Sunday, January 14, 2007

10 New ETF Trends for 2007

An article by Tom Lyndon originally aired on

January 05, 2007
by Tom Lydon

As the champagne corks ushered in 2007, investors celebrated more next generation exchange traded funds (ETFs) that promise an exciting variety of targeted new offerings. All grown-up, with everywhere to go, new ETFs continue to hone their appeal for the investing public that craves reduced expenses, diversified risk and targeted investing opportunities exceeding the broad-market benchmarks.

Investors have every reason to be optimistic. The evolution of ETFs sped up significantly in the last year alone—as improving opportunities for jumping into tailor-made sectors that can pack a punch in the way of concentration, while enabling investors to diversify across a wide-array of stocks. The selection is vast and exciting. While new ETFs pop up weekly, their evolution is still just beginning. Here are ten ETF trends we expect to see in 2007.

1) Global ETFs will continue to outperform their domestic counterparts.

Despite the fact that the Dow Jones Industrial Average has staged a 4-year rebound, international investments continue to lure investor cash—and in a huge way. Recent data show that $124 billion of new money has flowed in equity mutual funds this year (including ETFs), with a whopping $110 billion, or 89%, flooding the international arena (AMG Data). This rush to international funds is staggering given the enormous success of corporate America. Last year, across the board, global ETF shares trounced domestic benchmarks, including SPDRs Trust (SPY), Diamonds Trust (DIA) and Nasdaq 100 Trust (QQQQ).

In the new year, we expect international ETF offerings to maintain the foreground. Looking at 2006 numbers for global equities, their growth dwarfs their domestic benchmark counterparts. Equity fund providers will continue to respond to the currently insatiable demand for international investing as international market valuations remain relatively cheap and the burgeoning gross domestic product numbers for specific regions outstrip those of the U.S. Case in point, many ETF providers have launched or filed to launch international ETFs for specific regions, including Asia Pacific, Asia Pacific Emerging, China, Europe, Europe Emerging, other regions, and with varying degrees of market capitalization. The significance of this development is just one indication of the degree of innovation and excitement for ETFs for the coming year.

2) Actively managed ETFs hit the marketplace with a thud.

What was billed as the next generation for ETFs will go over like a lead balloon with investors. Active managers have taken a run at actively managed ETFs—and why not? The enormous success of ETFs has active managers scrambling to entice investors back to active management and big expenses. It won't happen. Why? The whole point of an ETF is to avoid active management and their expenses. ETF investors have come too far—they have stepped out of the frying pan and they're not treading back into the fire. They may lure some up-until-now active manager devotees, but there's no staying power. ETFs have their roots in sectors and sub-sectors of indexes.

As such, investors will look to indexes for the benchmarks, not active management. Actively managed ETFs have no track record—no benchmark. There is no guarantee a mutual fund manager can provide performance results with an ETF. And, two-thirds of ETF assets come from institutional investors who are looking to find allocations to specific asset classes that also include targeted industry groups and specific global regions. These institutions know what they're looking for, and where to find it. They don't need a manager to do their research.

3) The ranks of ETFs will continue to explode.

Tracking indexes enables investors to capture markets, sectors and capitalization parameters. The ETF universe has exploded in just the last couple of years—and for good reason: minimal expenses and innovative offerings target growth through diversified risk. And, they will become even more intriguing as world-class presenters sharpen their competitive instincts to stay at least a step ahead. What's in the pipeline? Natural resources, bonds, individual emerging market countries, and targeted market capitalization strategies all make for a very exciting year ahead.

Big-name fund providers will continue to pump out more lean, mean asset-building machines for every kind of investor, swelling the ranks of ETFs. Some 345+ targeted and broad-market ETFs collectively boast a current market capitalization of $410 billion in assets. There are predictions that with ongoing new offerings and heftier investments down the road we will see an overall ETF market capitalization upwards of $2 trillion by 2011—just four years from now.

4) Fidelity finally joins the party.

Even as big name ETF providers continue to expand their offerings, the big cheese continued to stand alone. Back in 2003, Fidelity tested the ETF waters with its Nasdaq Composite Tracking Index (ONEQ) fund—the name proved prophetic as it remains their only "ONE." Fidelity's cash cow continues to be their incredibly lucrative 401(k) plan offerings that carry a much wider profit margin by utilizing their conventional mutual funds compared to the skinny expense ratios of ETFs. Reticent to cannibalize their own market, the giant has remained committed to active management and the hefty fees. However, Fidelity cannot sit out forever and as plan producers feel more pressure to reduce expenses, Fidelity will be forced to enter the ETF game.

5) The emergence of emerging markets.

