This was an interesting week in the ETF world. In no particular order PowerShares filed for a build America bond ETF. Build America bonds are targeted toward US infrastructure projects, are taxable municipal bonds and the yields are quite a bit higher than treasuries. Some places have quoted yields at 100 or more basis points above similar treasuries in the past but apparently that spread has since narrowed some. Barron's has written about these bonds a couple of times.
Since it is just a filing who knows when or if the fund will list but I do find it interesting. If nothing else the underlying index from Merrill Lynch could be a way to learn more about the segment.
The fixed income ETF market is improving slowly. A couple other interesting fixed income ETFs, but I don't own them, are the Market Vectors Pre-Refunded Muni Index ETF (PRB) and the SPDR Convertible Bond ETF (CWB). There is room for vast improvement in the foreign debt ETFs. Most of the funds there are very heavy in Japan because of how much debt Japan has issued (almost twice the GDP).
GlobalX filed for six Chinese sector ETFs. Of the six I would be most interested in materials and industrials. I'm surprised there is no utility fund filed for, it could tie in telecom so it could have enough holdings. The energy fund could be interesting too but the big oil stocks are very easy to buy. I'll be curious to see if tech is where all the solar stocks end up. I'm not really interested in owning solar stocks but still. The industrial fund could own companies that clean the water and air along with the various toll road stocks but the toll road stocks could also go into a utility sector fund if there was going to be one.
EG Shares launched its latest fund this week, the Emerging Market Financial Sector Fund (EFN). I'll be writing about the fund during the week for theStreet.com. Like all funds this one has some quirks to it but one thing is true, anyone wanting to avoid domestic financials will have to consider less than perfect funds to capture the sector.
While the number of new funds and listings has clearly slowed down I think more of the new ones have potential utility than before when the volume of new product was greater. The recent Peru, Vietnam and Nordic funds as examples of funds with utility, the state fund for Texas that I thought was supposed to list this past week, not so much. The Oklahoma fund though could be some sort of ex-large cap energy proxy.
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8 comments:
Roger,
Do you think the next bubble will involve ETFs or even be caused by ETFs?
Interesting that people are now trying to anticipate where the new bubbles will form and have no expectation that the fed will not implement policies to prevent bubbles from forming.
The word bubble is grossly overused IMO. They had always been very rare events. A huge surge in the price of something followed but a big drop, like crude oil last year is not necessarily a bubble--in fact it probably wasn't.
Bubbles tend to be all-encompassing events like the internet stock craze from 9 years ago and what the housing event is very probably turning out to be.
I'd guess that ETFs "have a hand in" the surge in the price of gold.
More funds such as Peru, Vietnam and Nordic (maybe a Norway someday) as well as more nuanced access to global debt markets would certainly be welcome. With the possible exception of muni's I can't imagine a use for state-specific funds but then I am a bear of little brain and likely to be surprised.
As far as bubbles go, by definition they are defined by "trade in high volumes at prices that are considerably at variance with intrinsic values" and on that basis speculation-driven boom/busts such as oil were probably bubbles. How impressed you are with bubbles and the manias that tend to inflate them to bursting probably depends on your framework: Neoclassicist or Freshwater RBC folks would barely acknowledge bubbles occur (or even exist) whereas a heterodox such as Hyman Minsky would consider them a direct consequence of capitalist financial practices and therefore both inevitable and relatively frequent.
Whatever, skepticism regarding fundamental support for market prices merely means you engage assets more tactically at those times: This may involve some opportunity or hedging costs but risk is lower so the risk/reward equation balances and profitability is maintained. In this regard it should be kept in mind that there is one area where Friedman's monetarism and neo-Keynesian or Saltwater frameworks closely agree: Central banks are least able to manage or affect an economy when against a zero-interest rate boundary and unemployment (broadly measured) is relatively high and rising.
Roger,
You are correct the oil spike was not a bubble simply high price volatility. Bubbles are much larger events and rely on huge amounts of debt to prop them up. The debt collapse associated with the asset price collapse is the significant occurrence that defines bubbles from standard price volatility that you site with oil.
RW and Roger,
your knowledge of economic really impresses me. I like one day get to your level. I am trying to study economic models and bubbles and have order some books on Amazon. If you can please reccomend some books I really appriciate.
Regarding as to what is happening today. About a month ago there was a news release that the italian central bank under the direction of Mr. Draghi is buying common stocks of some italian companies and am not sure if the bank is also buying foreign stocks. Now I know there is been news since march that the central banks all over the world have been printing money through concerted efford and this new info tells me that the central banks are buying common stocks. I am not talking AIG, CITY, but companies that they have not even disclosed. The news article was implying that these purchases were made for pure investment purpose because equities are at low prices. Can this be possible and how long can this go on without a full disclosure and do you think that the USA other that Italy and maybe some other european countries is involved.
Best,
Jeff from Milan, Italy
Hello. I agree that anticipating bubbles is an interesting thing but first of all the government should try the best to prevent them. Instead of doing that the state is spending more and more money on programs which, in my opinion, help their creation such as the first time homebuyer credit. The American citizens will definitely take the advantage of it but also will probably take another loan to afford to buy a house!
All the best,
Jay
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