Dion Money Management Blog   Money Management for Retirees and Their Families

Don Dion posts his current insights on the stock, bond, commodity and currency markets in his RealMoney blog, anticipating which ETFs will be in play next. Among his blogs this week were the following, in which he wrote about Brazil’s efforts to keep its currency from rising, the continuing drama in currency ETFs, and opportunities in ETFs that track the Turkish economy.

Brazil ETFs Slugged by Foreign Investor Tax
Posted 10/20/2009 1:26 p.m. EDT

The Brazilian government doesn’t appreciate the depreciation in the U.S. dollar. Today, it slapped a 2% tax on foreign purchases of fixed income and equities in order to slow the ascent of the Brazilian real.

Brazilian ETFs are taking it on the chin: MarketVectors Brazil Small Cap (BRF) and iShares MSCI Brazil (EWZ) are down 4.5% in midday trading, while WisdomTree Dreyfus Brazilian Real(BZF) is lower by 2%.

As investors have already been punished, the question is whether further pain is ahead. In terms of this action, I do not believe it will have any effect on the real other than what we’ve seen already. These types of policy, in addition to currency intervention by a central bank, can affect markets in the short run, but markets overwhelm them in the long run.

The bigger issue is that the weak dollar is opposed by yet another country, with Brazil joining some Asian exporters, such as Taiwan. While people talk of replacing the U.S. dollar, the reality is that countries do not want to take the pain that comes along with dollar adjustment.

Whether you believe the dollar will be lower or higher, it will not move in a straight line, especially now that a sentiment shift will be supported by government intervention.

Turkey Fund Showdown

Posted 10/20/2009 9:59 a.m.

The iShares MSCI Turkey Investable Market Index Fund (TUR) has been quite the success story since I started covering it in my blog this summer. Today, the fund is up over 100% year-to-date for the period ending Oct. 16.

The excellent performance of this ETF may have investors wondering if there are any other instruments out there that provide the same broad exposure to the Turkish markets. Today, I received an email from a reader, asking how I felt about one such instrument, the Turkish Investment Fund (TKF).

The TKF is a closed-end fund and has been actively trading since 1989. Like the TUR, it has performed well this year. In fact, the TKF is beating the TUR with a 133% return year-to-date. Before jumping out of the TUR in favor of the TKF, it is important to educate yourself on the inner workings of these two instruments.

Looking at the top holdings, it becomes obvious how similar the two funds really are. Currently, nine of the top 15 companies represented in the TKF are identical to those represented in the TUR. In fact, the two funds share the same top holding, Turkiye Garanti Bankasi. The company accounts for over 20.5% of the TKF and nearly 15% of the TUR. Looking deeper at the holdings, however, one striking difference becomes evident; the TUR, which boasts 81 holdings, is far more diversified than the TKF, with assets spread across only 19.

The TUR gains another leg up when it comes to expenses. The ETF charges a low 0.63% expense ratio, which looks attractive when compared to the TKF’s 1.12%.

It’s low-expense, open-ended nature and larger diversification has allowed the TUR to draw in considerably more interest than the TKF as well. Today, the TUR’s $213 million in assets dwarfs the TKF’s $93 million.

Looking at the inner workings of the two Turkey plays, I would stick with the TUR for its broader diversification and low-expense ratio. If this nation’s markets have further to run, investors will be safer playing it with an ETF.

Unwanted Drama in Commodity ETFs
Posted 10/19/2009 1:35 p.m. EDT

The roar over the regulation of futures-based commodity ETFs has been deafening in recent weeks. After the mercy killing of PowerShares DB Crude Oil Double Long ETN (DXO), the restructuring of PowerShares DB Commodity(DBC) and the retooling of United States Natural Gas(UNG), it is important to take a step back and look at performance.

Back on June 16, I recommended that investors stay away from UNG and instead consider a “A Natural-Gas ETF With Fewer Headaches,” First Trust’s ISE-Revere Natural Gas(FCG). I have continued to track these two funds and to watch the divergence in performance. Since June 16, FCG has advanced 31%, while UNG has fallenl nearly 34%.

It is worth noting that drama isn’t good in the ETF industry. While the problems with UNG’s creation undoubtedly drew attention to the fund, the inevitable changes to its structure seem to be weighting down returns. Investors are hoping for definitive news from the Commodities Futures Trading Commission (CFTC) at the end of this month on futures-based funds, but damage has already occurred.

