Stocks and Trading Thread - Channeling your inner Mono

[Tamas]

"I do love this so"

[citizen k]

China ETF Bets on Rising Middle-Class
Roger Nusbaum
02/25/10 - 05:00 AM EST
NEW YORK (TheStreet) -- China has been an important, yet controversial, investment destination for years.

Important because the country is spending money to modernize almost every aspect of people's lives, and controversial as the rest of the world tries to figure out whether there is a lending bubble. Also, China has frosty relations with the U.S. because of the currency peg, trade tariffs, the issue of Taiwan -- even the Dalai Lama.

I have written about where money must be spent in China. The easiest path to do this is to tap into the country's effort to modernize, which has been under way for years but still has a way to go in terms of delivering a middle-class lifestyle to more people.

There are several exchange traded funds that play into this theme, including the new EG Shares China Infrastructure ETF(CHXX Quote). There are ETFs that invest in emerging-market infrastructure, not only China, and there are others that focus on specific sectors in China. Only the EG Shares fund combines the two.

The fund allocates money to nine industries within infrastructure, the largest ones being real estate management and development, at 23%; metals and mining, 21%; construction and engineering, 15%; and electrical equipment, 14%.

The inclusion of real estate will surprise some people, but the reasoning is interesting. China wants to bring a middle-class lifestyle to poorer and more rural parts of the country, mostly the western provinces. Part of this lifestyle includes shopping malls and restaurants, which will be built and run by real estate companies. EG Shares' chief investment officer, Richard Kang, made a point of mentioning the importance of lifestyle enhancement as a source of social stability, implying a sort of social contract between the country and its citizens. Safe new roads, malls and cable TV play an important role, Kang said.

This part of the story isolates two important points for would-be investors in the new fund. As mentioned above, there are concerns about whether certain aspects of China are a bubble -- short-seller Jim Chanos has made a lot of headlines in the past couple of months by calling the real estate market in China a bubble.

If stock prices in the Chinese real estate industry drop more than the broader market does, it makes sense to expect that the EG Shares China Infrastructure ETF will have a rough go of things.

The heavy weighting in real estate, and mining for that matter, also addresses a subtler question, at least for this fund. Some have wondered whether infrastructure should be thought of as its own asset class like commodities or bonds. Ideally an asset class would offer some diversification benefit, such as having a low correlation to the stock market during a decline. It seems unlikely that real estate and mining stocks will zig when the stock market zags, making the fund part of an existing asset class, equities in particular, not a new asset class.

That does not mean that the EG Shares China Infrastructure ETF is poorly designed -- far from it. It provides access to what I have been saying is a very important theme in a country that is rapidly moving up in the global pecking order. As I have said, infrastructure is an area where money has to be spent -- and is going to be spent -- which creates a natural tailwind for the theme. This issue with real estate is a risk factor, to be sure, but all ETFs contain risks.

The decision about whether this fund will turn out to be the best proxy for infrastructure in China will boil down to the very simple question of whether real estate will enhance or hinder the fund's performances. Given that China seems to be in the midst of a pullback right now, it makes sense to see how this fund does versus some of its competitors.

Beyond Brazil, Part 1: Mexico ETF
Don Dion
02/25/10 - 06:00 AM EST

NEW YORK (TheStreet) -- Mexico and Chile are the two Latin American economies that have moved beyond the emerging market stage of development (both are members of the OECD), and they are two of the larger single-country ETFs from the Latin America region.

Investors looking for ways to play the region while avoiding Brazil, which dominates broad regional funds, should first look to these two country ETFs.
Mexico

Mexico is home to over 111 million people and boasts the twelfth largest economy in the world. Mexico's markets have faced economic crises, most famously the peso's violent devaluation in 1994 and most recently the global financial crisis, but the country has rebounded before and will again. Currently, forecasters predict economic growth in the latter half of 2010.

Similar to economies of developed nations, Mexico's economy is dominated by its services and industrial sectors. Top services include banking, education and telecommunications. Mexico's main industries are cement and construction, food and beverages, and fossil fuel production.

The United States is the recipient of the lion's share of the country's exports. Major goods shipped abroad include manufactured goods, silver, oil, and agriculture. Thanks to the implementation of NAFTA in 1994, trade with the United States and Canada has expanded threefold. Aside from its North American neighbors, Mexico also has trade agreements with a number of South American nations, Europe and countries in Asia.

