International ETFs have exploded in popularity, largely due to the fact that they make it relatively easy for an individual investor to trade a singe focused country or region. Remember, however, that ETFs differ from each other, sometimes in huge ways, so be sure to investigate the holdings and structure of an ETF/ETN before you invest or trade in it.

Let's take a look at the top-performing International ETFs on a Year-To-Date basis for 2009 (data source here):

2009 YTD Top Performing International ETFs

Asset allocation is the most influential on investment outcome. There have been growing signs that the worst of the global crisis might have passed. While the US dollar may continue to weaken and the US loses significance in the global landscape, an allocation to other developed markets is deemed necessary. After all, 76% of global GDP is outside the US.

The most popular ETF to provide global diversification is iShares MSCI EAFE ETF (EFA), which tracks Europe, Australasia and Far East Index of developed countries.

After suffering through steep losses last year, municipal bonds and related ETFs have been riding the wave of investment interest in the bonds sector.

Municipal bond mutual funds have increased 14.4% on average through Oct. 29 and yields have not experienced their current lows in more than four decades, reports Jonathan Burton for The Wall Street Journal. The surge in muni bonds may be over, but some believe this investment vehicle still has a place in many portfolios, especially as tax time looms.

As the U.S. economy starts to show signs of a recovery, the market for mergers and acquisitions has shown signs of life. There are 2 ETFs you should keep an eye on as this market heats up even more in the coming year.

There have already been 41 announced U.S. deals worth an estimated $47.5 billion in November. Those who stand to benefit from this trend are large Wall Street banks and some boutique financial firms, states Jessica Papini of The Wall Street Journal.

By Matt Hougan

Schwab’s new ETFs solve one critical problem in the ETF market, but they won’t take over the world. At least not for a while.

After a year of unwanted regulatory and media scrutiny, ETF providers will be putting more energy into getting investors and financial advisors to better understand the handy ETF investment tool.

Over the next year, ETF providers will be spending more time ensuring financial advisors understand what their ETF products are about and how to use them in client portfolios, writes Jessica Toonkel Marquez for InvestmentNews.

Japan was an economy that was hit particularly hard by the recession, thanks to a tradition of frugality. But prices, production and consumption have stabilized, and the economy and related ETFs may be showing small improvements.

• According to the Bank of Japan (BOJ), “Japan’s economy has started to pick up” and the economy is “likely to improve gradually,” writes Myra P. Saefong for MarketWatch. The BOJ left rates steady at 0.1%, which is not having much of a stimulative effect on economic activity.

• The Japanese Central Bank stated that public investment, exports and production are all increasing, as stated in China View. Exports and production are expected to rise when other countries recover and begin to buy again.

• The Central Bank has hopes that this is the beginning of a two-tiered economy based on high domestic demand and greater foreign exports. The Democratic Party of Japan is aiming to change the Japanese economy into one centered on domestic demand.

Private consumption and housing investments remain weak. Furthermore, corporate profits, employment and income all remain depressed.

The price of gold just can’t be stopped these days. Future prices of the precious metal topped $1,100 on Friday, giving related ETFs a push higher, as well.

Investors were driven into gold’s safe arms by a disappointing unemployment report that was the country’s worst in 26 years.

The home buyer tax credit has been expanded and extended. Potential home owners are the obvious beneficiaries of this new piece of legislation, but homebuilders, along with related ETFs, could also benefit from the government’s aid in the housing market.

Congress voted to extend the tax credit and President Barack Obama signed it into law this morning, according to The Wall Street Journal.

Who doesn’t appreciate the hard work and research that comes from the Bespoke Group? The data that Bespoke compiles always stimulates my brain cells… even when I disagree with the interpretation of the info presented.

For instance, last month I called out Bespoke for a simplistic observation that China had gone from first place to last place of the 4 BRIC nations on year-to-date performance through 9/30/2009. I wrote:

CEF Weekly Review: The 13 closed end fund (CEF) types on average were up 1.7% for the week ending 11/6/09. On an aggregate, unweighted basis, the weekly average price change for the 488 CEFs was up 1.6%.

The weighted 49 CEFs comprising the Claymore CEF Index registered an average advance of 3.4% for the week. The S&P 500, as measured by the SPDR S&P 500 ETF (SPY), increased 3.4%. The S&P 500 more than reversed its loss from the previous week.

“Words from the Wise” this week comes to you in a shortened format as I am about to leave Cape Town for a visit to the colder environs of Switzerland and Slovenia. Although reduced commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included. Blog posting will be slow (and totally absent on some days) while I am on the road. The normal blogging service will be resumed on my return to Cape Town on November 16.

The Federal Open Market Committee (FOMC) maintained its extraordinarily accommodative monetary policy following its meeting on Wednesday. The communiqué had no surprises and said that the committee expected to keep the fed funds rate target in the 0-0.25% range “for an extended period”. As expected, the European Central Bank (ECB) and the Bank of England (BoE) also kept interest rates unchanged at 1% and 0.5% respectively.

