Inflation Fears Weigh On ETFs, GLD,UUP,VGK,FXI

Exchange traded funds (ETFs) turned flat on Friday as investors reacted to fresh monetary tightening in China ahead of an eagerly-awaited Group of 20 finance meeting in Paris.

• After high-profile pledges to shake up the world monetary system and address the roots of the financial crisis, France has set seemingly modest goals for the two-day meeting of Group of 20 finance ministers and central bankers that begins Friday, economists said. The technical focus of the meeting, the first since France last month took over the year-long rotating presidencies of both the Group of Eight industrialized nations and the G20 in January, belies rising tensions over the issue of global imbalances and currency issues, economists said. The PowerShares DB U.S. Dollar Index Bullish ETF (NYSEArca: UUP) is flat in early trading.

• European stock markets edged lower Friday, with mining stocks under pressure after further tightening measures from China and bank stocks hit by profit-taking after recent gains. Joshua Raymond, market strategist at City Index, said the sector’s drop accelerated after China raised its reserve-requirement ratio, the second increase this year. “Whenever we’ve seen a move by China in their new tightening regime, there’s generally been a knee-jerk reaction in markets,” Raymond said. The Vanguard European ETF (NYSEArca: VGK) is flat in early trading.

• China ordered its banks Friday to hold back more money as reserves in a new move to curb lending and cool a spike in inflation. Beijing is using a series of repeated, gradual hikes in interest rates and reserve levels to stanch a flood of lending that helped China rebound quickly from the global crisis but now is fueling pressure for prices to rise. Inflation is politically dangerous for China’s communist leaders because it erodes economic gains on which they base their claim to power. Poor families are hit hardest in a society where some spend up to half their incomes on food and millions have seen little benefit from three decades of economic reform. The iShares FTSE/Xinhua China 25 (NYSEArca: FXI) is up modestly at the open.

• It’s a good day for metals. Gold rose and silver moved to a 30-year high, while palladium jumped to the highest price in almost 10 years on demand for precious metals to hedge against declines in other assets because of unrest in the Middle East. Gold bar and coin demand in the Middle East jumped 39% in the fourth quarter from a year earlier, according to World Gold Council figures released yesterday. “If you see violence, you would buy gold expecting that the domestics would buy gold,” said Peter Fertig, owner of Quantitative Commodity Research Ltd. in Hainburg, Germany. The SPDR Gold Shares ETF (NYSEArca: GLD) is trading flat on Friday.

Disclosure NONE. 

Slowdown In Emerging Markets Started Before Egypt

The iShares MSCI Emerging Markets ETF (EEM) dropped 3.2% to $45.33 a share today on more than three times its 90-day average volume.

But as technical analysts are pointing out Friday, signs of weakness in emerging markets stocks began appearing before riots in Egypt brought troops into the streets of Cairo.

Since reaching a multi-year high in November, shares of EEM have struggled to rebound. On Friday, the ETF’s price closed near its intra-day low. In a sense, like a punch-drunk boxer, EEM was saved by the bell.

From a technical standpoint, EEM’s next level of support is around $44.78 a share, its low point at the end of November. Below that level, a fall to roughly $43 a share would leave EEM close to its 200-day moving average, a key line of defense that technicians monitor.

At the end of 2010, China represented about 17% of EEM’s assets, its largest single country. With belt tightening and possible interest rate hikes on the horizon, stocks in China could face more downward pressure.

The portfolio’s second-biggest country is Brazil at nearly 16%. It faces some rather severe inflationary pressures as well.

Throw in recent unrest in Indonesia, Tunisia and, now Egypt. It doesn’t paint a pretty picture right now for EEM investors.

At least one money manager I’ve followed over the years pulled the trigger today.

As he was working on his latest weekly newsletter for clients this afternoon, Jerry Slusiewicz, the president of Pacific Financial Planners in Laguna Hills, Calif., took a few minutes to explain why he’d shifted a small portion of his client assets into the ProShares UltraShort MSCI Emerging Markets ETF (EEV).

“There’s been rioting for a few days now in Egypt. The big question is whether unrest continues and if it’ll spread to more countries,” he said.

Slusiewicz noted that he’d moved out of EEM last week and early this morning shifted a small, partial position in his global portfolio into the leveraged ProShares ETF.

EEV closed up 6.3%, or $2.06, at $34.71 a share. Volume on the day was up 272% in the ETF. Slusiewicz set a stop/loss at $32.15, a nickle below Thursday’s close.

“There’s no reason to play around here — this trade is either going to work or it won’t,” he said. “It’s just a play on growing weakness in emerging markets over the past few months. But I’m bullish on their prospects over the longer-term.”

His price target on EEV is $37 a share, which was near where the ETF peaked in November.

“Hopefully, this (unrest in Egypt) will be over shortly. I’m not taking the mindset that the world’s about to catch on fire or anything. But technically, emerging markets look a little weak right now,” Slusiewicz said.

Disclosure None

Four ROOKIE Investor ETF Investing Mistakes

Investors are at last beginning to return to the equity markets, and ETFs are slated to play a bigger role than ever before. Wary of mutual fund managers and conscious of tax implications, many sidelined investors will be drawn to ETF strategies that promise to mitigate security-specific risk while maximizing exposure to particular assets.

However, when it comes to structure, pricing and trading, these products are more complex than most investors initially realize. Whether you're a first-time ETF investor or just looking to use ETFs in a way you haven't tried before, here are four "rookie" mistakes that can be easily avoided.

1. Placing a Market Order in an Illiquid Fund

With more than 1,000 products in the exchange-traded product universe, some funds have drawn copious amounts of attention while others -- sometimes seemingly inexplicably -- fail to attract investor interest. These lightly traded funds can be particularly dangerous to new ETF investors because liquidity is important to the pricing of exchange traded funds. If an ETF is lightly traded, it can easily be thrown off track by an unexpectedly large order that causes market price to deviate from underlying value. No one wants to buy an ETF at a premium only to sell it at a discount when things go bad.


Nevertheless, there are times when somewhat-illiquid products offer compelling longer-term opportunities, and investors may want to get involved. The biggest mistake an ETF investor can make when placing an order in an illiquid ETF is to designate that trade as a "market order." Since market orders are concerned with immediate execution first (and price second), these are exactly the type of transactions that result in the most severe ETF pricing dislocations. If you need to place an order in an illiquid ETF, use a limit order at, or near, the last sale instead.

2. Using Leveraged Funds in the Wrong Situation

The most important aspect of leveraged fund construction is that the majority of "leveraged," "ultra" and "3x" ETFs are designed to track daily objectives. Whether the objective is to track the financial sector or the price of gold, these funds track their underlying indices for a single trading session only before "resetting" to do the same thing the next day. Whether you're using the Direxion Daily Financial Bear 3X Shares(FAZ_) or the ProShares UltraShort Real Estate ETF(SRS_), if you hold a leveraged fund over time, you will encounter compounding that skews longer-term results.

Leveraged ETFs are designed for sophisticated investors and are effective in certain trading strategies. After several regulatory inquiries and lawsuits, they are now plastered with warnings (but still are often misused). The best rule of thumb: If you don't understand how an ETF achieves its objective, pick a different product.