Emerging market ETFs will expand into even more individual countries. Right now, most international ETFs represent established foreign indexes, but the big boys are moving into the developing markets, as well. Barclay's and State Street are looking into more individual country offerings. And, there's plenty more on the docket for China—possibly including mid-cap and small-cap exposure to capture the awakened giant. Get ready for India, Turkey, Russia and Eastern Europe to come on board with increased and improved individual offerings.

6) Lower fed rates boost bond ETFs.

The expanding U.S. economy has been giving us some sign of slowdown. The housing situation, in particular, has many wondering if the Fed may contemplate lower rates in 2007. Such a move will give bond ETFs the impetus to move upward. Fixed income investors can use bond ETFs to capitalize on a lower interest rate environment. Certain fixed-income ETFs are influenced by interest rate movement. In fact, they respond inversely to interest rates. As such, when rates increase these bond instruments will actually go down in value. Conversely, when rates decline, the value of the ETFs will go up—regardless of treasury or corporate bonds.

7) ETFs get ready for retirement.

Get ready for the billion dollar struggle! Corporate America and their employees want ETF offerings for 401(k) plans. The expenses associated with 401(k) plans are exorbitant—just the way the fund providers like them. But, administrators have seen the ETF light, and they want more—and they're likely to get what they want. The large providers won't deliver easily—they have plenty to protect—and they're just not motivated to give up the big fees. But, some of the usual ETF suspects are poised to enter the fray, setting in motion a wonderful power play in which the corporate sponsors and the employees will come out on top. The cost-savings potential is a great motivator for the battle to demand ETF inclusion in 401(k) plans.

8) The next big gold rush.

More specialized commodity ETFs are on their way. There's enormous pent-up demand for an increased selection of commodities and natural resources ETFs. The new offerings in this arena will make it even easier for investors to participate. Tradable gold products—including gold trusts and gold bullion—are on the list of expanded offerings. And, an increased supply of oil, metals, currency, energy and water will make investments in commodities sector more mainstream for investors. Big players have given us some very credible benchmarks for smart commodities and natural resources investing. And even CalPERS—the world's largest pension fund—has moved into commodities ETFs. What's more? We're seeing even more specialized sectors move into the arena, as well. Can you say "nanotechnology"? ETF investors can learn all about it.

9) Bear-market ETFs.

The Bull has taken Wall Street by storm for the last four years running. Every savvy investor knows that the streak is long in the tooth now. This is a good time to learn about the increased offerings for long/short and high beta ETFs that pack large asset class exposure with less money—leverage. We all love a bull market, but you can learn to love a bear, too. ProFunds has some great institutional offerings that run inverse to the market. Keep a close eye on what other ETF providers are offering in regards to long/short and high beta ETFs.

10) And in the "Truth Is Stranger Than Fiction" category...

The big mutual funds boom of the 1990s had fund providers throwing everything—including the kitchen sink—into new funds. Adding some 400–500 new funds a year, they all got sloppy. Complacent active managers, earning fat paychecks and underperforming simple benchmarks, finally got under the skin of investors who learned too late they were paying too much to earn too little. Predictably, we see hundreds of active funds folding or merging to bury the putrid track records. Those who remain standing—for now—are scared. They know they are under the microscope to deliver. Ironically, guess how they're attempting to keep their fat out of the fire: they are buying up ETFs to bolster their abilities to get closer to the benchmark. Maybe 2007 will be the year active mutual fund shareholders learn the virtues of ETFs. Amazingly, that epiphany may come at the hands of the active managers themselves.

Yes, indeed, 2007 is going to be another big year for ETFs. This new year promises continued refinements for our favorite investment tool. Innovative, new breeds of funds will continue to sharpen investors' abilities to capture the markets that matter. New fund issues, new opportunities and new markets: it's going to be a very happy new year!

Also check out for an ETF 101


Most of you already know what an ETF is - and if you don't you better start reading up on what they are for and how you can invest in them.

Well..allright I will get you started.

ETFs are securities certificates that state legal right of ownership over part of a basket of individual stock certificates. Several different kinds of financial firms are needed for ETFs to come into being, trade at prices that closely match their underlying assets, and unwind when investors no longer want them. Laying all the groundwork is the fund manager. This is the main backer behind any ETF, and they must submit a detailed plan for how the ETF will operate to be given permission by the SEC to proceed.

In theory all that a fund manager needs to do is establish clear procedures and describe precisely the composition of the ETF (which changes infrequently) to the other firms involved in ETF creation and redemption. In practice, however, only the very biggest institutional money management firms with experience in indexing tend to play this role, such as The Vanguard Group and Barclays Global Investors. They direct pension funds with enormous baskets of stocks in markets all over the world to loan stocks necessary for the creation process. They also create demand by lining up customers, either institutional or retail, to buy a newly introduced ETF.