Equity-based commodities funds such as FCG and an upcoming fund from Jefferies may not be as pure of a play on prices, but they are safer for now as commodities regulation is hashed out.

Disclaimer

Betting against the U.S. dollar has become extremely popular in recent weeks. It’s an axiom in investing that when an asset rises or falls greatly in price, only then will it become widely popular to be bullish or bearish on it.

No one was interested in gold at the height of the dot-com boom, when it could be had for $250 an ounce. And most folks still weren’t interested throughout the 2000s. Since the financial crisis began in 2007, gold has become an increasingly popular asset for a variety of reasons. SPDR Gold Shares(GLD) has become the second-largest exchange-traded fund in existence, behind only SPDR(SPY).

Similarly, investors appear to realize the dollar is weak all of a sudden, even though the dollar has been in decline since 2000. At that time, the dollar was worth more than one euro, while today it fetches about 0.67 euros.

Still, one of the best trading and investing maxims is, “the trend is your friend.” I hold PowerShares DB U.S. Dollar Bearish (UDN) as part of some client portfolios and it has performed decently as the dollar declines. Aggressive traders may prefer more volatile currencies, such as the Australian or New Zealand dollars, or emerging-market currencies.

Recently, traders have been focused on which countries will raise interest rates. The Australian dollar rallied against the greenback after the Australian central bank increased rates on Oct. 6, and the pound rallied this week after Mervyn King, the Governor of the Bank of England, wrote in a newspaper opinion article that U.K. interest rates would have to rise “at some point”.

The U.S. central bank is seen as willing to hold rates low for much longer than its peers, and that has made the dollar the choice of the carry traders, who borrow in dollars and purchase assets with higher yields.

On the flip side, the sum of money supply and credit hasn’t been growing, and the Federal Reserve wants to reverse its liquidity injections and end quantitative easing. The policy change is starting right now and will pick up steam as more programs peter out, unless the Fed extends them.

Short term, the carry-trade-driven trend will continue to deliver small gains until something reinforces or stops it in the longer term. The trade has become more crowded, which increases the chances of a correction, but it doesn’t mean it signals a reversal. Still, dollar-positive forces are building and investors should be prepared for a surprise correction.

The biggest driver for a weaker dollar is the U.S. government. The politically easy solution to a debt problem is to create inflation to lower that debt over time, but the federal government is borrowing way too much money. A country can’t get out of debt by going deeper into debt.

One way of measuring the potential impact of U.S. borrowing on future inflation that is making the rounds in the blogosphere comes from Peter Bernholz, a professor at the University of Basel, Switzerland. His work was cited by hedge fund Hayman Advisors in a letter to clients mentioned in this Atlantic blog.

In a study of inflation and hyperinflation, Bernholz found that the worst cases of hyperinflation begin when a government borrows more than 40% of its expenditures. Hayman noted that the U.S. is at that threshold.

It’s unlikely that the U.S. will experience a hyperinflation, one data point aside, but it is the federal government that is most important here, not the Federal Reserve. The federal deficits and economic policy are the biggest threats to the value of the dollar.

The bullish side isn’t without arguments, though. The most obvious is that foreign governments do not want a weaker U.S. dollar. It means painful economic adjustment to their export models, and we’ve already seen Taiwan and Brazil, to name two, try to stop the rise in their currencies.

The Fed is exporting inflation via the carry trade, and that is showing up as asset inflation in emerging markets. The weaker the dollar becomes, the more central banks will be trying to weaken their own currency against the dollar in order to pop asset bubbles.

Another factor is the demographic and financial position of foreign countries. Europe and Japan are in much worse shape than the U.S. when it comes to government debt, demographics and future welfare liabilities. The Telegraph’s Ambrose Evans-Pritchard wrote about those risks recently in a blog entry that was somewhat bullish on the dollar, and hedge fund manager David Einhorn mentioned those risks as part of a case for being bearish on all currencies and bullish on gold.

Lastly, the popularity of Ron Paul’s effort to audit the Federal Reserve shows that inflation is already politically unpopular. The debt limit needs to be raised by the Senate in order for Treasury to continue borrowing, but consider the following, reported by Politico.com:

“[Sen. Evan Bayh (D., Ind.)] and nine other Democrats sent a letter to Senate Majority Leader Harry Reid (D., Nev.) last week that called on Congress to approve a “special process” to control the deficit — warning that adding trillions more dollars to the country’s credit card could force a sharp rise in interest rates and cause the price of goods and services to decline while limiting the country’s ability to act on a range of pressing issues.”

