Intelligent Speculator

One of our readers told us she would like to know what the best low-cost ETF’s are. So we started looking and were not sure how to go about it. In the end, we decided to use the 50 best ETF’s on US markets in the past year that had a maximum expense ratio of .20%. Obviously, this list comes after an incredible stock rally with almost all indexes gaining double digits.

Some of you might be surprised to see that no leveraged ETF’s were among the top 50. That would not be because of their performance but rather because in general the expense ratios of leveraged ETF’s are considerably higher.

Also a sidenote, some of these ETF’s have an expense ratio of 0%. While that is technically true, I will explain tomorrow how these fees can be presented in a misleading way. The ETF’s presented here all belong here from what I could see. But permitting ETF’s to present their fees in such a way can be a bit misleading. I will get into that tomorrow.

So here we go, here is the top 50!

We’ve discussed the current crisis in Greece and that has had a very powerful impact on the FX markets. There is an increasing amount of options available for FX investors that wish to use ETF’s. No surprise in the fact that a double short Euro ETF has the best return so far this year. Apart from the Euro, few currency ETF’s have moved much this year. But take a look at the 1 year returns and you will notice very impressive returns for the Australian Dollar, the South African Rand and the Brazilian Rand.

Which of these ETF’s do you think will profit the most in the next few months?

It is well known by readers of this blog that I am generally bullish on Google. It has so much power in this new era thanks to its dominant position on the internet. Think about it for a few minutes… over half of the world’s internet users start their internet journey with a search through Google’s search engine. That gives it immense power in many different ways.

1-Advertising space

No doubt, Google has the premium space for advertisers. Where else can a company like GM expose itself to users who are thinking of “Best SUV”, and only those users? As technology has became more powerful, companies are now able to setup websites and offers targeted exactly to users that type a given keyword. Of course, this makes the user happy as they have an offer that is generally customized towards what they were looking for. But it is even better for advertisers. For years, they had been spending for spots on TV, radio and the print media among other places. Of course, that did have benefits but they were not as easy to quantify. Nowadays, Google can help you spend your advertising dollars but also track that saw your ad, who clicked and what they did next on your website. Did they join your mailing list? Buy your product? The possibilities are endless and it makes Google a perfect target for advertising dollars. This has led to an explosion of ad growth and continued growth thanks to happy advertisers and satisfied users.

2-Knowledge

This has been overlooked but thanks to search engines queries, email, its mobile services and all of its other products, Google has been able to get incredible knowledge of what users are doing, where they are, what they are thinking about and even how they are feeling. The company is still learning how to best use this data (and likely will continue to do so for many years still) but even now it is able to launch products that it knows its users are looking for. Small things such as tracking your flight departure time are now easier to do on Google as the company noticed what users were looking for. My bet is that this will be a game changer in an increasing way over the next decade or so.

3-Boosting its own products

Searching for a smart phone on Google? Don’t be surprised if you end up going to a website promoting Nexus One. And you might end up on Google Finance if you look for stock quotes. Google would be quick to object that they are not manipulating search results to favour their own. No matter if you believe them or not, you could certainly argue that the guys promoting a Google service probably have more information about ranking better on the powerful search engine than most (or perhaps any other) competitors. Being the start of a journey on the web means you have at least some influence in sending users in a direction or another and that is an amazing advantage.

Revenue distribution

All of that being said. What inspired this article is actually a very impressive graph published on BusinessInsider which breaks down Google’s revenues by area. You can draw many things from the chart but probably the most stunning part about it is how Google remains a one trick pony in the fact that almost all of its revenues come from one area; the search result ads.

Does that worry me? No. I was surprised but after thinking about it, it’s not a shocker. In most of Google’s activities, it is still more focused on gaining market share than selling products or ads. Think of Google Earth, a product that is being used increasingly by both consumers and the media. Google continues to offer free use through all kinds of different Medias without even putting many advertisements on it. Will that change in the future? Probably. But I think it’s refreshing to see a company focused on its long term profits (probably more dependant on its number of users than anything else) than a company dedicated to boosting short term earnings at any price.