This flow of individual stocks and ETF certificates goes through the Depository Trust Clearing Corp., the same US government agency that records individual stock sales and keeps the official record of these transactions. It records ETF transfer of title just like any stock. It provides an extra layer of assurance against fraud.

Once the authorized participant obtains the ETF from the custodial bank, it is free to sell it into the open market. From then on ETF shares are sold and resold freely among investors on the open market.

Redemption is simply the reverse. An authorized participant buys a large block of ETFs on the open market and sends it to the custodial bank and in return receives back an equivalent basket of individual stocks which are then sold on the open market or typically returned to their loanees.

Some links to get you started:

More on ETF's in my next post.

Saturday, May 27, 2006

How Hot Deals Work

How Hot Deals Work

Hot deals spread across the Internet in much the same way an epidemic does, starting at the epicenter and moving across the dealfinding community in p ...

Read More:


Hot deals spread across the Internet in much the same way an epidemic does, starting at the epicenter and moving across the dealfinding community in predictable patterns. Unfortunately, unlike a virus, by the time the deal reaches the edges of the dealfinding community, it’s often too late to catch it.

The epicenter of the deal is the retailler itself. Someone discovers the great sale or the combination of the sale and the coupon. Almost invariably, wave one occurs as the deal hits either or, the two major dealfinding boards on the Internet. If the deal is truly hot, it will be posted on the second website within mere moments of being posted on the one on which it originally appears. Since the two posts occur so close together, they can be considered together as wave one.

Wave two happens as people begin posting the deal on other dealfinding boards, the two of which I frequent are and Wave two posts generally contain links to the wave one posts, which contain the actual links to the retaillers.

Wave three is when bloggers and other dealfinders catch wind of the deals and begin posting about them or calling their friends and family to get them in on it. Needless to say, by the time wave three washes in, the deal is often dead or close to dead. Indeed, dealfinders often have to choose between spending their time getting the deal themselves, or letting other people know about it. Because of this, I often don’t post about hot deals on here; I figure that anyone who’s actually interested is probably watching the same dealfinding boards I am and thus already knows about it, and anyone else probably won’t get there in time and will just be bitter and disappointed.

That said, I’ve had enough requests to post about hot deals on here that I’m going to start doing so. They’ll probably be very short– a title that tells you what is and a hyperlink to the thread that describes it– but if it helps other people land some hot deals as well, then that will be great.

From: One money dummy getting smarter.

Tuesday, May 23, 2006

RE: Misconception: Renting is for Suckers

Youve heard all the reasons that people want to stop renting. I dont want to waste my money. Heck, you may have even said them yourself. Many of my fr ...

From: InvestorGeeks - Click to read the article


Monday, January 30, 2006

Tips to Improve your credit score - From

Tips for boosting your credit score.

A good credit score is important for most people in order to get low rates and other offers.

The interest rate you"ll pay for the money you borrow will be determined, in large part, by this three-digit number that"s generated from the information in your credit report. Most lenders have carved-in-stone rules about handing out the best terms, and those rules almost always place a major emphasis on your credit score. If their best rates are offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars.

According to, the consumer Web site of the Fair Isaac Corp. that created the FICO score (the most commonly used credit score), the interest rate difference between those two scores is one-half percentage point.

On a $165,000 30-year fixed rate mortgage, that half point could cost you more than $19,000 in interest charges, assuming 6 percent is the lowest rate available (see Bankrate"s calculators). Fall below a 675 and the rate goes up another 1.2 percent.Keep in mind that these are averages. Most lenders today practice tiered pricing, with interest rates rising as scores go down. Each lender chooses its own "break points" between tiers. Lender A may bump up the interest rate if a score falls below 700, while Lender B doesn"t charge higher rates until the score is 690 or below. So if you stick with one lender, and that lender"s break point is 700, raising your score from 698 to 701 can be vital.

This underscores the importance of not only doing all you can to improve your score, but shopping thoroughly when looking for a mortgage. From the perspective of a mortgage broker, who can choose among a sea many lenders, there are no sharp break points. Consumers should do what a good broker does -- look for a lender that offers the best rate for a specific score. But that"s jumping ahead of ourselves. First things first: You can take steps to improve your credit score. The number of variables that play into an individual score make it impossible to say that one particular action will increase a given score by a certain number of points. But there are some good guidelines.

