ETF Update: Nuclear ETF; Singapore Rising; Mutual Funds To the Rescue; A Trashy ETF; August Activity; Wide Trading Spreads

Nuclear ETF

The energy sector has been dominating the market lately, but an alternative route to energy exposure, could be in a nuclear-focused ETF.

As countries continue to grow, nuclear energy plants offer alternatives to oil. The U.S. gets 20% of its energy from nuclear energy, and France obtains around 75%, reports Zoe Van Schyndel for The Motley Fool. Market Vectors Nuclear Energy ETF (NLR) is a narrowly-focused ETF that came to the market last month. It tracks the DAX Global Nuclear Energy Index, and it gives exposure to Japan, Canada and Australia.

Uranium, plant infrastructure and nuclear reactors are the type of holdings these funds carry. Although the U.S. hasn't seen a new nuclear power plant since 1997, that doesn't mean the industry has vanished. France and Japan have nuclear power programs and Iran, China and India have all expressed interest.

Singapore Rising

Singapore's ETF iShares MSCI Singapore Index (EWS) is up 19.3% year-to-date. It could see increases as the country's economy is likely to grow 7.5% in 2007 from strong expansion in the financial services and construction sectors, according to a quarterly central bank survey. In addition, economists are optimistic about manufacturing being a central driving force, the Associated Press reports.

Singapore already has one of the world's highest per capita incomes and high-quality public services that have attracted lots of global labor. Foreigners comprise about one-fifth of its 4.5 million residents, reportsSeth Mydans and Wayne Arnold for The Herald Tribune.

Singapore's leaders aren't modest about their achievements either: Lee Kuan Yew, Singapore's elder statesman, has declared the country is entering "a golden age," says Carl Delfeld for ETF XRAY.

Mutual Funds To the Rescue

When an investor is investing large sums of money, say more than $5,000, using an ETF is a no-brainer. Commissions are usually low (around $10), and ETFs offer liquidity in that one can trade throughout the day. With mutual funds, everyone gets the same closing price at the end of the day. In most cases, ETFs' low fees are what attract most investors. However, the commissions can be a turn-off.

For example, let's say you want to invest a set amount of money each month. These systematic investments would incur a commission for each trade. All these trades can take a large bite out of your returns. What's an ETF investor to do?

This is an instance where mutual funds can come in handy, says Bill Donoghue for MarketWatch.

If investors meet the minimum requirements, they can invest in a full range of no-load funds without any transaction costs. Some may even waive short-term redemption penalties, minimum holding periods and excess trading limits. But make sure you know before you start investing in them.

A Trashy ETF

The Market Vectors Environmental Services ETF (EVX) ETF was born last October and has stayed in the top 11% of mid-cap blend funds year-to-date, according to Morningstar Research. This ETF tracks waste management companies in the Amex Environmental Services Index and is up 15.2% year-to-date.

The biggest holdings in this Van Eck ETF are Veolia Environnment (VE) at 10.2%, Suez (SZE) at 10.2%, and Republic Services (RSG) at 10.0%, reports Jesse Emspak for Investor's Business Daily. Who can call this ETF trashy now?

August ETF Activity

ETF experienced a lot of activity in August. ETF Insider's ETF 50 Index, which represents the asset-weighted price performance of the 50 largest ETFs, accounted for 80.7% of total ETF assets, reports Aaron Siegel for Investment News.

It increased by 0.6% in August after declines two months in a row. The gains might have been larger, but 48% of the SPDRs (SPY), which is the largest ETF, were sold short during the month. It gained 1.3% during August. According to ETF Insider the following were ETF winners and losers for August:

PowerShares QQQ(QQQQ) - up 2.95%

iShares FTSE/Xinhau China 25 (FXI) - up 7.60%

iShares Cohen & Steers Realty Majors (ICF) - up 6.37%

Anyone who shorted SPDRs ETFs

iShares MSCI Japan Index (EWJ) - down 2.49%

iShares MSCI Brazil Index (EWZ) - down 3.66%

Wide Trading Spreads

The latest market swing has uncovered a caution to consider when investing in ETFs. It appears that wide trading spreads are a problem because ETFs trade on exchanges like stocks. "Bid-ask" spreads are the gaps between the price buyers are willing to pay and sellers are willing to accept. A wide spread can take away from an investment, and they are an unanticipated cost.

The popular, widely traded ETFs haven't been susceptible but the specialty, niche products have. Diya Gullapalli for The Wall Street Journal explains that just as spreads on regular stocks vary, they do so with ETFs as well. Investors, of course, want the smallest spreads possible.

But if you happen to be selling, and it's on a day the market is deteriorating, you have to choose between accepting the bigger spread, or risking a bigger loss by sitting on the sidelines. The issue could worsen as hundreds of new ETFs are in the pipeline. Many will focus on narrow market niches, so beware. Low trading activity can contribute to wider spreads too.