On Build America Bonds and New ETFs

Includes: BAB, BABS, ECON, GNR
by: Roger Nusbaum

A bunch of stuff this morning.

On Tuesday, the gang from Blackrock rang the closing bell to commemorate their recently launched Build America Bond Trust which is a closed end fund. There are two ETFs in this segment; PowerShares Build America Bonds Portfolio (NYSEARCA:BAB) and the SPDR Nuveen Barclays Capital Build America Bond ETF (NYSEARCA:BABS).

This is a space where the active management could be better than the indexed ETFs. BAB has a lot of exposure to California and Illinois, likewise BABS is heavy there as well. Given the state of the states I would rather be more selective than just picking the biggest issuers of debt. BBN can avoid or underweight the worst states and maybe load up on the healthier states like Montana and the Dakotas, if those states have issued this type of paper. After 37 simple steps to register at the Blackrock site there was no information about the fund posted other than a general description.

We have a couple of new ETFs to mention. The first is the SPDR Global Natural Resources Fund (NYSEARCA:GNR). Like a few other funds out there this one sort of combines energy and materials into one fund weighted by modified market cap. Not surprisingly Exxon Mobil (NYSE:XOM) and BHP Billiton (NYSE:BHP) are the two largest stocks. The utility as I see it is that it gives smaller accounts the chance to do some sector building without necessarily buying ten ETFs. In a similar fashion the now closed WisdomTree International Consumer Fund was sort of combo of staples and health stocks.

The other new ETF is the EG Shares Emerging Markets Consumer ETF (NYSEARCA:ECON). The heaviest countries in the fund are Mexico, India, Brazil and South Africa. The heaviest industries are automotive, food, beverage and travel & leisure. As you can tell the fund combines staples and discretionary. If the fund does poorly then I think it would be because of the large exposure to Mexico given the near depletion of the Cantarell Oil Field and the escalated violence of late.

From the world is getting flatter file I stumbled across Ncondezi Coal which recently started trading in London with ticker NCCL, no five letter designator for US trading as best as I can tell. This is a coal company from Mozambique. There are a few stocks traded in London from countries not otherwise easily accessible. I don't know anything about Ncondezi but to the extent that places Africa, Sri Lanka, Cambodia, Kazakhstan or Pakistan become more important investment destinations the first access will probably be through stocks like these.

There is probably not much impetus to buy a stock like Ncondezi Coal today but five years from now could be a different story and worthwhile to understand the dynamics of a few places that interest you; Kazakhstan being such a place for me.

A few years ago, before the financial crisis started, I wrote an article for theStreet.com where I tried to have every component of a portfolio of individual stocks properly diversified at the sector level yield 4%. I came close but did not quite get to 4%. I've spent some time revisiting the idea but targeting 5% and am having an easier time finding stocks to include. Yields are obviously higher these days and I think in terms of finding reasonable names to include, 4% a few years ago might be like 6.5% today. I thought it was interesting anyway.

On Tuesday a comment was left on a recent post of mine at Seeking Alpha that was about retirement. The reader noted life expectancy rates in the US being high but that they are higher in Canada, France, Austria and Sweden. I can't vouch for the reader's accuracy as I thought Japan and Finland were pretty high as well but the thing I wondered upon reading the comment was "how much soda is consumed in those countries?" There are other dietary issues in the US of course and while I don't know if soda is the most important it seems to me that giving up soda might be the easiest diet improvement one can make--green lettuce instead of white lettuce might have a price barrier for some folks, as an example.

Disclosure: None