"The mantra for getting a great score is pay your bills on time, keep account balances low, and take out new credit only when you need it," says Craig Watts, consumer affairs manager for Fair Isaac Corp.

"People who do that faithfully have very high scores. It usually means you"re being conservative and cautious about credit. It"s not a toy and it shouldn"t be a hobby."

Speedy upgrade:
That"s good advice, to be sure, but these actions take a long time. What if you"re house hunting and you just need a few extra points to bump you over the line to the great rates?Start by pulling your credit report and your credit score to see where you are. To get an estimate of your credit score, check out our Credit Score Estimator. If your score is above a 720, you"re golden. Improving your score from a 720 to a 740 won"t get you better terms.

What you"re looking for on your report are factors that could be affecting your score. Look for errors in the report, such as accounts that aren"t yours, late payments that were actually paid on time, debts you paid off that are shown as outstanding, or old debts that shouldn"t be reported any longer (negatives are supposed to be deleted after seven years, with the exception of bankruptcies, which can stay for as long as 10 years).

After repairing errors, the fastest route to a better score is paying down balances on credit cards, says Watts and David Herpers, chief marketing officer for Atlanta-based Amerisave Mortgage Corp."There"s really no silver bullet, but I would think that over 60 days, it"s possible to increase your score 20 points by paying down your credit lines," Herpers says.

Had a few late payments in your past?
If you find yourself in some financial difficulties, you can protect your score by making sure your payments don"t go 60 days past due, Herpers says. "Some lenders don"t report 30 days past due, but they all report 60 days past due."

Even if you"ve paid your bills late in the past, you can improve your credit score by paying every bill on time from now on, says John Ventura, a consumer law attorney and author of "The Credit Repair Kit.""Forget about grace periods," he says. "If you want to have a really good record with the credit agencies, pay your debt before it"s due and keep your balances low."

A big no-no
One thing you shouldn"t do if you"re just trying to boost your score is close unused accounts, Watts says.

"If someone tells you to close unused accounts to improve your score, they"re pulling your leg," he says. "It won"t help you and it can hurt you."

Closing unused accounts without paying down your debt changes your utilization ratio, which is the amount of your total debt divided by your total available credit.

"You appear closer to maxing out your accounts," he says. "That"s why your score can drop. It doesn"t mean people shouldn"t close them, but don"t close them to improve your score."

If you do cut up cards, though, leave the oldest one open, says Steve Rhode, former president of, a national nonprofit financial crisis center.

The length of your credit history is another factor in your score. If you close the account of the credit card you got when you were a freshman in college and leave open the ones you just got within the last couple years, it makes you look like a much newer borrower.

"Keep a couple of the oldest open; I don"t care what the interest rate is," he says. "Creditors don"t care what the rate is."

Working with credit card balances
Another strategy for bringing up your score: Transfer balances from a card that"s close to being maxed out to other cards to even out your usage, says David Chung, interim president and vice president of business development for Maryland-based CreditXpert Inc., which provides credit tools to lenders. Or just spread out your charges between a few cards.

Try to get the usage on all of them at 20 to 30 percent instead of a bunch at zero and one at 80 percent," Chung says. "You"re not spending less, you"re just shifting it around to different cards."

It could work, Watts from FICO says. "Transferring the balance to a card with a lower utilization could help," he says, "but it"s much better to actually pay down the debt if you have the cash kicking around." If you"re really into finessing the system, check your credit report to see what day of the month your creditors send updates on payments to the credit bureaus, Chung says. They"re rarely on the same cycle as your payment due date. That"s why you can pay off your card every month and your credit report will show you carrying a balance. Then, make your payments several days before the reporting date.All of these strategies generally take at least 30 days because lenders don"t report payments more than once a month.

Rapid rescoring
If you"re in the throes of qualifying for a mortgage and need a score boost in a hurry, you can speed the process along with rapid rescoring. If you"ve got legitimate negative information on your credit report, such as late payments or accounts in collections, you"re out of luck. But the process of rapid rescoring can help increase your score within a few days by correcting errors or paying off account balances.

You can"t do this one yourself; you"ll need a lender who is a customer of a rapid rescoring service. Generally, the service will run roughly $50 for every account on your credit report that needs to be addressed, but it could save you thousands on your loan.

If a consumer can find a lender who is a customer of a rapid rescoring service, new information can be posted within 72 hours, Watts says.

Some nifty online tools are available to find out which strategies could have the most impact on your score. Fair Isaac"s site offers a credit score simulator when you purchase a credit score. It will show you how paying down your account balances -- or not paying any of your bills on time this month -- would affect your score.