3. Missing the Forest Because of the Trees

Many investors try to maintain longer-term portfolios while simultaneously profiting from targeted short-term positions. While this is a great use of the variety and scope of the ETF products currently available, it's easy to forget to look below the surface and monitor how these different positions interact. ETF portfolios overlap, and investors who aren't careful about monitoring overall exposure can often develop unintended pockets of concentration in their portfolios. When two popular funds like the Vanguard MSCI Emerging Markets ETF(VWO_) and the iShares Emerging Markets ETF(EEM_) share so many of the same components, sometimes it's best to just stick with a single position.

4. Forgetting About the Clock

There are a number of factors that impact liquidity, both on an industry-wide and individual-fund basis. Investors making the transition from a portfolio that's heavy in mutual funds to one that is heavy in ETFs will often forget just how much volume, which ebbs and flows throughout the trading day, can impact execution.

Though the most liquid funds in the ETF universe (SPDR S&P 500 ETF(SPY_) and SPDR DJIA ETF(DIA_)) can change hands with ease throughout the trading day, other, less liquid ETFs are easier to trade at certain times during the trading day (without causing pricing dislocation).
Volume-wise, the two busiest times for ETF trading in a "normal" trading session (one that isn't shortened or impacted by the release of major economic data) generally occur between 9:30 a.m. EST and 11:30 a.m. EST and between 2:30 p.m. EST and 4:00 p.m. EST.

This information is important to know if you're looking to trade products actively without causing price dislocation. The best time to trade an ETF is when there are plenty of other investors interested in buying and selling the same fund. When you are looking to trade in an active manner (or trade a fund that isn't the biggest ETF on the block), make sure that time is on your side.

 Disclosure I am long SPY,DIA and VWO.

Emerging Market ETFs: VWO Takes the Lead

There’s a new leader in the battle of the emerging market exchange traded funds (ETFs).

On Jan. 18, the iShares MSCI Emerging Index Fund (NYSEArca: EEM) dropped to $46.36 billion in assets while Vanguard Emerging Markets ETF (NYSEArca: VWO), which rolled out two years fter EEM, hit $46.47 billion in assets, reports Olivier Ludwig for IndexUniverse. VWO was also the most popular U.S.-listed ETF in 2010, bringing in $19.34 billion.

Two reasons are attributed to VWO’s gain to fame. VWO has an expense ratio of 0.27%, as compared to EEM’s expense ratio of 0.69%. While both EEM and VWO are based MSCI Emerging Markets Index, which returned about 20% over the last year, VWO performed at 18%, whereas EEM returned 15.5%.

VWO uses a replication strategy that holds more securities than EEM to better mimic the underlying index. Still, EEM traders enjoy using the fund due to its turnovers. For instance, EEM had turnover of $726.66 billion last year alone, compared to $164.54 billion for VWO, which suggests that VWO attracts greater buy-and-hold investors.

Other notable broad emerging market ETFs include:

• SPDR S&P Emerging Markets ETF (NYSEArca: GMM), which has $237.8 million in assets and a 0.59% expense ratio.
• Schwab Emerging Markets Equity ETF (NYSEArca: SCHE), which has $312.9 million in assets and an expense ratio of 0.25%.
• PowerShares FTSE RAFI Emerging Markets Portfolio (NYSEArca: PXH), which has $543.5 million in assets and an expense ratio of 0.85%.

Disclosure I am long VWO shares.

4 Reasons to Consider Global Real Estate ETFs

In this day and age, if you want to maximize your portfolio, you’ll diversify with global assets and exchange traded funds (ETFs), and international real estate market is no exception.

Investors should have learned three lessons from our economic upheaval: Bubbles pop, a broad-economic downturn will affect a diversified portfolio and the after effects of a recession will linger, remarks Andy Hyltin for Advisor One.

In an attempt to find new ways to manage and minimize risk, advisors are looking to global real estate investments. By combining U.S. and international real estate in portfolio, an investor may be better able to minimize risk while maximizing returns.

Going abroad may prove beneficial for a number of reasons:

• Diversify. Going international means exposure to assets with lower correlations to the U.S. economy.
• Opportunities. The U.S. real estate market is only a portion of the world’s commercial real estate market. The Prudential Real Estate Investors stated that U.S./Canada commercial real estate market was 30.2% of the global market in 2008, and the U.S./Canada share is projected to diminish to 26% by 2028.
• Emerging markets. The emerging markets will likely continue to grow faster than the matured, developed economies, which will also drive commercial real estate growth in the developing markets.
• Inflation hedge. Real estate, like other physical assets, could provide some protection against inflation.

There are several options if you’re looking at this market, but to see and analyze them all, drop by the ETF Analyzer. There are some significant differences between the available funds, and the differences can range from cost, country exposure and constituent weightings:

• First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (NYSEArca: FFR): FFR holds a large amount of the United States at 34.6%, making it the largest country in this fund. Hong Kong and Japan also have significant weights, which may give you some good exposure to the booming Asian market with a little U.S. diversification for good measure.
• SPDR Dow Jones International Real Estate ETF (NYSEArca: RWX): Japan, Australia and Hong Kong are the main countries here, but there’s also a fair amount of Europe exposure, too.
• WisdomTree International Real Estate Fund (NYSEArca: DRW): Hong Kong, Australia, Japan and France round up the top four countries in this fund, which has about 40 more holdings that RWX for some added diversification.
• Guggenheim China Real Estate ETF (NYSEArca: TAO): TAO is an example of single-country real estate market exposure…or is it? Hong Kong actually accounts for 72% of the ETF, while China makes up 26.9%.

Disclosure I am long RWX shares.

A Cheaper Dollar Will Open The Door For These Chinese Investments (UUP, MUB, TCK, CCJ, GMO, PWR)

On January 18th and 19th, the top officials of the two most powerful  nations on Earth are to meet in matters of far reaching significance.   There will be not one but two dinners.  One is to be a grand dinner  of state with all of the military and business leaders of both sides in  attendance.  The other is to be an “intimate” dinner.  Oh, to be a fly  on the wall of that private meeting.


Behind the photo-ops and the speeches there is one basic reality,  China and America are joined inseparably at the hip in a single entity,  which I am calling “The Chinamese Twins.”  As in all such pairings each  head can have their own separate and distinct personalities.  The fact  remains you can call one capitalism and the other communism, but both  heads are mutually dependent on a single life support system.  The world  financial network provides circulatory nourishment to both heads whose  interests are complementary.
 
Washington needs the cheap dollar (NYSE:UUP) to pay off colossal  debts.  China needs to revalue its Yuan to counter domestic inflation in  such areas as food and basic consumer goods.  The Chinese have raised  interest rates and bank reserve rules, to little avail.  At the same  time the Chinese do not want to dry up credit which would impede their  growing economy or slowdown exports.
A current headline in the Wall St. Journal reads, “The Bank Of China  Moves to Make Yuan a Global Currency.”  This will come as no surprise to  goldstocktrades.com readers.  In an article I wrote back in November, I spoke about China and Russia beginning to trade in Yuan and Rubles causing the need for the Yuan to be revalued higher.

