Random Holiday Thoughts

WisdomTree announced its dividends and by and large they look pretty robust. They have had an issue with new assets coming in during the year and creating more shares to spread the dividends around to.

In a down 40% year it makes sense that as the year ends there are not a lot of newly created shares in existence to collect the dividend. As a result, the dividends of the funds are now in line with the indicated yields of the indexes that underlie the funds.

Other news from WisdomTree is that going forward a lot of their funds that had been paying annually will be paying quarterly. This stands to reduce the impact of share creations mentioned above but it should be understood that many foreign companies pay dividends once or twice a year as opposed to the four times a year that most US companies observe. The net effect could be a higher yield but I do not expect each of the four dividends to be the same.

I think this is great and fundholder friendly news. Now we need WisdomTree to get cracking on some of those currency ETFs in the hopper.

Like many folks, the Madoff incident is teaching me about the difference between feeder funds and funds of funds. Forgetting the Ponzi scheme for a moment, the idea of collecting $1 billion to feed into a fund that someone else manages and still collect a percent or two on the billion sounds like a pretty sweet gig. Does a feeder person have to make any decisions at all? I'm being sarcastic, I have never understood the value of these sorts of middlemen.

I did a small trade Tuesday for many clients. I added the PowerShares Agriculture Commodity ETF (DBA) for most clients. DBA plus GLD now takes most clients to a mid single digit weighting in commodities from low single digits. Quite simply, the actions underway to fix the crisis are inflationary. For now asset prices have deflated (or maybe it's more correct to say that they are still deflating) but I believe that when the deflation ends we will see higher consumer prices. They have already increased the money supply and the path to higher prices is easy to see.

Mid single digits is hardly betting the farm but it made sense to me to increase the commodity exposure now before prices start to go up and while DBA is so far off of its high.

Roger McNamee was on Street Signs Tuesday and he was given the chance to make some interesting comments and there was one in particular that struck a cord with me. He shared his belief about the infrastructure spending will eventually improve people's quality of life by cutting commuting time. I realize not everyone can work from home but I am incredibly thankful for not having a daily commute.

Sticking with the network, I was asked to appear on Closing Bell Tuesday for a segment about investing in 2009. We were snowed in so I couldn't make it. The segment that I think it was became a discussion about dividends. One of the participants said he is a dividend investor and the other guest was not very focused on dividends.

I love dividends, they are important most of the time. The one time they are less important is when the market goes up a lot, like 1934 up a lot. After an historic decline, the odds of a big move up (bear market rally or new bull market) increase. If you buy into that it might make sense to focus less on dividends for now. The last two equities I've added don't really pay any kind of meaningful dividend.

Have a great holiday!

Comments

[jepittman:]

Thanks for your posts. I enjoy them. Happy Holidays to you and your family.

2008 Dec 24 11:49 AM

[Roger Nusbaum:]

thank you for the holiday wishes and for reading my posts. happy holidays to you as well.


On Dec 24 11:49 AM jepittman wrote:

> Thanks for your posts. I enjoy them. Happy Holidays to you and your
> family.

2008 Dec 24 01:08 PM

[Anthony Alfidi:]

You're right about feeder funds adding little value. They operate outside the purview of regulated firms, so there's little recourse for investors who express concerns. Then again, HSBC and UBS both threw money into Madoff's shredder, so maybe they were trying to play catch up with feeder funds and FoFs that were pulling away their AUM.

2008 Dec 24 05:13 PM

[2old2care:]

Happy Holidays Roger. I also read and enjoy your posts. This is one is both timely and thought-provoking.

2008 Dec 25 03:53 PM

[k45:]

After a big decline, we finally get some decent dividend yields, the best yields I've seen in a couple of decades. IMO, that's protection in case the market goes sideways or down some more.

Long term, dividends have been a significant portion of total return. It's hard for a 1% dividend to be a significant factor in total return, but much easier when the dividend is 4,5 or 6%.

2008 Dec 26 08:28 AM