Threats (Bing, Social)

That being said, there are some threats to Google that should be considered when thinking about buying the stock. I would not consider threats to products such as Google Docs or other smaller products right now because those are not significant revenue contributors right now so any change no matter how big, would likely have little to no effect on Google’s stock. So in my opinion, threats are two fold:

-Search engine competition: Right now, the only threat even worth mentioning is Microsoft’s Bing. It is gaining some ground although it is spending a lot of cash to do so. It is unclear for now if Google should be worried and I will certainly monitor the situation. But currently, I would not consider it a threat as Google’s market share has not suffered and it is unlikely that even Microsoft can keep up this level of spending for long enough. Opponent? Yes. But not a threat for now.

-Change in web use: This has been discussed and has certainly been a source of many worries at Google. There is a threat that users could start using the web in a different way using social web sites such as Facebook and Twitter as their start point instead of search engines such as Google. This has probably been the cause of recent mis-launches such as the one for Google Buzz or Google Wave. There continues to be chatter that Google wants to buy Twitter and that would certainly be of huge help to this threat. Will it happen? Difficult to say but I would hope to see Google get more involved very soon.

GOOG direction…Future growth?

But the main reason why I am still a believer in Google’s stock is that I think there will continue to be an important shift for advertisers from traditional media to the internet and a major portion of that money will go through Google’s hands no matter how it ends up being spent. Google remains the king of the web and has such an influence that it is difficult to imagine this changing anytime soon. Will it grow at 50% per year like some smaller competitors such as Baidu are doing? No, I don’t think so. But I do expect Google to show stronger growth in the next 2-3 years which warrants a much higher price for its stock.

And you are you bullish regarding Google?

China has been the story of economic growth in the past decade and has blasted through the rankings. Not long ago, China was seen as an emerging economy. Yes, it still is according to many standards, but don’t forget that thanks to very strong growth, China is now the #3 economy in the world behind Japan and the US. Of course the main difference is that the Chinese economy is growing several times faster than the US and seems poised to do so for some time.  So it’s not surprising to hear that China has many many good investment opportunities. It is not without risk though. For almost every China believer, you will find someone in doubt because of potential bubbles in real estate, in the stock market and elsewhere. And there is no doubt, there will be bubbles over the years in such a fast growing country. It is almost impossible to time investments so I think the best way to play this is through longer term investment.


The question I’ve been asking myself in China as in other emerging countries is how to best play it.  A few months ago, there was only one option really, owning the entire Chinese stock market, through an ETF like FXI. FXI, managed by IShares is by far the most important China ETF. But like many other countries, China is seeing increasing possibilities as you can now invest in specific sectors of the Chinese market, thanks to new ETF’s such as the ones from GlobalX which offers a consumer ETF, an energy ETF, financials ETF, industrials EF, materials ETF and even a Chinese technology ETF. I will personally be on the sidelines for a few months on these sector ETF’s as I simply find it challenging enough to choose an emerging country without having to play a specific sector.

What are your thoughts on these China ETF’s? Any favourites?

I might be one of the more vocal critics of Yahoo and AOL (and of web conglomerates in general) but to be honest, these companies are not making it easy for those defending them. It seems like almost every week I hear news that is truly stunning (not in a positive way) about these 2 stocks. If would love nothing more than to have someone come here to argue that these companies have a bright future. Both of them used to own the web in some way, and used to be the most influential companies at their prime. But that time seems like decades ago already. Here are a few examples from the past week:

2/24/2010: Yahoo announces a content partnership with Twitter. Remember when Google was blamed for copying Microsoft’s move a few months ago to do just that? Google had answered within 24 hours about its intentions to do the same. Why then did it take Yahoo so much more time? Was everyone asleep? Better late than never? Sure…but why be late if you can actually do it at the same time as competitors?