Politico.com reports that the GOP leadership believes all 40 of its senators will vote against an increase in the debt ceiling. If 10 Democrats join them, it leaves it to Vice President Joe Biden to break the impasse and put the rising deficit squarely on the shoulders of the Obama administration, or it means Democrats must cave into demands for more responsible fiscal policy.

It often pays to be a contrarian in financial markets, but not a mindless one. The trend is currently in favor of a weaker dollar, and that’s what is likely to pay off in the near term. Forces are building for a short-term reversal however, with sentiment reaching an extreme and money and credit supply not cooperating.

Longer term, a big move is likely, but the direction is unclear. World governments are flooding the globe with liquidity, potentially leading to much higher inflation and a weaker dollar, confirming the herd and the popular arguments made against the greenback today.

If the dollar reverses, then a few years from now, the herd will be talking about how weak Europe and Japan are relative to the U.S., and they’ll want to pile into the dollar. Of course, by then, instead of costing 0.67 euros or 90 yen, a dollar might cost 1 euro or 150 yen.

Disclaimer

It was a down week for the index after Friday’s energy and transportation led a decline. Disappointing earnings from railroads spooked the market, despite Amazon’s(AMZN) impressive earnings. The S&P 500 Index finished the week with a 0.7% loss.

Dick Bove caused a bit of a stir Wednesday after he made positive comments on Wells Fargo(WFC) in the morning, only to reverse them in the afternoon, sending WFC down more than 5% on the day and triggering a market-wide sell-off. Still, when the dust was settled, the gains in the winners outstripped the losses in the losers.
Winners

Claymore/AlphaShares China Real Estate(TAO) +6.0%

There were some reasons to think Chinese real estate firms would underperform, given a string of less than stellar IPOs, but a successful IPO of China Real Estate Information (CRIC) on Friday and the 7% increase in the offering size of the pending Hong Kong IPO of Evergrande, a Chinese developer, suggests that some demand has come back into the market.

PowerShares DB Base Metals(DBB) +7.7%

iPath Copper Total Return ETN(JJC) +6.5%

Industrial metals picked up thanks to positive economic data. Dr. Copper is said to have the best forecasting ability of any economist, and he’s grown more bullish in October, after turning a bit bearish in September.

iPath Grains Total Return (JJG) +7.0%

PowerShares DB Agriculture(DBA) +1.7%

Last week, DBA was a winner for the week as short-covering lifted grains, but this week JJG was the winner, with DBA’s mild gain unimpressive and included only for comparison. JJG has nearly half the portfolio in soybeans, almost one-third in corn, and less than one-quarter in wheat. Corn and soybeans spiked this week and the more concentrated JJG benefited.

Losers

Market Vectors Indonesia(IDX) -2.8%

IDX has had a nearly uninterrupted run since March. Recently, it closed near $63 on Oct. 6, but then fell near $60 on Oct. 12, only to rebound to just over $63 a share two days later, then retest that level again, only to tumble again towards $60 a share on Thursday of this week. It gained on Friday, however, and it needs to decisively break below $60 before I’d become bearish, but that doesn’t mean it’s a buy at these levels.

PowerShares Dynamic Biotech & Genome(PBE) -6.2%

iShares Nasdaq Biotech(IBB) -4.8%

Biotech continues to lag in this rally and last week was another disappointing one. Amgen(AMGN), the top holding at more than 11% of assets, sank after reporting earnings and was the main catalyst for the drop in IBB, but the general trend lower hit PBE even harder.

Market Vectors Gold Miners(GDX) -3.5%

GDX took a breather this week as the advance in gold stalled and the overall market was down. Gold has moved in fits and starts, and unless the stock market is rallying, the gold miners trend lower as the excitement wanes, only to resume their advance one the yellow metal makes a new high.

Disclaimer

One week after crossing the important psychological barrier of 10,000, the Dow Jones Industrial Average seesawed its way through the week. The Dow has returned to this level on the back of fiscal stimulus and accommodative monetary policy, and both of these will remain supportive in the short term. The bulk of evidence also points to recessionary pressures ending in the developed countries, with growth continuing to accelerate in the emerging nations.

