Evolution of ETFs Creates New Portfolio Possibilities (PBJ, DLS, AIB)

Roger Nusbaum submits: I have been fairly consistent in my not being a fan of all ETF portfolios. Well, I think we are moving closer to the point where a portfolio can capture almost everything using just ETFs. Certainly ETFs cover a lot more ground than they did in 2004 when I began blogging.

What got me started to think along these lines is that a couple of weeks ago I wrote a profile about the PowerShares Food and Beverage ETF (PBJ). PBJ, get it? Like the sandwich, food? OK. I have mentioned my interest in seeking out a food stock to with a high yield to add to client portfolios as food stocks have a good shot of holding up reasonably well in a bad market. PBJ could fit the bill except it does not have much of a yield.

Some of the Wisdom Tree ETFs also lead me to think there has been some serious evolution lately. I have not written much about these ETFs yet because finding info with out having to read the SEC paperwork has been difficult. Their website, shockingly, has nothing on it. But the names of some of the funds look interesting. There is a small cap dividend fund (DLS), a couple of different smaller cap ETFs that invest in foreign stocks, again with the focus being on dividends. With no real info yet, it is clear that these funds access markets not previously accessed and offer some yield to boot.

Let's be clear though. These are investment products and like all investment products there will be flaws. Part of selecting a particular ETF, or anything else, is to know the strengths and weaknesses, weigh them out and decide if the product you are studying is the best way to access the thing you are trying to capture.

And still there are plenty of parts of the market that are not accessible through ETFs, so hopefully you do not limit yourself to only one type of product.

One example of this is Ireland. I first wrote about Ireland as an investment destination in late 2004. For now there is no Irish ETF easily accessed by American investors. The general idea is Ireland has business-friendly, pro-growth government. The benchmark ISEQ index has held up relatively well down less than 10% in the selloff. The one Irish stock I own, Allied Irish Bank (AIB), is only down 6.1% from its 52 week high. There is also a CEF for Ireland (IRL) but I prefer AIB.

If you have a diversified portfolio you should have some holdings that have done better than the market in the selloff, like Ireland (EFA is down 12.7% from its May high while SPY is down 6.3% from its May high) and some things that have done worse.

Comments

[Tim]

Hello,
Where can I follow what ETF's are awaiting SEC approval or are in registration? I'm curious to know what ETF's are coming out in the near future. Thank you.

Tim

[RogerNusbaum]

Tim,

I don't have much luck or knowledge about how to navigate the SEC's website but that is the best place.

I have a search on MyYahoo that finds ETF news which points me to a lot of content.