Examining the Latest in Commodity and Overseas ETFs

Includes: GDX, GDXJ, VALE
by: Roger Nusbaum

A few bits of ETF news to chime in on.

First is an interesting filing from EG Shares (reported by IndexUniverse) for seven funds. They are the India Infrastructure Index Fund, China Infrastructure Index Fund, Brazil Infrastructure Index Fund, India Mid Cap Index Fund, China Mid Cap Index Fund, Brazil Mid Cap Index Fund and the Growing Asia Large Cap Index Fund.

Any funds that go a little narrower into some popular/important destinations and or themes deserve a look. As this is just a filing it is a little early to really dissect the funds (I could not find the holdings anywhere).

There are all sorts of China funds and thematic funds that are heavy in China. Brazil has a couple of funds already including a small cap fund but India is sort of under represented. Investing in India is not quite as accessible as the other two (China A shares are obviously tough beyond that Morgan Stanley closed end fund with ticker CAF).

Without knowing the holdings, the most interesting concept, for its uniqueness, is the India Infrastructure Fund. I used to have across the board exposure in India but pulled that back a while ago. A lot of things are going to happen in India but the broad based funds don't hold the same appeal that they once did and I have not found an easily traded stock that caught my eye, either.

In many countries, money is going to be spent on improving and modernizing infrastructure. These countries are getting wealthier and living standards are improving, though this will happen in fits and starts. If we know that money is going to be spent then it would seem plausible that stocks involved can do well.

The prospectus gives a list of different groups than can be included in the infrastructure funds and based what is there (it is a long list) it is possible that any of the funds would be heaviest in large cap conglomerate-ish companies and so perhaps not much different than the couple of large cap ETFs that already exist.

If the China funds turn out to be better mousetraps then I would consider them, but I am quite pleased with VALE for Brazil for now. I can't really figure out, based on the prospectus, what the Growing Asia Large Cap Index Fund is. It will own the 25 largest companies from the pool of Chinese and Indian companies and the 25 largest companies from the pool of companies from Thailand, Malaysia and the Philippines. There are a couple of other details of course and while it could be a great regional fund I cannot glean the significance of the word "growing" in the name of the fund.

The other thing to touch on is that the Junior Gold Miners ETF from Van Eck is out and it has ticker GDXJ, it large cap cousin has ticker GDX. Canada is by far the largest country at 62%, followed by the US at 21% and Australia at 11%. My initial reaction is to be surprised that Australia isn't bigger than 11%. Of the ten largest holdings, I recognize four of them. Not being much of a gold bug I kind of wish I didn't recognize any of the names, if you know what I mean.

This will allow people to manage volatility in the mining space. The junior companies are inherently riskier, but for people who know what they are doing there are times where it clearly makes sense to take on that extra risk (I say risk as opposed to volatility because some of the companies may not have revenues or gold deposits to mine).

To the extent there are times to take on more risk or reduce risk, I believe this ties into the idea that portfolios constructed with narrow based ETFs will require more work not less.

The picture is a still shot from my visit to CNBC the other day. At this point I am opining that AAARRGGGHHH Fire Bad (I'm recycling this joke a bit)! About a minute later I advise shorting various pitchfork stocks like Consolidated Pitchfork and Pitchfork.com. As an alternative people can buy the ProShares Ultrashort Pitchfork Index ETF.