Analysts and investors are currently poring over third-quarter financial statements that corporations have issued so far this month, looking for signs that revenues are improving or that expectations for growth are broad based. Now that 50 percent of firms have reported their results, 77 percent of those companies have beaten their estimates, a much greater number than was expected just three months ago. The strong results are a mix of cost cutting, rising demand, weaker dollar, and high energy prices. Most important, revenue is also increasing on a quarterly basis; the year-over-year comparisons are still down, however.

Some of the sectors with exceptional yearly results include financials and consumer discretionary firms, which were two areas hurt most at the outset of the crisis. Over the past month, this list also includes technology, healthcare, and materials companies. Although automotive firms have benefited greatly from the stimulus, I am concerned over their outsized gains in the face of a narrowing rally. Therefore, I am selling our Fidelity Select Automotive (FSAVX) position and adding the profits to Federated Strategic Value (SVAAX), a broader fund that seeks both income and capital appreciation by investing in high-yielding, undervalued shares. I believe we have moved beyond the tidal wave of dividend cuts, and investors will once again gravitate to the stability of income generating firms.

The US dollar has yet to reverse its downward trend as investors borrow dollars in order to invest in higher yielding currencies and foreign equities. This is expected to continue until the US government puts its financial house in order or raises interest rates, which is not likely to happen until job growth returns. This is one reason why I expect to move more assets toward international equities, particularly Asia, where countries are growing due to a rising middle class and higher wage earners.

Disclaimer

As China and India push forward with plans to cut greenhouse gas emissions, platinum and palladium investors should take special notice.

More than half of the supply of palladium and platinum goes into the construction of catalytic converters, which convert harmful gases from auto emissions into less harmful substances. As the rapidly growing markets in China and India begin to develop emissions standards, platinum and palladium will be in high demand.

ETF Securities, a global ETF issuer, has filed to launch a ETFS Palladium Trust. This fund will add to the firm’s physically backed ETF lineup in the U.S., which already includes the ETFS Physical Silver Shares(SIVR) fund and ETFS Physical Swiss Gold Shares(SGOL), launched in July and September respectively. The new palladium fund has been tentatively given the symbol “PALL.”

PALL will be the first U.S.-listed, physically backed palladium fund. Physically backed gold and silver funds like SPDR Gold Shares(GLD) and the iShares Silver Trust(SLV) have been tremendously popular amongst U.S. investors. During September, GLD attracted more than $2 billion in assets.

Platinum, which has traditionally competed with gold from a price and value perspective, could be the next trend in ETF investing. While the platinum jewelry market is still relatively small, the metal has a number of industrial applications outside of the auto industry. Palladium is one member of the platinum group of metals. Other metals from this family include ruthenium, rhodium, palladium, osmium, and iridium. Besides platinum, palladium is the most popular of these.

As the Commodities Futures Trading Commission hashes out commodities futures position limits, ETF investors have suffered from uncertainty. As futures-based ETFs, like United States Natural Gas(UNG) and PowerShares DB Commodity(DBC), alter their portfolios in anticipation of regulatory changes , investors may end up with different strategies than they originally bargained for.

Physically backed funds, which track a physical commodity stockpile, offer a less complex approach to commodities investing. After successfully launching physically backed commodities funds in London and Japan, ETF Securities is vying for the American investor.

A physically backed palladium fund can not come soon enough for U.S. investors. Currently, the only exchange traded product to offer exposure to platinum has halted creation of new shares. As iPath DJ AIG Platinum TR Sub-Idx ETN(PGM) adjusts to stay within new CFTC guidelines, the fund will operate more like a closed-end fund than an exchange traded note.

ETFS’ bet on hard assets appears to be paying off . Although the firm has only been a presence in the United States for two months, the assets under management for its two funds are now exceeding $350 million. Globally, the firm’s AUM has reached $16 billion.

Additional futures regulation, emerging market emissions reduction and a booming appetite for commodities funds should all help to make the new palladium offering a success. If offerings in London and Japan are any indication, PALL may be the next fund from ETF Securities, but it won’t be the last.

Disclaimer

Carl Icahn has made a name for himself as both a notorious corporate raider and a self-proclaimed advocate for shareholder rights. During his 40-plus years on Wall Street, he has used his massive wealth and bold personality to take on a number of large U.S. companies and earn a comfortable profit doing so.

While his influence has been felt in everything from airlines to Internet firms, Icahn has most recently set his sights on the troubled lender, CIT (CIT). It will be interesting to see if, with his trademark bold persona and relentless pressure, he can enforce changes that will turn this firm around.