3/1/2010: Arguable Yahoo’s most valauble property, Flickr had its photo editing partner, Picnik, purchased by Google, which will make it akward for Flickr but will also help Google better compete. Of course today, Yahoo’s CEO announced they would be focusing on small acquisitions. Couldn’t you have thought about buying one of your main partners before competitor Google jumped in?

3/1/2010: AOL announces the sale of Buy.at for $17 millions. What’s bad about it? They actually bought it two years ago for $125 millions. And no, this did not happen during a dot com bubble or anything of the kind. A recession? Yes. But how many assets do you know that lost over 85% of their value? Bravo AOL once more.

3/2/2010: AOL CEO now says that its revenues will be shrinking in Q1, because of a tough environment. Analysts meanwhile say the problem is at AOL and that other web companies will show growth….

3/2/2010: Yahoo CEO Carol Bartz when asked why its compaany was not as “hot” as Facebook: “Remind me what’s their revenue?”. Seriously? You are dissing one of the top 2-3 companies on the internet? Let’s have this revenue discussion in a year or two….

Remember that all of this happened in just a few days… Just a reminder of how bad things are for these two companies. What made my day though was reading an article suggesting that Yahoo should buy AOL. Why not right? Surely things can’t get worse right?

Any thoughts? I would love someone to come defend AOL here.

It is the time once again to do an update of what has become one of the more anticipated posts on IntelligentSpeculator as we do a summary of the best candidates for dividend stocks when investing in the broad US markets and more specifically in the S&P500 index!

As always, I urge investors to look at the dividends offered but also the general health of the company to ensure that they will be able to maintain a high payout! You better look at the entire list to find the rare companies that are not only paying dividends but also who keep taking up their dividend offering a solid long term growth perspective.

As was the case in past months, many communication companies dominate these charts as they have kept up the payments despite being in a rocky environment with lots of competition! I personally would strongly consider a company like Verizon(VZ) which does have issues but is generally still a solid player in the mobile industry and offers a dividend yield close to 7%!

What are your favourites on this list?

Top March 2010 Dividend stocks

I often see all internet companies classified together and honestly it’s just not right to group them all together. One of the categories that is easier to understand is the web content companies. These are companies that are basically media companies, they do not sell products or services, they generally do two simple things:

-Produce content
-Sell advertising

Of course, some companies are larger and have other activities but I would say that in general, their main revenue generator is advertising. Among the companies that I track, here are the main companies I would describe as “content companies”:

IAC Interactive(IACI)
WebMD(WBMD)
The Knot(KNOT)
YHOO(YHOO)
AOL(AOL)

What are these content companies?

Basically, these companies profits depend on:

-Revenues which are driven by:

-Visitors
-Advertising rates

-Expenses which are driven by:

-Cost of producing content
-Advertising expenses

Apart from Yahoo and AOL, I would consider these companies/websites to be very targetted and thus capable of getting high advertising rates. But that being said, traffic remains the core, especially when it is “organic growth”. Buying traffic is easy but not very financially viable long term. So the key is getting increased traffic with quality content. You can see graphs of Yahoo traffic (amazing how much steam it has lost in recent months) as well as a graph for WebMd and TheKnot (look at variations only, obviously many more users looking for medical advice than planning for a wedding). It is more difficult to do for companies like AOL and IAC Interactive which have dozens of different properties. Just take a look at IACI websites to get a feeling.

I have said it before and will say it again, I think it is increasingly difficult to be competitive when building websites in so many fields. You have dedicated teams working on one specific niche or subject and it becomes very difficult for “web conglomerates” such as Yahoo, AOL and IACI to compete. So yes, I have been doing and will probably continue to look for trades that will put me long a specialty website and short a web conglomerate.

