Dion Money Management Blog   Money Management for Retirees and Their Families

After picking a diversified growth mutual fund, ETF Market Opportunity(ETFOX) for the second quarter, and an international fund, Fidelity China Region (FHKCX), for the third quarter, I’m turning to the credit market for the fourth quarter and picking Third Avenue Focused Credit(TFCVX).

It’s been a good year for equities, and my two picks performed well. ETFOX gained 32.2% from March 31 through Sept. 28, and FHKCX gained 12.4% from June 30 through Sept. 28.

While I still like these two funds for the long term, short-term oriented investors may want to take some profits off the table, as the market has had a nice run from March with barely any correction. TFCVX may offer a better chance for price appreciation over the next quarter, with less downside risk, given current conditions.

Troubled economic times can be great news for distressed debt because it offers the opportunity for a reallocation of assets, most notably when equity holders are wiped out in bankruptcy, but the fund will run the gamut of distressed situations, from purchasing undervalued debt all the way to participating in bankruptcy restructurings.

High-yield debt has recovered since March, but even as the market recovers, there are companies struggling to clean up their balance sheets, and bankruptcies are likely to be high for several more quarters. Credit spreads between high-yield debt, and Treasuries are still at the historic high end of the range because the rally was from such historically low levels.

Traditionally, investors need to be well heeled to invest in this area, and most funds have steep investment minimums. Third Avenue already offers a distressed debt fund, for instance, with a $50 million minimum investment, but retail shares will only require a no-load $2,500 investment.

Third Avenue Focused Credit has the following stated objective: “Seeks total return from a combination of capital appreciation and interest income, by focusing capital in our highest-conviction ideas across the credit spectrum.”

Manager Jeffrey Gary was the head of BlackRock’s high yield and distressed investment team before joining Third Avenue. His approach is to “focus on our downside risk first and then our upside potential.” He wants to concentrate the portfolio in 50 to 60 holdings, and will select securities based on what has the best upside potential, regardless of what type of security it is. Finally, the fund will be event driven. Gary has said, “We want an event that will drive price higher and reduce credit risk of our investment.”

TFCVX will follow the custom of other Third Avenue funds and overweight its best ideas. Therefore, while it offers diversification across different credit markets and different strategies, this will be secondary to asset selection. Returns will be driven, for better or worse, by Gary’s ability to select individual situations for investment.

The areas from which TFCVX managers will select securities include: performing bonds and loans, debt under stress, capital infusions, distressed assets, and restructurings.

According to a conference call held on Sept. 9, available on the Third Avenue Web site, 80% to 100% of the portfolio will be in the first four areas, with up to 20% in restructurings. The fund will not purchase equities, but it may choose to hold equities received as part of a restructuring. Portfolio positions will range from about 1% to 4%.

TFCVX will have the team of analysts at Third Avenue to call upon, with their years of experience in credit markets. The fund will also have increased help from Third Avenue Value (TAVFX), which recently decided to seek opportunities in the area of capital infusions.

Investors in search of yield won’t be disappointed by the fund, but they should know that the fund is focused on total return via capital appreciation. Though he couldn’t be specific because the fund has yet to fully invest, Gary said that the fund will hold high-yield assets with current average yields of about 8%, bank loans with yields of about 5%, and hold between 5% and 15% cash.

Based on that information, investors shouldn’t count on consistently high income, since the fund’s mix of assets will shift over time, but the yield shouldn’t drop below the rate on bank loans.

TFCVX doesn’t come cheap: fees will be 1.71% for retail shares and 1.27% for institutional shares, although the first year will be reduced to 1.4% and 0.95%. The fund launched in September, making a comparison to returns impossible, but Third Avenue’s reputation precedes it. Furthermore, the economic cycle suggests TFCVX should see strong returns going forward.

Investors looking to participate in this area need a lot of capital or expertise to do this on their own, but TFCVX offers investors something that they’d be hard pressed to find elsewhere–a one-stop shop for distressed debt that invests across the entire spectrum of credit securities.

Editor’s note: This is Part 2 of the 10 Best ETFs series. To see Part 1, click here.

Picking the best ETFs is just as important as avoiding the most dangerous, which we featured over three days (Part 3, Part 2 and Part 1) last week. The top five exchange-traded funds do things right: capture their theme, provide liquidity and exploit the advantages of the ETF model.

New ETF products are flooding the market, but these top five funds have staying power. From inflation concerns to emerging-market opportunities, these funds address some of the most important themes in the financial world today.

