Archive for November, 2009

What makes an ETF “successful” ?

By: ispeculatornew | Date posted: 11.13.2009 (5:00 am)
etf-financial-servicesAre there too many ETF’s? No, there are not …


I hear it all the time, investors complaining about the overwhelming number of ETF’s that are available on the markets. Yes, I admit, there are many, and it can become confusing as for one index, there can be 5 or 6 ETF’s, and sometimes many more. I would say that it is still fairly easy to decide which ETF you should invest in. Simply follow the 6 rules of how to choose an ETF.

But the more important issue here is that investors should be happy about having so many companies competing for their money. This has a major impact on fees that companies can charge and in the end the investors come out on top. I do believe that in the end, there will not be as many companies offering ETF’s. It is a much more difficult business than most companies realize.

To be certain, it is an attractive business. Imagine running a business that requires little maintenance and that can generate .20% of assets… that is as good as it gets. For example, Ishares has about $37 billions outstanding on EEM, and charges .72% of annual fees. That represents over $260,000,000. Now yes, of course there are costs involved. But you would think that the business is still able to pull in a good amount of profits every year.

And so companies all around the world have been thinking about ways to get into the game. Of course, it is a lot trickier than most people can imagine.

First off, to make an ETF attractive, you need to make it:

Cheap: Obviously, one of the more important aspects is the annual fee. The lower it is, the better the chances of       attracting funds

High volume: Attracting investors requires having a liquid, high volume stock that will give investors the possibility  of trading without excessive costs

That leaves companies with the challenge of creating an ETF that can become big enough to be profitable. Generally, they will need an ETF that:

-Differentiates from existing ones: The ETF must either track something new, a new index or in a new way. If it doesn’t, then it must offer something better than existing ones, usually lower fees
-Is popular: Yes, you read me right. Popularity is hugely important. If investors are looking for liquid and high volume stocks, how will they ever start investing in a new ETF that has no volume or active traders? It is a vicious circle and there are a few ways to get around it, but it is the most expensive and most overlooked part of the business:

-There has to be some institutional investors that trade the name or at least offer fairly thin bid-ask spreads


-There must be some marketing done to get more investors trading


Both of these end up being very expensive but they are necessary expenses until you have enough buyers and sellers every day to insure tight spreads and high volumes. Once that happens, the company can work on getting more flows that will result in more fees and more profits. It seems very simple, but actually the majority of ETF’s never reach that point and will end either closing or being unprofitable for years….

Closing CTRP vs EXPE

By: ispeculatornew | Date posted: 11.12.2009 (4:14 pm)

ctrpQuick post to confirm that I will be closing out the trade on CTRP vs EXPE, as it has a +22,30% return as of today’s close. This is because of CTRP’s earnings announcements that surprised analysts to the upside. Income from operations is up 87% on revenues that increased 40%. Quite impressive from the online Chinese travel company and that was enough for shares to jump today while Expedia remained steady.

Other trades remained fairly stable:

AAPL-INTC
+7,94%
GOOG-IACI +8,49%
BIDU-AMZN +4,64%

All for now! A new trade should be coming on Monday.

Rupert Murdoch & Newscorp…are you crazy?

By: ispeculatornew | Date posted: 11.11.2009 (5:00 am)
newscorpI’ve been critical of Murdoch’s ambition (as well as the entire media industry) regarding online content in the past. Mainly, the idea of charging for all content is siply not realistic. As I’ve stated before, the Wall Street Journal is an exception for many reasons. But for some reason, it seems as though News Corp is now considering one of the craziest things, taking itself out of Google.
Let’s review the facts. In order to be in Google, the Wall Street Journal must make its content available to the search engine. By doing so, it makes it possible for users to get content for free by searching on Google. If that same user were to go directly to the article without going through Google, he would be unable to view the content without becomming a paid member. Well, now Ruper Murdoch is tired of it and thinking about taking himself out of Google. Crazy? You bet. WSJ gets about 15% of its visitors from Google. And consider that all of those visitors are sending links to friends, sharing their links and in the end often signing up for a paid membership.
Others have considered doing it before and even taken action, but in the end, at least for a while, any internet company or website NEEDS Google. The entire internet still revolves around the internet giant and while social media is hot and gaining traction, it still pales in comparison to search engine traffic.
Could the Wall Street Journal survive without Google? Yes of course. It has quite a reputation and its corporate clients will continue to pay for years and years to come as long as the content quality remains high. But why would NewsCorp even seriously consider taking out their most important source of traffic (i.e. most important source of new members, revenue). You would think that the Wall Street Journal could simply add:
-Incentives for those users to sign up
-Deterrents to free viewing such as more advertising (t is after all a very attractive niche for which they could charge very expensive rates).
Just seems short sighted and for some reason, I feel like NewsCorp is often this way. Is Wall Street Journal a successful paid content example? Absolutely. But every time I hear Ruper Murdoch talk about making all of his content paid, it draws a huge smile on my face. He simply does not know what he is getting himself into…. Kind of like how he purchased the leading social media (MySpace) a few years ago and lost
While Twitter and Facebook have grown 660% and 200% in the past year.. MySpace is actually down 12%… Bravo News Corp. Well done…
facebook-com-twitter-com-myspa_uv_1y