Icahn was born in 1936 to a middle-class family in Queens, NY. His father was a lawyer who aspired to be an opera singer and his mother was a school teacher. After attending public school through grade 12, Icahn was accepted into Princeton University. There, he studied philosophy.

Throughout Icahn’s early childhood, his mother dreamt of one day seeing her son as a doctor. In order to please her, after Princeton he attended the New York University School of Medicine. His tenure at this institution, however, was short lived. After only two years, he dropped out and joined the Army.

After leaving the Army, Icahn’s uncle got him his first Wall Street job working for Dreyfus and Co. With Dreyfus, he built up his knowledge of the financial world and, in 1968, started his own brokerage firm, Icahn & Co.

In the 1970s, Icahn began sharpening his teeth as a corporate raider. His first attempts were aimed at small, undervalued firms. By the ’80s, however, he had gained a reputation as a raider and was setting his sights on much larger firms. One of his most notable takeovers was of TWA airlines in 1985.

With the backing of the union and majority stock ownership of the airline, Icahn was appointed as head of the board of directors as well as CEO of the TWA. At the helm, Icahn was able to drastically restructure the firm. This included selling off the firm’s valuable London routes. These moves, while profitable for Icahn, ultimately led to inescapable debt for the airline.

Before being removed from his position in 1993, Icahn was able to net millions. TWA, on the other hand, was forced to file for bankruptcy.

Other companies that have felt Icahn’s pressure over the years have include Nabisco (KFT), Motorola (MOT) and United States Steel (USX).

In 2008, Icahn set his sights on Yahoo! (YHOO). Seeing that the firm would benefit from a partnership with Microsoft (MSFT), Icahn sought membership on the firm’s board of directors. He did this buy purchasing 60 million shares of the company over the course of the year.

Once he successfully gained a seat, Icahn immediately got to work replacing the company’s co-founder, Jerry Yang, as CEO. After applying incessant pressure, he was able to achieve his goal. Yang stepped down and was replaced by Carol Bartz. Although the Microsoft-Yahoo! deal Icahn had hoped for has not materialized, the firm did eventually agree to a search-engine relationship in 2009. Year to date for the period ending Oct. 21, YHOO stock is up more than 45%.

Carl Icahn’s ability to strike fear in the hearts of some of the biggest names in corporate America has made him a household name in the financial world. However, his influence, over the years, has expanded well beyond the realm of Wall Street. In fact, Oliver Stone’s Gordon Gekko character is loosely based on the famous financier.

Today, Icahn remains focused on his goal of revamping companies he feels are managed poorly. While many have taken a hit from his abrasive approach, his hope is that he is making the world a better and safer place for today’s shareholder.

On his blog, Icahn summarizes his goals with his own 1988 quote: “A lot of people die fighting tyranny. The least I can do is vote against it.” It will be interesting to see what the future holds for this famous investor.

Disclaimer

Determining the right moment to scoop up shares of Goldman Sachs(GS) or the SPDR Barclays Capital High Yield Bond(JNK) during the financial meltdown would have been like trying to catch the proverbial falling knife.

Even now, as the Dow hovers back at 10,000, disparate results from companies like Morgan Stanley(MS) and Boeing(BA) prove how difficult it is to pick a “winner in any market environment.”

Trouble is, market timing is a siren’s song that inevitably leaves investors worse off than if they had remained fully invested. Consider the following reasons not to time the market:

1. Stock prices rise more than they fall. Bear markets are brutal, no question. But their losses pale in comparison next to the gains to be made (or missed) in bull markets.

Consider the 10 bull markets since 1950. They have included several massive run-ups of more than 250%, including a 302% gain from October 1990 through July 1998. And the average bull market has lasted more than four years and returned more than 130%. The moral: Historically, bull markets have greatly exceeded bear markets in terms of both duration and return.

2. You’ll be tempted to buy and sell at the worst possible times. Market timers are most likely to buy stocks after those stocks have already gained and sell them after they’ve declined. For example, investors plowed almost $190 billion into stock funds during 1999, just as stock valuations were approaching their breaking points. Three years later, investors sold more than $800 billion worth of equity fund shares as valuations were reaching their nadir during the four months ended September 2002 — just in time to miss the latest bull market’s better-than-50% gain through early May 2006.

3. A simple buy-and-hold approach works better. A study by the Boston Financial Group (now a subsidiary of the Lend Lease Corp.) found that as of 2000, investors held their mutual funds for an average of just 2.9 years. The study concluded that investors’ high turnover reflected attempts to time various market sectors, directing money from lagging sectors to hot fund categories.