The Chinese economy is thriving and they can well afford to revalue  the Yuan higher.  This stronger yuan will make North American resource  assets cheaper and put China in the driver’s seat to control many of the  large undeveloped assets.  At the same time they are buying gold,  silver and uranium assets hand over fist to hedge themselves from a U.S.  dollar decline, in which they own the largest interest.  In 2009 the  Chinese Investment Corporation, a state owned company, took large  ownership positions in Teck Cominco (NYSE:TCK) and Penn West Energy  Trust (NYSE:PWR). Recently in June, China National Nuclear signed a  contract with Cameco (NYSE:CCJ) to supply 23 million pounds of uranium.   Hanlong Investments took a large stake in General Moly (AMEX:GMO), one  of the leading North American molybdenum developers.

They want more  gold and silver to support the Yuan in order to ensure that when the  Yuan becomes the major world currency, it will be more resistant to the  swings encountered by fiat currencies.  Additionally, they also want  more precious metals to buttress its fiscal balance sheet and what they  feel is the eventual replacement of the U.S. Dollar as the world’s  reserve currency.  They are also rapidly developing and modernizing  increasing their use of uranium, potash, molybdenum, rare earths, coal  and oil and gas.

By revaluing the Yuan higher, China will be able to control inflation  and rising costs.  A higher Yuan will also benefit the Chinese  investment side which has already been active making deals in North  America.  The U.S. dollar will significantly be cheaper for the Chinese  which would allow them to acquire North American assets for pennies on  the dollar.  Just recently the Chinese Investment Corporation, whose  focus is to look for investment opportunities abroad opened its first  international branch in Toronto, which is the North American epicenter  of resource  companies.   Its one billion plus people can enjoy more  purchasing power through a higher yuan and a higher standard of living  with a supply of North American natural resources which could fuel their  rapid development.

Beyond the blustering and posturing at these dinners the trade off is  that they want carte blanche to enter more strongly into the heart of  capitalism and the North American resource sector.  Here the Chinese can  get all the gold, silver and natural resource deals they want.  Doors  will quietly swing open and everyone will go home happy.  The Chinese  will have their desired access to buy gold and natural resource stocks,  while The Americans receive a weaker dollar with which to pay off their  burgeoning debts.  If you are thinking that such a Byzantine arrangement  can’t be done, be assured it has all happened before.  During the  1980’s the USSR sold large amounts of gold secretly in New York.  It  took three years to become public knowledge.

Another part of this “Chinamese” agreement concerns rare metals, on  which the Chinese head wants to maintain its strategic grip of over 95%  of the world’s supply.  I feel the U.S. will not make this an issue.   The U.S. will accommodate China in order to persuade them to raise the  Yuan higher and the dollar lower.  I feel this revaluation will be done  in a series of two or three steps in 2011, which should eventually move  precious metals into new high territories and crush the U.S. dollar.   Volatile sell offs in gold and silver like I predicted in November and  December, which we are currently experiencing now, may present long term  precious metal investors with buying opportunities.

Underneath all of the media hype and adversarial stories between  China and America, I read a front page story in the New York Times of  1-17-11, “GE To Share Jet Technology With China In A New Joint  Venture.”  Expect to hear more deals in 2011 in which the Chinese  continue to invest in natural resource assets in North America, while  the U.S. continues to search for a way out of the financial  crisis.   

  We may see further bailouts from the federal government as  many states are in danger of defaulting.  The bankrupt states are  already asking Washington for assistance.  This devaluation of the  dollar that Geithner and Obama are asking for is to help the US pay off  its debts and be able to raise its debt ceiling with cheap devalued  dollars.  This should be bullish for precious metal prices where  investors will seek shelter from soaring government deficits and a loss  of the U.S. dollar as the world reserve currency.  See the iShares  S&P National AMT-Free Muni Bond ETF (NYSE:MUB) chart below:

Disclosure None

Vanguard Rolls Out Cheapest Global ETF

Vanguard today launched the least expensive international, non-U.S. equity ETF that is almost identical to another fund it already offers. That makes it part of the Valley Forge, Pa.-based company’s strategy to cater to brand loyalty among investors by offering complete families of similar products, each with its own set of indexes.

The launch of the Vanguard Total International Stock ETF (NYSEArca: VXUS), which comes at a time of heightened interest among U.S. investors in non-U.S. companies,  also brings Vanguard into direct competition with iShares, which offers an identical product to VXUS that uses the same index, the MSCI All Country World Index ex USA.

Vanguard’s VXUS has an annual expense ratio of 0.20 percent, less than both the 0.35 percent BlackRock charges on its iShares MSCI ACWI ex US Index Fund (NasdaqGM: ACWX) and the 0.25 percent cost of the Vanguard FTSE All World ex-U.S. ETF (NYSEArca: VEU).

Vanguard’s low costs are at the core of the company’s fast growth. It led ETF providers in net inflows in 2010, attracting about $40 billion in new investment dollars last year. Last week, its Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) became the world’s largest emerging markets fund, surpassing its BlackRock-sponsored counterpart, the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM). VWO costs 0.27 percent, while EEM costs 0.69 percent.

The new ETF is designed to be a separate share class of Vanguard’s Total International Stock Index Fund, the company’s second-largest international index fund, with $51.4 billion in net assets.

“VXUS is a new way to invest in an established fund that offers broad international diversification with an extremely modest price tag,” Vanguard’s Chief Investment Officer Gus Sauter said in a press release. “It complements our Total Stock Market ETF and Total Bond Market ETF.”

VXUS Vs. VEU

VXUS tracks the MSCI All Country World ex U.S. Investable Market Index, a benchmark comprising more than 6,000 securities in 44 countries of companies in all tiers of market capitalization, the company added in the release.

VEU, an ETF with $6.95 billion in assets as of Jan. 27, was launched in March 2007 and tracks the FTSE All-World ex US Index, an index similar in construction to the MSCI benchmark behind VXUS, but that has a smaller portfolio and excludes small caps.
 
VXUS has more than 43 percent of its portfolio allocated to Europe, and some 25 percent of the portfolio tied to emerging markets and to Pacific nations, respectively.

The remainder is allocated to North America, namely Canada. VEU’s allocation distribution is roughly the same, according to Vanguard’s most recent data on its website. All in all, the new fund covers 98 percent of the world’s markets, excluding the U.S.

Vanguard’s Growing Reputation

Vanguard has also emerged as a top pick among investors and advisors alike, according to different surveys conducted by Cambridge, Mass.-based business consultancy Cogent Research in recent months in a trend the company concluded reflects investors’ growing recognition of Vanguard’s value proposition.

Vanguard has nearly $150 billion of assets under management in its ETFs. It’s the third largest ETF sponsor in the world, behind BlackRock and State Street Global Advisors, which have around $448 billion and $247 billion in assets, respectively, according to data compiled by IndexUniverse.com.

Disclosure I am long VWO shares.

Deutsche Tweaks Currency-Hedged ETFs

Deutsche Bank updated papers it originally filed with U.S. regulators in the fall to reflect new tickers and planned fees for five passive international equity ETFs from developed and developing countries alike that share a currency-hedging feature aimed at stabilizing returns.

In the new filing, the company also provided additional detail regarding the composition of the family of MSCI FX Hedge indices that will serve as benchmarks to the various funds.

