ETF Update: Brokerages Embrace ETFs, March Performance, Taiwan Trouble, Bear Stearns' Active Offering

Brokerage Firms Embrace ETFs

Brokerage firms are putting their arms around ETFs in a big way, even going so far as to build entire portfolios out of them.

Some of the largest brokerage houses, such as Citigroup's (C) Smith Barney division, Merrill Lynch (MER) and Wachovia (WB), have begun pitching model portfolios made up exclusively of ETFs, reports Ian Salisbury for the Wall Street Journal.

Why the change? After all, many of these firms for years promoted actively managed mutual funds and individual stocks. ETFs entered the picture and changed things up. They became attractive because many are more narrowly focused than conventional mutual funds, allowing investors to focus on a particular sector. There is something for just about everyone.

The wide number of choices available in ETFs also enables advisors to put their own personal stamp on what an investor holds by giving specific, tailored advice about allocation.

Model ETF portfolios are likely to face competition from no-load life-cycle or lifestyle funds, which adjusts one's asset allocations over time.

March ETF Performance

The adage that March comes in like a lion and goes out like a lamb certainly held true for the markets this month. Several days this month saw wild movement in the markets, sometimes by hundreds of points in either direction. On the last day of the month, though, the markets stayed calm and the Dow rose by 0.4%.

The agriculture and commodities sector saw some selloff activity this month. Silver fell the most, down 13.1% for the month, followed by agriculture, which was down 12.7%. The strongest sector was homebuilders, up about 7.5%.

Both gold and oil stepped back from their record levels, but still remained pricey: oil closed the month at $101.61 a barrel, while gold ended at $921.80.

Most global markets were down, but both Spain and Mexico turned up 6.8% for the month. China fared poorly, losing 9% in March.

Click here to view the full ETF performance report.

Taiwan ETF Falls

The Taiwan iShares MSCI Taiwan Index (EWT), fell 7.8% last week after the central bank raised its benchmark interest rate for the 15th consecutive quarter.

It also signaled that yet more increases are likely, report James Peng and Chinmei Sung for Bloomberg. The bank said that inflation might top the government's target of 2%.

The Taiwan dollar fell from a ten-and-a-half-year high on Thursday, because of foreign fund outflows, causing the stock market the Taiwan stock market to fall lower. Before then, the dollar had posted gains for seven consecutive sessions, says Reuters.

The United States also is breathing a sigh of relief that Taiwanese voters chose a president who is committed to easing tensions with China and expand trade with the country, reports Foster Klug for the Associated Press. President-elect Ma Ying-jeou has promised to reverse the policy of emphasizing political separateness from China, and instead work to take more advantage of the mainland's economic boom.

If this new era of cooperation works out, both economies could benefit.

Actively Managed ETF Review

Now that the first actively managed ETF has debuted, let's check in with it.

Last Tuesday, Bear Stearns (BSC) beat all other providers to market, with its Bear Stearns Current Yield Fund (YYY). On its first day of trading, 26,000 shares changed hands. On Wednesday, things had cooled considerably: 2,600 shares traded. Thursday saw 3,000 shares trade, reports David Wilson for Bloomberg.

One question is whether the drop in trading volume has more to do with a lack of investor interest in actively managed ETFs, or concern about the future of Bear Stearns overall. The question can really only be answered when more active ETFs come to market.

The ETF has $50 million in assets and owns debt with an average maturity of 180 days.

In keeping with the ticker symbol, Wilson has three "whys?" to ask regarding why the firm launched this ETF under current conditions:

• Why did Bear Stearns get to go first?
• Why start a bond fund when equity funds dominate the line-up?
• Why introduce fund that inhibit managers ease of trading habits while they try buy-and-hold strategies? Buy-and-hold can be more rewarding over time due to cost efficiency.

Providers waiting in the wings to launch their own actively managed ETFs include PowerShares, Barclays, State Street, Vanguard, and WisdomTree.