Roger Nusbaum submits: At the end of this week's Up and Down Wall Street column there is a snippet from Alan Newman from CrossCurrents with a theory that the market has gotten a boost this year from the issuance of ETFs. According to the column "net issuance of ETF shares has totaled more than $34 billion thus far in 2006." Newman says that the new ETFs need to buy stock for the funds when they are issued which "is one of the things that has helped kite stock prices."

OK, $34 billion, that's the figure? It seems to me that the NYSE and the Nasdaq each average about 1.6 billion shares per day (anyone with the actual figures can leave a comment). Anyone know the typical share price of a stock on the NYSE or the Nasdaq? Me neither but it probably is more than $10. At $10 I think that puts the dollar value of shares traded on a typical day, between the two markets, at $32 billion or 94% of Mr. Newman's $34 billion in new ETF money. Even if my figuring is off by 100% working against my point we are talking about dollar volume averaging two and a half days of trading. I must be missing something.

My subconscious mind must have realized that Democrats would gain control of congress in the November 7 elections and that would be negative for health care stocks.

The health care sector did react negatively at first, but the market now seems to be getting used to the idea that Democrats will be running things, and life will go on.

A few days later, the Alligator Investor made his case against HQL. Did he provide decent points of view? Not really. In fact, the Alligator agreed with BHI on many points, but cited that his intuition says that something is wrong with HQL. Basing your investment decisions on intuition alone is a form of gambling, but that is another argument for another time.

Well, on Thursday Jim Fink, writing for The Motley Fool, not only featured HQL as a great healthcare ETF, but chose it as the best ETF for 2007!

We must not confuse intuition with fear or greed. When the bottom has dropped out of the market, and the headlines say the Dow is going to zero, that is the time to buy. We must struggle against a sinking feeling in the pit of our stomachs in order to jump in at the right time.

An investor of HQL does not only hold a broad diversified position in the biomedical industry, but also carries financial vehicles not commonly available to small investors. HQL invests in convertible securities and warrants in addition to common stocks. As of June 2006, about 19% of its assets were made up of non-common stocks.

HQL, initiated in 1992, is the younger sibling of H&Q Healthcare Investors (HQH), which began trading back in 1987. According to the company’s website HQH holds a broader position in the healthcare industry, while HQL focuses more on exciting new biotechnology startups, although we fail to differentiate between the two when looking at their holdings.

It looks like each of the distributions over the last several years have consisted entirely of capital gains, and I wouldn't expect the fund to start distributing paid-in capital to shareholders in the near term. But it is not inconceivable that the fund may at some point in the future have to distribute some of the capital that will be raised in this rights offering back to shareholders. I'm not saying that this will happen, just that it is possible.

As long as a fund is distributing either dividend income or capital gains to shareholders, I don't think there is anything wrong with it raising new money at the same time that it has a high distribution policy. But if there is a return of capital included in the distributions, investors will wonder why they gave the fund additional money just to have it returned to them. It could happen in a situation where the fund manager wants to have more assets on which to collect management fees, but also wants to have a high distribution yield to keep the discount low and ward off activist investors. While this does not appear to be an issue with HQL, I could see it being a problem for other funds someday.