The derivative-based strategy behind the ETFs is to isolate returns of the underlying equities, while eliminating as much as possible the impact of currency fluctuations on those returns, the filing said. The hedging mechanism designed to offset the exposure to local currencies is achieved through the use of forward currency contracts.

The strategy adds a new wrinkle to what has traditionally been a case of either avoiding emerging market currency risks by choosing dollar-denominated funds or investing in ETFs in foreign currencies to benefit from the weakening dollar.

Deutsche Bank’s strategy comes at a time of heightened uncertainty in the global economy. Central banks of developed economies are all engaged in, or prepared to launch, unprecedented monetary policy experiments aimed at controlling deflationary pressures to reverse the deepest downturn since the 1930s.

The respective tickers, fees and holdings of Deutsche’s five ETFs are:

• DBX MSCI Emerging Markets Currency-Hedged Equity Fund (NYSEArca: DBEM), 0.65 percent. DBEM will invests in some 800 securities in 21 emerging economies that include Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey. Holdings have an average market capitalization of $4.9 billion.

• DBX MSCI EAFE Currency-Hedged Equity Fund (NYSEArca: DBEF), 0.35 percent. DBEF will tap into 22 developed nations excluding the U.S. in a portfolio that has almost 1,000 holdings with an average market capitalization of $11.43 billion.

• DBX MSCI Brazil Currency-Hedged Equity Fund (NYSEArca: DBBR), 0.60 percent. DBBR’s portfolio comprises some 81 securities with an average market capitalization of $7.66 billion.

• DBX MSCI Canada Currency-Hedged Equity Fund (NYSEArca: DBCN), 0.50 percent. DBCN includes 100 holdings with an average market capitalization of $13 billion.

• DBX MSCI Japan Currency-Hedged Equity Fund (NYSEArca: DBJP), 0.50 percent. DBJP’s portfolio will consist of some 340 securities with an average market capitalization of $7.2 billion.

Disclosure I do not own any of these funds with no plans to buy any at this time.

Vanguard Cuts VWO Cost To 0.22%

Vanguard Group, the No. 3 U.S. ETF firm whose Vanguard MSCI Emerging Markets ETF (NYSEArca: VWO) surpassed the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM) as the biggest U.S. emerging markets ETF last month, cut the annual expense ratio on the popular fund by 5 basis points to 0.22 percent to reflect the growing size of the fund.

VWO, now a $45.47 billion fund, became the biggest U.S. ETF on Jan. 18, largely because it is the cheaper of the two funds. EEM, the iShares fund, now costs investors 0.69 percent, having dropped its expense ratio from 0.72 percent at the start of 2001. iShares cut fees on EEM for the same reason, as the fund grew by more than $2 billion in 2010. Vanguard’s VWO, meanwhile, grew by almost $20 billion.

The lower price, plus better performance, had led many in the ETF industry to conclude for the better part of a year that it was only a matter of time before VWO overtook EEM. The iShares ETF is now a $39 billion fund. Emerging markets were immensely popular among investors in 2010, though civil unrest in Egypt has slowed the fund.

A Vanguard official told IndexUniverse.com about VWO’s latest fee cut this week on the sidelines of the “4^th Annual Inside ETFs Conference” in Hollywood, Florida.

Disclosure I am long VWO shares. 

7 Companies Increasing Dividends Last Week

It was another big week for income-oriented dividend stock investors, as a bevy of high-profile corporate names upped their payouts. Dividend stocks raising their yields include Intel (NASDAQ: INTC), Time Warner Cable Inc. (NYSE: TWC), Potash Corp. of Saskatchewan (NYSE: POT), Norfolk Southern Corp. (NYSE: NSC), Praxair Inc. (NYSE: PX), Parker Hannifin Corp. (NYSE: PH) and Limited Brands (NYSE: LTD).

Perhaps the biggest name on the list of dividend winners last week was semiconductor marker Intel (NASDAQ: INTC).  The chipmaker and tech bellwether boosted its dividend payments by the largest amount in five years while also adding $10 billion to its stock buy-back plans. The company raised its quarterly dividend to 18.12 cents per share, a 15% increase from the previous quarter. The additional $10 billion for share repurchases brings the overall buyback authorization to $14.2 billion. Intel said the dividend is payable March 1 to shareholders of record as of Feb. 7.

In addition to the big tech sector dividend bump, we also saw a spike in dividends from the entertainment sector. Cable TV provider Time Warner Cable Inc. (NYSE: TWC) raised its dividend last week, declaring a quarterly payout of 48 cents per share. That figure represents a 20% increase over its prior dividend. News of the dividend boost came as Time Warner Cable reported better-than-expected fourth-quarter earnings. The new payout from the second-largest U.S. cable-television operator will be handed out on March 15 to shareholders of record on Feb. 26.

Agriculture stars also shined this week, as fertilizer and feed products provider Potash Corp. of Saskatchewan (NYSE: POT) announced that its board of directors had approved a three-for-one stock split of its outstanding common shares. Under the terms of the deal, shareholders will receive two additional shares for each share owned as of Feb. 16. Now, in addition to the split, Potash made the deal even more interesting by increasing their quarterly cash dividend to 21 cents a share from 10 cents a share on a pre-split basis. The company also declared a quarterly cash dividend of 7 cents per common share on a post-split basis, which is payable May 5 to shareholders of record on April 14.
The transportation sector also saw representation in the array of companies raising dividends last week.

Railroad operator Norfolk Southern Corp. (NYSE: NSC) upped its quarterly dividend 11% to 40 cents a share from 36 a share. The dividend increase was the second since the transportation giant boosted its payout by 2 cents a share in July. This year’s dividend increase is nearly double the 6% dividend increase from Norfolk Southern in 2010. The increased dividend will be payable on March 10 to shareholders of record as of Feb. 4. One day after declaring the increased dividend, Norfolk Southern Corp. said its fourth quarter profit rose 31%. The strong performance of late in the railroad industry, including Norfolk Southern competitors CSX Corp. (NYSE: CSX) and Union Pacific Corp. (NYSE: UNP), bodes well for this traditionally strong dividend-paying sector.

Industrial gases firm Praxair Inc. (NYSE: PX) raised its dividend by 11% despite reporting fourth-quarter profit that fell 61% on tax charges. Charges aside, however, the company actually saw better-than-expected revenue from cost-cutting and growing sales in emerging markets. The global giant’s new dividend will be 50 cents per share, and it will be payable March 15 to shareholders of record as of March 7. Dividend increases are all too common for Praxair. The most recent bump is its 18th consecutive annual dividend increase.

Another global industrial powerhouse spreading the wealth to shareholders is Parker Hannifin Corp. (NYSE: PH). The company increased its quarterly cash dividend to 32 cents per share, payable on March 4 to shareholders of record as of Feb. 10. The new dividend represents a 10% increase over the previous quarterly dividend of 29 cents per common share. Although Parker Hannifin’s profit margins in the most recent quarter fell, the company — seen as a barometer for the entire global industrial segment — still managed to dish out the cash to investors.

