ETF XRAY

Do You Have a Portfolio Plan for 2009?

By Carl Delfeld of Chartwell ETF

Do you have a customized plan for your investments for 2009? Are your portfolios well organized or just a grab bag of mutual funds, individual stocks and ETFs? Would you like to replace some mutual funds with more low-cost, tax-efficient ETFs? Do you have a top down global perspective? 

Perhaps my personal consulting service may be of help in getting organized before the end of the year.

The first step is to divide your portfolios into a core portfolio and an explore portfolio. The core is for the capital you primarily wish to protect and the explore takes on a bit more risk seeking capital appreciation.

After learning about your personal financial situation and risk profile, we can make allocations to each portfolio and then build around your current holdings with ETFs. 

There are several key questions that have to be addressed. What regions of the world look most attractive for 2009  and which ones should we avoid? What countries offer the best prospects? What global sectors should be overweighted. What sort of risk management rules should the portfolios follow? 

These are just some of the issues that I think through and discuss with clients. The price for this personal service is normally $5,000 but I will take on four new clients during December at the price of $3,000 on a first come first served basis. 

Please call me at 719.264.1503 if you need any further information.

Does Thailand Present ETF Opportunity?

By Carl Delfeld of Chartwell ETF

Thailand ETFs (TF, THD) have taken a beating this year but perhaps offer some opportunity for long-term investors. 

The SET index of Bangkok’s 50 largest stocks is on course for its worst year since 1997, while the baht has erased all its gains against the dollar over the past two years. Part of the problem is that Thailand doesn't really have a government which is currently working out of temporary offices in an old airport. The opposition People’s Alliance for Democracy, are now escalating their six-month campaign to eject a regime they see as a puppet for the exiled leader, Thaksin Shinawatra who was recently convicted of corruption. Thailand has suffered through one coup every four years, on average, since the country’s first constitution was drawn up in 1932.

But Thailand's export-led economy is doing relatively well given the circumstances growing by 4% the third quarter after a 5.3% gain in the second. And the Financial Times points out that  unlike in the crisis of the late 90s, Thailand’s banks are now mostly equity, rather than debt-funded, and have minimal overseas exposures. Surprisingly, the key engine of the economy – tourism – is so far holding up: arrivals have fallen only fractionally. Finally, the central bank has some $103bn in reserves.

Find out if Thailand should be in your portfolio by joining Chartwell ETF.

A New Breed of Hedge Funds Using ETFs

By Carl Delfeld of Chartwell ETF

As hedge fund titans face an intense grilling by Congressional committees and thousands of hedge funds around the world are closing their doors, perhaps it is time to consider a new approach. A hedge fund structure offers investors many advantages such as maximum flexibility but the model is sure to change under all the heightened scrutiny. 

After specializing in country–specific ETFs since 2002, I am considering going out to raise seed capital for a fund focused on deeply discounted Asian and emerging markets with a new structure that addresses some of the current drawbacks of hedge funds, namely; liquidity, transparency, leverage, risk management and fees. By using lots of cash, trading short-term country ETFs and selective use of inverse ETFs, we have managed to be up so far this year.

From the perspective of investors, a lock up period of one or two years is a big problem especially in volatile markets and when the fund’s investment strategy is not fully clear.

Another issue is the liquidity of the fund’s investments. Is the fund able to sell investments to meet withdrawal requests?  And if markets move against a fund holding, can it be liquidated without a severe loss?   

Investors in hedge funds usually have only a vague idea of what investments the managers are making. The argument for this is that managers fear that their competitive position would be eroded if holdings were made more transparent.  One benefit of hedge funds is their ability to use leverage in their investments but the investor may wish to see some limits. Excessive leverage can lead to a disaster if markets move the wrong way. From their beginning, a key benefit of hedge funds has been to mange risk better by hedging risks with the goal of making money in both up and down markets. But investors are usually in the dark as to what guidelines managers use to manage risk. 

The standard hedge fee structure of 2/20 with an annual management fee of 2% of assets and a performance fee of 20% over a certain benchmark is likely to face compression. This must be balanced with the need to have string financial incentives for managers.

The new fund model that I am considering would address all of these issues.  I would invest in only country ETF and closed-ended funds offering good liquidity to investors and there would be no lockup period. Investors could see Country ETF allocations on at least a monthly basis. In terms of risk management, the use of inverse ETFs would be limited to 20% of assets, no one country could account for more than 20% of assets, trailing stop losses would lock in gains and limit losses, and the use of leveraged ETFs would be limited as well.

For some investors, illiquidity and lack of transparency is not a problem, but many investors want have a better picture of strategy, risk management and holdings. The industry needs to provide more options. 

Spain ETF In Recovery Mode

By Carl Delfeld of Chartwell ETF

Spain (EWP), like Ireland (IRL) and many other economies is suffering through a hangover from real estate bubble considerably more severe than in America. 

Spain's boom began when it qualified to join the euro at its inception in 1999. Interest rates fell dramatically: the cost of mortgages, for example, came down from 18% to below 5%, unleashing a housing boom. From 1994-2007, real annual GDP growth average 3.6% . 

Yet as the Economist reports, with a suddenness that has taken officials by surprise, economic boom has turned to bust. When the European Central Bank raised interest rates last year, the housing bubble burst. Higher oil prices also cut consumer spending, as well as pushing inflation to a new high of 5.3% in July. The international financial turmoil and liquidity crunch has caused a credit squeeze at home. The result is unemployment at 12.5% and a current account deficit equal to 10% of GDP.