Will commodity ETF’s exist a year from now?

By: ispeculatornew | Date posted: 11.09.2009 (5:00 am)

ngCommodity ETF’s have been the source of much debate in the past year for many reasons. The main one has been UNG, a major hedge fund that invests in Natural Gas (almost only through futures) and which got so big that it reached the position limits set by regulatory institutions in the United States. This caused UNG to slow down the issuing of shares but also start using alternative methods such as “swaps” in order to gain the necessary exposure. This does help UNG track Natural Gas and keep getting bigger but is has also created a new “credit exposures” for the fund. If the fund does swaps with a bank that defaults, all ETF holders could end up on the losing side (although there is some protection but it is uncealr how it would work exactly).

There are also two main concerns with individuals investing in commodities. Firstly, a few years ago, commodities were not considered an asset class by most investment participants. They were considered an area of speculation and trading, but not an asset that all investors should own. That has gradually changed, especially because of the rise of oil and other commodities in the past decade.

Secondly, commodity prices that are speculated on are having a major impact on some economies. Take the example of corn or other traded commodities that are used either as food or as energy sources. When prices go up by 100%, not only does that create winners and losers in the trading arena. But also, it makes a tremendous impact in poor and emerging countries that simply cannot afford to pay 50% more for their food. This forces some governments to offer subsidies to help out their citiez but in many cases, the government simply cannot afford it.

Is it by chance that most of the biggest ETF issuers such as IShares and Vanguard do not offer any commodities funds? I personally do not think it is. In the short term, these funds have generated a lot of money. But they are also headed towards a lot more regulation and it will become a lot more difficult to run such funds. Will commodity ETF’s disapear? I don’t think so. They remain such an attractive solution for traders, and are much easier to trade than futures for many reasons. But there is no doubt, the CFTC will get involved and will start to legislate the huge flows that are happening in these ETF’s.

Financial Ramblings

By: ispeculatornew | Date posted: 11.07.2009 (7:10 am)

fall-leavesWow..fall is coming to an end, I sure don’t miss the cold winter mornings when going outside is probably the toughest way to wake up. But that is what’s coming in a few weeks, better get ready right? It was another interesting week with more volatility, here are some of the more interesting readings I enjoyed last week:

Primerica 100M IPO @ TheFinancialBlogger
BlueNile reported more impressive earnings @ ZachStocks
Shares slump on US employment data @ BBC
Buying stocks on margin@ FourPillars
5 good financial habits in your twenties @ MoneyUnder30
Returns of the top 10 Canadian Equity Funds @ CanadianCapitalist
Gold moves to 1100$ @ WSJ
When Money doesn’t matter @ MillionDollarJourney
Personal Finance and the NYC marathon @ FreeFromBroke
Are you preparing your portfolio for the worst? @ GatherLittlebyLittle

New trade: Long Baidu(BIDU)/Short Amazon(AMZN)