Fashion retailer Limited Brands (NYSE: LTD) proved it can combine the concepts “sexy” and “dividends” with its latest announcement.  The company, which operates intimate apparel specialty store Victoria’s Secret as well as the Bath & Body Works and La Senza retail chains, said it was increasing its annual dividend by 20 cents to 80 cents per share. The first quarterly payment at the new rate will take place on March 11 to shareholders of record on Feb. 25. Now income investors can slip into something a little more comfortable that includes a sweet quarterly cash bonus.

Disclosure I am long  UNP, NSC, and INTC.

Deere: A Growth Stock Consistently Hiking Its Dividend

Over the past year, we have repeatedly stated how bullish we are of various commodities, especially rare earths, uranium and potash. Some investors believe that many commodities have run their course, and have minimal upside remaining while possessing considerable downside from current highs. Although we disagree with this thinking, we respect the conservative approach and help our clients find ‘de-risked’ plays to participate in bull markets. We believe that conservative investors who believe that the future may not be all roses for the fertilizer industry may find Deere & Company (DE) a suitable alternative.

The company has been around since 1897, back when it was making plows for the family farm. Generations of farmers have used Deere & Company equipment to plow, plant and harvest their fields. John Deere is one of those brands and businesses that Warren Buffett would love as it has a cult following for its equipment in rural America and quality machinery to back the brand up. They have set the bar high, and the barrier to entry keeps many from entering their home market here in the United States.
The stock currently trades just below its 52-week high of 89.97 and sports a price-to-earnings ratio of about 20 on a trailing twelve months basis. This is also a company currently paying a yearly dividend of $1.40 per share, or roughly a 1.6% yield. We expect that the company will raise the dividend twice this year based off of their operating results.

We believe that the company will be able to raise the dividend rates further this year due to strong earnings growth resulting from the bumper harvests these farmers are having in the United States. Here in South Carolina, we noticed fields of cotton not getting harvested on time and watched in amazement as the farmers allowed the crop to deteriorate. As it turns out, these were the farmers who pay others to harvest their crops, and thus do not own their own equipment; sometimes there are co-ops that perform this function as well. We did notice something very exciting driving through cotton country recently; many of these farmers had erected huge metal sheds which made us scratch our heads at the time. Why erect these huge sheds so far from your house to simply park a few old pick-ups beneath? It turns out that all these farmers had purchased brand new John Deere tractors, combines and many accessories. Some of them have easily spent one million plus on all of this.

The same commodity bull market that is fueling the likes of Potash Corporation (POT) of Saskatchewan, Mosaic (MOS) and Agrium (AGU) shares higher is also behind Deere & Company’s rise. As the world awakens to the fact that we need to increase food production in order to feed the growing population, productivity will become key. Many of the world’s breadbaskets already use the most advanced techniques, technologies and equipment, but much of the developing world continues to farm the same way generations before them did.

As China, India, Brazil, South Korea and the other emerging/developing economies of the world establish these large co-ops (at home and abroad) to grow crops for their citizens, Deere & Company should gain huge orders internationally.

Currently, analysts expect Deere to report earnings of $5.45/share for the current year. Estimates for 2012 call for earnings per share of $6.40. If the company can at least match these expectations, investors will have a blue chip stock providing significant upside in the share price because of near 20% profit growth.

Deere & Company possesses a great brand with competent management and a business model that should enable it to assist further generations of farmers in providing for the world. It is truly rare to find a company that can grow both the top and bottom line considerably year-over-year (enough to be considered a growth stock), consistently hike its dividend and provide international exposure to some of the hottest economies while being an American company and thus protecting investors from many of the inherent risks of investing with the unscrupulous managements of foreign entities that exist out there. The safety of an American based and traded company cannot be underestimated in these times; this lets many of our conservative investors sleep at night.

It is our opinion that Deere & Company is both a solid play for conservative investors and a derivative play on food inflation, both in the short-term and long-term. The company’s shares could potentially reach the $120/share range by year-end if the company can continue to perform well on an operating basis while also expanding the P/E. Should the commodity boom continue on the world’s farms, Deere’s shares could take off, potentially allowing shareholders to harvest tremendous gains.

Disclosure: I am long DE shares

The Benefits of Owning Commodity ETFs

At one time, long before exchange traded funds (ETFs) came into the picture, commodities were for institutions and others with the time and monetary resources to play the futures markets. Today, you (yes, you) can have commodities in your portfolio, too.

These days, commodities have a home in any well-diversified portfolio, Mitch Tuchman for U.S. News & World Report says. They offer several benefits:

* Commodities can be an important hedge against inflation. Because commodities prices usually rise when inflation is accelerating, they offer protection from the effects. Few assets benefit from rising inflation – particularly unexpected inflation.

* Commodities have offered superior returns in the past, but they carry a higher risk than most other equity investments. However, by adding commodities to a portfolio of assets that are less volatile, you can actually decrease the overall portfolio risk, because commodities have a low correlation to other asset classes.

* Commodities that are permanently limited in supply can reduce volatility in aggressive portfolios. Gold and energy are two examples.

* The long-term outlook for commodities is generally viewed as strong. The world’s population is growing and emerging markets are seeing the rise of their middle classes, who want more food, consume more energy and nicer clothes. The combination of finite supply and rising demand has the potential to keep commodities on a growth path for some time.

If you want to play commodities with ETFs, there are two primary ways:

* Buy an ETF that holds the stock of producers and tracks an index. Examples of these types of ETFs could be Market Vectors Global Agribusiness (NYSEArca: MOO) or SPDR S&P Oil & Gas Equipment & Services (NYSEArca: XES). The benefit of these funds is that you get exposure to the producers of commodities without the day-to-day price swings that might affect other funds. However, they don’t track the spot price, which can be a drawback if that’s something you’re seeking.

* You can look at funds that give closer exposure to the commodity itself, either physically or via futures. Physically-backed funds for now are restricted to precious metals, such as ETFS Physical Platinum (NYSEArca: PPLT) or iShares Silver Trust (NYSEArca: SLV). Futures-based ETFs include things like PowerShares DB Gold (NYSEArca: DGL) and United States Oil (NYSEArca: USO).

And, of course, there is always leverage, in the form of ETFs like ProShares UltraShort Gold (NYSEArca: GLL) and Direxion Daily Energy Bull 3x Shares (NYSEArca: ERX).

If you feel like you’ve missed the commodities run-up, it’s not too late. Most commodity ETFs are well above their long-term trend lines, and you can’t fight the trend. If you do decide to add commodities to your portfolio, just don’t get caught without an exit strategy.

Disclosure I am long SLV shares.

Siemens narrows loss and boosts dividends

The German industrial giant announced its net loss for final quarter of 2010, which was 65 per cent lower than the same period last year. As an industrial giant established since 1847, its performance is considered as economic barometer. 

The net loss of the fourth quarter is 396 million euros, 65 per cent lower than the 1.06 billion euros net loss last year. The basic loss per share is down from 1.31 euros to 0.54euro this year.
This year is also the first rise in dividends of the company since 2007, which will increase from 1.60 euros to 2.7 euros per share.

For the full year, net income of the company has climbed 63 per cent to 4 billion euros.
Energy sector was the sector with the fastest growth in new orders, which produces products and carries out research and development for power generators.

