Three ETFs for Government Infrastructure SpendingPosted 03/18/2010 4:06 p.m. EDT President Obama continues to pledge funds toward infrastructure projects, signing a $17.6 billion jobs bill this morning that subsidizes state and local construction bonds and allocates $19.5 billion for a highway construction program. Even before setting foot into office, Obama outlined his plan to make the "single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s," so this trend in spending is certainly worth betting on. These following three ETFs offer exposure to government-sponsored infrastructure projects. 1. iShares S&P Global Infrastructure Index ( IGF) While there still isn't a broad U.S. infrastructure ETF, IGF devotes 22.98% of its underlying portfolio to U.S.-based firms. IGF's underlying index includes companies involved in utilities, energy and transportation infrastructure, airport services, highways and marine ports. Top components include TransCanada ( TRP), Enbridge ( ENB), Spectra Energy ( SE) and Williams ( WMB). > > Bull or Bear? Vote in Our Poll 2. PowerShares Dynamic Networking ETF ( PXQ) Earlier this week the Federal Communications Commission released its "
ETFs for the Health Care VotePosted 03/18/2010 1:20 p.m. EDT ETF investors can cash in no matter how the health care vote goes. No matter which side of the political fence you're on, health care subsector ETFs can help you bet on the president's bill. Convinced that health care reform will pass? Investors looking to bet that the bill will pass can position themselves with iShares' Dow Jones U.S. Pharmaceuticals ETF ( IHE). Packed with drug companies ready to spend millions on pro-reform advertising, IHE should benefit from passage. Top IHE holdings include Johnson & Johnson ( JNJ), Pfizer ( PFE), Merck ( MRK) and Eli Lilly ( LLY). Another upside to owning IHE -- it probably won't suffer much if the bill fails. Looking for a health care ETF that should prosper either way? The best-performing health care sector has been biotechnology, pushed higher by mergers and successful drug trials. First Trust NYSE Biotechnology ( FBT) has led the pack with a nearly 30% rally, and the sector could continue to lead health care no matter how the reform vote goes. Looking to bet against the passage of health care reform? The iShares Dow Jones U.S. Healthcare Providers ( IHF) is chock-full of insurance and health management companies that could see a surge if the bill is killed. If health care reform is not passed, top IHF holdings such as WellPoint ( WLP), Aetna ( AET) and Humana ( HUM) will have the weight of reform lifted off of them. The medical device companies tracked by the iShares Dow Jones U.S. Medical Devices ETF ( IHI) could also rally from relief if the health care bill is not passed. Firms like Medtronic ( MDT), Thermo Fisher Scientific ( TMO) and Stryker ( SYK) could face pricing curbs if the bill passes. Don't forget: America is aging. While there are many unknowns in our economic future, we do know one thing for sure: Aging baby boomers will create a bubble in our health care system, driving up demand for services. Over the long haul, health care companies will benefit from this increased demand, so sector weakness is a good opportunity to put on a long-term position.
Volatility ETN Crushed by ContangoPosted 03/16/2010 08:11 a.m. EDT The iPath S&P 500 VIX Short-Term Futures ETN ( VXX) is so far off track that not even its issuer knows if it's worth saving. Investors should completely avoid this ETN, which has been crippled by contango. On March 8, Barclays ( BCS), creator of the iPath line of exchange traded notes, alerted investors that the closing indicative value of VXX fell below $25.00 on March 5, 2010. The fine print of the ETN's prospectus states that "if the closing indicative value of the Notes is below $25.00 on any business day, Barclays Bank PLC has the right (but not the obligation) to initiate a 1 for 4 reverse split of the Notes." Barclays' March 8 press release stated that even though VXX's indicative value was below $25, the bank is not "currently planning" to initiate a reverse split. The issuer did state, however, that it would be kind enough to alert investors to a future reverse split through another press release. VXX closed last night at $23.90. Barclays is not budging ... yet. So what's the danger in this seemingly innocuous press release? This little note to investors should be a giant red flag. It should draw investors' attention to this fund's inability to track its underlying objective. VXX, which was designed to let investors bet on an increase in market volatility, is a case of false advertising. The CBOE Volatility Index (VIX) offers exposure to a daily rolling long position in the first- and second-month VIX futures contracts. At the height of the financial crisis, the VIX spiked above 80 in November of 2008. Looking to take advantage of increased interest in market volatility, Barclays launched VXX in January 2009. Since then, the VIX has dropped approximately 55% while VXX has dropped 75%.
- Ostensibly, VXX is a way to bet on increasing market volatility (VIX). Due to its structure, VXX has had a dramatically different track record than its underlying value (VIX).
- Barclays has a system in place that allows the firm to execute a reverse split in VXX if the fund drops below a certain level ($25). Barclays' March 8 press release admits that the firm doesn't know yet how it's going to deal with this dramatic divergence.
- You want your fund's issuer to have a plan. You want an ETF/ETN to track its underlying objective. Barclays doesn't have a plan (yet), and this fund is off course.