By: ispeculatornew | Date posted: 11.06.2009 (5:00 am)
baiduIt was only a few weeks ago that I did a successful trade on Baidu, being short the Chinese search engine. As I had said, I believed the stock had moved up significantly and there was little downside. But now, only days later, I’m already back being a Baidu believer (why shouldn’t I, it has helped me a lot in the yearly stock competition) in a new trade that should be very interesting.
Amazon and Baidu trade at almost exactly the same P/E ratios and I do hesitate going short a stock like Amazon that has so much momentum but it has went up so much in 2009 and it will face increased competition on products such as the Kindle (rumors of the upcomming Apple tablet are getting louder). As well, Amazon will probably face pressure from a lot of different areas that will result in lower prices and lower profit margins. The fact is that both “traditional” merchants such as Barnes and Nobles and newer companies like Apple and Google will be competing with Amazon as books and magazines head to the digital form.
amazonAmazon is a company that I believe in fundamentally and its recent purchase of Zappos was one more reson to be a long term bull. But the fact is that Baidu has been growing a lot faster than Amazon, it still has so much space for improvement both in terms of monetization and traffic as it continues to dominate the very attractive Chinese search market.
The major point here is that while both companies do show growth, they do not really compare. In the past year, Amazon’s revenues have improved almost 30% which is very impressive but still far from Baidu’s revenues that have amzngrown about 40%. There is just so much potential for Baidu and little competition when you consider that its market is growing fast and that even Google has been unable to gain much market share from its Chinese competitor.
Baidu did slip when it announced its earnings because of diminished expectations for the next year, especially compared with expectations. But I honestly believe that things still look very bright for Baidu, especially when you consider that its valuation is almost identical to that of its much more mature Amazon competitor.
bidu
Disclaimer: No return is guaranteed and each recommendation should be considered within the investor’s individual situation. As with any financial investment, there are risks involved.

Hedged ETF’s..good or bad?

By: ispeculatornew | Date posted: 11.04.2009 (5:00 am)

theworldNo matter where you live, you will probably want to consider investing abroad. Wherever you live, it is just one country and there have been numerous studies about diversification that proved its benefits. Some might argue the theory but in general, most agree that at least some diversification is useful. Living in Canada, I am in a country which includes not even 5% of the world’s stock market value. It would be foolish to buy only Canadian stocks in my opinion.

So here comes the big question. Suppose a Canadian would like to invest in the broad US equity market, what is the best way? Of course, I will suggest using ETF’s. But there are two main choices if investing in the S&P500, the main stock index in the US.

1-Buy an ETF such as IVV ($USD that tracks the S&P500)
2-Buy an ETF such as XSP (IVV hedged to CAD$)

There are of course many questions to be asked when asking you this question:

-Why are you getting this position?

If the reason is to get exposure to the US equity markets, then I would say that you generally are looking for a hedged return. That is, if the US markets goes up 10% but the US dollar loses 10%, would you expect to make about 0% or about 10%? Of course, the opposite may be true as well. It is important to know what kind of exposure you are looking for. Generally, I have been more interested in gaining exposure to the market than actually gaining both currency and market exposures, but both are possibilities.

-If you want a currency hedged position, which is best?

In this case, you have two options

#1-Buy XSP and become automatically currency hedged. This solution is a bit more expensive as there is an additional layer of fees involved (although usually it is rather small, in this case, .24%.

#2-Buy IVV and hedge currency exposure yourself: I think this can become attractive if you have a reasonable large position. Why? Because hedging currencies is not as straightforward as you might think. You would need to either trade Forex directly (more on that very soon) or trade a currency ETF (in this case FXC would be a good solution, it tracks the Cad dollar almost perfectly). But no matter how you hedge, your hedge will likely never be perfect. And depending on how often you trade, you will end up paying more or less than the actual hedging fees charged by XSP.

-So which should I do?

I think it’s defendable to do both, and that flexibility is one of the reasons why I like ETF’s so much. The point is that you must know what you are looking for. I think the US$ is currently very volatile and could easily head in either direction. Since the size of my position is currently very small, I doubt trading Forex for hedging purposes makes much sense. Because of that, I personally prefer going for the market right now, investing in XSP.



Festival of Stocks – Investor Type Edition

By: ispeculatornew | Date posted: 11.02.2009 (5:00 am)

Welcome to the Festival of Stocks!


If you are a new reader to Intelligent Speculator, you might want to read a few of our best posts:

4 stock picks that made 70% in 2009

10 reasons why ETFs are superior to mutual funds

6 things to look at before buying ETFs

Leveraged ETFs… scam of the century?

And if you would like to find out how participate in future editions of this festival, go here!

If you read my blog, chances are that you like talking about investments. Most of us have an investment portfolio but we rarely manage them in the same ways. Active investors have different perceptions of the very same news and will trade accordingly. So before you share investment picks with someone else, you should ask which kind of investor he is:

joker-the-dark-knightMomentum Trader aka The Gambler

The momentum trader manages his investments like I help my daughter in her swing: they push when they think it’s good timing and pull back before the market crashes. They think they have that special 6th sense to know when the market is “high” and when the market is “down”. The problem is that the market is a psychopath… so tell me how you can predict a psychopath?

