Editor's note: Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog , anticipating which ETFs will be in play next. Among his posts this week were the following entries about infrastructure ETFs, a nickel ETN and ways to play Apple.
Click here for information on RealMoney, where you can read daily blogs, including Don Dion's, and reader comments in real time.
This Town's Big Enough for Two Infra ETFs
Posted 6/23/2009 12:00 p.m. EDT
iShares S&P Emerging Markets Infrastructure Index Fund
began trading Friday on the
New York Stock Exchange
. EMIF represents iShares' recent grab at the bullish infrastructure market, specifically focusing on larger emerging markets. In fact, about 90% of the fund is contained within a core cluster of seven countries. China represents one-third of EMIF's assets, while Brazil, Argentina and South Korea collectively make up another third. Malaysia, Chile and the Czech Republic account for a majority of the remaining shares, with the last 10% representing a wide variety of smaller emerging countries.
Furthermore, as would be expected by an infrastructure-based ETF, EMIF is noticeably tech-heavy; almost exactly 80% of its shares are linked to three central tech-related sectors. Specifically, the fund has a 33.65% holding devoted to the Transportation Infrastructure sector, with 26.27% invested in the Electric Utilities sector and 20.10% corresponding to the Energy Equipment & Services sector.
Meanwhile, EMIF has developed something of a negative reputation. In response to its emergence, many critics have merely portrayed the fund as iShares' competitive response to an existing infrastructure ETF -- the
PowerShares Emerging Markets Infrastructure Portfolio
, which came into play in October 2008. However, an astute analyst is quick to point out that while both ETFs deal with the overarching market of "infrastructure," the two funds are nonetheless radically different. Specifically, PXR tends to centralize its holdings around construction-oriented companies, while EMIF is designed to target securities that deal with the maintenance and operation of infrastructure.
Therefore, PXR's securities may seem the better short-term investment, given the simple logic that construction precedes maintenance. However, operation and maintenance are persistent needs, which may establish EMIF as the more lucrative long-term decision. At any rate, keep an eye on these two infrastructural ETFs in the coming months as global stimulus dollars are put to work.
Nickel ETN Makes a Run
Posted 6/23/2009 3:36 p.m. EDT
One commodity ETN showing strength recently is the
iPath DJ-UBS Nickel Total Return
. As of Monday's close, JJN enjoyed an 18.49% return in the past month, far ahead of most other ETFs and ETNs.
ProShares Ultra Utilities
had a gain of 16.43%,
Claymore China Real Estate
PowerShares DB Oil
added 7.11%, and
iPath DJ-UBS Copper Total Return
The pop in nickel prices helped stock ETFs exposed to the metal, but overall trends sent most of these ETFs lower. Even large nickel miners, such as
, reversed sharply over the past week. Through today's trading, JJN's flat return was matched by a roughly 6% drop in Vale.
Nickel is used by the steel industry and has many industrial uses. For this reason, the nickel ETN has closely tracked the movements in
Market Vectors Steel
. Given nickel's recent solo run in the commodity space, however, and the slide in SLX and other commodity and materials-producer ETFs, it may be that nickel was just playing catch-up and is ready to turn. The recent boost caused JJN to rapidly gain momentum, but it is likely to join the other commodity funds with lower momentum.
Bulls should wait for this ETN to pull back, and they also should be aware of the paltry average volume of 8,000 shares.
PowerShares DB Base Metals
trades 500,000 shares, but it only holds aluminum, copper and zinc. Bears can get on the short side of industrial metals with the
PowerShares Base Metals Short ETN
PowerShares DB Base Metals Double Short ETN
, but those funds trade only 1,000 shares or so per day, too low for all but the smallest investors.
may boost inflation fears this week with an announcement to step up Treasury purchases, presenting a good opportunity for the bears to open a position.
Barrels Filled With Apple
Posted 6/23/2009 1:36 p.m. EDT
As the health of Steve Jobs and improvements to the iPhone make headlines,
-saturated ETFs like
iShares Dow Jones U.S. Technology Sector Index Fund
ProShares Ultra QQQ
continue to prove attractive investments. QQQQ, QLD, and IYW all have heavy investments in Apple, which comprises 13.34%, 13.34% and 8.01% of their portfolios respectively. Apple has performed well in 2009, and as Steve Jobs returns to his desk and the iPhone continues to gain popularity, high stakes in this technology company could continue to propel QQQQ, QLD and IYW upward.
Which Apple-heavy product is right for your portfolio? QQQQ is a good basic ETF investment that has jumped 18.29% year-to-date. This tech-heavy
-based portfolio gives investors access to large-cap funds such as Apple for a low 0.20% expense ratio.
QLD, the Ultra QQQ fund from ProShares, has the same amount of Apple as QQQQ but a riskier methodology. While QLD is designed to give investors twice the exposure to the QQQ index as QQQQ, the fund is up 32.28% year-to-date, hardly twice the return of QQQQ. This disparity is due to a daily reset mechanism that can erode returns over time. Investors seeking a broad exposure to the Apple-heavy QQQ are better off sticking with QQQQ over time versus QLD, despite the temptation of doubling down in the short term.
IYW devotes its portfolio exclusively to technology and is up 22.70% year-to-date. This fund has a three-month average daily trading volume of more than half a million shares, making IYW a liquid, but smaller, investment compared to QQQQ and QLD. Since the tech holdings in IYW appear in many broad-sector ETFs such as QQQQ, investors should be careful of concentrating their exposure to components like Apple when adding IYW to an existing ETF portfolio.
QQQQ is the best of the bunch when choosing an Apple-heavy ETF to your investments. This index ETF's low 0.20% expense ratio makes QQQQ a cheaper alternative to IYW's 0.48% and QLD's 0.95%. While QQQQ is tech-heavy, it also gives investors exposure to other sectors of the market, which helps reduce the risk inherent in a sector-single ETF like IYW.
At the time of publication, Dion was long QQQQ
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.