The study also showed that these attempts backfired in a big way. Investors during the 1990s gained an average of just 6.68% per year according to the study. That’s a full five percentage points lower than the average investor would have earned by simply buying mutual fund shares and holding them.

4. Even the pros can’t do it. If market timing works, why don’t Warren Buffett and the rest of the world’s smartest money managers do it? Instead, Buffett and others have made it clear that they think market timing is a loser’s game.

5. There are better ways to reduce your risk. A well-diversified portfolio will allow you to avoid the full brunt of a bear market and still share in bull market gains. The financial marketplace is volatile, but the longer you sick with a diversified portfolio of investments, the greater chance you will have of reducing risk and increasing opportunities on the upside.

During market fluctuations, some types of assets have historically been less volatile than others. Fluctuations in the price of bonds, for example, have generally been less dramatic than stock prices.

So forget about timing, and focus instead on time: That is, the amount of time you have until you need to tap your savings. That factor is the key to determining the proper balance of stocks, bonds, and cash for you — one that can weather any kind of short-term market environment while providing the growth potential and income you need.

As negative sentiment against Wall Street snowballs and a new trading scandal takes shape, it is important to look back to 1986 and reflect on what’s changed and what hasn’t. While traders at the Galleon Group began unwinding positions in stocks like eBay(EBAY), Apple(AAPL) and OSI Pharmaceuticals (OSIP) in the wake of Raj Rajaratnam’s arrest, the filming of “Wall Street 2″ in lower Manhattan is cause for investor deja vu.

Consider the following news flash:

“All across the U.S., investors were raging at the discovery that Wall Street high rollers had been ripping off millions of dollars by trading on knowledge not available to the general public. That sweeping form of sophisticated fraud did not merely touch the pocketbooks of professional stock-market players. The illicit profits came from taking unfair advantage of price movements in a broad range of stocks. That meant, in the end, that the speculators had pilfered from funds that countless thousands of ordinary investors had contributed to the market, in the form of their own stock purchases or investments in pension and mutual funds that in turn had bought securities.”

With President Obama chastising Wall Street, public rage over bonus payouts and insider trading arrests, this commentary seems to hit the mark. But this article excerpt is from the Dec. 1, 1986, edition of Time magazine in the wake of Ivan Boesky’s arrest.

Boesky, the inspiration for fictional banker Gordon Gekko in the original Wall Street film, was arrested in the 1986 insider investing trading sting that rocked the financial world. Also subpoenaed in the process were Carl Icahn, Boyd Jefferies and Michael Milken.

Successful trading operations are still at the heart of institutional profits. Recent earnings reports from JPMorgan Chase (JPM) and Goldman Sachs (GS) reveal that trading desks have been central to the recovery of big banks. Information is still the most valuable commodity.

Still raging, 23 years later, is the war on “speculators,” whom the current administration is targeting with derivative market reform. In 1986, the speculators under fire were of the leveraged buyout variety.

While Obama may be critical of certain firms resisting reforms of the derivatives market, members of the exchange-traded fund industry already have begun to reshape funds ahead of regulation. Managers of the United States Natural Gas (UNG) ETF have begun selling to-be-regulated futures contracts and buying swaps. PowerShares has restructured its popular DB Commodity(DBC) ETF to own fewer to-be-regulated oil futures, instead opting for foreign traded Brent oil contracts.

These significant changes underscore the effect that even the talk of regulatory change has on financial instruments.

Wall Street has experienced a type of demystification in recent years and the enormous growth of the ETF industry is a symptom of the shift. Instead of relying on mutual fund managers to pick strategies, investors want to be where the rubber hits the road, and are increasingly choosing transparent ETF funds.

If history has anything to teach us it is that greed will corrupt some investors along the way. We are entering a new era of accountability for both companies and individuals. Let’s learn from history as the latest saga unfolds.

Recession or not, the holidays are approaching, and cost-conscious investors will hit Internet sites like Amazon(AMZN) and eBay(EBAY) to ferret out the best price on popular goods.

Rather than trying to pick a retail fund for recession holiday shopping, consider the First Trust Dow Jones Internet Index Fund(FDN), an ETF that is in the right place at the right time.