Mexico is also home to one of the world's wealthiest individuals, Carlos Slim. Ranked just below Warren Buffett, the businessman's wealth in 2009 was valued at $35 billion.

Launched in 1996, the iShares MSCI Mexico Investable Market Index Fund(EWW Quote) is currently the only pure play ETF available for investors looking for access to the U.S.' southern neighbor.

Sector exposure is in line with the economy. Telecommunications account for 35% of assests, followed by 23% in consumer staples, 14% in materials, 13% in consumer discretionary and 8% in industrials.

Although the fund is designed to track the broad Mexican market through an index consisting of 45 holdings, its performance is largely dependent on the success of a small number of these constituents. Carlos Slim's telecommunications firm, America Movil(AMX Quote), accounts for nearly a quarter of the fund's total portfolio. Other top holdings include Wal-Mart de Mexico(WMMVY Quote) and cement giant Cemex(CX Quote). Together, these top holdings make up 40% of the fund's index.

EWW's Performance has remained negative through the first part of 2010, but its growth in the most recent one-year period ending Feb. 23 has been impressive. In that time, the fund has managed to gain more than 100%.

Given the top-heavy nature of EWW, I would advise investors looking to hold this fund to keep exposure small. Also, it is essential that investors continually monitor the performance of the instrument and the holdings dominating its index. If any of these top weighted companies see a volatile move, its effect on EWW's performance will be significant.

Beyond Brazil, Part 2: Chile ETF
Don Dion
02/25/10 - 12:00 PM EST

NEW YORK (TheStreet) -- Mexico and Chile are the two Latin American economies that have moved beyond the emerging-market stage of development, and they are two of the larger single-country ETFs from the Latin America region. Investors looking for ways to play the region while avoiding Brazil, which dominates broad regional funds, should first look to these two country ETFs.

In part 1 of this series, I examined the ETF that tracks Mexico's economy. Now I'll look at an ETF that gives investors exposure to Chile.

Chile, a country of nearly 17 million people, is probably best known as a major copper exporter and for having perhaps the best run economy in Latin America.

The country's military overthrew an increasingly Marxist government in the 1970s and was ruled by Augusto Pinochet until democracy was restored in 1990.

The period of military rule was not without its problems, but economic progress was a focus of reforms.

When democracy was restored, the government continued to build upon those reforms, ultimately leading to Chile's recent addition to the Organisation for Economic Co-operation and Development, a group of nations that have advanced beyond the developing stage.

Chile's economy is reliant on copper, which accounts for about one-third of the government's revenue. Exports are roughly 40% of GDP, and the country has free trade agreements with the U.S., the European Union, China, India and South Korea, among others.

Despite the dependence on trade and resource exports, Chile has not seen the type of volatility associated with resource-dependent economies thanks to prudent fiscal management that banks the copper revenues during boom periods and spends them during the bust periods.

Investors can gain access this country's equity market via the iShares MSCI Chile Investable Market Index Fund(ECH Quote). It has an expense ratio of 0.65%, total assets of about $375 million and ample liquidity, with more than 150,000 shares traded per day in the latest three-month period.

Despite the Chilean economy's reliance on copper exports, the fund has little direct exposure to the metal. Although it has 21% of assets in the materials sector, almost all of that exposure comes from three top-10 holdings engaged in fertilizers, wood and paper, and iron ore.

Mining is an energy-intensive industry, however, and the largest sector exposure comes via utilities, at 29% of this ETF. Much of this exposure is through the second and third largest holdings in the fund: Enersis(ENI Quote), with 11% of assets; and Empresa Nacional de Electricidad(EOC Quote), with 10.2%.

Industrials make up another 20% of assets, with conglomerate Empresas Copec the No. 1 holding in ECH, at 13.6% of assets, and LAN Airlines(LFL Quote) (LFL), a top 10 holding, with 4.4% of assets.

Beyond the top three sectors, the next two each have more than 9% of assets: financials and consumer staples. Half of the financial exposure comes from Banco Santander(SAN Quote), while more than half of the consumer staples exposure is contained retailer Cencosud.