It is well recognized that asset allocation is perhaps the most important determining factor for investment return and risk. Tracking professional money managers' asset allocations in a timely fashion is thus of great interests. Moreover, being able to track timely smart pros moves is even better.

Various techniques have been used for this purpose. One of widely followed methods is to track mutual funds monthly money flows. This approach could only give us monthly information, which is not exactly very timely in a fast changing market. A more serious problem with this is that it only could tell us how the investors move money among various assets such as equities, fixed incomes and commodities. It does not really reveal what allocations mutual fund managers are making. Furthermore, this would not give us any information how 'smart' managers are doing.

Last week, Jefferies Asset Management unveiled two new exchange-traded funds targeting equities of global commodity producers. The two funds, which track subsets of the Thomson Reuters/ Jefferies CRB In-The-Ground Global Commodity Index tracked by CRBQ, invest in companies across the globe that are involved in the extraction and production of commodities. CRBI seeks to track the Thomson Reuters/Jefferies CRB In-The-Ground Global Industrial Metals Equity Index, which focuses on companies that produce industrial metals such as aluminum and steel. Meanwhile CRBA tracks Thomson Reuters/Jefferies CRB In-The-Ground Global Agriculture Equity Index which follows companies that produce seeds, fertilizers and companies that assist in agricultural production.

Both funds have ALPS as their investment adviser, hold about 35 individual equities, and have an expense ratio of 0.65%. CRBA is much more weighted towards North American firms, with all three of the top holdings coming from either the United States or Canada, including Archer Daniels Midland, Deere, and Potash Corp of Saskatchewan.

The steel industry has taken a beating over the past two years, as prices and demand have fallen in tandem with the overall market, erasing years of gains in many steel equities. This near collapse was brought on by a perfect storm of events against the steel industry; a severe downturn in the construction industry, depressed automotive sales, and shaky debt markets that made it difficult for capital-intensive steel companies to refinance loans. Steel demand is projected to fall about 8.6% in 2009, and with nearly two-thirds of U.S. steel produced from scrap, some analysts to predict weak prices for the remainder of the year and into the next decade as well.

However, some can begin to see good times returning to the steel industry in the near future thanks to robust levels of growth in emerging market countries. The BRIC nations in particular are carrying global steel demand, with China and India leading the way thanks to their massive economies and steel’s role in many modern components including railroads, cars, buildings other aspects of infrastructure that China and India need in order to industrialize their economies.

The October numbers for the ETF industry are out, and it was another good month across the board. Total ETF/ETN assets now stand at more than $707 billion based on data reported by the National Stock Exchange, up from about $705 billion in September. Total cash inflows for the month totaled $8.2 billion, with almost half of that total attributable to two emerging markets funds: the iShares MSCI Emerging Markets Index Fund (EEM) brought in $1.8 billion on the month, while Vanguard’s MSCI Emerging Markets ETF (VWO) took in $2.2 billion.

Domestic equities actually saw cash outflows of nearly $5 billion in October, led by $2.3 billion in outflows from SPY, which has seen AUM decline from $79 billion a year ago to about $67 billion today. But these outflows were more than offset by huge amounts of cash flooding into global and international equities ($7.5 billion) and fixed income ($3.1 billion). Global equities have now seen year-to-date inflows of more than $24 billion, while almost $35 billion has flowed into fixed income funds.

Most major indexes finished the week range-bound after the unemployment level rose to 10.2%, the highest since 1983. This helped push gold higher, close to $1100/oz thanks to investors who continue to seek a safe haven. Meanwhile in Washington, homebuyers saw a continuation of an $8,000 tax credit for the purchase of new homes and the unemployed received news that their benefits will be extended for 20 weeks.

The ETFdb 60 Index, a benchmark measuring the performance of the universe of investable assets available through exchange-traded products, shed 0.48 on Friday to close the week at 999.62. Aggregate volume for the index components was light at 677 million shares, approximately half the daily highs seen in recent weeks. GDX was the biggest gainer in the index, gaining 1.9% as gold broke through the $1,100 barrier, capping off a 5% rise in the price of the yellow metal this week. GDX has been an effective leveraged play on gold prices in recent weeks, and Friday was no exception. GLD rose 0.4% for the day.

U.S. broker Charles Schwab’s launch this week of 8 new exchange traded funds (ETFs) could be a watershed event for providers and users of ETFs and mutual funds. What’s remarkable is that Schwab has fixed its management expense ratios (MERs) even lower than the Vanguard ETFs and is allowing its ETFs to be bought and sold commission-free on a permanent basis through a Schwab account. The brokerage's current and forthcoming ETFs will be the lowest-cost vehicles around for gaining exposure to key asset classes (hat tip to Preet Banerjee for bringing this to my attention by email).

Once again it is time for a goals/progress update. I am pleased to report that annualized dividend income rose in October, extending the streak to 8 months after February 2009’s decline. Since I began publicly tracking annualized dividend income in November 2007, it has increased in 22 of the last 23 months.

November 6, 2009




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