Indexor

Tuesday Outlook: Commodities, Global Markets

Dave:

I always appreciate your work. In your chart of WIP you noted: "Are WIPs better than TIPs? Some must think so." There is a big tax difference between the two. Phantom income.

The drawback to holding TIPs in a taxable account is that they generate "phanton income." The principal value is adjusted annually to reflect inflation, and you're forced to pay taxes on the increase - even though you don't actually receive the money until you sell the bond or it matures. iShares will send you a 1099 that calculates your phantom income each year but TIP remains best for QUALIFIED ACCOUNTS only.

WIPs are somewhat different. The monthly distributions made by WIP include the coupon interest accrual and the CPI adjustment on the principal. The fund is able to pay this out by selling a very small
portion of the portfolio every month that there is a positive CPI
adjustment. Since the CPI adjustment is paid out every month, from a tax standpoint, there is no "phantom income" realized by the shareholder.

Hope this helps.

28 Key Asset Categories: How Do They Compare?

Hmmm..."Prudent Man CFA" is an options trader? That seems like a bit of a dichotomy in and of itself.

I agree that investing is more art and less science. And as Richard Shaw has provided for us once again, his version of art has painted a colorful canvas that many of us non-CFA's find extremely beneficial. While it may be void of continuously diminishing intrinsic values, I find it full of useful ideas, among a broad array of asset classes, that mere mortals might actually use to make money.

Thank you Mr. Shaw.

Six Month Correlation Among iShares ETFs

Richard:

Thanks for the data, as the last 6-month time frame has changed many of these correlations considerably. Apparently, several readers are either new to investing and not familiar with correlation tables, or simply feel it is their job to complain. In any event, I appreciate your efforts in this post and the many others you have provided here.

Checking In on the All-ETF Portfolio

Geoff:

You're web site is not working.

700 ETFs and Counting: A Bird's-eye View

As someone who began using iShare ETFs back in 1996 when they were known as WEBS, and was finally able to drop all open-end mutual funds and closed-end funds last year in order to build 100% ETF portfolios, I applaud your article for providing a good macro view of the landscape.

After BGI rebranded WEBS to iShares with a focus on US stock ETFs in 2000, it wasn't very long ago that it seemed to take absolutely forever to get SHY, ICF and EFA through the approval process of the SEC in 2001. More government bonds appeared in 2002 followed by EEM, TIP and AGG in '03, GLD in '04, MicroCap and EAFE Growth and Value in '05, Commodities and Short/Leveraged ETFs in '06 and finally Currencies and the missing bond categories of High Yield, Muni and Internationals in '07.

As Actively Managed ETFs hit the market in '08, it is logical to believe that many more open-end mutual fund companies will stop feeling threatened and join the movement as Vanguard and Van Eck have already done. Lower expense ratios (look at the market share Vanguard is taking), real transparency (as opposed to quarterly window dressing), intra-day trading (no more bashing of market timing or additional fees for selling whenever you want) and better tax treatment which can be managed as opposed to the ridiculous IRS-forced capital gain distributions at year end.

Good article.