Overall, iShares MSCI Chile has 32 holdings, sufficient for diversification. The largest holding is less than 15% of assets, which keeps the fund from being over-reliant on a single holding, but the 72% invested in the top 10 holdings is a bit on the high side. Still, assets are diversified across sectors and, given the size and characteristics of Chile's economy, this is probably more diverse than most investors expect from a Chile ETF.

Chile is a country that has moved beyond the developing-market stage and is on its way to becoming a developed nation. The economy will remain dependent on copper prices, but less so as time goes on. Over the long term, this country and its equities should continue to be a more stable performer in the region.

Performance has also been strong in the recent past. Year to date in 2010, ECH has a positive return and is the second best performing country ETF in this region. 

[Tamas]

the heavy buying which started after the stocks were let to fall because of the various bad news, burned me bad. In 1.5 weeks, I raised my account's net value by almost ten percents, range-trading oil and gold futures through CFDs (never risking more than 1% of my account, as a rule of thumb I will more rigorously follow from now on). Then I thought these bad news would make the bearish downturn in John Deere which I was anticipating for a while, so I CFD-ed in with a big amount to "neutralize" the commission fee. Half of my profits are gone. 

[Monoriu]

I've given up on predicting short term price movements. 

[Richard Hakluyt]

I've given up on predicting short term price movements.

Yes, I think the weeny private investor is at a disadvantage in that area.

[MadImmortalMan]

Almost all my fun account's funds are in cash, but with the tanking this morning on the consumer confidence news, I wanted to play a little bit. So I took on two small positions. Fifty shares each of SLB and WM. I bought them near today's bottom with the Dow down about 88-89. So far the results:



      SLB    

   50    <----#of shares

   60.9687    <----value (current)

   3,050.00    <----position value

   3,022.50    <----cost

   27.50    <----profit

   0.86    <----%gain/loss

   
   

      WM    

   50    

   32.6384    

   1,632.00

   1,639.97    

   -7.97         <----loss   

   -0.49    



It doesn't really want to push up past about -80. I'm not sure if I want to hold these, but hey, if I don't I'll make fifteen bucks. 

I do think Schlumberger is a good buy after the merger pushed it down a bit.



Edit: And now the dow is down 95 with an hour left. 

My gains are holding though.

Well, my 50-50 test is over.
I never closed either of these positions, and now I'm at:

SLB: $95 profit

WM: $36 profit


If I sell right now, naturally, and minus trade fees. A decent short-term take on a trade that small, but I actually like both of those companies. I'd increase the positions on the next big down-day if I had any confidence in the market.

Should I dump it and wait for the next market plunge and try again with bigger stakes?

[Tamas]

A general note: reading stock market related articles, I am increasingly having deja vu: the general "why the fuck are the bulls leading when the economic data is shit" sentiment is exactly like a couple of months before all hell went loose during the whole recession thing. 

I have kept playing with commodities with very mixed results. I still have to have my first day in the red with oil future deals, but the daily nice profit I make with those are only marginally more than what is needed to compensate for my bad bets in the other ones

In stocks, I CFDed into Schlumberger when it seemed like getting out of the downslide it got into after acquiring that other company, and seems to be working so far. Well, my stop on it now is to cover for the cost of the whole deal, and I hope to have it rise even more in the coming weeks.

I am also long on Google and will be keeping an eye on Microsoft to get in once today's dip is over.
Of course I am keeping a close eye on stop losses in case the bad data finally catches up to people and they start unloading. 

[Tamas]

Well, my 50-50 test is over.
I never closed either of these positions, and now I'm at:

SLB: $95 profit

WM: $36 profit


If I sell right now, naturally, and minus trade fees. A decent short-term take on a trade that small, but I actually like both of those companies. I'd increase the positions on the next big down-day if I had any confidence in the market.

Should I dump it and wait for the next market plunge and try again with bigger stakes?

Well I am very interested in SLB. Could close with a nice (for me) profit, about $130 from 100 shares (thats actually like 2.5% of my entire account's value so perhaps I should stay sane and take it happily), but barring a general pessimistic overtake of the market I fail to see why it should not keep going higher. And it should keep this good speed if optimism continues, no? 