Here they are:

5. iShares Nasdaq Biotechnology(IBB)

Biotechnology is one sector that is tailor-made for ETF investing. Having the next big biotech drug is similar to hitting the lottery jackpot, and many start-up biotechs burn out before they hit it rich. These factors make it particularly difficult to pick the next stand-out biotech stock.

IBB is a large, liquid fund that gives investors exposure to a basket of biotechs, so that one biotech burnout won’t sink your entire portfolio. Top IBB components such as Amgen (AMGN) and Gilead(GILD) weight the portfolio toward some of the biggest names in the business.

4. iShares Barclays TIPS Bond(TIP)

While other ETF issuers are rushing to bring new inflation-protection products to the market, iShares’ TIP is still an industry standard. TIP offers investors a low-cost approach to Treasury Inflation-Protected Securities (TIPS), tracking securities that range in duration from one year to 20 years.

Individual TIPS bonds are taxed on inflation adjustment, making TIP a more efficient way to access these securities. TIP distributes any inflation-adjustment as income, rather than taxing individuals on a noncash event.

Over 1 million shares of this fund trade each day, so investors can be confident that they can enter and exit the fund with ease. TIPS are a great way to diversify your portfolio, and TIP is one of the best ways to do it.

3. WisdomTree India Earnings Fund(EPI)

Some of the best ETFs on the market today navigate foreign investment restrictions as part of their underlying methodology. EPI offers investors access to the Indian equity market while taking into account the limitations that foreigners have on investing.

Purchasing emerging markets equities can be a difficult process with volatile results. While many investors would like to single out a particular country, like India, it is difficult to trade individual stocks from home.

EPI has a higher average daily trading volume than PowerShares’ India Portfolio(PIN) while avoiding the credit risks of the iPath MSCI India Index ETN(INP), making this our best pick for an India fund.

2. SPDR Gold Shares(GLD)

Gold has been in the news a lot these days, but adding GLD to your portfolio is a good move for the long term. Purchasing physical gold is a good way to diversify your portfolio and protect your purchasing power.

Physically backed ETFs like GLD avoid the risks associated with many commodity ETFs that have been under fire in recent months. Because GLD tracks the price of a gold stockpile, investors are directly tracking the value of gold rather than synthetically tracking gold prices through derivatives holdings.

Owning a stake of physical gold through this liquid ETF, rather than storing gold bars in your basement, is a more practical approach to this precious metal. GLD is the granddaddy of gold ETFs, helping to set the standard for physical ETF funds.

1. SPDR S&P 500 ETF(SPY)

Since Jan. 22, 1993, SPY has been providing low-cost exposure to the S&P 500 for private and professional traders alike. SPY is an excellent proxy for the market as a whole and a good cornerstone for any long-term portfolio.

Quite simply, SPY is one of the best market-tracking securities available today. Owners have the comfort of knowing that they will stay on the highway and not deviate from the progress of the market at large.

Many new ETFs are too focused to draw investor interest or too complex to exploit the low-fee cost structure of traditional ETF funds. SPY is an old-school, low-cost, must-have fund for every well-rounded ETF portfolio.

Disclaimer

Demand for precious metals exchange-traded funds such as iShares COMEX Gold (IAU) and iShares Silver (SLV) have remained strong even as investors have taken profits in other commodities.

Some of the positions that have worked best for my momentum-based client portfolios and newsletter subscribers over the past one to two years have been gold and gold stocks, such as Market Vectors Gold Miners (GDX) and Fidelity Select Gold (FSAGX). Although I expect all precious metals to appreciate further over the next 12 months, I have begun to look more closely at the relative performance of platinum and silver ETFs, which have lagged those of gold until this latest bullish spurt.

One of the reasons I have advocated small positions in both the bullion and mining stocks is their potential to hold up during times of financial crises. Although gold didn’t respond entirely as expected during the height of the crisis last year, gold investments have rebounded to their pre-crash levels. And whether you are a believer of inflation or deflation as the near-term course for U.S. dollar-denominated assets, there is a good chance that precious metals will hold their value, even at these elevated levels.

There are many factors that have supported the price of gold throughout the downturn and even during the latest rally, but I believe it is the weakness in the U.S. dollar and the growing expectations for higher inflation that will remain primary driving forces. As long as the dollar can depreciate further, both retail and institutional investors alike will continue to generate financial and speculative demand for precious metals, and primarily gold because of its perceived utility as a store of value. One only needs to look as far as India and China, where consumers have been encouraged to diversify away from the dollar and buy precious metals directly in place of jewelry.

