ETFxray

The Simple Global ETF Portfolio

By Carl Delfeld of the Chartwell ETF Advisor

Do you wonder sometimes if we make investing far too complex and confusing? Exchange-traded funds were designed to be easy to use with all the advantages of simplicity, transparency, tax efficiency and low fees. While perhaps sub-optimal from a financial engineering point of view, the simple approach may work best for many investors.

Here are my picks for a portfolio of just three ETFs that span the globe.

iShares Dow Jones U.S. Total Market (IYY), 1,634 holdings, $15 trillion of market cap, top 10 holdings equal 17%

Vanguard FTSE All-World ex-US (VEU) 2,200 stocks, 48 countries, top ten equal 9.4%, large cap, 52% midcap, 38%, smallcap 10%, UK/Japan, 35%

Vanguard Emerging Markets (VWO) Brazil, 10.5%, India, 6.3%, Taiwan, 12.4%, China 10.5%, Russia, 10%, South Africa, 8.6%, Mexico 6.3%

Some may call this the "lazy portfolio" but others call it the "smart portfolio". Some of my clients use this as their core portfolio and then layer more creative and aggressive portfolios on top of it. Be careful to get professional advice from Chartwell or another advisor as to the proper proportions of each ETF that suit your investment goals. Find out more about this strategy by going to Chartwell ETF.

Steps to Building an ETF Portfolio

By Carl Delfeld of the Chartwell ETF Advisor

Here are some simple steps to building a global portfolio using exchange-traded funds. Be sure to tailor them to your own personal situation. If you work with a financial advisor, take them along to your next portfolio review.

Separate portfolios - not as US and international but rather as core and growth

Risk Management - trailing stop loss, max weighting

Achieve real diversification - currencies, precious metals, regions, sectors, inverse, regions, countries

Look “under the hood” of ETFs - understand the implications of market cap weighting

Pick the right countries - Heckman study of international mutual funds from 2001-2005 showed 88% of performance variation due to geographic asset allocation

Have a clear investment process such as a "core & explore" strategy and then stick with it through thick and thin.

Find out much more by joining the Chartwell ETF Advisor

Look Under the Hood of Financial ETFs

By Carl Delfeld of the Chartwell ETF Advisor

Is now the right time to load up with financial sector exchange-traded funds? Even if you think that markets have over shot on the sell side, you still need to do your homework by looking undert he hood of the ETFs you are considering.

Take the example of a global financial sector ETF versus an international financial sector ETF. You might think that the holdings in each ETF basket are quite similar but you would be dead wrong.

Below are the top five holdings of the iShares Global Financials ETF (IXG)

Citigroup (3.8%)
BOA (3.8%)
HSBC (3.2%)
AIG (2.6%)
JP Morgan (2.5%)
Mitsubishi UFJ (1.9%)

Compare this with the top holdings in the Wisdom Tree Int’l Financials ETF basket (DRF)

HSBC (7.3%)
Lloyds (3.3%)
RBS (3.2%)
Barclays (3.0%)
ING (2.7%)
BNP Paribas (2.6%)

Both of these ETFs were up more than 2% yesterday. Which, if any, should you invest in right now? Go to Chartwell ETF right now and find out.

Silver ETFs Can Be a Nice Hedge

By Carl Delfeld of the Chartwell ETF Advisor

Some limited portfolio exposure to silver exchange-traded funds can help reduce volatility and perhaps increase total returns over time. But keep in mind that day to day prices fluctuate sharply.

Don Dion in Seeking Alpha explains that SLV is the older of the only two U.S. ETFs that provide direct exposure to silver— that is, offering ownership of the metal rather than of stocks in mining companies or other firms that might benefit from strong silver prices. By investing in SLV, shareholders take a direct stake in 145 million ounces of silver bullion stored at a London branch of SLV’s custodian, JPMorgan Chase. I may just take a peek at the bullion next week while I am in London just to make sure that it is all there.

Silver was worth $15.82 an ounce as recently as November 7— a nice increase from last summer, when prices averaged less than $13. Prices did pull back to $14.22 early this week as risk-averse investors seemed to avoid investments that tend to be volatile. But this is exactly the opposite of what they should be doing since silver ETFs are a great diversifier for a global portfolio and may also enhance returns.

Silver is definitely not for investors looking for high returns or stability. Rather, investors seek out silver because, like other precious metals, it generates returns that are almost completely independent from the broad stock market. In fact, Dion points out that some economic events that hurt stock prices may boost silver prices — for example, quickly rising inflation may lead to a stock market sell-off even as investors scramble to buy up hard assets.

