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Peter Cooper
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Peter Cooper is the editor and publisher of the ArabianMoney Investment Newsletter and ArabianMoney.net website. He was formerly a partner in AMEInfo.com, sold in a private equity deal in 1996. His book 'Opportunity Dubai: Making a Fortune in the Middle East' was a best seller, and his latest... More
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ArabianMoney
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ArabianMoney
My book:
Dubai Sabbatical: The Road to $5,000 Gold
  • Growth story of ETFs will have a nasty sting in the tale

    Exchange traded funds have grown like topsy over the past few years and are popular both for there low costs and liquidity. ETFs that track indexes are particularly popular with investors who see no point in risking the possible underperformance of a more expensive fund manager.

    Assets held in ETFs have tripled since the year 2000 to around $1.7 trillion last year. According to Morningstar ETFs cost an average of 0.57 per cent of assets to operate annually. Compare that with 1.26 per cent for the average actively managed mutual fund.

    Liquidity

    There is also the liquidity of ETFs to consider. They trade at the touch of a button on global financial markets and do not suffer from redemption periods.

    However, there could well be a nasty sting in this tale. ETFs are increasingly being used by large financial institutions to mimic the performance of hedge funds, albeit more cheaply and with instant liquidity.

    So far so good but what happens in a market correction? The instant liquidity of ETFs mean more sell buttons being pushed simultaneously than ever before. Can the markets really handle this or will the third parties running the ETFs be left holding the ball?

    If nothing else ETFs are likely to lead to greater market volatility because of the elimination of natural market stabilizers like redemption delays. This could prove particularly irksome in an upcoming stock market correction because the Federal Reserve’s room to cut interest rates further is almost zero.

    Lest we forget in normal stock market corrections of above 10 per cent the standard response is for the Fed to take the axe to interest rates and for markets to bounce back. That is not going to be possible with interest rates already down on the floor.

    1987 paradigm

    In 1987 computer trading programs were blamed for the severity of the October crash. You have to wonder if ETFs will not be blamed for making the next stock market event worse than it otherwise would have been.

    Stock market innovations have a nasty habit of biting the hand that feeds them. That understood ETFs that bet in a contrarian or short fashion are likely to be the new best friends of investors in any upcoming sell-off.

    Again whether such ETFs can really handle the inevitable sudden inflows is going to be interesting to watch, and it maybe that these investments prove less liquid than advertised in a meltdown. 

    Disclosure: No positions
    Tags: ETFs
    Apr 11 8:18 AM | Link | Comment!
  • First-ever Gulf Oil State ETFs well worth a look

    The National Bank of Abu Dhabi has today launched the first-ever exchange traded fund in Arabia that covers the 25 most actively traded UAE stocks. It is listed on the Abu Dhabi Stock Exchange, and makes its debut just a day before Saudi Arabia gets its first ETF. Both are open to local and foreign investors.

    The minimum investment is a bit steep at almost $136,000 and is clearly aimed mainly at foreign institutional investors to help reduce market volatility.

    Blue-chip ETF

    The NBAD OneShare Dow Jones 25 ETF will comprise stocks listed on the three trading markets of the UAE. Financial and real estate stocks make up 56 per cent of the fund, while no single share will account for more than eight per cent.

    The ETF will be traded and quoted like other securities on the Abu Dhabi Stock Exchange. The Dow Jones UAE 25 index is off nine per cent this year, and up 35 per cent in the past year. Meanwhile, Falcom Financial Services is to offer the first-ever ETF in Saudi Arabia from tomorrow, with further details awaited.

    Now this is indeed an attractive way for foreign institutions, and high net worth individuals to invest in the UAE stock market. UAE stock markets crashed in late 2005 and have not recovered since. A market bottom could be close and a major buying opportunity evident.

    Indeed, the imminent settlement of the $26 billion Dubai World debt rescheduling might be the signal that the worst uncertainty is over and that markets will make progress from here. Certainly the UAE bourse looks undervalued in relation to the much better recent performance in Saudi Arabia.

    Global clouds

    However, what if global financial markets choose this as a moment for a correction, and oil prices slump as they did in late 2008? Then the UAE bourses will doubtless be dragged down yet again, perhaps this time to a real bottom.

    In stock markets timing is everything. All the same putting money into the long-term future of the UAE does look a winner with its low extraction cost energy sector and huge hydrocarbon reserves, progressive leadership, ambitious expansion plans and net creditor nation status. 

    Disclosure: No positions
    Tags: ETFs
    Mar 25 1:17 AM | Link | Comment!
  • 'The Road to $5,000 Gold' now listed on Amazon.com
     My new book 'Dubai Sabbatical: The Road to $5,000 Gold' is now listed on Amazon.com and is available exclusively online. 

    This work tells the story of the travels around the world that followed my successful dot-com sale in 2007 and how this experience reinforced my conviction that gold is the best investment class to hold. 

    You can meet the Treasurer of the Perth Mint with the author as he opens an account, consider in detail the arguments for much higher gold prices and reach your own conclusion as to whether the author is right or just another gold bug.

    At the same time you are taken on a journey around the globe that anybody with modest resources could undertake as a once in a lifetime sabbatical holiday. 

    Considering a career break or hoping to make an investment break, this book offers some answers to both. 


    Disclosure: Long gold and silver bullion
    Mar 15 7:35 AM | Link | Comment!
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