There are many structural reasons for the dollar to remain weak, including large budget and trade deficits, as well as low savings rates, but since March it has been the resumption of risk-taking that has weighed on the U.S. currency. Investors who flocked to the stable greenback during the financial crisis have become sellers again, looking to invest in assets with greater appreciation potential, such as stocks, commodities and high-yielding corporate credit securities. Until these markets correct or the Federal Reserve  begins raising its benchmark interest rate, we can expect the U.S. dollar to remain weak against other currencies.

So even though I expect to hold gold in the near term, I am also reviewing silver and platinum funds given their relative underperformance. These two metals have more numerous industrial uses: Silver is used in dentistry, alloys, photography, and circuits; platinum is used in auto catalysts. If industrial demand for these metals increases along with the rebounding economy, they may very well close the performance gap from here.

Two good funds to use as proxies for silver and platinum are iShares Silver and iPath Dow Jones-UBS Platinum Subindex Total Return ETN (PGM). Since the launch of these two funds investment demand has become a larger portion of overall demand, diverting supply away from pure industrial uses in order to satisfy financial demand. In the case of silver, such demand is now 60% of overall global supply, while platinum investments equate to 20% of global supply.

If the auto recovery continues and auto emission standards become stricter than they are today, or simply if the demand for alternative precious metals becomes more acute, we could see the relative performance gap narrow and traditional ratios to gold decline.

The mounting regulatory pressure on Moody’s Investors Service and the other major credit rating agencies appears to be making investors nervous.

Regulators and lawmakers have proposed new regulations to reduce conflicts of interest and improve transparency in the $5 billion-a-year industry because of its role in the subprime mortgage mess, and Congress plans to hold hearings on Wednesday.

But Moody’s faces additional scrutiny because one of its former analysts has accused the company of pressuring its analysts to inflate bond ratings, and its biggest shareholder, Warren Buffett’s Berkshire Hathaway, has unloaded nearly 9 million shares since July.

Over the past few weeks, Moody’s stock plummeted from a Sept. 16 high of $25.93 to $18.50 on Friday. The stock recovered some ground on Tuesday by gaining about 11 percent, to close at $20.81, but Moody’s has been declining since last September’s 52-week high of $34.64.

Edward Atorino, an analyst with The Benchmark Co., said he thinks short sellers have been concentrating more on Moody’s than the other credit ratings agencies, contributing to the stock’s volatility.

“They’re under just continued attack and it just doesn’t seem to be going away,” Atorino said.

On Monday, Atorino downgraded Moody’s and the parent company of Standard & Poor’s, McGraw-Hill Cos., to “Hold” from “Buy” because of the intensifying regulatory pressure. Those two firms and Fitch Ratings dominate the industry.

Moody’s officials declined to comment on the eve of Wednesday’s Congressional hearings.

The rating agencies have been criticized for failing to identify risks in securities backed by subprime mortgages. They had to downgrade thousands of the securities last year as home-loan delinquencies soared and the value of those investments plummeted. The downgrades contributed to hundreds of billions in losses and write-downs at big banks and investment firms.

The agencies are crucial financial gatekeepers, issuing ratings on the creditworthiness of public companies and securities. Their grades can be key factors in determining a company’s ability to raise or borrow money, and at what cost, and which securities will be purchased by banks, mutual funds, state pension funds or local governments.

Atorino said the focus of the U.S. House Oversight Committee hearing on Wednesday will likely be the allegations that former Moody’s analyst Eric Kolchinsky has made about the company pressuring analysts to inflate bond ratings.

And a separate hearing will be held in the House Financial Services Subcommittee about proposed credit rating reforms that could change the way the rating agencies operate.

Earlier this month, the Securities and Exchange Commission proposed several new rules for the rating agencies. And several lawmakers have proposed stronger federal supervision of the industry.

Don Dion, president of Dion Money Management, said he thinks Moody’s and the other rating agencies are more trouble than they are worth for most investors right now because of the coming regulation and additional costs.

“I think the ratings agencies obviously have done a terrible job over the past few years, and there’s going to be tremendous pressure on them to do a better job. And that’s going to generate a lot of regulation and I think a lot of lawsuits,” said Dion, whose firm manages about $500 million from its Williamston, Massachusetts, headquarters.

