ETF Tidbits – From Nonsense To Genius
By Simon Maierhofer, Co-Founder
August 04, 2008
SAN DIEGO - (ETFguide.com) - ETF assets dropped $32.25 billion in June. This is the second largest drop in recent history. January ’08 saw the biggest decline with $39.70 billion. Nevertheless, ETFs continue to attract new assets as in June $10.34 billion more new ETFs were issued than redeemed. June’s decline in assets is largely due to the poor performance of domestic and international markets.
A welcome new-comer:
We don’t often write about ETFs in registration; however here’s one worth noting. Pacific Investment Management Co. (PIMCO), home of the world’s largest bond fund wants to enter the ETF market. Headed by one of the most respected fund managers (Bill Gross), PIMCO manages a total of $830 billion in assets.
The first PIMCO ETFs will likely follow third party passive or quantitative benchmarks. But with Bill Gross’ amazing record it shouldn't be long before the first active PIMCO bond ETF appears.
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Interestingly, the first ETF labeled “actively managed” was a bond ETF, issued by Bear Stearns. Pretty much everything surrounding the launch of the Bear Stearns Current Yield Fund (AMEX: YYY) went wrong. No wonder that YYY still only has $50.34 million in assets, just slightly more than the $50.1 million it started out with.
An ETF that behaves almost like a single stock:
Which is the most concentrated ETF in the country? The B2B Business HOLDRS (AMEX: BHH). As the whole business to business sector has narrowed following the bust of the technology bubble, so has BHH. Ariba (Nasdaq: ARBA) and Internet Cap Group (Nasdaq: ICGE) are the only two holdings. They represent 85% and 15% of BHH. HOLDRS are fixed baskets of stocks set up as grantor trusts. They trade in round lots of 100 and charge an $8 annual custody fee per lot.
The fixed nature of the HOLDRS can result in highly concentrated vehicles as companies are not replaced. HOLDRS tend to get outdated over time. The Internet HOLDRS (AMEX: HHH) have a 25% (each) exposure to Amazon (Nasdaq: AMZN), Ebay (Nasdaq: EBAY) and Yahoo (Nasdaq: YHOO). Since HHH was created in 1999 it does not hold Google (Nasdaq: GOOG), the predominant internet player.
High oil prices - bad for oil companies?
Oil, as commodity has truly performed like black gold. Thanks to pricey oil, the world’s biggest oil companies announced another round of record profits. BP, Exxon Mobil, Royal Dutch Shell and Chevron raked in a combined $35 billion for the second quarter of 2008. Exxon and Shell reported a record $11.7 billion quarterly profit each and could make close to $90 billion this year.
Yet Exxon Mobil also lost some $70 billion in market value as its stock is down 16% for the year. High oil prices encourage consumers to look for alternative energy sources, get politicians involved and fuels unfriendly government greed. Even though the Energy Select Sector SPDRs (AMEX: XLE), the Vanguard Energy ETF (AMEX: VDE) and the iShares Dow Jones US Energy Sector ETF (NYSEarca: IYE) are down for the year, Energy ETFs are not a bad place to be.
If you prefer alternative energy ETFs over conventional energy ETFs, no problem. There are plenty of choices. The Market Vectors Global Alternative Energy ETF (NYSEarca: GEX) provides exposure to biofuels, bio-mass, wind, solar, hydro and geothermal sources and includes various technologies that support the production, use and storage of these sources.
The Market Vectors Nuclear Energy ETF (AMEX: NLR) links you to the perhaps biggest source of alternative energy. Component companies are involved in uranium mining, uranium enrichment, uranium storage, providing equipment for use in the provision of nuclear energy, nuclear plant infrastructure, nuclear fuel transportation and nuclear energy generation.
“Nuking” your portfolio in such tough times might not be a bad idea.
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