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Will McClatchy  

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  • Light and Sweet: Oil ETFs Ranked [View article]
    Dear Lee,

    There is a recent surge in speculation, no doubt about it, and at least temporarily that has to have impacted prices. Long-term it should stimulate production of all types of energy and not affect prices so dramatically. I suspect that the big institutional funds serving pension plans will simply go to London and trade Brent Sea crude or Middle Eastern varieties, and these funds represent the lion's share of the financial buyers (not oil industry players) in the market. Smaller amounts of capital in the hands of individual investors may be dissuaded. USO and OIL use wait until the regulators come knocking on the door but they are simply long at all times. I am having a hard time picturing how regulators could put the ETFs out of business without yanking many, many other players with vast amounts of capital out of the futures markets. Seems unlikely to me. Hope that helps.

    -Will McClatchy
    Jul 23, 2008. 09:40 PM | Likes Like |Link to Comment
  • ICI Pushes Congress to Punish ETN Investors for Not Choosing Mutual Funds [View article]
    I see no evidence that "ETNs form a significant competitive threat to the $590 billion ETF market, because ETNs offer no tracking error and may -- under some specific circumstances -- have a tax benefit over ETFs". First, ETNs most certainly can have tracking error. Barclays India fund IPN is a good example. It has deviated wildly just recently. Generally both ETNs and ETFs have good tracking, but it should be recalled that tracking error is not the primary goal, returns are. Sometimes perfect tracking is expensive. Second, ETNs have ownership risk that ETFs do not. ETFs are direct claims on stocks, whereas ETNs are debt backed by the issuer. Yes, they invariably have very high credit ratings but so, too, did mortgage bonds, so ETFs are always preferable, all else being equal. Third, as to preferential tax treatment, 95% to 99% have less than 1% capital gain distribution, so how much can you improve on that? I suppose in some cases it happens, but these are marginal instances. Fourth, ETNs are generally occupying those asset class niches where ETFs are impractical because a basket of common stock is difficult or impossible to assemble. So ETNs are quite welcome and useful for commodities, currencies, and highly regulated markets. Finally, as to their taking on ETFs, just look at assets under management. They remain tiny compared to the ETF juggernaut, especially in the broad asset classes.
    Dec 27, 2007. 04:08 PM | Likes Like |Link to Comment
  • 30 ETFs With the Highest Short Interest Ratios [View article]
    The Bespoke commentary is founded on a fundamental misunderstanding of what ETFs are - and are not. With stocks high short interest or percentage of outstanding shares held short reveals potential for a snap rise if all at once the shorters have to cover their positions by buying back their stock. The ratio is meaningful in a stock where the shares in question are all there are. The ratio is not meaningful in a typical ETF where the shorts only represent a tiny amount of the underlying stocks (the index) in question.

    Nov 26, 2007. 01:24 PM | Likes Like |Link to Comment
  • Sinking Dollar Presents Great Currency ETF Opportunities [View article]
    As the above two comments suggest, you are describing the opportunity that occurred, not the one available to investors today. In investment parlance this is called chasing returns. It is not too dangerous for traders who watch their screens constantly and can bail out in time, which is likely since most dollar/other-major-cur... ratio fluctuations are not catastrophically swift.

    It is, however, folly to suggest that long-term investors should invest in foreign assets BECAUSE the dollar has fallen for many years in a row. That is, while it is quite possible or even likely the dollar will go down a bit more, the more the dollar underperforms the more likely it is to return to historic performance. This is not the same as calling it to reverse, but it is a strong caution.

    Since you do not mention what strategy or audience you are talking to, your comments are surely valid for some investors. But if they are meant for the trader, you do not provide the targets and time periods useful for the trader (where will the dollar bottom out and when?). For the typical passive long-term investor, overweighting international heavily now is frankly dangerous.

    Will McClatchy
    Jul 20, 2007. 06:43 PM | 1 Like Like |Link to Comment
  • Response to Roger Nusbaum on Bond ETFs [View article]
    Agreed. The yield bounces around with GKD, but at least the interest rate risk profile remains the same. It remains a long bond and does not morph into a shorter term bond. Unfortunately for some of your clients, when the long bond expires, they will have to reinvest and then they could be in trouble unless they plan on living only so many years.
    Jul 10, 2007. 09:23 PM | Likes Like |Link to Comment
  • Response to Roger Nusbaum on Bond ETFs [View article]
    If a bond fund owns 10-year bonds, you will certainly "get back par" in an economic sense even if the fund sells the bond before maturity. That is because the person who buys the bond buys to the right to "get back par". There is no economic penalty to a bond for selling, all else being equal.
    Jul 10, 2007. 09:19 PM | Likes Like |Link to Comment
  • Response to Roger Nusbaum on Bond ETFs [View article]
    What's with the variable rate/variable price stuff? Funds which own Treasuries act like Treasuries. Treasuries are fixed rate instruments. Their price fluctuates with interest rates, inversely.
    Jul 10, 2007. 06:18 PM | Likes Like |Link to Comment
  • Response to Roger Nusbaum on Bond ETFs [View article]
    Ssorry about the mispelling, Roger.

    I am happy to be in the minority. ETFzone considers its main mission to dispelling myths regarding ETFs. Let's follow your example in your blog:

    "If the yield on the ten year was 6% and you thought that was pretty good, you risk getting a lower rate with GKD if the yield in the marketplace goes down. That which might yield 6% today could yield 4% next year. If you buy an individual treasury, your yield will be whatever it was when you bought it -- which makes managing this portion of your portfolio much easier."

    After one year GKD, which maintains a constant 10-year average maturity, still has a 10-year maturity. But the individual Treasury is now equivalent to a 9-Year maturity because it has 9 years left. If as you say the marketplace yield (essentially interest rate) for a 10-year bond goes from 6% to 4%, then the value of both holdings will rise, because both entitle the holder to many more years of 2% higher-than-market interest. The longer maturity GKD will get a bit more of a boost from its extra year. So actually, in your example GKD is the winner at that moment in time. Each month at Treasury auction as GKD turns over its holdings for new 10 year Treasuries, GKD takes its winnings (or losses) and plows them into the next batch.

    I have no idea what you mean by "variable rate aspect to the treasury portion of a fixed income portfolio". GKD is not a variable rate product. It contains only fixed rate 10-year Treasuries. It does turn over its portfolio to maintain that 10-year duration, but that is not a variable rate as most people understand it.

    My main point is that investors need to be clear whether they are maintaining a portfolio with set asset allocation targets, or if they are saving for a balloon payment or steady income over a known period. Most pension funds asset allocate with set targets, as do most investors saving for retirement. Clearly if one is saving for balloon payments such as college education or if one has set income requirements over a known period and no longer, then an individual bond is perfect. But when you essentially say that "average" investors should not asset allocate with bonds, I worry about how that advice will be taken.
    Jul 10, 2007. 06:16 PM | Likes Like |Link to Comment
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