Dion's Weekly ETF Blog Wrap

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.

Here are three of his blog posts from the past week:


Avoid the Small-Cap Schemers

Published 4/29/2011 3:08 p.m. EDT

For the second time this week, I've had to shake my head after reading a story about a "small firm in China" that turned out to be nothing more than a scam aimed at U.S. investors. An Associated Press article published today describes how the Securities and Exchange Commission has frozen the assets of the China Voice Holding Corp., a Ponzi scheme packaged as an investment opportunity in the fast-growing emerging market.

Earlier this week, an investigative piece by Bloomberg described how Wall Street short-sellers pounded China Agritech ( CAGC) after realizing that the company's operations abroad were decidedly not what they appeared to be. Bloggers and reporters went abroad and found empty warehouses where the company supposedly had active branches.

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Though the majority of small-cap or OTC firms in China are obviously legitimate, it's tough to argue that there's not increased risk when betting on a small company that's located so far away. "Dual-listings," "cross-listings" and other factors sometimes allow thieves to materialize as seemingly legit operators. Add to these factors the already-volatile nature of small-cap firms and it becomes clear why it's good to limit security-specific risk.

I've seen quite a few new small-cap emerging market ETFs make their debuts in the past year, but it's best to stick with heavily traded, highly liquid products. The Guggenheim China Small Cap ETF ( HAO) and the broader SPDR S&P Emerging Markets Small Cap ETF ( EWX) are both liquid ETFs that help you gain exposure to small-cap companies abroad while minimizing your security-specific risk.

At the time of publication, Dion Money Management held no positions in the stocks mentioned.

A Brightening Sector

Published 4/29/2011 12:45 p.m. EDT

High gas prices, government initiatives and the leadership of large companies should help to draw more attention to "green energy" investments as we head into the summer months. According to data released today, U.S. consumers remained confident in the economic recovery in April, but prices at the pump are still a nagging concern.

After yesterday's close, energy giant Total ( TOT) announced that it will take a 60% stake in solar energy firm SunPower ( SPWRA). The news caused SunPower to move higher in after-hours trading and has helped inspire a solar-sector upswing during today's session. Today's " ETF Play of the Day," the Market Vectors Solar Energy ETF ( KWT), is trading more than 4% higher on the news.

Total isn't the only company that has taken recent steps to gain exposure to green energy. Earlier this month, Internet giant Google ( GOOG) announced that it will invest $168 million in a massive solar energy project in California. Together with NRG Energy ( NRG), Google will help build the world's largest thermal energy plant.

Despite pressure to trim the national budget, President Obama seems committed to funding alternative energy projects and promoting energy independence. Gas and oil prices should also help draw awareness to alternatives such as solar as the weather heats up.

At the time of publication, Dion Money Management held no positions in the stocks mentioned.

Commodity ETFs Could See More Scrutiny

Published 4/26/2011 3:21 p.m. EDT

Has the rapid onslaught of commodity ETFs gone too far? Accusations over speculation and manipulation continue to fly, with ETF/ETN issuers such as U.S. Commodity Funds and Barclays serving as the complicit dealers for big-bank manipulators.

Recent actions by the Commodity Futures Trading Commission (CFTC) reveal that regulators are serious about cracking down on some commodities vehicles. According to an article in today's Wall Street Journal, the CFTC is moving to curb mutual funds that rely on non-U.S. subsidiaries to make speculative bets on commodities and currencies. By using foreign subsidiaries, these mutual funds evade the limits of CFTC regulation. (They are, however, within the regulatory range of the SEC.)

While the spectacular rise and relative youth of the ETF industry help to force it into the spotlight, the mutual fund industry is still the seasoned big brother. As the managers of large futures-backed commodity ETFs such as the United States Natural Gas Fund ( UNG) and the PowerShares DB Commodity Index Tracking Fund ( DBC) have already realized, the CFTC is developing an equal zeal for regulating commodities vehicles across the board. While many futures-backed ETFs have yet to reach the critical mass necessary to put them on the CFTC's radar, the current pressure on the commodity mutual fund industry could easily extend to a growing force of commodity ETFs in the months ahead.

On a personal note, today's headlines about the structure of commodity-tracking mutual funds sent a shiver down my spine. Exactly one year ago today, I wrote a blog piece that predicted that hastily enforced CFTC regulations could push ETF issuers to restructure funds abroad. In a post titled " U.S. Derivatives Proposal Could Send Business Abroad," I discussed how proposed CFTC regulations could cause issuers to try to structure commodity funds beyond the reach of the CFTC, where new commodity caps could not limit the size of the vehicles.

I continue to believe that coordination between U.S. agencies such as the CFTC and SEC is necessary for the effective implementation of commodity ETF regulation. How will these organizations handle a burgeoning ETF industry? For now, we can look to the battle waged in the mutual fund industry for clues.

At the time of publication, Dion Money Management had no positions in the stocks mentioned.

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