Just out of curiosity, I did some comparisons between the two groups for a few different financial items (since AOL was only recently spun off, it id not included for lack of data):

Sales growth:

That being said, buying Knot(KNOT) at the current P/E ratio seems unreasonable (which explains why I am currently short) but I think by waiting for more “ideal” valuations, there are many trading opportunities. I do hope to add more of these companies to my trading radar in the future which will give even more possibilities.

The main risk that I see is always that since these specialised websites are more of a “One trick pony“, if a major competitor jumps in, they are obviously more vulnerable.

Do you agree that in general, these web conglomerates will underperform other specialised websites?

I have written a few series about ETF’s but this time I went for another side of the story! I have been public about my good feelings for ETF’s and why they will eventually take over mutual funds but one of the most amazing things is how many different things can be done with ETF’s! You can do leveraged, inverse or straight but also invest in commodities in general or in a specific one like Oil, Gold, Copper and so many others!!

You can compare the fees charged by each but also returns and obviously this might give you a few different investment ideas!  Will you need more research? Obviously yes! But this can be a good starting point to finding the best ETF’s for 2010!

So without further wait, here are the ETF’s divided by sub-categories!

Agriculture

Lots of believers here think that as the global population continues to grow, foods like rice, soybeans and sugar will become in demand with little flexibility in supply… Resulting in prices going up!!!

Commodity

Instead of investing in one specific commodity and trying to pick the right one, many choose to go for broad indexes as countries like China buy up everything available pushing all prices up. That is basically what has been happening in the past few years! This is also a play on the dollar as commodities are generally inversely correlated to the dollar!

Energy

There was a recession but as thongs get back to normal we will get back to the debates about energy and the lack of it compared to exploding demand:

Oil

The resource that makes the headlines! It is volatile, makes the world run and is in short supply (even to those who do not believe in peak oil!)!

Natural Gas

Think oil is volatile? Try natural gas which has been gaining popularity in recent years thanks to speculators mainly!! UNG has made more headlines than any other commodity ETF but as you can see below, there are other options!

Dirty energy and nuclear

I know, they are not the same but just for presentation purposes, I am presenting them together. Think coal is dead? You are dead wrong and these ETF’s will be proof of that!

Clean Energy

Are you green? You might be tempted of investing in these for social reasons but as the environment becomes more important, clean energy companies will benefit big time, the big question is when…

Gold

Gold has been discussed over and over here and elsehwere, it remains very debated and has lost a lot of value in recent months but as inflation threats remain, it will remain a very discussed investment. Among possibilities are GLD, by far the biggest ETF on this list!

Materials

Not much explanation required, if you believe the economy is back on track, you will want to get your hands on materials!

Metals

Every time you hear about China’s massive city buildings, try to picture all the metals involved! They are more and more in demand with often very limited supplies!

Silver

Because it has gained so much importance in recent years, silver warrants a category of its own!

Water

I had written about water a while back, it remains one of the promising areas and is viewed increasingly as a “commodity”

Others

And finally, those that do not fit any other category

Goldman Sachs recently published its list of the stocks most commonly held by Hedge Funds as of the end of last quarter which obviously makes a very interesting list. Hedge Fund managers are generally regarded as the best and smartest investors. Why? Because generally the best managers will end up there where high returns are best rewarded (in terms of pay of course!).

Looking through the list, I’m not surprised to see the 3 big technology giants in there with Apple(AAPL), Google(GOOG) and Microsoft(MSFT) all among the top 6 names owned. Apple has not been as unanimous since the announcement of its Ipad but I do think it remains a good pick (and do have a trade on Apple right now).

Pfeizer(PFE) at #2 is not that surprising either. While many point to its lack of new products, there are many things to like about it, especially its dividend yield which even after some decreases, remains very high (around 4%).

There are also 4 financial institutions, Bank of America(BAC), JP Morgan Chase (JPM), Mastercard(MA) and Wells Fargo (WFC). Honestly, I find it very difficult to judge these financial institutions right now. I had written about an Bank of America investment being similar to a visit to the casino and while things have improved, it’s still difficult to judge these stocks.