Learn if and where silver belongs in your portfolio by joining the Chartwell ETF Advisor

Weak Dollar ETFs Gain Following

By Carl Delfeld of the Chartwell ETF Advisor

While the US greenback showed some strength last week, it ended on a sour note leading to more investors looking for exchange-traded funds that go up when the dollar goes down.

The dollar fell 0.2 per to $1.4870 against the euro, within a cent of the all-time low at $1.4966 it hit on Friday according to the WSJ. The dollar also fell 0.4 per cent to $2.0688 against the pound and 0.2 per cent to SFr1.1000 against the Swiss franc.

The dollar also fell sharply in Asian trade to a low of Y108.11 against the yen amid reports in the Japanese press that China would use its foreign exchange reserves to buy Japanese stocks through the China Investment Corporation, its sovereign wealth fund.

Investors have many ETF options to play the falling dollar. Rydex Investments offers CurrencyShares, an ETF grouping that tracks the price of 8 currencies. Each ETF buys foreign currency that is held in a bank in London and shares go up or down based on the foreign currency's value compared to the dollar. There is also the PowerShares DB G10 Currency Harvest (DBV) that tracks 10 currencies, going long on the top three currencies with the highest interest rates and going short on the "top" three currencies with the lowest interest rates. Crude but effective.

But watch out for the inevitable dollar rally. America's current account deficit has gone from 6.5% of GDP to 4.5% and our nation's trade deficit has also improved from 5% of GDP to 4% of GDP. If the Fed does not keep cutting interest rates, global markets may sit up and take notice.

Find out what ETFs you need to manage your currency exposure by joining the Chartwell ETF Advisor.

Northern Trust Plans 19 Global ETFs

By Carl Delfeld of the Chartwell ETF Advisor

Northern Trust, known for its wealth management, private banking and custodian business, is the newest entry into the world of exchange-traded funds with a filing to the SEC for 19 new ETFs.

Jesse Empak of IBD writes that Northern Trust plans a total of 19 ETFs representing as many countries. Eight are focused on emerging markets, while the rest track indexes in Europe, Australia and Japan. The emerging-markets ETFs track China, Hong Kong, Israel, Malaysia, Russia, Singapore, South Africa and Taiwan.

In the filing to the SEC, Northern Trust does not include Hong Kong or Singapore on the list of emerging markets. In Europe, the ETFs track the BEL 20 in Belgium, the CAC40 in France, the DAX in Germany, the ATHEX 200 in Greece, Ireland's ISEQ 20, the MIB in Italy, the AEX-index in the Netherlands, PSI 20 in Portugal, and the U.K.'s FTSE 100. In Japan, the ETF will use the TOPIX index, while in Australia it'll use the ASX 200.

The ETFs for Ireland, Portugal and Greece would be the first ETFs to track these markets though iShares is rumored to be shortly introducing ETFs for these markets as well as for Thailand and Israel. Most likely, Northern Trust will compete with iShares country ETFs on price just like Vanguard is using its lower expense ratios to increase its market share among individual investors.

Find out if emerging market ETFs will bounce back by joining the Chartwell ETF Advisor.

Mid-Cap ETFs Hit Home

By Carl Delfeld of the Chartwell ETF Advisor

Mid-cap stocks and exchange-traded funds seem to get lost between the large caps and small caps. This is a big mistake since midcap ETFs contain companies which have market caps ranging from $2 billion to as much as $10 billion, are typically faster-growing than the market's giants but less volatile than small caps. There bigger size also provides more stable and predictable earnings visibility than small caps which tend to more volatile and unpredictable with plenty of earnings surprises both up and down.

Nathan Slaughter writing in Seeking Alpha points out that mid-caps can offer greater upside potential than large-caps and less volatility than small-caps. According to Morningstar, mid-cap growth companuies and ETFs have been the single best performing corner of the domestic market over the past five years with average annual returns in excess of +19%.

Investors looking to add this asset class to their portfolio may wish to try to pick some stocks but a wiser choice may be to go with an ETF such as the Vanguard Mid-Cap ETF (AMEX: VO).

Tracking the MSCI U.S. Mid-Cap 450 Index, this ETF contains both growth and value with a basket of 400 or so stocks and also avoids the overconcentration of its top names with its top ten holdings only represent a miniscule 5.8% of assets.

In terms of sectors, the ETF is heavily weighted towards the financial, consumer discretionary, and information technology sectors but has a bit less than the S&P 500's 20% allocation to the finance sector. It also sports a low expense ratio of 0.13% of assets.

Austrian ETF at Heart of Europe

By Carl Delfeld of the Chartwell ETF Advisor

The Austrian exchange-traded fund, iShares MSCI Austria (EWO) has done rather well over the past few years being favored as the best play on Eastern Europe by serving as a gateway between these fast growing emerging markets and Western European markets.