DR presents Best Discount Brokers for Online Stock Trades and Option Trading posted at The Dough Roller.

MBB presents Net Worth, Stock Loss, and New Home Update posted at Money Blue Book Blog.

MBB presents Discount Brokerages For Cheap Stock Trades posted at Money Blue Book Blog.

The Smarter Wallet presents Stock Mutual Funds: Building Your First Investment Portfolio posted at The Smarter Wallet.

graph1The Day Trader aka The Technician

Day traders are stock market cracks sticking to their 5 trading screens like flies on sh…… They really don’t want to miss anything as any tidbit of information is crucial. Volume, trends, moving average, big news… they look at everything and use their system to draw patterns. If their analysis is right, they may make a killing from their technique. However, this requires passion and a lot of time in order to be successful. I don’t have the patience (nor talent!) to track 5 screens of minutia 8 hours on a daily basis!

Silicon Valley Blogger presents Use A Stock Screener To Find Stocks To Buy (Morningstar Demo) posted at The Digerati Life.

Manshu presents What is an ETF? posted at OneMint.

AlexG presents Jim Rogers Talks Gold | All Things Jim Rogers posted at All Things Jim Rogers.

Soo-Young presents How To Choose An Online Stock Broker posted at Bullishness.com.

timothy-sykesThe Short Seller aka The Pessimist Gambler

These traders expect stocks to crash and sell them short. This is how Timothy Sykes made most of his money. Many short sellers have been accused by Wall Street of pushing the stock markets down the stairs back in September 2008. As the world was about to collapse, short sellers were looking to buy their new Bmer with the profit earned from their short sales of Citibank, AIG and others. As in the case of the momentum trader, the short seller is a gambler and bets on bad news to make money on market swings.

Matt_SF presents Some Tech Bubble Stocks Finally Breaking Even after a 10 Year Wait posted at Steadfast Finances.

The Financial Blogger presents The Financial Blogger » Blog Archive » Canadian ETFs That Pays Dividends – Am I in Heaven? posted at The Financial Blogger.

Steve Alexander presents Face-off: Pharmaceutical Distributors posted at MagicDiligence – The Best Magic Formula Stocks.

businessmanThe Stock Picker aka The Professional

While he thinks and acts like a Pro, it doesn’t mean that the stock picker is one. He usually has reasons why he buys stocks based on fundamental analysis. He might have spent 20 minutes or 5 hours analysing reports…. In the end, he is convinced of his choice. He follows each of his stocks closely and will trade them upon certain homemade rules such as gain/loss target, sector swings, fundamental changes, etc. While he can make a lot of money, he will only perform well if his analysis method is accuraate!

D4L presents Abbott Laboratories (ABT) Dividend Stock Analysis posted at Dividends Value.

Mike Piper presents Review: Scottrade IRA posted at The Oblivious Investor.

Super Saver presents Dow 10,000 3.0 – What’s Next? posted at My Wealth Builder.

Nesher presents Mutual Fund Strategies: How to Minimize the Risk posted at Internet Stock Trading for Beginners.

warren buffetThe Buy and Hold aka The Warren Buffett

The famous buy and hold strategy is not too popular these days. Several articles have been written on the fact that buy and hold investors had left a lot of profit on the table when it was time to cash in their profits. I personally think it is still a good strategy but one must consider selling his holdings and not fall in love with them ;-)

Tom @ Canadina Finance Blog presents Book Review – Stocks For The Long Run | The Canadian Finance Blog posted at The Canadian Finance Blog.

Darwin presents 3 Low-Cost Option Strategies for Stock Market Speculation posted at Darwin’s Finance.

Albie presents Many ideas to sort out your financial life (Updated 22/10) posted at iDevelopWorld.

Diane Steward presents The Definitive Gold ETF Guide posted at ETF Database.

jim presents 50 Fun Facts About The Stock Market on Blueprint for Financial Prosperity posted at Blueprint for Financial Prosperity.

The Contrarian Investor aka The Rebel

The contrarian investor bases his trading strategy on the opposite of the market. While everyone is looking to buy, he looks the other way. It is actually one of the most logical things to do when you are close to stock market peaks and at the bottom of a drop. Someone who was buying stocks during fall 08 is probably laughing right now… oh wait, this is what I told most of my clients… they are showing double digit returns since then.

I hope you have enjoyed the Festival!

image source: steve cherrier, adam foster,