[Monoriu]

I just have to get this off my chest.  When the hell will my wife learn that a computer will not stop her from doing stupid things?  She can get away with ordering her underlings around, because if shit happens, she can blame them for not bringing stuff to her attention.  Not a chance with a computer, my dear.  You want to commit suicide?  A computer will let you, and you can't blame it on "malicious compliance". 

Ok, there was this stock placement.  A company basically needs cash, and is going to issue new shares on a pro rata basis to existing shareholders.  In other words, all existing shareholders have to chip in $ to help rescue the company.  You have an option to pay or not - if you pay, you maintain your level of ownership and lose cash.  If you don't, your level of ownership will be diluted by the new shares.  Companies usually sweeten these deals by issuing the new shares at absurdly low prices.  Say, if the market price of a share is $40, they issue the new shares at $25 per share.  If you believe the company has a good future, it is usually a good idea to pay. 

So I paid, 98% of other shareholders also paid, and my wife also wanted to join.  Guess what happened?  She had multiple accounts in her bank, like 3.  When she did the stock placement, the online banking screen asked her where her shares are in a drop down menu.  (You gotta do the stock placement in the account where your existing shares are).  A stupid question, I know, but there you are. 

Account 349873498
Account 239875981
Account 348730934

Her shares are in 348730934.  Of course, in typical fashion, she didn't remember all those numbers, AND couldn't be arsed to find out.  So she just picked the default choice, account 349873498 (the first in the drop down menu), thinking that if she made a mistake, the computer would correct it for her, since the bank *should* know where her shares are.  If not, she would lodge a complaint.  Again, typical bossy thinking.

Predictably, the computer rejected her command because she did not have any existing shares in that account.  It was an invalid instruction.  When she complained, the bank explained that she herself pressed the ok button on an invalid choice, and there was nothing they could do.  So she didn't buy the new shares at a very cheap price.  Not because she didn't want to buy, but because she assumed that she could rely on someone else to do the work for her.  Her work. 

2 years later, the share price increased by 300%. 

She still think it is the bank's fault.  I disagree. 

[Monoriu]

And the reason I am so pissed off, is because this is not the first time something similar happens. 

Once she wanted to sell some shares.  The lot size of that company is 1,000.  Again, she didn't remember this, and couldn't be arsed to find out.  So she just picked a number, in that case 500, and gave online instructions to sell 500 shares twice.  She assumed that the computer would recognize her mistake if the lot size turned out to be 1,000.  (For those of you who don't know, if you sell shares not according to the lot size of the company, your trades will be done at a discount.  If you sell 1,000 shares at 50, you get 50,000.  But if you sell 500 shares of the same company, you don't get 25,000 - you get maybe 23,500.  The stock exchange does this to discourage people from trading odd number of shares). 

I now understand why some people need human brokers.  You wanna trade shares online?  You gotta do the work yourself. 

[Tamas]

1) you should not let your wife handle computer matters
2) you are not as poor as you make us believe

[Monoriu]

1) you should not let your wife handle computer matters
2) you are not as poor as you make us believe

1) We have separate finances.  I handle my own money, she handles hers.  I don't want her to interfere with my trading activities, and I don't control her investments.  Nevertheless, I am still pissed when our family wealth is needlessly diminished. 

2) Most people in HK own shares in individual companies, from the guys living in public housing estates to billionaires.  And the figures that I used in these posts are purely made up for illustration purpose. 

[citizen k]

Chinese Real Estate ETFs: Opportunity Knocks

03/02/10 - 02:23 PM EST
By Kevin Grewal, Editorial Director at www.SmartStops.net

NEW YORK (TheStreet) -- As China expects to lead the world in economic growth in 2010, some think the nation's real estate markets pose an opportunity and will likely see appreciation in the coming year.

When comparing price-to-book ratios vs. return on equity, a recent study indicated that Chinese real estate was the most undervalued when vs. other high-growth nations like India and Hong Kong. Additionally, some expert analysts state that the Chinese real estate sector has underperformed by nearly 30% when compared to the benchmark MSCI China Index.

On the negative side, Chinese property prices could face headwinds as a result of dampened growth. This dampened growth could potentially result from the most recent steps taken by the government, which has already raised bank reserve requirements to curb lending and tighten the credit markets.

