NEW YORK (TheStreet) -- 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 real estate and housing ETFs, bundled products and the U.S. Natural Gas fund.
Real Estate and Housing ETFs Near the TopPosted 8/10/2009, 1:35 p.m. EDT Real estate and housing ETFs are in the most damaged sector of the American economy and running neck and neck with consumer sectors for the title of worst sector going forward, yet they nonetheless enjoyed a spectacular bounce. A broader short-selling rebound in some of the most beaten-down stocks ( AIG ( AIG) doubled last week) contributed to a frenzy in the sector. iShares Cohen & Steers Realty Majors ( ICF) climbed 42% in the past month, the best of the broad REIT ETFs. Vanguard REIT ( VNQ) advanced 40%, while iShares Dow Jones U.S. Real Estate ( IYR) gained 38% and SPDR DJ REIT ( RWR) added 39%. iShares Dow Jones U.S. Home Construction ( ITB) and SPDR S&P Homebuilders ( XHB) enjoyed returns north of 40%. Improved credit conditions benefited REITs this spring and summer, but there are still clouds ahead with more than $150 billion in debt that needs to be rolled in the next four years. Any setback in the economy could trigger another wave of selling. Housing has shown signs of improvement recently and credit conditions are also favorable as long as rates stay low. These ETFs all show improved long-term momentum, with the housing ETFs showing more strength than the REIT ETFs. Still, none have momentum that exceeds that of the broader market. In the short run, real estate and housing ETFs are at or near the top. I've seen these outbursts of momentum come and go among the weaker sectors and rarely do funds stage a continuous rally from the bottom to the top -- even in bull markets. My firm recently added IYR in two of our momentum-based portfolios due to technical strength, but this position may be reversed quickly.
New Bundled Products Could Be TroublePosted 8/13/2009, 9:47 a.m. EDT Private banks in Europe are "wrapping ETFs into complex structured products," according to a report in the Financial Times. Low-cost ETFs are competition for the banks, but the creation of bundled ETFs leads to higher margins, as much as 1.5% to 1.8% on top of the fees charged by ETF issuers. Not all banks were offering the products, however. UBS Wealth Management UK said it would accept the lower margins associated with unbundled products to keep clients satisfied. Last year's financial tumult marked the beginning of a long and difficult period for banks. No doubt a few of these products will be worthwhile, but wrapping ETFs with derivatives and leverage -- the strategies that led to the financial crisis in the first place -- makes little sense. Although I have not read the prospectus for one of these new securities, I imagine that the product creates a note based on the credit of the issuer. One only need to look as far as Lehman Brothers to understand why this creates another layer of complexity and risk; many of their structured products no longer have a secondary market. Financial crisis reveals that many bank profits are from derivatives and leverage; without it, these banks have little to offer their customers. This line of business will continue to come under pressure, and my hope is that they do not take the ETF industry down with them.
UNG Halts Share Creation to Shield ItselfPosted 8/13/2009, 1:32 p.m. EDT The U.S. Natural Gas ETF ( UNG) has decided to bite the hand that feeds it. In an unsurprising turn of events, UNG managers have declined to issue additional shares of the fund, despite requesting these very same shares last month. In early July, UNG "ran out" of its pre-approved share allotment. Fund managers then requested the creation of an additional 1 billion shares to sate public demand. The crux of the issue is what has transpired in the meantime. In the meantime, the Commodities Futures Trading Commission (CFTC) conducted a series of hearings to determine whether futures-based commodity ETFs like UNG and U.S. Oil ( USO) were exacting undue influence on the commodities markets.