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Telecom HOLDRs (TTH) Dominated by Two Giants

Telecommunication has evolved in the last two decades into a dynamic global business sector driven by mobile services, data communication, and the Internet, and e-government and e-commerce applications. As the sector evolves from monopoly to competitive market structures, governments formulate the legal and regulatory frameworks in which private companies can compete to provide services.

There are some very impressive and powerful companies in the telecommunications sector like AT&T Inc, and Verizon Communications. One of the most popular exchange traded funds in this sector is TTH with nearly 75% of its assets in two giants.

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DE Smith of MyPortfolioView

Carry Trade Aids Australia and Mexico ETFs

The carry trade whereby investors borrow in low interest rate currencies like the Japanese yen and invest in high yielding markets is helping some exchange-traded funds like Australia (EWA) and Mexico (EWW).

The New Zealand kiwi has also benefited from the carry trade but some think that it is peaking. In a Financial Times article, Adrian Schmidt, senior foreign exchange strategist at Royal Bank of Scotland, said investors should be selective as to which high-yielding currencies to buy.

According to Mr Schmidt, robust Australian capital spending figures could support the Australian currency, while the sharp decline in New Zealand business confidence figures should concern investors. High level of interest rates in New Zealand, combined with the high currency and the heavily indebted consumer sector meant the economy was living on borrowed time, as well as borrowed money, and the sharp drop in confidence looked like an early warning sign.

“The rally in the New Zealand looks like a selling opportunity,” said Mr Schmidt. “There looks to be better value in other high yielders, with the Mexican peso standing out.” The Norwegian krone was the other main mover on the currency markets, rising 0.4 per cent to NKr6.0420 against the dollar after robust economic data.

By Carl Delfeld of the Chartwell ETF Advisor

India Market Passes $1 Trillion Milestone

The India stock market, helped by its largest companies which play a key role in the performance of its exchange-traded fund (INP), passed the historical mark of surpassing $1 trillion in market value.

According to the Bombay Stock Exchange, the total market capitalisation of India's stocks this week reached Rs40,811bn or $1,009bn with the rupee trading at Rs40.45 to the dollar, market capitalisation at the close was $1,009bn. The Financial Times reports that The Bombay Sensitive Index, a basket of 30 large and liquid stocks, yesterday closed up 110 points, or 0.77 per cent, at 14,508. It has trebled in three years.

The exchange is now the 14th largest in the world but a recent Morgan Stanley study offerd a cautionary note since big stocks contributed most of the returns. Surprisingly, two-thirds of stocks have shown negative returns in the past 12 months. "India is likely to under-perform its peer group due to concerns on inflation and hence growth," Morgan Stanley said. "The absolute direction of the market is still a function of global risk appetite."

By Carl Delfeld of the Chartwell ETF Advisor

Brazil Beats China for Fund and ETF Investment Flows

During the last week in May, investment flows into emerging markets by global equity managers and exchange-traded funds tracked by EPFR Global tilted toward Latin America and in particular Brazil at the expense of China.

The $789 million that investors committed to Latin America funds and ETFs was driven in part by a reassessment of Brazil’s economic prospects following its latest ratings upgrade. That upgrade, allied to falling interest rates and the government’s willingness to at least entertain the idea of rationalizing Brazil’s tax system, point to some positive surprises from the region’s biggest economy during the second half of the year. Brazil equity funds took in $280 million, their best showing in percentage terms since the last week of January, 2006. But investors still expect some negative surprises from the biggest economy in the Asia ex-Japan universe: they pulled another $354 million out of China and Greater China funds as the Chinese government continues its effort to rein in the country’s red hot economy and its booming equity markets.

In addition, EPFR Global reports that year-to-date flows into Emerging Markets bond funds pushed over the $3 billion mark. Global and Pacific Equity, Utilities Sector and High Yield Bond Funds also extended their winning runs as the spread between US Treasuries and JP Morgan’s benchmark EMBI+ index narrowed to a new record low of 153 basis points. But China and Japan Country funds and ETFs remained out of favor, although the pace of outflows slowed somewhat, and funds geared to interest rate sensitive sectors were hit with further redemptions.

By Carl Delfeld of the Chartwell ETF Advisor

UTILITIES REVERSE

SECTOR: Utilities - Three of the seven Utility ETFs have recently reversed into columns of O’s. There reversal was enough to cause the overall value of the sector to decrease in value by 2.34% down from the 14.66% YTD high achieved at $53,747. The three ETFs primarily responsible for the reversal are UTH, PRFU, and VPU. If you own a utilities ETF in your portfolio keep a close eye on it while the sector is in a column of O’s.

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By DE Smith | MyPortfolioView

Semiconductor ETFs Ride the Cycle

Picking the right time to jump into semiconductor exchange-traded funds like the iShares Goldman Sachs Semiconductor ETF (IGW) is tricky to say the least. Yet the Financial Times suggests that regular industry cycles are at work, hitting a trough roughly every other year. These can provide tempting entry points to ride the recovery upwards.

But this time the recovery is even more difficult since the the launch of Windows Vista in January did not prompt the mass PC upgrades many had expected, with a dramatic effect on the market for chips. Manufacturers expanded production of D-Ram chips aggressively in expectation that PC owners would demand more memory. The resulting excess capacity led to a drop in D-Ram prices of 70 per cent in just five months. Prices for chips are now barely above the cost of production.

Another interesting global play on semiconducters is the Taiwan ETF (EWT) which has recently lagged its Asian Tiger neighbors. Could it represent the ultimate China play?

By Carl Delfeld of the Chartwell ETF Advisor

Platinum ETF Goes Under

Tom Lydon of ETF Trends reports that the much awaited Platinum ETF is dead - at least for now.

This month the industry buzz was all about the launch of a platinum-based exchange traded fund (ETF). A U.S. bank was planning on launching a platinum ETF in the United States, but the idea has been officially dropped. And the European ETF Securities doesn't plan to list its platinum fund in the U.S. Some believe SEC approval for such a fund wouldn't likely be granted so a listing of platinum or palladium on the U.S. market is out, at least for now. Atul Prakash for Reuters.com reports the metal hit a record high of $1,395 an ounce in November just on speculation on the launch of a physically-backed ETF.

ETF Securities was the first to list in London on April 24, with secondary listings in France, Germany and the Netherlands. Analysts claim the U.S. auto lobby would be strongly against any move to introduce a platinum fund in the United States due to fear that it would drive prices through the roof.

By Carl Delfeld of the Chartwell ETF Advisor

ABCs of ETF Options

Investors may not know that many exchange-traded funds have options that can help them manage risk. Options can be used conservatively especially if you own the underlying ETF.

For example, you may wish to lock in profits from a recent run-up in an ETF without selling the position and triggering taxes. Or you may want to buy insurance against a drop in a shaky market? The China ETF (FXI) is one market which seems a bit toppy and investors can buy an option to sell this ETF as far out as January 2009.

These and other defensive strategies can be obtained with the nearly 70 ETF options currently available. Although many large stocks offer options, trying to engage in many at once becomes a nightmare of expense, tracking and paperwork. ETFs make defensive options easy.

ETFzone has a good primer on options which you may find helpful. Once you learn the basics, you will feel much more comfortable using them to manage the risk in your global ETF portfolio.

By Carl Delfeld of the Chartwell ETF Advisor

ETF MARKET CAPS: LARGE CAP

ETF REGIONS

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