Although real estate prices did inflate in 2009, they are expected to soften in the coming year and consumers are expected to start buying again. In fact, Credit Suisse is bullish on the sector, in particularly property developers and construction and contracting.

Some diverse ways to access the Chinese real estate sector include:

# Claymore/AlphaShares China Real Estate(TAO Quote), which solely focuses on Chinese real estate. TAO closed at $17.69 on Monday.
# Claymore/AlphaShares China All-Cap(YAO Quote), which gives exposure to Chinese lenders China Construction Bank and Bank of China as well as construction and contracting giant China Overseas Land & Investment. YAO closed at $24.66 on Monday.
# iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS Quote), which allocates more than 8% of its assets to Chinese real estate holdings. IFAS closed at $28.68 on Monday.

When focusing on international real estate markets, it is important to consider the inherent risk that they carry. To help mitigate these risks, it is important to implement an exit strategy, which triggers price points at which an upward trend could potentially be coming to an end and enable one to preserve equity.

According to the latest data at www.SmartStops.net, an upward trend in these ETFs could come to an end at the following price points: TAO at $16.49; YAO at $23.19; and IFAS at $28.34. These price points change on a daily basis as market conditions fluctuate; updated data can be found at www.SmartStops.net.

Written by Kevin Grewal in Laguna Niguel, Calif.

The Best Developed Market ETF Plays
Don Dion
03/02/10 - 12:07 PM EST

NEW YORK (TheStreet) -- As developed market ETFs continue to separate in performance, ETF investors should allocate assets to benefit from strength and avoid weakness.

Japan, Australia and Canada are sources of strength, while Europe and the United Kingdom are facing serious financial problems.

On Monday and Tuesday, the differences were clear. The British pound and the euro sank in Monday trading, highlighting the continued weakness across the Atlantic, while Australia's central bank raised interest rates to 4% today as the economy continues to recover, with unemployment at only 5.3%.

The divergent returns represent a continuation of current trends. Resource exporters Australia and Canada have recovered nicely from the financial crisis, while Europe and the U.K. seemed poised to stumble into another round of adversity. ETF returns have widened recently, and these trends could last for several months.

CurrencyShares Australian Dollar(FXA Quote) has gained 0.5% this year and the CurrencyShares Canadian Dollar(FXC Quote) is up 0.8%. By contrast, the CurrencyShares Euro(FXE Quote) is down 5.3% and the CurrencyShares British Pound(FXB Quote) has declined 7.3%.

This currency divergence is also evident in the equity ETFs. iShares MSCI Australia(EWA Quote) and iShares MSCI Canada(EWC Quote) have returns just below and above 0%, respectively, while iShares MSCI EMU Index(EZU Quote) and iShares MSCI United Kingdom(EWU Quote) have suffered losses of 10% and 6%, respectively.

Meanwhile, Japan continues to quietly outperform in 2010. CurrencyShares Japanese Yen (FXY Quote) is up 4.4% this year and iShares MSCI Japan(EWJ Quote) is up 3.1%, despite having Toyota(TM Quote) as its No. 1 holding.

As long as the Greece debt problems remain unresolved, the euro is likely to remain weak in the near term. Even if a bailout can be agreed upon (and Germany has yet to agree to one), it could mean a weaker euro in the long run, if other countries are bailed out.

The most direct way to play the weaker euro is with ProShares UltraShort Euro(EUO Quote), which offers two times the daily inverse of the euro versus the U.S. dollar. A more indirect way to play the euro weakness is with PowerShares DB U.S. Dollar Bullish Index(UUP Quote).

The drawback of UUP is that it only has 57.6% inverse exposure to the euro. The 13.6% of the index in the Japanese yen has worked against it, but the greater weakness in the British pound, which accounts for 11.9% of the index, will benefit UUP.

The pound sank on Monday, with explanations for the slide in the pound ranging from the purchase of AIG's Asian life insurance business for $35.5 billion to upcoming elections and the fiscal deficit. Included in Prudential's (U.K.) offer for AIG is $25 billion in cash. It's possible the firm immediately hedged its position in the market.

Britain's budget deficit is nearly as much as Greece's, but the country does not face as dire a crisis yet because the pound can adjust to Britain's economic situation.

