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 Brazil's efforts to keep its currency from rising, the continuing drama in currency ETFs, and opportunities in ETFs that track the Turkish economy.
Brazil ETFs Slugged by Foreign Investor Tax
Posted 10/20/2009 1:26 p.m. EDT
The Brazilian government doesn't appreciate the depreciation in the U.S. dollar. Today, it slapped a 2% tax on foreign purchases of fixed income and equities in order to slow the ascent of the Brazilian real.
Brazilian ETFs are taking it on the chin:
MarketVectors Brazil Small Cap
iShares MSCI Brazil
are down 4.5% in midday trading, while
WisdomTree Dreyfus Brazilian Real
is lower by 2%.
As investors have already been punished, the question is whether further pain is ahead. In terms of this action, I do not believe it will have any effect on the real other than what we've seen already. These types of policy, in addition to currency intervention by a central bank, can affect markets in the short run, but markets overwhelm them in the long run.
The bigger issue is that the weak dollar is opposed by yet another country, with Brazil joining some Asian exporters, such as Taiwan. While people talk of replacing the U.S. dollar, the reality is that countries do not want to take the pain that comes along with dollar adjustment.
Whether you believe the dollar will be lower or higher, it will not move in a straight line, especially now that a sentiment shift will be supported by government intervention.
Turkey Fund Showdown
Posted 10/20/2009 9:59 a.m.
iShares MSCI Turkey Investable Market Index Fund
has been quite the success story since I started covering it in my blog this summer. Today, the fund is up over 100% year-to-date for the period ending Oct. 16.
The excellent performance of this ETF may have investors wondering if there are any other instruments out there that provide the same broad exposure to the Turkish markets. Today, I received an email from a reader, asking how I felt about one such instrument, the
Turkish Investment Fund
The TKF is a closed-end fund and has been actively trading since 1989. Like the TUR, it has performed well this year. In fact, the TKF is beating the TUR with a 133% return year-to-date. Before jumping out of the TUR in favor of the TKF, it is important to educate yourself on the inner workings of these two instruments.
Looking at the top holdings, it becomes obvious how similar the two funds really are. Currently, nine of the top 15 companies represented in the TKF are identical to those represented in the TUR. In fact, the two funds share the same top holding,
Turkiye Garanti Bankasi
. The company accounts for over 20.5% of the TKF and nearly 15% of the TUR. Looking deeper at the holdings, however, one striking difference becomes evident; the TUR, which boasts 81 holdings, is far more diversified than the TKF, with assets spread across only 19.
The TUR gains another leg up when it comes to expenses. The ETF charges a low 0.63% expense ratio, which looks attractive when compared to the TKF's 1.12%.
It's low-expense, open-ended nature and larger diversification has allowed the TUR to draw in considerably more interest than the TKF as well. Today, the TUR's $213 million in assets dwarfs the TKF's $93 million.
Looking at the inner workings of the two Turkey plays, I would stick with the TUR for its broader diversification and low-expense ratio. If this nation's markets have further to run, investors will be safer playing it with an ETF.
Unwanted Drama in Commodity ETFs
Posted 10/19/2009 1:35 p.m. EDT
The roar over the regulation of futures-based commodity ETFs has been deafening in recent weeks. After the mercy killing of PowerShares DB Crude Oil Double Long ETN (DXO), the restructuring of
PowerShares DB Commodity
and the retooling of
United States Natural Gas
, it is important to take a step back and look at performance.
Back on June 16, I
that investors stay away from UNG and instead consider a "A Natural-Gas ETF With Fewer Headaches," First Trust's
ISE-Revere Natural Gas
. I have continued to track these two funds and to watch the divergence in performance. Since June 16, FCG has advanced 31%, while UNG has fallenl nearly 34%.
It is worth noting that drama isn't good in the ETF industry. While the problems with UNG's creation undoubtedly drew attention to the fund, the inevitable changes to its structure seem to be weighting down returns. Investors are hoping for definitive news from the Commodities Futures Trading Commission (CFTC) at the end of this month on futures-based funds, but damage has already occurred.
Equity-based commodities funds such as FCG and an upcoming fund from Jefferies may not be as pure of a play on prices, but they are safer for now as commodities regulation is hashed out.
At the time of publication, Dion was long TUR.
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.