I have been writing about Iceland for a couple of years and have been public about my investments in Iceland which consists of an account in the country at Kaupthing Bank that is 50% in the ICEX-15 ETF (this only trades locally in Iceland) and 50% cash.
My other on again off again exposure has been in shares of the Stockholm listing of Kaupthing Bank (KPBIF to trade in the US or KAUP.ST to quote on Yahoo).
Yesterday I sold my KPBIF shares at $15.50 (what think was SEK109.50). I bought in on December 21 at $12.30 (what I think was SEK84). Along the way I picked up a 145 basis point dividend (net of foreign tax).
There were a couple of reasons for the sale, the biggest being a possible ratings downgrade. The downgrade story is a weird one and does not single out Kaupthing or even Iceland but might be a tipping point for a correction. Despite the news having been out there neither the Stockholm or Reykjavik listings have been hit.
This is the type of thing that should already be in the stock and while I am a the market is always right type of guy, sometimes it isn't. If the sale turns out to be a bad one it will be due to this aspect of the thought process.
The picture is in Reykjavik from the top of what I think was the Lutheran church. In the upper left is Lake Tjornin and on the right side of the lake is the city hall, the only two landmarks I can pick out.
The gripe of this post is yet another article from Morningstar shunning anything innovative and showing the extent to which they don't understand the ETF market.
A lot of ink is devoted to picking on the HealthShare ETFs. While I am not certain the audience that HealthShares had in mind it is a good bet that they will be used more by institutions than individuals. I am convinced there is alpha to be had there, someone will find it and it won't be me. That does not make them the equivalent of financial typhoid.
You may not remember the genomic mania that occurred within the Internet bubble but the stocks got hot, genomics open end funds were created (this idea is just as narrow as anything from HealthShares) and they did poorly without ruining humanity.
The article brings out the ole chestnut about people working at the ETF providers not owning the funds as a sign they don't believe in the funds. The author says "If I were an ETF czar I'd declare that companies can only launch ETFs when the managers and every director invests $1 million in the fund." Well that may be the most juvenile thing I have ever read in MSM.
Plenty of new product will die on the vine which is how capitalism works.
This chart shows what has to be the worst case scenario for a fund-like product; the Internet Infrastructure HOLDRs (IIH) topped out around $105 and now trades around $5.
If you buy something that narrow you should know it might drop 95%. If that bothers you, you should not buy it but that you don't like the fact that something could go down than much in a perfect storm is not a reason for it not to exist and has nothing to do with whether someone working at the fund in any capacity should own it.
9 comments:
Roger,
Morningstar, like most MSM, sees every story through their own fixed prism. What doesn't fit, they criticize. The idea that a manager of a broadly diversified fund should invest meaningfully in his own fund is a valid one. It is one of dozens of criteria I look for in a fund. But that criteria makes little sense for narrowly defined sector funds or ETFs. I agree that Morningstar is taking a very simplified and flawed view of the issue.
The Morningstar article is pure hysteria. Just because Home Depot sells a 41 Piece Fractional/Metric Tap and Die Set doesn't mean I'm going to run out and buy it.
Does this author really think these narrowly focused ETFs are being pimped to little old ladies?
Hulbert has an interesting article albeit with an idiotic subhead: "Over long term, T-Bills likely to equal or better stocks"
http://tinyurl.com/2n3ufb
I hope Hulbet didn't write that sub-head!
He includes a nice little table that illustrates the % of time stocks (Wilshire 5000 = dividends) didn't beat T-bills over various time periods.
The Morningstar report suffered as much from overstating the obvious as anything else IMO: Yes, a new type of product (ETF) can be misapplied, malconstructed, overspeculative, mistargeted, etc., etc. ...Doh! So show some insight and make a sensible regulatory proposal and keep the hand flapping down.
Better keep this author away from the CDO and CDS markets or his head might explode: Now there's a real black hole for you and, if we could only see all of it, probably orders of magnitude larger than the ETF markets too.
WRT Hulbert's article, the title certainly did leave something to be desired but the message in the text was spot on (as I'm sure most of us would agree): The scenario where an investor can simply throw a wad of cash into the market (index fund or whatever) without any regard for timing and then just hold through the years does not work well over significant periods of time including quite recently; e.g., the last eight years.
Roger,
OK I'm off topic, but can you discuss proper allocation to equities versus fixed income.
Assume a couple with 1.5 million in assets and no debt. half in 401k and Ira's and half in mutual funds.
One spouse wants to retire in 5 years and another whose business earnings are erratic, but will may try to run the business part time for several more years.
I always figure I need 5% or 75K liquid (money market). Equities are very heavily in foreign mutual funds and ETF's (mostly asia). I think I need more fixed income but what percentage and what would you suggest?
L2S
L2S, I'll try to post on this thursday am
I found the reference to how much the IIH got to and where they are now very interesting.
Was it Thailand's exchange that lost about 90%?
I wonder if that is what is going to happen with the Uranium crazy.
I was also looking at some valuation comparison on some moly stocks and it is amazing to see relative valuation where some are now valued at 20x their peers.
It is interesting how people take grossly overvalued pigs and use them as a marker that their fairly valued stock is under valued...
I have a lot on moly on my blog and I can't believe how it took off...
Moly? as is Molybdenum (I don't know the spelling)?
While a cratering of either is possible to be sure these markets do have fewer participants making a cratering less all-encompassing.
There's an author's bio following the Morninstar article. In there is an Analyst Feedback form. Write Morningstar, and let them know what you think of their work.
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