Dion said he expects Congress to ask the people who run Moody’s some hard questions during this week’s hearings, and he thinks Berkshire will continue selling off the stock.

Buffett’s Omaha-based company reported selling nearly 8 million Moody’s shares in July at prices between $26.59 and $28.73 on average. And earlier this month, the Omaha-based company reported selling another 794,388 Moody’s shares.

Many investors follow Buffett’s moves, so the sales prompted speculation about whether the legendary investor had lost faith in Moody’s. But at last report, Berkshire still held 39.2 million Moody’s shares, giving it control of 16.6 percent of the company.

Berkshire officials do not typically discuss stock transactions beyond what they are legally required to disclose, and Buffett did not respond to questions about the Moody’s sales. Moody’s, Standard & Poor’s, Fitch Ratings and other credit rating agencies all seemed to buy into the faulty notion that house prices would continue increasing indefinitely and based their ratings models on that.

“They made a major mistake in analyzing the instruments,” Buffett said in May. “But they made a mistake a great many people made.”

Not all the news is bad for the rating agencies.

Piper Jaffray analyst Peter Appert published two research notes this week making the case that the negative publicity about Moody’s and McGraw-Hill was being exaggerated.

He rated both the companies as “Overweight,” meaning he expects the companies to outperform most of their peers. But Appert also said preliminary figures for the amount of debt being issued in September suggest the rating agencies may have delivered a strong finish to their third quarter.

“While meaningful headline risk remains, absent life-threatening litigation losses, we believe the shares of both Moody’s and McGraw-Hill are oversold,” Appert wrote.

Editor’s note: This is the first of a two-part series on the 10 best ETFs.

ETFs have helped investors gain unprecedented access to niches of the marketplace while mitigating the security-specific risk that comes with stock-picking. The best exchange-traded funds use the unique capabilities of the ETF structure to their advantage and offer unique strategies at reasonable prices.

Last week, I counted down the 10 Most Dangerous ETFs in an effort to alert buy-and-hold investors about the risks of certain funds. Here are Part 1, Part 2 and Part 3 of that series.

Today and tomorrow, I will be counting down the 10 best ETFs. These funds live up to their promises and demonstrate the capabilities of the growing ETF universe. Here are nos. 10 through 6.

10. Vanguard Emerging Markets Stock ETF(VWO)

VWO is an excellent example of the benefits of increased competition in the ETF space. This fund tracks the same index as the iShares MSCI Emerging Markets Index (EEM), but does so at a lower price. While VWO has a lower trading volume than the older EEM, it is still more than high enough to ensure liquidity for the average investor.

An emerging markets position helps to diversify a portfolio and provide access to commodities plays. While VWO is one of the broader-emerging market offerings, it is a good place to start.

9. Market Vectors Coal ETF(KOL)

KOL is a good example of a narrowly themed fund that helps investors target specific areas of interest in the marketplace. KOL tracks the Stowe Coal Index, which provides exposure to publicly traded companies worldwide that derive greater than 50% of their revenues from the coal industry.

While specific funds like KOL should make up only small slices of your portfolio pie, they are valuable opportunities to target narrow subsectors while minimizing the risks of stock-picking.

8. SPDR KBW Regional Banking ETF(KRE)

KRE highlights the regional banking subsector of the financial equity universe. This equal-weighted fund provides investors with a more balanced approach than its cap-weighted peer, iShares Dow Jones U.S. Regional Banks ETF(IAT).

Through its equal-weighting methodology, KRE helps to further minimize security specific risk. While it may have a narrow focus, KRE is a large, liquid ETF, with a three-month average daily trading volume of nearly 5 million shares.

7. iShares iBoxx $ Investment Grade Corporate Bond(LQD)

LQD is a popular fund that highlights the benefits of the ETF structure. Single bond issues can often have large trading spreads and low liquidity. Bond ETFs like LQD, on the other hand, are highly liquid ways to gain exposure to a portfolio of bonds.

LQD is a low-cost way to invest in medium-duration, investment-grade corporate bonds. Buying a portfolio of bonds helps to mitigate the risk of any single bond issuer having credit problems. LQD has been one of the biggest asset gatherers for iShares in 2009 and could continue to grow even larger in the future.

6. PowerShares WilderHill Clean Energy(PBW)

Green energy has been a popular area for investors looking to capitalize on new trends in energy and conservation. At 0.60%, PBW’s expense ratio is reasonable for a fund with this narrow of a focus.

