ETF Update: Dividend ETF, New PowerShares ETFs, Muni Bond Q&A, Rydex Leveraged Offerings, Malaysia's Good Run

Dividend ETF

Dividend-paying stocks no longer have to be a buy-and-hold investment, and are accessible in an ETF basket. The one-month old Claymore/Zacks Dividend Rotation ETF (IRO) holds 100 stocks divided into two groups and are chosen because they are about to make a shareholder payment.

Joseph Lesanti for NY Daily News reports the stocks are held around 61 days to meet IRS requirements for the lower dividend tax rate. The stocks are held long enough to qualify for this tax rate and then they are sold and new dividend-paying stocks are bought. The tax rate is 15%, and the process is repeated every month with one of the two groups.

This may sound like active management for the portfolio, but the index follows hard rules concerning yield, liquidity, company growth and payout ratio. Back testing shows that it is beating the Dow Jones select dividend index over the past decade. Now only time will tell.

New PowerShares ETFs

PowerShares is adding three new members to its ETF family. They are fixed-income ETFs and include a tax-free variable rate demand obligations [VRDO] portfolio. A high-quality preferred and U.S. dollar denominated high-yield corporate bond portfolios also were added. These ETFs will begin trading on the American Stock Exchange on November 15:

• PowerShares VRDO Tax-Free Weekly Portfolio (PVI)
• PowerShares Preferred Portfolio (PGX)
• PowerShares High Yield Corporate Bond Portfolio (PHB)

Muni Bond ETF Q&A

Municipal bonds -- debt issued by state or local governments to finance public projects -- are fashionably late to the ETF party. The first one arrived on the scene in September, and now it's time to get to know them better. Matt Fabian, Municipal Market Advisors, sat down for a Q&A with Carolyn Cui at the Wall Street Journal to help us.

iShares launched the S&P National Municipal Bond (MUB) first, followed closely by the SPDR Lehman Municipal Bond (TFI). These and other muni-bond ETFs aim to replicate the price and yield performance of a designated benchmark. Fabian says that muni-bond ETFs took so long to appear on the scene because it can sometimes be a challenge to physically locate the bonds that make up an index, coupled with the fact that many municipal bond investors tend to be of the "buy-and-hold" variety.

The first mutual fund company to introduce long and short leveraged conventional mutual funds will now be offering long and short leveraged ETFs.

New Rydex Leveraged Offerings

"Rydex Investments...plans to introduce six "leveraged" exchange traded funds that will offer magnified or inverse-magnified returns of major stock benchmarks, with lower expense ratios than a popular family of ETFs from ProFunds Group." reports Ian Salisbury of the Wall Street Journal.

The six new ETFs produce twice the exposure to the long side and the short side of the S&P 500, the S&P MidCap 400 and the Russell 2000.

The appetite for leveraged ETFs is quite strong as ProShares has been able to attract more than $8 billion so far. Rydex and ProFunds have enjoyed a healthy competition in the long/short and leveraged area for years and its nice to see it continue in the ETF marketplace.

I serve on the Rydex fund board so I struggle to be 100% objective. However, competition in the mutual fund industry has served investors very well over the years. It has kept fund companies on their toes and I believe has helped to produce better returns for investors at reasonable fees.

Read the disclosure, as Tom Lydon is a board member of Rydex Investments.

Malaysia's Good Run

iShares MSCI Malaysia (EWM) has had a good year and proven itself to be a hearty ETF. EWM is up 63% over the past year in comparison to the average emerging-market fund, which is up 55% in general, reports Rob Wherry for SmartMoney.com.

Emerging markets are on the minds of many an investor, and new ETFs focused on these markets continue to be launched. EWM launched in 1996, so it is rare to even find an ETF with a decade long track record. Malaysia's economy is expected to grow at 5.6% this year and 5.8% next year. The country is also touting low inflation, stable interest rates and expanding fiscal policy.

Some things to consider if you want to invest in Malaysia include the fact that their economy enjoys a good trading relationship with the U.S. So while your exposure is international, a lot can depend on American consumers. The $1 billion ETF is highly concentrated in finance with 32% of assets in that sector. Financials tend to have lower price/earnings ratios than the broader market and EWM has a P/E of 18. EWM is up 37.6% year-to-date.