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.
In the following three blogs from the past week, Don commented on U.S. equity-backed ETFs, leisure ETFs and the factors driving demand for gold ETFs.
An ETF Bull in Bear Country
Posted 4/5/2010 5:33 PM EDT
It's not always easy being a bull in bear country, but I still believe that equity-based ETFs will pay off for investors in the short term. And I'd like to make the case that many U.S. equity-backed ETFs are perfect stepping stones for bear-at-heart investors who don't want to miss out on a bullish rally.
The first step is that you have to admit that the market is rallying. This one is the easiest. During the one-year period ending April 1, 2010, the
SPDR S&P 500
ETF rallied 47.51% (all statistics are one-year period trailing total returns from Morningstar). During the same period, the
SPDR Dow Jones Industrial Average
ETFs rallied 57.11% and 40.33%.
While the times may have changed, the fundamental strengths of many broad-based index ETFs have not -- and there are still plenty of compelling reasons why ETFs like QQQQ are solid, long-term picks.
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Shortly after I began contributing to
in June of 2009, I wrote a feature titled "
," which detailed the fundamental, long-term reasons for owning this Nasdaq-100 tracking fund.
Nearly a year later, I still have my eyes on the horizon, and I still believe that QQQQ is a compelling tool for investors looking to "get on the highway" and gain exposure to a tech-heavy broad-market index fund.
While ongoing debt concerns across the globe -- as well as the fast-approaching reality of financial reform -- will continue to result in shakedowns throughout the financial marketplace, you can't afford to continue missing out on a recovering economy.
Individual firms may still fall victim to mistakes made in a reckless era and the pride and folly of CEOs. It will always be advantageous to spot these firms at a distance and be among the handful who profit.
Gaining exposure to the U.S. equity market through a fund like QQQQ, however, is neither costly nor difficult. With an expense cap of 0.20% and an average daily trading volume of nearly 100 million shares, QQQQ is a one stop-shop for investors who want to concentrate on other short-term trading plays while gaining longer-term exposure to the largest Nasdaq firms.
I'm not out to change the minds of the bears out there, but I will continue to make an argument for a well-balanced, diversified portfolio. And well-balanced doesn't mean owning five different commodity funds.
ETFs are great tools for investors who want to gain exposure to a theme or methodology that isn't their specialty. Their transparency and low cost structure make them easy to buy, easy to sell and easy to track.
Even if you're still a bear, I hope that the whole market experience (from the downturn in 2008 to the upturn in 2010) has convinced you that diversification is key. The second that you put all your eggs in one basket, things tend to get scrambled.
Leisure ETF Is Living the High Life
Posted 4/8/2010 12:19 PM EDT
Investors shouldn't ignore the trajectory of the
PowerShares Dynamic Leisure and Entertainment Intellidex
, a fund that's managed to gain more than 20% year-to-date through a combination of smart methodology and strong underlying holdings.
The demand for distractions is making a comeback. The record-setting
viewership numbers for both the Super Bowl and Olympics show that Americans will always seek out ways to entertain themselves, even on a budget.
It is a return to this type of reasonably priced consumption that has propelled PEJ. A list of PEJ's underlying components reads more like a budgeted date night --
are on the list -- than a wild adventure in the world of leisure and entertainment.
Other top holdings such as
Steak n Shake
should continue to see improvement as distance grows between American consumers and the financial crisis, and those who can afford it feel less guilty about a meal away from home.
On the vacation side, PEJ also includes
PEJ's jump (more than 80% during the one-year period ending April 7) reflects an improved economy and an increased willingness amongst consumers to be seen out and about. Growth should continue to improve in this ETF's underlying portfolio during the weeks ahead.
Which Gold ETFs to Beware
Posted 4/6/2010 1:40 PM EDT
Instability in Greece, ballooning global debt, fear of inflation, fear of deflation, fear of panic and need for diversification are just some of the factors driving the growing demand for gold ETFs.
The accessibility and relatively low-cost nature of physically-backed gold funds like
SPDR Gold Shares
iShares Comex Gold
have prompted investors to scoop of shares of these ETFs rather than buy a safe and hired an armed guard.
More risk-tolerant investors continue to seek out exposure to gold miners through funds such as the
Market Vectors Gold Miners ETF
Market Vectors Junior Gold Miner ETF
. These funds offer a more indirect play on gold prices through the stocks of global producers.
Both equity-backed and physically-backed ETFs offer straightforward exposure to gold plays at reasonable prices. GLD and IAU both have management fees of 0.40%, while GDX has a net expense ratio of 0.55%. GDXJ, which tracks smaller firms, commands a net expense ratio of 0.6%
There are other types of gold ETFs, however, which investors should avoid, at least in the short term. In addition to physically-backed and equity-backed gold ETFs, some issuers offer derivative-backed gold funds that sound similar to their lower-risk peers.
, Commodities Futures Trading Commission Chairman Gary Gensler alerted investors that the CFTC was considering increased regulation of all commodities of "finite" supply.
While the new futures regulations wouldn't affect funds such as GLD, IAU, GDX or GDXJ, they would affect futures-based gold funds such as:
- PowerShares DB Gold ETF (DGL) - Get Report
- PowerShares DB Gold Double Long ETN (DGP) - Get Report
- PowerShares DB Gold Double Short ETN (DZZ) - Get Report
- PowerShares DB Gold Fund (DGL) - Get Report
- PowerShares DB Gold Short ETN (DGZ) - Get Report
- ProShares Ultra Gold ETF (UGL) - Get Report
- ProShares UltraShort Gold ETF (GLL) - Get Report
Many of the futures-backed gold ETFs and ETNs also happen to be leveraged. These ETFs could face additional increased regulation from the ongoing
Securities and Exchange Commission
. SEC officials are currently examining the way in which derivatives are used by ETF products such as DGP and DZZ. They have currently halted the release of any additional leveraged ETF products while they conduct their review.
As regulators gear up to examine the ETF industry, investors will want to cling to physically-backed and equity-backed gold ETFs while avoiding derivative-backed gold funds.
-- Written by Don Dion in Williamstown, Mass.
At the time of publication, Dion owned QQQQ, DIA and IAU.
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.