Still Spain has its strengths. It is the ninth largest economy in the world (larger than Canada) and the seventh largest foreign investor as well. It is home to two of the world's largest banks.

Join Chartwell ETF and stay on top of the world of investing.

Emerging Market ETFs Soar Amidst Gloomy News

By Carl Delfeld of Chartwell ETF

On Thursday, emerging market ETFs soared with Brazil (EWZ) up 12.34%, Russia (RSX) up 19,6%, India (INP) up 7,97% and China (FXI) up 14.87% This reminds me of Warren Buffett's remark a few weeks ago – “if you wait for the robins, the spring will be over.” These short-term gyrations are disconcerting but remember that stocks are a claim on a very long-term stream of cash flows.

A record decline in the price of crude oil helped to push the U.S. trade deficit down to the lowest level in nearly a year even though the deficit with China shot up to an all-time high. The Commerce Department reported Thursday that the trade deficit fell by 4.4% to $56.5 billion in September, the smallest imbalance since October 2007.

Why? A 15.7% fall in petroleum imports as the average price for imported crude oil dropped by a record $12.41 per barrel and the volume of shipments fell to the lowest level in more than five years. This helped lead to a reduction in overall imports by 5.6% to $211.9 billion.

Demand for imported goods fell by a record amount, reflecting the sharp slowdown in the U.S. economy but imports from China shot up in September, led by huge gains in shipments of televisions, toys and games as retailers stocked up for the holidays. This plus plummeting U.S. exports to China resulted in a record trade gap between the two nations of $27.8 billion – almost half our overall trade gap. China is the new Japan problem! 

Jobless claims also shot up last week and Treasury reported that the budget deficit soared to $237 billion putting us on track for a $1 trillion deficit for the year.

 One of the hardest-hit sectors in 2008 has been the shipping industry. The most popular measure of this is the Baltic Dry Index. This index, which measures the cost of shipping raw materials around the world, hit 11793 in May, and has lost 93%. Shares of shipping companies have been beaten down as a result, with most major shippers down by more than 60% on the year.

Japan will lend the International Monetary Fund up to $100bn in temporary funds to help emerging economies weather the global financial crisis, Taro Aso, prime minister, will tell the G20 summit in Washington this weekend.

Weak GDP, Retail Sales Hit ETFs

By Carl Delfeld of Chartwell ETF

GDP is likely to decline 2-3% during the fourth quarter of 2008 and retail sales may also decline in the 7-8% range. This is a significant headwind that has sent stocks and ETFs down but also present smart investors with a wealth building opportunity.

Just two days after the Circuit City bankruptcy, Best Buy sharply dropped its earnings guidance for next quarter and reported a 7.6%  same store sales decline. Starbucks (SBUX) also reported same store sales down 7% and this degree of weakness will likely be the norm rather than the exception.

Amidst lower oil and commodity prices, Brazil (EWZ) was off 10% this morning presenting investors with a potentially attractive entry point. Brazil hit $100 earlier this year and now trades at just $33.

Should you make a move on Brazil? Join Chartwell ETF and get some valuable advice.

 

China Stimulus Plan Spurs Markets Despite Emerging Market Downgrades

By Carl Delfeld of Chartwell ETF

China (FXI) announced on Sunday a “massive infrastructure spending program” as part of a new fiscal stimulus plan aimed at boosting the country’s rapidly slowing economy.

The State Council, China’s cabinet, authorized $586bn of investment on infrastructure and social welfare over the next two years, although it did not say how much of the spending would be on new projects not already in the budget. The Chinese government has already cut interest rates three times, scrapped quotas for bank lending and unveiled measures to help home buyers and some exporters.

Meanwhile four countries saw their credit ratings downgraded because of the threat of global recession and the drying up of capital flows. The downgrades of Bulgaria, Hungary, Kazakhstan and Romania illustrated the continuing dangers facing these economies, Fitch Ratings warned.

The agency also revised to negative from stable the long-term foreign currency ratings of South Korea (EWY), Mexico (EWW), Russia (RSX) and South Africa (EZA) because of fears over the “profound deterioration” in the global outlook and the continuing difficulties in raising money in the capital markets. Chile (CH) and Malaysia (EWM) had their ratings revised down from positive to stable.

Why Indonesia?

By Carl Delfeld of Chartwell ETF

I have added the Indonesian Fund (IF) to our Country Rotation ETFfolio as well as to our Peregrine Fund based on valuations and the breakthrough over the weekend in the Bakrie liquidity issue. 

There are other reasons investors should keep Indonesia on their radar screen. 

1. Indonesia, with 240m population and real GDP of $840bn, quietly dominates ASEAN, accounting for two-fifths of ASEAN’s population and one-third of its GDP.   The country is the world’s largest democracy after the US.
2. Under President Yudhoyono, the government has introduced significant reforms in the financial sector, including tax and customs reforms, the introduction of Treasury bills, and improved capital market supervision.
3. With political stability and financial reforms in place, real GDP grew by 6.3% in 2007 and is expected to grow another 6.2% in 2008 despite global market conditions.
4. Indonesia's debt-to-GDP ratio has been declining steadily, its foreign exchange reserves are at an all-time high of over $58 billion, and its stock market has been one of the three best performers in the world in 2006 and 2007.
5. Indonesia's credit rating (‘BB’ in Fitch ratings,  “Ba3” in Moody’s) may be upgraded.