Rebalancing is a key to lower risk and higher returns because it forces the discipline and takes the emotionalism out of “buy low and sell high.” The illustration below shows how a simple portfolio that has a target allocation of 50% bonds and 50% stocks gets rebalanced as the allocations move away from their targets.

Throughout the first half of 2009, emerging market ETFs have been a hot discussion topic and investment option, with much of the attention focused on stellar returns to BRIC funds and the boom in the Chinese real estate market. While that attention is much deserved, these behemoths have overshadowed an investment jewel in Southeast Asia that remains hidden to most American investors. That jewel is Malaysia: a small nation straddling the Straits of Malacca that is home to about 28 million people and one rapidly industrializing economy.

Diversified Economy

Malaysia’s economy, unlike those of many emerging and frontier markets, is very well diversified. It is blessed with an abundance of natural resources, including oil, rubber, and tin, and is a leading exporter of palm oil (which makes a very efficient biodiesel fuel). Due to the high Islamic population, Kuala Lumpur is fast becoming a center for Islamic finance, which may be a rapid growth area in the coming decade. Malaysia is also home to a rapidly expanding high-tech industry, and is a leading manufacturer of computer parts. And apart from its centers of finance and industry, Malaysia is an aesthetically pleasing locale, complete with lush hills, beaches, and countless natural wonders. In addition to the bustling big cities, this diversity makes Malaysia a hot tourism destination, poised to benefit from an abundance of wealthy neighbors in Singapore, as well as from around the world.

This is the first is a series of articles presenting key attributes of ETFs by fund family, with an eye toward the income component of the funds. In each case the yield shown is from dividends, interest or real estate cash flow from the underlying assets of the fund (excluding short-term and long-term gains). The yields are full year trailing.

We begin with Vanguard, the third largest player in the ETF field, but the lowest cost source of funds with typically the most diversified portfolios, as measured by the number of holdings. Subsequent posts will focus on the other principal ETF providers.

How does the current stock markets rally look around the world? These ten charts show a global rally with more leadership in the emerging countries.

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Japan has been a thorn in portfolio strategy's side for over a decade, and more of the same is on tap for the foreseeable future.

As the world's second-largest economy after the U.S., with a stock market capitalization to match, Japan looms large as an influence in the global economy and the capital and commodity markets. Unfortunately, the influence has been largely negative since the early 1990s on matters of asset allocation.

By Murray Coleman

A lot of pundits are telling you to start bottom-fishing for stocks. That might be true since many blue-chip companies are trading at ridiculously low valuations.

The purpose of asset allocation is to own minimally correlated assets, which tends to reduce portfolio volatility while delivering the return of the blended classes.

Within the major equity category, asset classes are often thought of as US, non-US developed, and emerging country stocks.

Recently, I published an ETF performance map on a year to date basis. Numbers were hovering around -50% for European ETFs and -60% for Asian ETFs, except Japan. I think it will be interesting to see which markets benefit from last week's rally the most.

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A major laggard is South Korea (EWY) with -69% followed by China (FXI), (PGJ), (GXC) India (INP) and Asia Pacific (PUA) with more than 60% down. As you can see, the picture here is even worse than in Europe and it is broad based.

Among "leaders" mostly Japanese exchange traded funds are listed. Japan High Yield Equity (DNL) -25%, Japan small cap dividend ETF (DFJ) -33%, Japan small cap index ETF (SCJ) -35%. Here we can see an offsetting equity downturn with the Japanese Yen strengthening.

The famous professors at Yale have proven that asset allocation accounts for 90% of a portfolio’s return and that stock picking and market timing account for less than 10%.   So what a great time to look at how different asset allocations are faring in this market! 

In 2008 it turns out that asset allocation decisions have everything to do with a portfolio performance. 

By Jim Wiandt

Year-to-date, Matt Hougan's 15 (actually 13.65) basis point portfolio is hanging tough, while Bobo is drinking heavily.

By Dan Serra

Vanguard has taken out its wrench and tinkered with its Total International Stock Index Fund [VGTSX] by throwing out the fund-of-funds concept and investing in individual stocks.

By: Heather Bell

Paul Mazzilli's research group at Morgan Stanley released a report on an issue that comes up frequently on IndexUniverse.com—exchange-traded funds versus mutual funds.

Long time readers will know I follow New Zealand as an investment destination, I just wrote about a couple of stocks there recently.

Lately I have been thinking about buying some NZ sovereign debt. The yields are high as you probably know. Two years yields 6.93%, five years yield 6.59% and ten years yields 6.40% (all yields as of June 9).

Individual investors should always look ahead to probable tax consequences of investments. Surprisingly, little attention has been paid to two significant tax issues should an Obama victory occur in November, especially if a super majority of Democrats are inhabiting the House and Senate.

First, it is highly likely that brokerages will be required to report the cost basis of all securities transactions to the IRS. Now, only sales of securities are reported. Investors can minimize this new tax wrinkle by selling securities that will be hit hard by front/back government access to security records beginning in 2009 before December 31st, 2008, and then shift assets into tax efficient index funds, ETFs and tax-managed funds in taxable accounts.

By Matthew Hougan

For the first time in recent memory, new money flooded into the ETF industry last week, as investors created a net $8.7 billion in new ETF shares. 143 ETFs saw net creation activity for the week ending March 14, while 125 had net redemption activity. The size of the creations far outweighed the size of the redemptions, leading to the sharp growth in new shares created.

By Murray Coleman

If you're looking for exchange-traded funds to add, the pickings just got cheaper in many cases.

So I was looking at my portfolio the other day, as I aim to do for the annual rebalancing act, when it struck me that I had a large medley of funds that I collected over the years of chasing performance. Well thought out rational exuberance, I mused. However what this led to was about 20 odd funds in the portfolio, with no coherent investment strategy, and possibly a lot of overlap among the funds. Time for a change.

My strategy for the recent past has been to invest a large part of my portfolio in a broadly diversified ETFs such as iShares MSCI EAFE Index Fund (EFA). I am talking about geographical diversification as opposed to sector or asset class diversification. This base provides my “beta” return. On top of this, I make selected bets in several countries via country specific funds, to seek “alpha” (no pun intended). Left unbalanced, some of these alpha funds have ballooned to occupy quite risky percentages of my portfolio.

There were some winners, with the top-5 performers all posting double-digit gains, led by Mitsui & Co.'s (MITSY) 42% return. Rounding out the top five were: Makita (MKTAY) +35%, Sony (SNE) +27%, Hitachi (HIT) +17% and Internet Initiative Japan (IIJI) +17%.