Government incentives could help to boost green-energy firms in the foreseeable future, so access to these companies could truly pay off. Since this fund incorporates a variety of green-energy strategies, PBW could be a safer bet than picking a fund that focuses on just one type of renewable energy.

Spotting the best ETFs is an important skill, but finding the role that it should play in your portfolio is just as important. A well-diversified portfolio with properly weighted sectors should be the aim of the savvy ETF investor.

Check back tomorrow to see the top five ETF picks.

Disclaimer

Commodities ETFs are all the rage, and investors can get their hands on hard assets with a variety of broad, specific strategies. Hard-asset ETFs are a good way to diversify your portfolio and protect against inflation and broader market turmoil.

As the ETF industry grows, it is increasingly important to select the right fund for your investment needs. Before snatching up shares of hard-asset funds, it is important to build awareness of the products available today and the outlook for the future.
Equity-Based, Hard-Asset ETFs

SPDR S&P Metals & Mining(XME) focuses on U.S. metals and mining firms, with industry giants like Arch Coal(ACI), United States Steel(X) and Alcoa(AA) counted among its top components. The fund’s relatively low concentration and low 0.35% expense ratio make XME a good starting place for new hard asset investors.

Market Vectors-RVE Hard Assets Producers ETF(HAP) tracks the Rogers-Van Eck Hard Assets Producers Index, often viewed as the definitive global benchmark for commodity equities.

In addition to metals and mining, HAP includes water and renewable energy among the hard assets in its portfolio. Top HAP components include Monsanto(MON), Exxon Mobil(XOM), Potash(POT) and Deere(DE).
Futures-Based, Hard-Asset Funds

In 2008, iPath launched a line of commodity ETNs that give investors broad or specific exposure to hard assets. Each fund tracks a basket of futures contracts and Treasuries, designed to give investors exposure to the price of the underlying commodity.

These funds are the riskiest of the batch, due to regulatory concerns and debt structure. Since the funds are comprised of notes, rather than equities, investors are exposed to the credit risk of the issuer. Anticipated changes to futures regulation could also restrict the size of these funds and impact their trading capabilities.

One fund that offers multiple commodities is iPath Dow Jones-UBS Industrial Metals Subindex Total Return(JJM).

The single hard-asset funds include iPath Dow Jones-AIG Tin Total Return Sub-Index ETN(JJT), iPath Dow Jones-AIG Platinum ETN Total Return Sub-Index(PG), iPath Dow Jones-AIG Lead ETN Total Return Sub-Index(LD) and iPath Dow Jones-AIG Aluminum Total Return Sub-Index ETN(JJU).
Booming Industry

The ETF industry is booming, and exchange traded commodity funds are a particularly popular segment. While futures-based commodity products could face regulatory curbs in the near future, physically backed commodities funds should be unscathed.

ETF Securities, a London-based issuer, has had tremendous success launching lines of physical exchange traded products across the globe. From London to Tokyo and the U.S., investors can’t seem to get enough of the hard-asset products. ETF Securities currently has two products trading in the U.S., ETFs Silver Trust(SIVR) and ETFs Gold Trust(SGOL).

If the success of other ETF Securities products abroad is any indication, U.S. investors could soon see the debut of other products. Investors should keep an eye out for hard-asset funds like palladium in the months ahead.

Glencore International and Credit Suisse(CS) are reportedly teaming up to launch a physically backed aluminum fund in the months ahead. While aluminum is harder to store than metals like gold and silver, Glencore is said to have amassed 1 million tons of aluminum this year. It will be important for the firm to gather critical mass before unleashing this ETF in the open market.

While JJU currently offers investors exposure to aluminum prices, the fund is backed by futures. Since upcoming regulatory limits are still uncertain, a new physically backed aluminum fund would be a safer bet.

Hard-asset exchange traded products give investors exposure to gold, silver and beyond. These funds can help to diversify a well-rounded portfolio. Regulatory limits may soon limit the size of funds like JJN and JJM, so investors should consider physical hard-asset ETFs when available. Make sure to keep an eye towards liquidity and regulatory changes as you add these unique products to your investment mix.

Disclaimer

This past week on RealMoney, Don Dion blogged about agriculture ETFs, news that could benefit two Market Vector funds, and an update on China ETFs.

A Weakening Sun Could Lift the Ag ETFs
Posted 9/25/2009 2:45 p.m. EDT

A topic I’ve covered and kept an eye on is solar activity. News of sunspot activity crept into the news early on because those who doubt global warming is caused by mankind focus on the sun as the driver of climate. Now, Mother Nature may deliver confirmation in grand style.