Nevertheless, investors expecting fiscal discipline from a new Conservative-party led government (an election is expected in May) are readjusting their forecasts because the Conservative's lead has been cut to just two points over the Labour party.

This suggests that the Conservatives could lose, or in the event of a close victory, they will have little ability to maneuver with a slim majority. If this has been the cause for the pound's slip in recent weeks, it could remain weak for several more.

-- Written by Don Dion in Williamstown, Mass.

[citizen k]

Commodity ETFs Top Performance List
Kevin Baker
03/03/10 - 06:50 AM EST

NEW YORK (TheStreet) -- Six of the 10 best-performing exchange traded products rode the resurgence in commodity prices in February. The iPath Dow Jones-UBS Cotton Subindex Total Return ETN(BAL Quote) spun its way to a return of 18% for the month.

The iPath Dow Jones-UBS Nickel Subindex Total Return ETN(JJN Quote) topped the four metals investments, returning 15% by tracking the spot value of nickel. Third-best was SPDR S&P Metals & Mining ETF(XME Quote), up 11% on holdings of mining shares such as Freeport-McMoRan Copper & Gold(FCX Quote), Newmont Mining(NEM Quote) and Alcoa(AA Quote).

Today's economy is not built on raw materials alone. Building most new products, from cell phones to baby dolls, involves embedding semiconductor chips. Chips, which must be ordered with sufficient lead time at the beginning of a new-product cycle, are an early indicator of better economic times to come.

Funds fully participating in this trend include the PowerShares Dynamic Semiconductors Portfolio(PSI Quote), up 11%; and the SPDR S&P Semiconductor ETF(XSD Quote), up 9.2%. Both funds hold Intel(INTC Quote), Texas Instruments(TXN Quote) and Micron Technology(MU Quote), although the SPDR is the more liquid fund to trade.

Improbably, with oil surging back over $80 a barrel, not only is a fund tracking oil in the top-10 performers for February, but so is an airline fund. The iPath Goldman Sachs Crude Oil Total Return Index ETN(OIL Quote) gained 9.2%, while the Claymore/NYSE Arca Airline ETF(FAA Quote) ascended 11%.

For the best rated exchange-traded funds, check out our Top Rated ETFs page.

[citizen k]

ETFs Slowly Displace Mutual Funds in 401(k)s
Joe Mont
03/05/10 - 07:46 AM EST

BOSTON (TheStreet) -- BlackRock(BLK), the largest seller of exchange traded funds, is helping to push more Americans toward ETFs instead of mutual funds in their 401(k) plans.

Americans held $3.9 trillion in employer-based defined-contribution retirement plans, of which $2.7 trillion was held in 401(k) plans as of Sept. 30, according to the Profit Sharing/401k Council of America. Mutual funds had $2 trillion of those assets, but ETFs are starting to chip away, as they have with everyday trading among institutional and individual investors.

BlackRock estimates that as much as $2 billion of its iShares funds are now held in 401(k) plans, accounting for half that market. "Within the 401(k) space in the next five years, it is conceivable that flows to ETFs could reach several billion dollars," says Darek Wojnar, head of product research and strategy at BlackRock's iShares, its ETF unit.

ETFs may not seem a good fit. Because you don't need to pay taxes on capital gains in retirement accounts, ETFs' inherent tax advantages are mitigated. Active investors may love the intra-day trading ability of the funds, but within 401(k) plans, that feature isn't desirable -- or even feasible.

The main selling points are low and transparent fees. According to BlackRock, the average expense ratio of an iShares ETF is 0.41% versus the average mutual fund's 1.50%, a difference that can result in tens of thousands of dollars over 30 to 40 years.

BlackRock isn't treading on new turf. ShareBuilder 401(k), a subsidiary of ING Direct(ING) that sells 401(k) plans to small businesses, has provided ETF-based vehicles for four years. Vanguard Group, the third-largest provider of ETFs, uses index mutual funds for its own 401(k) offerings, but has marketed ETFs to other plans for several years.

In 2007, WisdomTree Investments(WSDT) created a business unit designed to deliver ETFs to the 401(k) marketplace. In all, the company sells 52 funds.

Small businesses have been early adopters of ETFs in their retirement plans because of lower costs. That trend may continue until larger companies join the fray. When that happens, mutual funds' dominance may slip quickly.