David Fry's Daily Market Outlook

Includes: IEF, IFN
by: David Fry

D Fry Market Outlook 14 12 2006

Markets seemed a little indecisive on Wednesday. Even though most equity markets were a little higher not much progress was made. In this "data dependent" environment investors psyche is swayed one way or the other with daily events and news. Wednesday's featured news surrounded stronger retail sales data which helped the dollar but pushed bonds lower. At the same time, the treasury held an auction of $8B for 10-year bonds that was poorly received.

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The interesting news in ETFs over the past few days has been the announcement of a new yen ETF filed by Rydex for registration which when approved completes, for the most part, their currency menu. It had been delayed as Rydex and others battled against the low yen yields which made structuring a profitable issue difficult. So, Rydex has decided to cover the funds expenses by selling yen to cover. This isn't such a hot way to do business, but precious metals ETFs do much the same. But it's good to have the yen issue available for investors either for speculation or hedging. The only issue will be whether retail investors will find shorting the yen ETF possible. Time will tell.

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Then Barclays has announced that they'll be issuing an India ETN on December 20th. This is great news. An ETN, as opposed to an ETF, is a debt instrument of Barclays and is linked to the MSCI [Morgan Stanley] India Index. This index tracks 68 of the largest companies in the Indian market. Further, other ETFs being contemplated [PowerShares and Claymore, for example] will be tied to the available India ADRs listed in the US. This greatly restricts exposure and heightens risk since so few ADRs are available. In fact, powerhouse company Tata will comprise nearly 40% on any such offering.

We've been following IFN for several years while awaiting an ETF product. The ETN [INP] will charge only 75 basis points in fees versus other closed-end funds where fees exceed 2%. The only catch will be, do you trust the credit worthiness of Barclays? I think there should be few worries on that score.

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Most other market sectors were relatively quiet today. Ahead is OPEC tomorrow and triple witching on Friday which could mark an eventful end to an otherwise quiet week.

Have a pleasant evening.

Disclaimer: Among other issues, ETF Digest maintains positions in: iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), United States Oil Fund ETF (NYSEARCA:USO), PowerShares DB Commodity Index Tracker (NYSEARCA:DBC), $BSE and India Fund Inc. (NYSE:IFN).

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