The sun’s 11-year sunspot cycle bottomed in 2006 and was expected to peak in 2011 to 2012. Peak solar activity disrupts satellites and radio signals with ejections of protons and electrons in the form of solar flares. In extreme cases, the flares can start fires in electrical equipment, and some telegraph offices in the 19th century had small fires caused by solar flares.

It doesn’t look like this will be happening in 2012, however, if current trends persist. Scientists already knew sunspot activity was slow to pick up from the minimum, but they expected activity to pick up. Now they’re finding evidence that suggests this may be the start of a something similar to the Maunder Minimum, which lasted from 1645 to 1715 — better known as “The Little Ice Age.”

During solar flares, the sun ejects massive amounts of protons and electrons, but it always emits particles, sometimes referred to as solar wind. The National Center for Atmospheric Research now reports that the solar stream is three times stronger in 2008 than in 1996, the previous solar minimum.

Their theory is that sunspots generate strong magnetic fields that keep many of the particles from escaping. The strong stream might mean that the sun is much weaker than scientists believed and the expected increase in sunspot activity is not coming.

A lot of technology relies on satellites, especially communications, and many people feared that 2011-2012 could damage much of the existing infrastructure in space. A weak sun, however, might be bad news for agriculture because it will shorten the growing season. Farmers will need to use more intense techniques to maintain crop yields, and that will mean higher prices.

That would be good news for Market Vectors Agribusiness(MOO) and PowerShares DB Agriculture(DBA), along with the many iPath and Elements ETNs that cover agricultural commodities. Fossil fuels and nuclear power would see resurgence as well. Their stored energy would be needed to replace a drop in solar output that would cause longer winters that cover a greater geographic area. The sun is even responsible for wind, so there’s a possibility that alterative energies will see a decline in their efficiency.

This isn’t an investable idea yet because the sun could surprise us and snap back to life, but investors should keep an eye out for developments.

Two ETFs Could See Boost From Big News
Posted 9/24/2009 3:37 p.m. EDT

Bloomberg reported yesterday that PT Bumi Resources, the largest coal miner in Indonesia, sold $1.9 billion worth of debt to China Investment Corporation, the sovereign wealth fund of China.

The six-year debt pays 12% interest, but Bumi will not begin repayment until four years from now, paying $600 million in both the first and second year of repayment, and the balance in the last year. The company will reportedly use the money to repay existing debt and increase investments.

Bumi is the No. 1 holding in Market Vectors Coal (KOL), at 8.51% of assets, and the third-largest holding in Market Vectors Indonesia (IDX), at 7.31% of assets.

The deal illustrates the overlap of several investment themes — China, Indonesia and coal — and both KOL and IDX offer their own risks and rewards.

KOL offers a direct play on the commodity, and it has a large exposure to emerging markets with fast growth. The risk is that as a commodity, coal prices could fluctuate, and companies face the risk of higher costs that may offset a rise in prices or revenues.

Indonesia is an indirect play on coal but a direct play on greater Chinese investment, which is coming as the country diversifies away from the dollar. While coal companies might suffer from industry-specific issues, growing revenue from increased Chinese demand will benefit the economy. The risk is that the Indonesia economy enters recession or that the currency devalues and takes a bite out of returns.

Bumi stock is up about 700% from its mid-January lows this year. KOL and IDX are both up about 140% since IDX’s inception on Jan. 20.

China-Related ETFs Face Headwinds
Posted 9/23/2009 4:47 p.m. EDT

iPath Copper ETN(JJC) may face a tough fight in the coming months as Chinese demand slows. The slide hasn’t been dramatic, but the end of the import surge is clearly over.

iPath Sugar ETN(SGG) may face headwinds as well, as Chinese imports in August were 50% of June levels and 33% of July levels.

Within China, steel traders are pressing producers to lower their price on steel because they exceed market prices.

Claymore/AlphaShares China Small Cap(HAO) has been losing momentum, but remains ranked high vs. other international ETFs. Claymore/AlphaShares China Real Estate(TAO) is much weaker, however, and losing momentum at a faster pace.

Although it is just week-on-week data, numbers coming out of China indicate the property reflation in Tier 1 cities may be over. Sales fell 10% and 30% in Shanghai and Guangzhou, respectively, while supply increased 84% and 73% as developers anticipated the typically advantageous autumn period. More supply is coming as well, and given that China also has an inventory of speculative purchases, the amount of supply will overwhelm buyers.