FDN tracks 41 companies that generate at least 50% of their annual sales from the Internet. This group is selected using a modified-market cap methodology that picks from companies that have a stock price of greater than $10 and a market cap of at least $100 million. FDN is rebalanced quarterly, with a net expense ratio of 0.60%.

FDN has advanced 23% in the past three months and is up more than 70% year to date.

The largest two sectors represented in FDN’s portfolio are consumer discretionary and information technology, with 18.48% and 70.36% allocations respectively. FDN’s top 10 holdings comprise 51% of the funds assets.

FDN’s top holding — Google(GOOG) — stands at the nexus of the Internet shopping experience. GOOG’s solid quarterly earnings suggest that this Internet giant has weathered the economic malaise effectively. Google Shopping, a key component of the roster, helps to centralize merchants and provide easier “checkout” for consumers seeking to compare the same item on different sites.

Amazon(AMZN), FDN’s second largest component, has seen solid growth overseas even as consumer spending has been curtailed back home. Long considered a one-stop-shop for many holiday investors, AMZN is a hub for merchants and consumers alike. This shopper-conscious center will wrap and ship holiday purchases for the home shopper.

FDN’s third and fourth largest holdings, eBay(EBAY) and Yahoo!(YHOO) make up 12% of the portfolio and also represent shopping opportunities.

Like GOOG, YHOO has developed innovative shopping technology that allows consumers to compare similar products at different retailers. eBay has the potential to attract low-cost shoppers looking to bag presents for the season.

Also included in FDN’s lineup are discount travel dealers Priceline.com(PCLN) and Expedia.com(EXPE). Travelers looking for last minute tickets will frequent these sites as the holidays draw closer, trying to get the best deal on flights and hotels.

FDN is a solid play for the holiday season and subsequent returns. While it may be difficult to determine which retailer will win out with frugal shoppers, one thing is for sure: People will want to find the best price, now more than ever. Bargin hunters should benefit from this portfolio.

Disclaimer

The new Claymore/AlphaShares’ China All-Cap ETF(YAO) is aimed at a new group of China investors looking for a well-rounded fund.

In an ETF marketplace dominated by large-cap offerings like iShares FTSE/Xinhua China 25 Index(FXI), and small-cap funds like Claymore/AlphaShares China Small Cap Index ETF (HAO), YAO tries to achieve diversification.

YAO joins a pair of existing Claymore China funds, including HAO and Claymore/AlphaShares China Real Estate ETF(TAO). FXI, the iShares behemoth, dominates when it comes to market share, with nearly 22 million shares changing hands each day.

FXI, however, takes a limited market-cap-weighted approach. Launched in October 2004, FXI seeks to track the 25 largest companies in the Chinese equity space, many of which are government-owned. Top components include China Mobile(CHL), China Life Insurance(LFC) and Cnooc(CEO). Sector allocation is heavily weighted toward financials, which comprise more than 45% of the fund’s underlying assets and makes FXI’s sector exposure lopsided.

YAO’s portfolio includes many of the same government-controlled giants as FXI, but also offers exposure to smaller-cap equities. While 53% of the YAO portfolio is currently dedicated to large-cap firms, mid- and small-cap companies comprise 33% and 10% of the portfolio, respectively.

The resulting mix in YAO’s underlying basket offers a slightly more balanced view when it comes to sector allocation. Financials make up 34.87% of the portfolio, while energy and information technology make up 17.89% and 11.61%, respectively. Investors will still be weighted toward financials, but not cornered by a strong financial sector bias.

When it comes to sector balance, YAO’s biggest competitor will likely be the SPDR S&P China ETF(GXC), which focuses on large-cap China firms. GXC’s top three sector holdings are also financials, energy and telecommunication, with 33.22%, 19.24% and 12.80% allocations respectively.

While YAO’s sector allocations may be similar to GXC, the latest China ETF is bringing something new to the table. The fund’s methodology is aimed at investors looking to add a broad China holding to their portfolio. This fund bridges the gap between large-cap offerings like FXI and small cap funds like HAO.

Interest in China continues to grow as investors regain their appetite for risk and seek returns in the emerging markets. The ETF industry will likely continue to reflect this trend, and YAO will not be the last China ETF to vie for a piece of the pie.

Investors seeking balance and liquidity in a Chinese equity fund should sit tight for a couple weeks and monitor YAO’s trading volume. Liquidity is important when it comes to investing in emerging-market ETFs, and only time will tell if this fund catches on. Early indications are positive, however, and it seems like Claymore may have successfully balanced out its China trio.

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