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. This week, among his blogs featured below, he wrote about new and existing ETFs that invest in Brazil, nuclear energy, and GE. Click here for information on RealMoney, where you can read daily blogs, including Don Dion's, and reader comments in real time. You can email Don here.
Go Small-Time With This Brazil ETFPosted 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 ( EWZ) to turn to. A new tool, Market Vectors Brazil Small-Cap ( BRF) 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 Vale ( VALE), and energy goliath Petroleo Brasileiro ( PBR). 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 PlayPosted 6/30/2009 11:36 a.m. EDT General Electric's ( GE) 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 ( IYJ) and the Industrial Sector SPDR ( XLI). 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 United Technologies ( UTX), 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:
- General Electric
- United Technologies
- 3M (MMM)
- United Parcel Service (UPS)
- Boeing (BA)
- Union Pacific (UNP)
- Lockheed Martin (LMT)
- Emerson Electric (EMR)
- Honeywell (HON)
- Burlington Northern Santa Fe (BNI)
Nuclear-Power ETF Has a Bright FuturePosted7/2/2009 10:51 a.m. EDT Exelon ( EXC), top component in the Market Vectors Nuclear Energy ( NLR) ETF, raised its bid for NRG Energy ( NRG) 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 ( CEG), Mitsubishi Heavy Industries (MHVYF), EDF SA (ECIFF), Cameco ( CCJ), Areva SA (ARVCF), Paladin Energy ( PDN), Uranium One (SXRZF), JGC Corp. (JGCCF) and 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.