Nearly all China mutual funds and ETFs hold stocks that are not listed in mainland China, though companies operate there. The greatest risk is to the mainland market, due to the credit expansion in the first half of the year. For the rest of us, the impact to commodities may be more important, because that will have farther reaching consequences than an equity decline.

The buildup in U.S. domestic oil inventory today shows how quickly the data can sneak up and surprise the market. PowerShares DB Crude Oil Double Short(DTO) had a 10% gain on the day.

JJC lost about 3.8% today, SGG fell about half a percent, HAO slid 1%, and TAO fell 2%.

The market waited for the Federal Reserve to deliver its statement Wednesday and then had a brief bullish move upwards before digesting the implications. Gold and stocks traded lower, while bonds and the U.S. dollar moved higher. Oil had the extra weight of much higher than expected inventories and suffered a sizable drop.

With that in mind, here are the winners are losers for the week:
Winners

ProShares UltraShort China (FXP) +10.4%

ProShares UltraShort Real Estate (SRS) +9.8%

PowerShares DB Crude Oil Double Short(DTO) +18.5%

It was a down week for the market, and that means higher prices for the inverse ETFs. The best performers became the worst performers. Both FXP and SRS are below $10 a shares, even though they traded near $200 and $300 per share last fall.

WisdomTree Dreyfus New Zealand Dollar(BNZ) +1.1%

New Zealand surprised economists when it reported second-quarter GDP growth of 0.1% and the news sparked further buying of New Zealand dollars. It is a favorite of carry traders because of the interest rate spread vs. U.S. dollars. Traders borrow U.S. dollars and hold New Zealand dollars, collecting interest plus any appreciation in the $NZ vs. $US, which has been substantial. At $24.84, BNZ is well off its 2009 low of $16.74, set in March.

iShares Barclays 20+ Year Treasury(TLT) +2.3%

Whether the markets move up or down lately, the demand for Treasuries continues to depress long-term yields. Friday’s 1.3% gain left TLT at its highest level since May.

Losers

iShares FTSE NAREIT Retail (RTL) -9.0%

iShares Cohen & Steers Realty Majors (ICF) -6.8%

REITs were down across the board. A list of the worst performers this past week is dominated by REITs at the bottom. Retail shares had the worst showing.

Even without their internal problems, REITs were leaders in the late-summer rally, and that’s reason enough for them to lead the sell-off.

iPath Crude Oil Total Return(OIL) -8.8%

PowerShares DB Oil(DBO) -7.6%

United States Oil(USO) -8.4%

Oil tanked this week on higher inventory. The gap between crude oil inventory expectations and reality was about 5 million barrels, as inventories climbed more than 2 million barrels. Gasoline inventories rose by more than 5 million barrels, to a level well above the start of driving season this year.

iShares Mexico(EWW) -5.3%

American Movil(AMX) and Cemex(CX) both fell about 5% last week, and they combine for 30% of EWW’s assets (25% for AMX and 5% for CX). Cemex sold $1.8 billion worth of shares this week. The stock fell ahead of the news and then recovered.

After pausing last week, stocks ran into additional headwinds on Wednesday, and the weakness has continued until today. The selling began soon after the Federal Open Market Committee released its September 23 statement, which concluded its two-day meeting. Fed officials upgraded their assessment of economic conditions and were even more optimistic about their outlook for growth, expecting “a gradual return to higher levels of resource utilization.”

The quick reversal on Wednesday that followed the much anticipated release was traced back to trading action in the US dollar. For the past six months the dollar has gradually weakened, reflecting the resumption of risk taking as investors sold their stable US dollar and treasury holdings and reentered the stock, commodity, and corporate credit markets. This is expected to continue, but any perception that the Fed is ready to raise rates or that the stock market will correct is likely to strengthen the greenback in the short term.

The decline in the dollar has thus far been rather benign, returning us to the point we were just one year ago. Although the arguments that large budget and trade deficits, as well as low savings, have debased the US currency are valid and may prove the route cause of sustainable weakness, this year’s reversal has more to do with the “carry trade,” which leads investors to borrow low-yielding currencies in order to invest at greater returns elsewhere.

The headwinds to stocks this week also included mixed economic data, some of which surprised to the downside of expectations. Both existing and new home sales fell or missed consensus estimates, causing investors to question the pace of recovery. Also, durable goods orders dropped in August after having risen in July. This helped to reverse the positive sentiment from Monday, when the index of leading economic indicators climbed another 0.6 percent in August, its fifth consecutive monthly increase.