The final two stocks, I do not know as much about, as I have not considered investing in either DirecTV(DTV), or CVS Caremark(CVS), both are consumer players and could be viewed as defensive plays.

Buying or Selling these stocks?

The big question now is that with this info, would you rather assume that most of these funds are wrong (and sell) or jump on the bandwagon and get long assuming these guys are the brightest and they will probably turn out right? It’s actually a very difficult choice but I personally do not move either way really. I do think it’s interesting to see and am happy to not see Amazon (AMZN) on this list since I am short on the stock, but would I change my investing decisions based on these? I don’t think so no. How about you?

Wow, Google is not getting anything easily these days and with its stock down close to 15% so far this year, you would think that Google might be looking for alliances. But it continues on its quest to gain more ground no matter who stands in front of the company. The company is now waging war on tens of different opponents with few alliances to count on. Here are a few of the current opponents of Google.

Search: Microsoft & Yahoo

This is the ultimate battle for Google obviously as it defends its ground. Search is the core of Google and a battle it will give its all to win. The problem of course is that it is facing a very determined Microsoft in this battle. The Seattle based company is spending over 2 billion per year on marketing its search engine, recently renamed Bing. Is the operation profitable? No, as you can see in the chart below. But all this money is starting to show results as Bing continues to gain ground on Google. Bing had 11.3% of search market share in January compared with 10.7% in December with other search engines including Google losing market share. How long can Microsoft keep up the spending? Too long if you are Google.

Social Search: Twitter & Facebook

We have discussed the importance of social for Google and it is attempting once again to enter the market, this time through the launch of “Google Buzz”, a social network integrated with Gmail that tries to compete especially with Twitter. Critics have not been impressed much more than they were a few months ago when Google launched “Google Wave”.  It remains  unclear what Google’s strategy is and there remains many analysts who think the only way Google can get in the game is by purchasing “Twitter” although that alternative continues to become more expensive as months go by… Facebook, which is partially backed by Microsoft, also has been gaining ground on Google in several key measures such as users and time spent on its properties.

International: China & Iran

As if Google did not have enough enemies in the corporate world, Google is also battling it out with Chinese authorities because of hacking attempts that were supported or done by the Chinese government according to Google as well as the company’s refusal to filter search results. This could give enemy Baidu major help as it could concentrate on other markets if Google pulled out of China.

And today, the Iranian government officially banned the use of Gmail, Google’s email website. Of course, Iran is a not a very big market for Google but this does create more legal and logistical complications for a company that already has a lot on its plate.

Mobile: Apple, Research in Motion, Microsoft

The launch of Nexus One a few weeks ago is a clear signal that Google does not consider its operating system “Android” to be gaining market share fast enough and in the critical mobile space, it is important for companies to gain market share right now. Hence, Google launching its own phone (built by HTC) and entering the retail space for the first time.

Software: Microsoft, Sun, etc

It is no secret. Google has been trying to push its lower cost alternatives to Microsoft Office but also offering cloud computing solutions and despite very slow growth, it continues to place a lot of energy in these solutions in the hopes of being the leader in cloud computing.

Print media: Book publishers

Through its agreement to scan an incredible number of books and allow them to be scanned, Google placed itself in a position where many publishers & authors disagree with the principle and refuse to be part of the agreement. So far, Google has been tied up in many legal issues regarding these agreements. The justice department is now involved and it is very unclear how this issue will end.

High speed networks: Verizon, AT&T & Comcast

And finally, as if Google did not have enough on its plate, Google announced today plans to build a high-speed fiber-optic network to provide a faster and better internet, thus entering in competition with other high speed internet providers. “If Google went out and started delivering a gigabit per subscriber, it would show that anybody with fiber can do the same thing.” I’m certain opponents will love to hear this.

So the question clear is: Does Google have too much on its plate? Which battles are key and which ones will require the most energy?