ETF Update: Tracking the Rich, Total ETF Assets, Good Diversifiers, Expensive ETFs

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Includes: ITB, QQQ, REM, SPY
by: Tom Lydon

Tracking The Rich

Is there an ETF that tracks the spending habits of the rich?

Indeed there is: This summer the Claymore/Robb Report Global Luxury Index ETF (ROB) launched, and it has a higher expense ratio of 0.70% to match its pricey holdings. The ETF tracks the Robb Report Global Luxury Index that is made up of companies whose primary focus is to sell luxury goods and services. With only 40 holdings in the index, the U.S., France and Switzerland dominate this index, reports Zoe Van Schyndel for The Motley Fool. Currently, it's up 7.6% for the month.

If the economy dries, luxury companies might not wilt as much as others because big spenders tend to shop no matter how the economy is doing. The bigger risk is that the fund is highly concentrated. Daimler Chrysler (DAI), Nordstrom (NYSE:JWN), Polo Ralph Lauren (NYSE:RL), and Wynn Resorts (NASDAQ:WYNN) are just a few of the high-end names ROB drops. Ensure this ETF fits your portfolio's needs before purchasing.

Total ETF Assets

The total assets of the 546 ETFs listed in the U.S. rose 3.7% to $507.11 billion in August, according to a report by the Investment Company Institute. During the past 12 months, ETF assets have grown by 40.9%, or $147.22 billion, reports Aaron Siegel for Investment News. Assets in domestic equity ETFs have increased $83.16 billion since August 2006, and global equity ETF assets rose $55.29 billion during the same time.

Good Diversifiers

Throughout the latest market turmoil, diversification helped ETF investors avoid the worst. When the broader market dropped in late July and August, investors in ETFs ducked a lot of the blows that single stock pickers couldn't. Jesse Emspak for Investor's Business Daily reports that this was less a result of ETFs' merits than the average ETF investor's behavior. That's because most ETF investors put their money into broader based ETFs instead of the more exotic ones. A couple of ETFs that suffered this summer include:

  • iShares Dow Jones U.S. Home Construction (BATS:ITB) This fund concentrates on housing construction, which is bound to wilt when the housing market is depressed. Fortunately, this ETF seemed to have few buyers. It's assets are about $100 million, according to Morningstar. Currently, it's down 52.7%.
  • iShares FTSE NAREIT Mortgage REITs (BATS:REM) Launched in May, it's down 29.3% for the last three months. It has about $7 million in total assets.

  • Expensive ETFs

    Some of the most expensive ETFs have an expense ratio of 0.95%. These ETFs generally serve a different, more specific need than most inexpensive, broad-based funds, such as SPDRs (NYSEARCA:SPY) or PowerShares QQQ (QQQQ), reports Amanda B. Kish for The Motley Fool

    It's highly likely that investors who are leveraging or selling the market short are not long-term, buy-and-hold types. They usually make numerous trades into and out of these ETFs. While this strategy might not be for everyone, investors who do trade often, may incur more fees with commissions and high expense ratios. If you are the buy-and-hold type, and find these holdings fit well in your portfolio, then you may just be paying a higher expense.