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. This week, among his blogs featured below, he wrote about new and existing ETFs that invest in Brazil, nuclear energy, and GE.
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Go Small-Time With This Brazil ETF
Posted 6/29/2009 1 p.m. EDT
With its large pool of natural resources including oil, gas, gold and sugar cane and its interest in international trading rather than military presence, Brazil has managed to hold strength during the global crunch. Traditionally, investors looking for a taste of the South American nation had only
iShares MSCI Brazil Index
to turn to. A new tool,
Market Vectors Brazil Small-Cap
ETF, introduced by
Van Eck Global
, allows investors to dabble in the small-cap area of Brazil's market.
EWZ follows an index made up of the largest, most liquid companies that the country has to offer. Some of these firms include industrial materials giant
, and energy goliath
. BRF's basket, on the other hand, is made up of smaller companies within Brazil's economy -- firms conducting most of their business from within the nation.
Van Eck's motive behind this fund's creation seems to be the idea that small-cap stocks are the best way to capture the country's rapidly growing middle-class and economic growth. This concept is shown by its avoidance of the energy and materials sectors that the other Brazil ETF focuses heavily on. Instead, the basket that BRF follows is made up of companies that directly affect the Brazilian population, the fifth largest in the world.
Time will tell if Van Eck's predictions will ring true. With a relatively high expense ratio of 1.09%, the sponsor has chosen to cap it at 0.73% until May 2010. The success of this fund will depend on whether Brazil can hold onto its recent growth in the midst of the global turmoil.
Two ETFs Offer a Less Risky GE Play
Posted 6/30/2009 11:36 a.m. EDT
Jeffrey Immelt says that the global recession is "behind us," and if he is right, that would benefit two GE-heavy ETFs, the
iShares Dow Jones US Industrial ETF
Industrial Sector SPDR
The iShares Dow Jones US Industrial has 254 holdings, and GE is the fund's largest component by a significant margin. Nearly 11% of IYJ's portfolio is allocated to GE, and although that percentage was reduced from 20% earlier this year, it is still a large, influential stake. The second-largest component in IYJ is
, and that holding makes up just 3.93% of this GE-centric ETF. The Industrial Select Sector SPDR also has a nearly 11% stake in GE.
While the IYJ and XLI stakes in GE are notably large and top-heavy, the diversified nature of GE makes this large holding less risky than other large stakes would be. On June 29, in a speech at the London Business School, Immelt noted, "The second part of our renewal is to really own two main themes: one is energy and the other is affordable health care." GE, the world's largest maker of turbines for power plants, jet engines and locomotives, is well positioned for the recovery as demand improves globally.
Owning just GE, however, may be too big of a risk for skittish investors who are looking to minimize their downside. IYJ and XLI are large and liquid ETFs that enable investors to take a position in GE, while padding that investment with other firms that depend on the recovery of global trade. IYJ's top 10 components are:
United Parcel Service
Burlington Northern Santa Fe
XLI's top holdings are nearly identical to IYJ's, with the exception of
, which is the No. 10 component in XLI's portfolio at 2.83% and the No. 13 component in IYJ at 1.55%.
One important difference between the two, however, is fees. The expense ratio for IYJ is 0.48%, while the expense ratio for XLI is 0.21%. The primary portfolio difference between the two is the number of holdings -- IYJ's 254 components dwarf XLI's 58. What impact do these extra components have? IYJ and XLI are both down more than 32% for the one-year period ending June 29. IYJ, however, is down just 0.88% year to date while XLI is down a slightly larger 3.74%.
Nuclear-Power ETF Has a Bright Future
Posted7/2/2009 10:51 a.m. EDT
, top component in the
Market Vectors Nuclear Energy
ETF, raised its bid for
as a July 21 shareholder meeting approaches. Exelon upped its bid by 12% today, putting the current value at $7.73 billion, while noting that it has identified another $1.5 billion in synergies. NLR rose 28.3% in the three-month period ending July 1 as top component EXC rose 7.33% during the same period. As investors glimpse economic recovery and emerging markets seek out energy sources to fuel their growth, NLR could remain a good long-term investment.
NLR tracks members of the nuclear energy industry that are listed on major global exchanges. Top component EXC is followed by
Constellation Energy Group
Mitsubishi Heavy Industries
Energy Resources of Australia
(ERA AU) to round out the top 10. Despite the narrow focus of NLR, the three-month average daily trading volume is a far-from-anemic 87,000 shares. NLR uses a modified capitalization-weighted index, with the portfolio drawing from large-, medium- and small-capitalization firms.
China currently operates 11 nuclear reactors in six power plants, and other emerging markets are developing plans to take advantage of this energy source. While previous attempts to jump-start nuclear power efforts in the U.S. were stymied by high interest rates and prohibitive restrictions, a renewed call for energy alternatives could aid efforts in the future. NLR offers investors access to the global picture, and as nuclear energy initiatives evolve in both the U.S. and abroad, shareholders of this ETF should benefit.
Don Dion is the 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.
Dion is also president and founder of Dion Money Management, 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.