ETF Update: Water ETFs, Hong Kong High, Saudi Arabian ETFs?, The Gourmet Investor, High Yield Bond ETF Bounces Back

Topics in this update include: Water ETFs, Hong Kong High, Saudi Arabian ETFs?, The Gourmet Investor, High Yield Bond ETF Bounces Back.

Water ETFs

ETFs can help when commodities run scarce. For example, like many other resources worldwide, the supply of water is shrinking. Yet some ETFs invest in companies working to solve this problem.

A few ETFs that invest in water-related companies include PowerShares Water Resources (PHO), PowerShares Global Water (PIO) and the Claymore S&P Global Water Index ETF (CGW). PHO tracks the Palisades Water Index that represents the performance of companies in the global water industry that provide portable water and water treatment services. It's top holding, Valmont Industries (VMI) has been a storing performer since August 2005. It's revenue grew 18.7% in the second quarter of 2007 over the year-earlier period, exceeding the industry average of 4.6%, TheStreet.com Ratings Staff reports. Currently, PHO is up 12.3% year-to-date. Although PIO is new, it hopes to follow in PHO's footsteps. Having just launched in June, PIO is up 0.9% for the month. It also invests in water-service companies and its holdings are equally weighted. CWG launched in May and is currently down 1.6% for the month.

Like some other commodity ETFs, PHO and PIO are more narrowly-focused, which can make them more susceptible to volatility. Study these ETFs to see if they fit in your financial portfolio.

Hong Kong High

The ETF iShares MSCI Hong Kong Index (EWH) hit a this week. Currently, it's up 18.6% year-to-date. EWH's latest high could be a result from China's recent decision to allow domestic, individual retail investors to directly invest in Hong Kong's markets.

According to a financial strategist, the Hong Kong dollar's value against the U.S. dollar has strengthened, which has helped keep fund inflows strong, reports AFX News Limited for Forbes. However, EWH could be affected by concerns that an economic recession is on the way for the U.S. and Japan, which are the world's largest economies and the top consumers of Hong Kong's exports.

Saudi Arabian ETFs?

Saudi Arabia is ready for ETFs. The country's stock market is one of the largest among the emerging-market countries with about $360 billion of market capitalization. However, it is often overshadowed by other emerging markets, such as Brazil, China and India. One reason the country tends to get overlooked is because it has many foreign ownership restrictions, according to Farhan Mahmood for The Middle East North Africa Financial Network [MENAFN].

Much in the same way Americans love ETFs, Saudi Arabia would receive several similar benefits from having ETFs, including:

• ETFs generally are more transparent than mutual funds, which typically appeals to investors. An underlying index for ETFs to track is available already: the Tadawul All-Share Index.
• ETFs tend to have lower costs than mutual funds.
• A Saudi ETF will allow retail investors to have access to the same product as institutional investors at the same cost.
• ETFs have the potential to broaden the Saudi market's investor base and raise additional capital.


ETFs: The Gourmet Choice

ETFs can be more like a specialty, organic foods market than a general marketplace. While the organic store has the main items found in a supermarket, they tend to focus in on just organic items. The same can be true for ETFs, there are smaller ETFs focusing on niche markets as well as ETFs that cover broad areas of the market.

With more than 500 ETF options available, Karen Bluementhal for the Washington Post likens the choices to be just as overwhelming as the variety of peppers in the produce section. Individual investors should be discerning and choose funds that will complement their portfolio and investment needs. Education and research should be incorporated when investing in niche or specialty ETFs because they invest in various, specific sectors other than the broad market.

What kinds of ETFs will work for you depend on how often you invest and trade, how much you invest and what you prefer in your portfolio. For example, ETFs offer a great way to buy a global position. They also tend to be much more cost efficient than mutual funds when investing large sums of money, such as $10,000.




High Yield Bond ETF Bounces Back
With all the summer market turmoil, an ETF tied to high-yield corporate debt is showing signs of life. iShares iBoxx $ High Yield Corporate Bond Fund (HYG) previously felt the blows from rising defaults in the subprime mortgage industry that sent bond investors running.

John Spence for MarketWatch reports that bond investors went toward U.S. Treasuries and other top quality holdings, leaving behind the broader, bond fixed-income market. The high-yield bond ETF, HYG, recovered in August, and during the four weeks that ended Sept. 6, it gained 5.6%, reports Morningstar.

Currently, HYG is up 5.0% for the month.

This April-born ETF has benefited from its liquidity focus. The index that it tracks comprises 50 of the most liquid and tradeable U.S. high-yield corporate bonds. The bond markets have stabilized enough to allow the liquid, high-yield securities to perform better than the general market.

High-yield is a nicer way to say "junk," and corporate junk bonds have higher yields than more highly rated debt to compensate investors for the risk of default. HYG is geared more toward those investors with a higher risk tolerance.