-third of revenue.
The sale of these two divisions could affect the company's weight in the index. Although it would still retain some networking businesses, the company's market cap would decline, and that may result in a reweighing.
Investors didn't react much to the news yesterday, Motorola stock fell 0.5%, a little better than the
Year to date, Motorola has helped the networking ETF. While IGN is up 58% this year, Motorola is up 96.8%. Top holding Cisco gained 43.6%.
Earlier in the week,
announced it would buy
, which makes up 3.85% of the index, sending 3Com shares up more than 30%.
The positive news didn't lift IGN, however, which has been steadily losing long-term momentum.
I suggest taking profits on the networking ETFs here --
PowerShares Dynamic Networking
offers similar exposure, sans Motorola -- and rotate into a broader tech ETF such as
iShares Dow Jones U.S. Technology
to maintain technology exposure. IYW has stronger momentum and outperformed IGN by more than 5% in the past month.
At the time of publication, Dion had no positions in equities mentioned.
A Stronger Yuan Would Boost Gold Even More
Posted 11/11/2009 5:50 p.m. EST
Some investors have begun to speculate that China will allow its currency to appreciate, but they may not have considered gold as the asset that will get the most bang from a stronger Chinese buck. In the People's Bank of China's third-quarter report, the bank changed its language regarding the exchange rate; several analysts quoted by
took it to mean that the government may allow the renminbi to appreciate.
A stronger yuan would be bearish for the U.S. dollar. The only direct ETF on bet on a falling dollar, the
PowerShares DB U.S. Dollar Bearish Fund
, will go up, but with 57% of the underlying index invested in the euro, it isn't a direct bet on Chinese currency appreciation.
WisdomTree Dreyfus Chinese Yuan
might seem like the obvious ETF play in this case, more money can be made by figuring out what the Chinese would buy with their appreciated currency.
One potential target is commodities. Hedge fund manager Hugh Hendry speculated that the rise in oil in 2008 was a result of the rise in the yuan, because the oil bubble popped right when the yuan stopped rising. As the yuan slowly appreciated, Chinese speculators were able to do the carry trade with U.S. dollars. Once the appreciation stopped, the speculators exited and oil plunged.
Oil was the focus of 2008, but in 2009, gold has the attention of investors and is the better play. And as with oil previously, traders already have implemented the "dollar down, gold up" strategy. Even if Chinese investors do not increase purchases of gold, others will buy as the dollar weakens.
Buying bullion ETFs such as
iShares Comex Gold
and stock ETFs such as
Market Vectors Gold Miners
Market Vectors Junior Gold Miners
would be the most powerful way to play an appreciating Chinese currency. For less risk, use a more diversified approach via ETFs such as
Market Vectors Hard Asset Producers
At the time of publication, Dion was long UDN, IAU, GDX and GDXJ.
-- Written by Don Dion in Williamstown, Mass.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.