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.
Here are three of his blogs from the past week.
Get Your Hands on Some Gold
Published 6/9/2010 10:07 AM EDT
When it comes to gold ETFs, investors want more than just exposure: They want to be able to hold the physical gold in their hands. Intense demand for the relatively new
Sprott Physical Gold Trust ETV
has pushed the fund to a more than an 11% premium.
I was skeptical about PHYS when it launched back in February. PHYS seemed at first like a gold fund for the paranoid. Unlike existing physically backed gold funds, like the massive
SPDR Gold Shares
iShares Comex Gold
and the newer
ETFS Swiss Gold
, investors in PHYS can request actual delivery of gold bullion (in exchange for shares) in an armored truck.
Investors in physically backed gold funds like GLD, IAU and SGOL have exposure to the value of a stockpile of gold held for the trust. The funds' values reflect the value of the physical gold they hold. As all three funds are large and liquid, investors can buy and sell shares at prices that are very close to the funds' underlying value (or NAV).
As PHYS has the option of physical delivery, however, investors seem more than willing to pay a premium to know that they can take delivery of the actual metal. Provided the amount of PHYS you own is enough to cover at least one so-called London Good Delivery Bar, which generally weighs around 400 troy ounces, you can request delivery each month before the 15th. PHYS' premium reached 20% in May as concerns about Europe's currency intensified.
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It's important for investors to remember that PHYS's closed-end format means that premiums (or discounts) aren't unusual when it comes to pricing. The advantage of funds like GLD, IAU and SGOL is that they closely track their underlying value.
Is the advantage of physical delivery enough to make PHYS worth the premium? For some investors, maybe. The minimum investment -- currently over $1,200 -- you have to make in order to qualify for physical delivery might be pricey for some.
If you want to be able to hold your gold investment in your hands, I'd recommend that you invest in gold bars or coins directly. That way, you don't have to worry about premiums, or hiring a armored truck to deliver your investment from Canada, where the assets are stored at the Royal Canadian Mint. If you just want exposure to the price of physical gold, however, GLD, IAU and SGOL are solid investments.
At the time of publication, Dion Money Management was long IAU.
FAA Is Cleared for More Upside
6/7/2010 1:38 PM EDT
There may be turbulence in the market today, but the skies are clear for the global airline industry. At the meeting of the International Air Transport Association today in Berlin, the industry group announced that it expects a profit of $2.5 billion in 2010. The last time the group announced a profit was in 2007.
Last Thursday, I told readers to
look for upside in the airline sector after Giovanni Bisignani, head of the IATA, predicted a better-than-expected recovery for the airline industry ahead of this week's meeting. Bisignani had stated that the global airline industry could see a full recovery (post-2008 economic meltdown) in as little as two years.
Today's meeting seems to confirm Bisignani's outlook. "Global traffic is back to pre-recession levels," Bisignani noted, according to
. The industry is expected to see losses in Europe from the volcano and economic setbacks, but most other regions are expected to be very profitable.
With fuel prices low and a slow economic recovery on the horizon, I still believe the
Claymore/NYSE Arca Airline
is the best way to play this group. The airline industry has such a checkered past, so investors looking to gain exposure to the group's upswing should consider a well-balanced ETF. The top five holdings in FAA's underlying portfolio are
Increased consumer confidence and a better-than-expected recovery have already helped FAA cruise more than 9% higher year to date. FAA is trading lower this afternoon despite the positive industry news from the IATA meeting, but I still believe FAA is a good medium-term bet on a recovering industry. Pick up some shares today on weakness, and hold this well-diversified fund as a solid bet on a recovering industry.
Avoiding Dividend Cuts
6/11/2010 11:42 AM EDT
As if things weren't going badly enough for
investors, the embattled company is now considering cutting its dividend to ease anger caused by the spill. While
of this dividend-splicing might be the most noticeable to investors today, it's not the first time that shareholders have been let down by dividend-paying investments that suddenly become less attractive.
series of disasters (both natural and manmade) have ushered assets to the sidelines and helped to make dividend-paying companies an attractive alternative. There are very few places where investors feel like they have a chance of receiving reliable income, and with rates so low, high-dividend companies are one of those few havens.
The problem with high-dividend firms is that they often are on shaky ground. While an improving economy is helping to ease the risk of default, the status of high-dividend paying companies can often change rapidly. Investors looking to reap the rewards of high-dividend paying firms should approach the process with a strategy.
I recommend gaining exposure to the group through the
iShares Dow Jones Select Dividend Index
, a fund that I have owned for more than six months. Not only does DVY's structure inherently reduce security-specific risk, but the fund's methodology also helps to protect investors from companies that are prone to cut down dividends.
In order to be included in DVY's portfolio, dividend-paying companies must first have certain criteria:
DVY is comprised of 100 of the highest-yielding dividend securities (excluding REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for U.S. equities.
Companies must have a current year's dividend-per-share ratio, which is greater than or equal to their five-year average dividend-per-share ratio.
Companies must have an average five-year dividend payout ratio of 60% or less.
Companies must have a minimum three-month average trading volume of 200,000 shares a day.
By testing for liquidity, consistency and level of dividend payout, DVY's methodology helps to protect against obvious pitfalls of dividend investing. By minimizing exposure to any single company, DVY's strategy also helps to protect against major blowups.
A strengthening economy is making high-dividend firms an increasingly attractive investment option. Rather than trying to pick and choose, gain exposure to the group through a solid ETF, such as DVY, that does some of the heavy lifting for you.
At the time of publication, Dion Money Management was long DVY.
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.