CreditXpert"s "What-If" simulator lets you play with several variables, such as buying a car, paying off a student loan and opening a department store account, all at the same time. They don"t sell the simulator directly to consumers, though. You can get a list of places that do sell it on the consumer page of its Web site. The bottom line, the experts say, is that you"re not powerless when it comes to your credit score.

"There are a lot of things you can do to improve your score," Chung says. "You need to understand what your credit is like now and what"s influencing your score today. Then you can take an objective look at the different options available."

Thursday, January 19, 2006

What is JDSU doing??

What is happening with JDSU recently? The stock went from over a 100 to about 2 during the recession and now it's creeping up 5% to 6%, giving back some and then coming back up.

Are the day traders moving this up and down? The stock has become a staple of Cramer, CNBC shows and many other market publications.

What's been happening? I bought some stocks of JDSU and don't know if I should cash out or just hold on to it.

What do you suggest?

Tuesday, January 17, 2006

Mad Money By Jim Cramer - Did you miss a show?

I was watching "Mad Money" by Jim Cramer the other day (it's usually aired at 6 and 9 p.m. EST on CNBC) and I must say, man, that guy is energetic or what!!

I watched his show a couple of times and then decided to invest in some stocks that he was recommending (like Conexant Technologies CNXT and Shanda Interactive SNDA). And guess what - I made some money on my first days of trading.

By the way, I opened a Scottrade account since it seemed to be the best thing for me as a novice to investing.

Now, the problem was that I could not watch each and every show and even if I did, the fast pace of the show virtually guaranteed that there is no way a person keep track of everything.
After some searching I found this gem of site which actually posts every show along with the detailed transcript.
The website is (it's called Mad Money Recap)


Value Line Investment Survey

For the longest time, Value Line has been one the very best systems and publications for investing in common stocks and related markets.

According to them, Value Line has has outperformed the DOW by 19 to 1 over a 40-year span that covers bull and bear markets. We've delivered 19,913% gains for those who invested in our portfolio of #1-ranked stocks.

They are now giving a $75 trial for 13 weeks. What this gives you:
  • Summary & Index - a 40-page update listing the current Timeliness and Safety rankings for all 1,700 stocks
  • Selection & Opinion - an insightful 12-16 page report featuring sample portfolios for different types of investors
  • Ratings & Reports - presenting about 130 new full-page reports on the 1,700 stocks followed by Value Line
  • Plus a bunch more stuff.
I am no way affliated to this company but the reason I'm posting this is because I am getting ready to try it myself.

Here is a link if you would like to try it too.

Monday, January 16, 2006

More about what a P/E ratio is

A quick primer on P/E ratios

The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the company's EPS (Earnings Per Share)

P/E = Stock Price / EPS

For example, a company with a share price of $400 and an EPS of 10 would have a P/E of 40 ($400 / 10 = 5).

What does P/E tell you? The P/E gives you an idea of what the market is willing to pay for the company’s earnings. The higher the P/E the more the market is willing to pay for the company’s earnings. Some investors read a high P/E as an overpriced stock and that may be the case, however it can also indicate the market has high hopes for this stock’s future and has bid up the price.

Conversely, a low P/E may indicate a “vote of no confidence” by the market or it could mean this is a sleeper that the market has overlooked. Known as value stocks, many investors made their fortunes spotting these “diamonds in the rough” before the rest of the market discovered their true worth.

Most stock-quote systems such as Yahoo! Finance will automatically figure the price earnings ratio if you ask for a detailed quote on any company. I personally found the best ones to be Google Stock Quotes, just type in the ticket and the search results will do the rest.

Once you have the magic number, it's time you begin to wield its power. It can help you differentiate between a less-than-perfect stock that is selling at a high price because it is the latest hot-pick on Wall Street, and a great company which may have fallen out of favor and is selling for a fraction of what it is truly worth.

In addition to helping you determine which industries and sectors are over / under priced you can use the p/e ratio to compare the prices of companies in the same sector against each other. For example, if company ABC and XYZ are both selling for $50 a share, one is not more expensive than the other. Wrong!

Company ABC may have reported earnings of $10 per share, while company XYZ has reported earnings of $20 per share. Each is selling on the stock market for $50. What does this mean? Company ABC has a price to earnings ratio of 5, while Company XYZ has a p/e ratio of 2 1/2. This means that company XYZ is much cheaper on a relative basis. For every share purchased, the investor is getting $20 of earnings as opposed to $10 in earnings from ABC. All else being equal, an intelligent investor should opt to purchase shares of XYZ; for the exact same price ($50), he is getting twice the earning power.

Here is a sample chart (of Google : GOOG) that could to help you drill down these concepts.