The company are generating more and more income from the emerging market, there is revenue growth from China and India, 25 per cent and 15 per cent respectively. 

”Siemens is no longer a restructuring story,”

”We are a normal company and a growth company. You should expect continuity from us.” Siemens AG Chief Executive Officer Peter Loescher said. The sales of fourth quarter increased 7.7 per cent to 21.23 billion euros. The high-speed trains, power turbines and factory automation equipment maker predicted a moderate revenue growth for the coming year.” 

The payout is a strong signal that Siemens will outgrow rivals and build up its presence in emerging markets, which generate a third of its business,” Loescher told Bloomberg.

Disclosure None

Vanguard Launches Non-US Version Of VNQ

Vanguard Group, the Valley Forge, Pa.-based pioneer of the indexing movement, today launched a real estate fund that canvasses property markets outside the U.S. in both the developed and developing worlds. The Vanguard Global ex-U.S. Real Estate ETF (NYSEArca: VNQI) will invest in real estate investment trusts (REITs) and real estate operation companies (REOCs). The new ETF amounts to a non-U.S. counterpart to its existing fund, the Vanguard REIT ETF (NYSEArca: VNQ), which had about $6.9 billion in assets as of last Friday, according to data compiled by IndexUniverse.com.

Domestic assets represent only 30 percent of the global real estate market, while overseas assets represent 70 percent. Investors wishing to hold a market-weighted global real estate portfolio could invest in the two funds proportionally, Vanguard said in a prepared statement.

“With international real estate securities representing a growing portion of the overall real estate market, a counterpart to our domestic REIT Index Fund is a natural addition to our index fund lineup,” Gus Sauter, Vanguard’s chief investment officer, said in the statement.

VNQI will attempt to replicate the S&P Global ex-U.S. Property Index, a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of 425 international real estate securities from 35 developed and emerging markets.

The ETF has an expense ratio of 0.35 percent.

Disclosure None

Global X Launches Norway ETF NORW

Global X, the boutique fund sponsor known for its emerging markets and metals strategies, launched a new fund today focused exclusively on the economy of Norway, an ETF industry first. The Global X FTSE Norway ETF (NYSEArca: NORW) seeks to replicate the performance of the FTSE Norway 30 Index, which comprises the largest publicly traded companies of Norway and is designed to reflect the broad-based equity market performance of that country. FTSE is an index provider jointly owned by the Financial Times and the London Stock Exchange.

Norway, along with Canada, is one of a handful of net energy exporters among the world’s industrialized nations, and Global X’s new Norway fund reflects this.

As of last month, the FTSE Norway 30 Index’s top holding was the state-run Norwegian energy company Statoil ASA, which would have accounted for 18.93 percent of assets invested in the index. Oil & gas was the top sector, at 41.42 percent.

Global X, which launched gold miners and uranium funds earlier this month, has been busy this year building its ETF lineup. When asked if there was an overarching strategic plan behind Global X’s recent launches, Bruno del Ama, the company’s chief executive officer, said that the long-term prospects of a new fund, along with customer need, largely dictate the launch schedule.

“We identify opportunities that we think will do well over the long term, at least 25 years. Then we look for really stable opportunities or thematic opportunities we think will do well and offer an ETF that makes sense. Finally, we obviously want products that will attract sufficient interest from investors.”
Del Ama added that his firm’s clients view Norway to some extent as other hard-asset-producing countries with stable currencies, like Canada, Australia and New Zealand.

The Timing Is Right

Given the problems in eurozone countries like Greece, Spain and Ireland, now may be an ideal time for a Norway fund. Unlike many of its European neighbors, Norway has not adopted the euro and instead uses the krone.

“It’s definitely part of the appeal of the fund,” said del Ama. “One of the problems for an economy like Germany is that it’s part of the euro and is part of the bailout effort for Greece. Norway doesn’t have that problem.

The new Norway fund is the first of a suite of ETFs for which Global X filed last year to hit the market. That group of filings includes Denmark, Finland and United Arab Emirates funds based on FTSE indexes as well as an “Emerging Africa” and a Pakistan ETF.

The new fund carries an expense ratio of 0.50 percent.

Disclosure None

Time for 100% Stock Allocation??

Every so often, a well-meaning individual or publication will come along and espouse the idea that long-term investors should invest 100% of their portfolios in equities. Not surprisingly, this idea is most widely promulgated near the end of a long bull trend in the U.S. stock market. Consider this article as a pre-emptive strike against this appealing, but potentially dangerous, idea.

The Case for 100% Equities

The main argument advanced by proponents of a 100% equities strategy is simple and straightforward:

"In the long run, equities outperform bonds and cash; therefore, allocating your entire portfolio to stocks will maximize your returns."

To back up their views, supporters for this view point to the widely used Ibbotson Associates historical data, which "proves" that stocks have generated greater returns than bonds, which in turn have generated higher returns than cash. Many investors - from experienced professionals to naive amateurs - accept these assertions without giving the idea any further thought. (For an in-depth view of this topic, see The Stock Market: A Look Back.)

While such statements and historical data points may be true to an extent, investors should delve a little deeper into the rationale behind - and potential ramifications of - a 100% equity strategy.

The Problem With 100% Equities

The oft-cited Ibbotson data is not very robust. It covers only one particular time period (1926-present day) in a single country - the United States. Throughout history, other less-fortunate countries have had their entire public stock markets virtually disappear, generating 100% losses for investors with 100% equity allocations. Even if the future eventually brought great returns, compounded growth on $0 doesn't amount to much. (To read more about Ibbotson's theories, see Investors Need A Good WACC.)

It is probably unwise to base your investment strategy on a doomsday scenario, however, so let's assume that the future will look somewhat like the relatively benign past. The 100% equity prescription is still problematic because although stocks may outperform bonds and cash in the long run, you could go nearly broke in the short run!

Market Crashes

For example, let's assume you had implemented such a strategy in late 1972 and placed your entire savings into the stock market. Over the next two years, the U.S. stock market crashed and lost about 40% of its value. During that time, it may have been difficult to withdraw even a modest 5% per year from your savings to take care of relatively common expenses, such as purchasing a car, meeting unexpected expenses, or paying a portion of your child's college tuition, because your life savings would have almost been cut in half in just two years! That is an unacceptable outcome for most investors and one from which it would be very tough to rebound. Keep in mind that the crash in 1973-1974 wasn't the most severe crash, considering the scenario that investors experienced during 1929-31. (To learn more about crashes, see The Greatest Market Crashes and How do investors lose money when the stock market crashes?)

Of course, proponents of all-equities-all-the-time argue that if investors simply stay the course, they will eventually recover those losses and earn much more. However, this assumes that investors can stay the course and not abandon their strategy - meaning they must ignore the prevailing "wisdom", the resulting dire predictions and take absolutely no action in response to depressing market conditions. We could all share a hearty laugh at this assumption, because it can be extremely difficult for most investors to maintain an out-of-favor strategy for six months, let alone for many years.

Inflation and Deflation

Another problem with the 100% equities strategy is that it provides little or no protection against the two greatest threats to any long-term pool of money: inflation and deflation.