The gains in stock valuations since March have been justified given the improvements in economic indicators and the expectations for future corporate earnings. Additional price movements from here will be driven by positive macroeconomic news and the third-quarter reporting season, which has been trending higher. The earnings per share estimates for both 2009 and 2010 have climbed 20 percent.

The auto industry is one driver of this growth: light vehicle production could be 47 percent higher in the second half of 2009, and output should continue to rise over the following three years in order to make up for the dramatic decline experienced since 2008. Firms exposed to the industry, such as auto parts suppliers, will be a direct beneficiary, which is why I remain positive on Fidelity Select Automotive (FSAVX) in the near term.

Disclaimer

Jim Rogers, the “Indiana Jones of Finance,” is known throughout Wall Street for his independent, contrarian investing style and his association with George Soros and the Quantum Fund.

Though he has since retired, he continues to be a presence with his world travels and bold economic commentary. His work with commodities, in particular, has helped to influence the way the average investor looks at personal finance today.

Rogers was born in 1942. As a child in Alabama, Rogers wasted no time getting into the business world. At the age of five, he was already making money collecting bottles and selling peanuts to fans at baseball games.

Rogers received a bachelor’s degree from Yale and Oxford. Upon graduation, he served in the U.S. military for a few years before he headed to Wall Street to work for Arnhold & S. Bliechroder, where he was a research analyst for a hedge fund managed by George Soros.

In 1970 the two men joined to establish what would become the Quantum Fund. With Soros as the trader and Rogers as the analyst, the fund grew from $12 million to more than $250 million.

Soros attributed a considerable amount of Quantum’s success to Rogers’ hard work. In his book, Soros on Soros, the investor said Rogers handled the work of six men.

Unfortunately, as the fund grew, so did the stress of managing it. While Soros saw a desperate need to add analysts, Rogers found it difficult to work with outsiders. In 1979, at the age of 37, Rogers decided that he had earned enough and “retired” from the industry.

Since his retirement, he has traveled around the world numerous times, written a number of best-selling books, taught at world renowned institutions, and worked as commentator for CNBC. All the while he has made interesting and against-the-grain investments that have earned him comfortable returns.

In 2007, seeing Asia as the next great investing frontier, Rogers packed up his things, sold his New York mansion, and moved to Singapore, where he currently resides with his family.

Rogers has long been bullish on commodities. In the late 1990s, when everyone was focused on the Internet, Rogers was looking at commodities such as zinc, oil and copper. Although they lacked the bells and whistles of the dot-com IPOs that were making headlines, Rogers was insistent that there was something to them.

To prove his point, he began studying the long-term charts and trends of these goods and concluded the prices of raw materials were at historic lows.

He enthusiastically searched for a commodities index fund to test his theory. Dissatisfied with what he found, he put together his own weighted index of 36 commodities that is quoted in four currencies across 11 international exchanges. It became known as the Rogers International Commodities Index.

The futures contracts making up the RICI track commodities include oil, aluminum, zinc and orange juice. Since its debut in 1998 to August 2009, the index is up more than 193%.

The success of the RICI has not gone unnoticed in the ETF and ETN realm. In 2007, Rogers lent his name to a company called Elements who put together four ETNs to track slices of the commodity sector. The ETNs are Elements Linked to Rogers International Commodity Index Total Return(RJI), Elements Linked to Rogers International Commodity Index Agriculture Total Return(RJA), Elements Linked to Rogers International Commodity Index Energy Total Return(RJN) and Elements Linked to Rogers International Commodity Index Metals Total Return(RJZ).

This summer Van Eck released the Market Vectors-RVE Hard Assets Producers ETF(HAP). HAP’s index, The Rogers-Van Eck Hard Assets Producers Index, was designed in concert with the investor and is structured to act as a one-stop shopping center for the global hard- asset industry.

Today, Rogers would have no problem finding a commodities index fund to invest in. In fact, with instruments such as United States Natural Gas(UNG), United States Oil Fund(USO), Dow Jones-AIG Livestock Total Return ETN(COW), PowerShares DB Agriculture Fund(DBA) and many others, holding commodities has quickly become as commonplace to portfolio development as stocks, bonds and cash.

Although a number of the funds continue face substantial public scrutiny, it has become apparent that, thanks in part to Rogers and RICI, commodity investing is here to stay.