The end of the cold war in 1989 and the recent entry of many of Austria's eastern and southern neighbours into the European Union have put the this smallish country of 8 MM people country back at the heart of the continent and brings back memories of its historical role as an imperial dealmaker.

For several reasons, Austria and its exchange-traded fund has benefited more from Europe's opening to the east than any of the other older EU members, in several ways.

First, the Economist points out that its trade with central and eastern Europe (CEE) has jumped over the past decade and a half, helping to reduce its trade deficit. Second, and more important, Austria's stock of direct investment in central and eastern Europe zoomed from from almost zero in the early 1990s to nearly $28 billion in 2004, equivalent to 8% of Austria's GDP

Furthermore, while a decade ago much of its investment was concentrated on manufacturing, now the biggest chunk goes on financial intermediation, property and services. This reflects its growing role as the nexus of support services for Eastern European countries. The eastern opening, together with those of Austria's EU entry in 1995, EU economic and monetary union in 1999 and the entry of ten new EU members in 2004 have all boosted economic growth considerably and buoyed its stock market and the ETF (EWO) that tracks it.

Vienna still has the regal feel of an imperial capital, much grander than its current size and stature but the country benefits economically and politically by not being France or Germany which tend to throw there weight around the councils of Europe. Austria's market is trading at just 12 times 2007 earnings according to data from Reuters but watch out for the high concentration of its top three companies in its ETF (EWO).

Find out if the time is right to add Austria to your global portfolio by joining the Chartwell ETF Advisor.

Japan Corporate Earnings a Drag on ETF

By Carl Delfeld of the Chartwell ETF Advisor

The Japanese market, and the ETFs that track it such as the iShares MSCI Japan (EWJ), is down 6 per cent so far this year in dollar terms, continues to disappoint investors even though it is trading at the low end of historical valuations. Now weak aggregate corporate profits are also a problem. Year-on-year operating profits for top-tier companies rose 6 per cent in the first half and full year forecasts will be lower. Analysts are similarly gloomy, having marked expectations progressively lower in the past six months.

The outlook is especially poor for non-manufacturers (excluding banks) where profits fell 3.4 per cent, according to Morgan Stanley. Banks may have reported smaller sub-prime exposure than their US peers, but top it up with domestic consumer finance woes and the dent is sizeable: financials’ profits were down 5.6 per cent.

The Financial Times notes that the second half looks even harder as remaining supportive factors, including a cheap yen, look less certain. The yen has been strengthening in recent weeks and on Wednesday hit Y109/US$1, above the level of most corporate assumptions for the second half. Goldman Sachs estimates that a 10 per cent move in dollar/yen foreign exchange rates affects pre-tax profit growth by just 2 per cent compared with 5 per cent in the 1990s. But even though higher oil prices are less damaging than was once the case, they still erode profit margins.

What will be the catalyst for growth and higher stock prices. Exports to China are slowing as has margin expansionand recently top-line growth. That will be harder to sustain if the US consumption slows down. One plus is that the Japanese market is undoubtedly getting cheaper: using companies’ own forecasts, it is trading at only 17 times this year’s earnings. Still, the yen ETF may be a better Japan play than its stockmarket.

Learn more about why Japan does have a place in your portfolio by joining the Chartwell ETF Advisor.

Net Flows to Money Markets Since August Top $100 Billion

By Carl Delfeld of the Chartwell ETF Advisor

While many exchange-traded funds are suffering declines, net investment flows by the world's large equity managers tracked by EPFR Global are leading to the building up of sizable cash positions.

EPFR comments that with sub-prime and global credit fears being fueled by almost daily news of fresh write-downs in the financial sector and evidence mounting that the US economy will slow going into next year, investors retreated from equity funds during the second week of November and shift into the relative safety of Money Market Funds.

All of the major EPFR Global-tracked equity fund and ETF groups posted net outflows for the week ending November 14, with $5.58 billion pulled out of emerging markets equity funds and $5.07 billion out of funds geared primarily to developed markets. Money Market Funds, meanwhile, absorbed $10.1 billion, bringing net inflows since the beginning of August over the $100 billion mark.

Global equity managers did put fresh money into Germany and South Korea Country Funds and injected over $2 billion into Financial Sector Funds and ETFs. During the second week of November they pumped $2.47 billion into Financial Sector Funds – nearly all of that money by way of ETFs – which took year-to-date flows back into positive territory. They also moved aggressively back into US Small Cap equity. Latin American funds and ETFs are year-to-date still sitting on a net gain of 60.76%.

Do you think some of these markets are oversold? Join ChartwellETF.com for a second opinion.