Inflation is a rise in general price levels that erodes the purchasing power of your portfolio. Deflation is the opposite, defined as a broad decline in prices and asset values, usually caused by a depression, severe recession, or other major economic disruption (think Japan in the 1990s). (To learn more about inflation and deflation, see All About Inflation and What does deflation mean to investors?)

Equities generally perform poorly if the economy is under siege by either of these two monsters. Even a rumored sighting can inflict significant damage to stocks. Therefore, the smart investor incorporates protection - or hedges - into his or her portfolio to guard against these two significant threats. Real assets - real estate (in certain cases), energy, infrastructure, commodities, inflation-linked bonds, and/or gold - could provide a good hedge against inflation. Likewise, an allocation to long-term, non-callable U.S. Treasury bonds provides the best hedge against deflation, recession, or depression. (Read more about hedges in A Beginner's Guide To Hedging, Introduction To Hedge Funds - Part One and Part Two.)

Fiduciary Standards

One final cautionary word on a 100% stocks strategy: If you manage money for someone other than yourself, you are subject to fiduciary standards. One of the main pillars of fiduciary care and prudence is the practice of diversification to minimize the risk of large losses. In the absence of extraordinary circumstances, a fiduciary is required to diversify across asset classes. Would you like to argue before a judge or jury that your one-asset-class portfolio was sufficiently diversified shortly after it loses 40-50% of its value? "But, your honor, if you just wait eight to 10 years …" Odds are you would soon be wearing an orange jumpsuit and making new friends in an exercise yard.

Solution

So if 100% equities is not the optimal solution for a long-term portfolio, what is? An equity-dominated portfolio, despite my cautionary counter arguments above, is reasonable if you assume that equities will outperform bonds and cash over most long-term periods. However, your portfolio should be widely diversified across multiple asset classes: U.S. equities, long-term U.S. Treasuries, international equities, emerging markets debt and equities, real assets and even junk bonds. If you are fortunate enough to be a qualified and accredited investor, your asset allocation should also include a healthy dose of alternative investments - venture capital, buyouts, hedge funds and timber. (To learn more, read The Pros And Cons Of Alternative Investments.)

This more diverse portfolio can be expected to reduce volatility, provide some protection against inflation and deflation, and enable you to stay the course during difficult market environments - all while sacrificing little in the way of returns.

Disclosure I am long the stock market

Top-Yielding Monthly Dividend Stocks

Many market-players seek shelter from volatility in dividend-paying stocks, which offer investors a stream of steady income that can ease the pain of wild gyrations in the markets. And stocks that pay monthly dividends provide regular, consistent income to investors with usually less volatility than quarterly-paying dividend stocks.

The key to owning stocks that pay monthly dividends rather than quarterly or annual dividend stocks is that your invested capital comes back to you and your money compounds much more quickly.
Lots of investors are looking for monthly dividend payments to supplement their income during retirement. Other preretirement investors love to buy stocks that pay them cash on a monthly basis to help offset their high-risk investments. No matter what type of investor you are, dividend-paying stocks can go a long way toward creating wealth.

Dividend-paying stocks can also help an investor sleep better at night, because they're usually deemed to be safer investments than stocks that don't pay dividends,  The number of stocks that now pay a monthly dividend tops over 250, including real estate investment trusts, oil income trusts, closed-end funds and other investment vehicles that own a portfolio of income-producing assets and distribute cash generated by these assets every month to investors.

Let's take a look at four monthly dividend-paying securities that look promising.

If you're bullish on the future for oil and natural gas, you might want to take a look at the Enerplus Resources Fund(ERF). This stock is an energy trust that controls operating subsidiaries to acquire, exploit and operate crude oil and natural gas assets. The company currently controls properties in red hot Marcellus Shale region in the northeastern U.S. Many industry insiders think the Marcellus Shale could be one of the most promising natural gas resources in the Appalachian Basin.
Enerplus Resources has the fifth-highest dividend yield of oil and gas production stocks, at 9.4%. The stock has near-term support around $20 a share and resistance at around $24.


If you think the real estate market is near a bottom, you should take a look at closed-end management investment company LMP Real Estate Income Fund(RIT), which invests in securities related to the real estate industry, tied to sectors such as office, health care, apartments, shopping centers and regional malls. Its current dividend yield is 8.7% This stock is trading near the 200-day moving average of $8.20 a share, which could offer a great entry point if you like the prospects of real estate here. If the 200-day doesn't hold, look for the next area of support to come in at around $7.75. The stock also has some overhead resistance at around $9 to $9.50.

Another name investors should take a look at is the MFS Multimarket Income Trust(MMT), a closed-end fund that maintains a portfolio of investments in high-yield and investment-grade corporate bonds, emerging market debt securities, U.S. government securities and international investment-grade debt securities. Considering how foreign debt markets have been rattled of late, this trust could offer a great opportunity to get in at depressed prices. The MFS Multimarket Income Trust has direct exposure to some of the PIIG nations, such as Ireland, Italy and Spain. The current dividend yield of the MFS Multimarket Income Trust is 8.2%. The stock is trading near the 50-day moving average of $6.46, and overhead resistance can be found at $6.60 to $6.70.


One last monthly-paying security to consider is the Calamos Convertible Opportunity & Income Fund(CHI), which is a diversified, closed-end management investment company. The fund seeks total returns through a combination of capital appreciation and current income by investing in a diversified portfolio of convertible securities and below-investment-grade high-yield fixed-income securities.
Calamos Convertible Opportunity & Income has offered a steady distribution since inception; it has a strong historical performance and is run by an experienced management team. Some of the securities it currently holds are common stock in Freeport McMoRan(FCX), corporate bonds in Vail Resorts(MTN) and convertible preferred stock in Bank of America(BAC). Corporate bonds make up 56% of the funds asset allocation, and energy is the heaviest-weighted sector. Its current dividend yield is 9.4%.


 Disclosure  NONE

When 'Cheap' ETFs Aren't Really Cheap

It seems like a no-brainer: All things being equal, you pick the exchange-traded fund with the cheapest fees. But, it turns out choosing an ETF based on the lowest annual expense could end up costing you more.

ETFs, of course, hold a basket of stocks or other investments and track an index. Many investors buy them assuming that all they’ll pay is the annual fee. But a growing number of pros are warning that some ETFs have hidden costs for trading them, which vary based on the ETF’s volume. In general, the more active the ETF, the cheaper it is to trade. “The bigger, the better,” says Jim Holtzman, a Pittsburgh-based adviser who has sought better ETF deals.

The iShares MSCI Emerging Markets Index fund (EEM: 37.75, +0.16, +0.42%) has $35 billion in assets and is nearly three times more expensive than its rival ETF, the $20.5 bil­lion Vanguard Emerging Markets ETF (VWO: 38.30, +0.08, +0.20%). But traders flock to the older iShares product because it has almost six times the average daily trading volume. “EEM is essentially where the fast money is,” says Bradley Kay, associate director of European ETF research at Morningstar. A Vanguard spokesperson says its ETFs’ trading costs are the same as or very close to those of its rivals. A big difference in trading volume can also be seen in two ETFs tracking the same index of inflation-protected bonds, iShares Barclays TIPS Bond (TIP: 105.82, -0.20, -0.18%) and SPDR Barclays Capital TIPS (IPE: 52.27, -0.12, -0.22%). The expense ratio of the iShares product is slightly higher than that of its competitor. But experts say iShares trades 18 times more often in part because each trade is cheaper.

While trading costs are important, Kay says investors who plan to buy and hold an ETF should go with the one that has the lowest expense ratio.

Disclosure I am long VWO, and EEM.

Van Eck Plans First Ever Minor Metals ETF

      One section of the ETF world that has seen rapid expansion over the past year has been commodity producing equity ETFs. As investors have embraced ETFs as a means of establishing exposure to natural resource prices, many are beginning to realize that a host of commodities are thinly-traded, and therefore not suitable for “pure play” futures-based or physically-backed ETFs. Due to this, investors have seen the introduction of several funds offering exposure to commodities through stocks of companies engaged in their production and extraction, including ETFs that target copper miners, platinum mining companies, and even timber producers.


    One interesting new idea is being developed from Van Eck is to target companies that are engaged in the mining and production of so called ‘minor metals’ such as titanium and cobalt. While these metals are very thinly traded, they remain absolutely vital to a host of current and emerging technologies. In a filing with the SEC, Van Eck identifies several key technologies that utilize these commodities, including cellular phones, high performance batteries, flat screen televisions, and green energy technology such as wind, solar and geothermal. These metals are critical to the future of hybrid and electric cars, high-tech military applications including radar, missile guidance systems, navigation and night vision, and superconductors and fiber-optic communication systems.
 
    As these technologies have grown in importance to every day life, demand for these metals has surged, sending some prices sharply higher. Additionally, political and environmental issues are likely to be front-and-center for many of the equities in this fund, especially due to recent mining tax proposals out of Australia as well as increasing government scrutiny over hazardous industries such as mining. Even more crucially for the equities in the proposed fund is a recent plan from China that seeks to ban exports of certain minerals–a development that could be devastating since China produces just over 90% of the world’s rare Earth metals. However, it could help to spur more investment in the industry and send prices higher.

  The fund will track the Minor Metals Index and will hold 30 securities in total, and would be the thirtieth ETF from Van Eck. This new addition would also bring the total number of ETFs in the Commodity Producers Equities ETFdb Category up to 20 in total and offer investors exposure to a slice of the commodity market to which most do not currently have access. The expense ratio and symbol remain a mystery.

Disclosure: None

Dividends Like BP’s Look Safe, Until They’re Not

If you own BP shares and rely on the dividends for your retirement income, you now matter less than shrimp boat owners and tourism workers in the Gulf of Mexico, Ron Lieber writes in The New York Times.

That’s the net result of the announcement on Wednesday that BP will suspend its dividend and set aside money for cleanup costs and the compensation of workers who have lost income because of the oil spill.

Whether the federal government was right to pressure BP to make this move (and whether BP should have buckled) is a question for the ages. But if you’re an investor in BP and rely on dividend income to pay your daily expenses, this should serve as another reminder that relying on one stock or even a handful of stocks is incredibly risky.

We’ve seen this movie before. Wachovia disappeared, hobbling many investors who counted on its dividends. Other big banks reduced their payouts drastically in the depths of the financial crisis. General Electric slashed its dividend as well.

This should have been a warning for anyone making big retirement bets on a single stock or a handful of stocks. Things that seem stable can wobble and collapse before our very eyes. And now it’s happening again.

It’s not supposed to work this way, at least in the minds of the many investors of the old school. To them, a stock that pays a dividend is a stock that is safe. “It told them that a company was still around and operating, it was in good health,” said Milo M. Benningfield, a San Francisco financial planner.

Just because a company pays a dividend now is no guarantee that it will forever, or that the company will even continue to exist. Nor is it any guarantee that the underlying stock is stable. Steven Podnos, a financial planner in Merritt Island, Fla., notes that the iShares Dow Jones Select Dividend Index exchange-traded fund, which contains stocks that offer high annual yields through dividends, underperformed the Standard & Poor’s 500-stock index over the last five years.

Still, plenty of people strap on the blinders and maintain their faith in the stocks they think they know well. A frightening article in the trade newspaper Pensions & Investments on Monday estimated that BP employees and others in the company’s 401(k) plan had lost more than $1 billion from the stock’s decline in the wake of the spill.

How can the loss be so high? Well, 29 percent of the plan’s assets were invested in BP stock as of last September. This, sadly, is yet another violation of the too-many-eggs-in-one-basket rule that company plan sponsors should have had inscribed in stone for employees — even before the Enron collapse and the resulting devastation in employee retirement accounts there.

Employees or retired employees are not alone. Devotees of white-hot companies (Apple comes to mind) simply refuse to believe that anything bad could befall the stock. Retirees reliant on dividend income may be averse to change if a stock has paid out regularly for decades. Others may have inherited a big slug of stock and may simply not know any better. Then there are those who are so tax-averse that they won’t diversify their holdings because they don’t want to give up some of their winnings to capital gains taxes.

If you know people who might fall into these categories, please do them a favor and send them to a financial planner post-haste if you can’t talk some sense into them yourself.

Or you could simply try to scare them. Very few people saw a spill of this magnitude coming, just as only a small number could have predicted a few years back that financial stocks would go from contributing 29 percent of the dividend payments of S.& P. 500 payments in 2007 to just 9 percent in 2009.

Today, consumer staples stocks contribute more than any other sector, according to Howard Silverblatt of S.& P. How might that sector or parts of it deteriorate? A prolonged terrorist campaign against large American retailers could begin, or a blight could emerge that wipes out a large percentage of the nation’s crops.

These things are unlikely but entirely possible, and they wouldn’t be a total surprise. Tempted by utilities? Mr. Benningfield suggested contemplating the remote possibility of solar flares frying the power grid.

As of Wednesday, there is now political risk to consider, too. Now that there is a recent precedent, legislators could again try to bully a company into suspending its dividends.

And if that weren’t worry enough for dividend fans, we must also rely on those same legislators to sort out our tax policy. Currently, no one pays more than a 15 percent federal tax on dividend income. If Congress does not act before the end of the year, however, investors will start paying much higher ordinary income tax rates on dividends come 2011. “Where it will wind up, no one knows,” said Kenneth L. Powell, a tax partner at the accounting firm Berdon L.L.P. in New York. Wealthier investors, meanwhile, may pay even more once a 3.8 percent Medicare tax on unearned income begins in 2013.

Everyone needs income in retirement, and dividends aren’t a bad way to get it as long as they don’t come from a single company. Again and again, we’ve seen out-of-nowhere scandals and crises and accidents bring big companies to their knees. Why, given the overwhelming evidence that these things do happen once in a while, would you not extract your dividend income from a low-cost, broadly diversified mutual fund that specializes in dividends?

The moral of the story, as always, is to diversify within each asset class you own, whether it’s dividend-paying stocks or municipal bonds or the emerging-market countries where you’re rolling the dice for big gains. Then, diversify your retirement income, too. The more sources the better, whether it’s dividend income, interest income, annuity income, rental income or periodic (and tax-savvy) outright sales of stocks or other assets.

Even this sort of diversification might not have protected you from the pain in 2008. But it can shield you from the ruin of betting too heavily on a single security like BP.

Disclosure I am long BP shares.