Dion Money Management Blog   Money Management for Retirees and Their Families

Though Friday started strong, the markets gave back those gains in the second half of the day. Solar energy producers pulled off some of the largest gains while the natural gas industry continued on its downward trajectory that began Thursday.

Winners

* Claymore/MAC Global Solar Energy ETF(TAN) 2.6%
* iPath Dow Jones-UBS Copper Total Return Subindex ETN(JJC) 1.8%
* Market Vectors Russia ETF(RSX) 1.8%
* iShares MSCI Hong Kong Index Fund(EWH) 1.7%

Losers

* United States Natural Gas Fund(UNG) -1.9%
* iPath Dow Jones-UBS Natural Gas Total Return Subindex ETN(GAZ) -1.8%
* iPath Dow Jones-UBS Sugar Total Return Subindex ETN(SGG) (SGG) -1.5%
* iShares MSCI Thailand Investable Market Index Fund(THD) -1.2%
* First Trust ISE-Revere Natural Gas Index ETF(FCG) -1.2%

Disclaimer

Although the stock market’s steady climb from this year’s lows to new 2010 highs silenced many bearish investors, there are many who now point to this extended climb as a reason to doubt the potential for additional gains. The bears may have reason to be cautious, given that 90% of stocks are trading above their 50-day moving averages, but the advance-decline ratio is at a new recovery high; it is rare that a market forms a top while breadth is as strong as it is right now.

However, to see an example of a market that did take a breather after an outsized rally from multi-year lows, look at 2004. But that same pause set the stage for three more years of broad gains. While many of the bearish concerns such as consumer indebtedness, protracted unemployment, and ballooning government deficits remain, macroeconomic policy and many leading indicators point to an accommodative market environment. In fact, last week we learned that The Conference Board’s Leading Economic Indicators (LEI) managed another slight gain for February.

The momentum in manufacturing continues to highlight robust economic activity in the near term. While many economists have projected that inventory restocking would resume, the generally weak dollar and solid recoveries underway overseas have helped export volumes rebound. There seems to have been very little impact from February’s snow storms and widespread bad weather, indicating many firms could not afford to sit idle for long.

This week we learned that new single-family home sales dropped for a fourth time in a row. Although the lackluster housing picture may have dampened consumer sentiment, it might be more important to watch consumer actions. February retail sales divided by total employment were at their highest level since November 2007, which had marked a record at that time. Internet sales are growing at their fastest pace in four years. Chain store sales for early March rose at the fastest level in eight years. Retail stocks have reflected this bounce but a recovering consumer will have more widespread implications for the economy and the market.

A report issued by the Federal Reserve Bank of St. Louis reflects the disparity between consumer sentiment and retail activity. The report suggests the recession may have ended as early as July 2009. The bank analyzed 11 recessions since 1949, measuring and comparing various economic variables to the current downturn. Although exports, real GDP, and real private direct investment are better than they have been in the past, the closer-to-home variables, such as employment, real income, and personal consumption expenditures are far worse relative to other recoveries. So while every expansion is different, consumer sentiment may trail this time around.

Returning to market action, bullish traders cite widespread apathy and caution (or lack of greed) among individual investors as signs that this rally could easily extend further if these investors are coaxed back into the market. Nevertheless, followers of Dow Theory received a series of bullish signals last week, including a new high for the industrial component, which confirms the earlier high made by the transportation component. The Dow industrials also swung back above the 50% retracement level, which means the trend of the market is bullish once again.

Disclaimer

The Pimco Emerging Markets Bond Fund (PEMDX) beats two emerging market exchange-traded bond funds — JPMorgan USD Emerging Market Bond Fund (EMB) and PowerShares Emerging Markets Sovereign Debt Portfolio(PCY), in a head-to-head comparison.

All eyes remain on Europe, with hopes that some sort of solution to Greece’s debt problems can be reached. In response to Greece’s ongoing woes, investors grow wary of debt hysteria spreading to other European countries, America, or Japan.

According to the CEO of Pimco’s Asia division, Brian Baker, bond investors should look to countries in the Asia-Pacific region as an alternative to American and European government debt markets.

Baker also said that, in general, emerging markets will be less at risk of making policy mistakes when it comes time to reduce government economic stimulus measures. If he’s right, exposure in emerging markets outside of the Asia-Pacific region shouldn’t hold back these funds.

Bond giant Pimco highlights four Asia-Pacific countries that it considers to offer the best bond investment opportunities. These are Australia, the Philippines, South Korea, and Indonesia.

Since Australia isn’t an emerging market, it doesn’t receive an allocation in EMB or PCY. However, PCY does allocate 12.7% of net assets to the other three countries while EMB allocates 10.4% to just the Philippines and Indonesia.

Investors that are interested in international bonds also have a better option in the form of PEMDX. The fund has exposure to similar countries as EMB and PCY, but it allocates 16% to the Philippines and Indonesia.

Comparing the ETFs and the mutual fund reveals that EMB has an expense ratio of 0.6%, PCY has an expense ratio of 0.5%, and PEMDX has an expense ratio of 1.3%. There is also a $2,500 investment minimum for the mutual fund.

Year to date, EMB and PCY have risen by 3.6% and 4.6%, respectively, while PEMDX has gone up by 4.2%. However, in the past year, EMB has gone up by 29.1% while PCY has increased by 31.2% and PEMDX has seen gains of 34.4%.

In the short term, the actively managed mutual fund was able to keep pace with its ETF peers. Over the course of the past year, PEMDX was better able to take advantage of the volatile market environment.

Considering that investing in bonds outside of Europe and the Americas is a way of hedging against a potentially volatile double-dip caused by unsound fiscal policies in the western world, the mutual fund may be the better bet here. Investors that don’t plan on monitoring their investments closely can find comfort in knowing there is someone at the helm of the fund in the event of economic volatility. For these types of investors, it will be worth the higher fees to purchase the mutual fund, while more short-term bond traders can go with either EMB or PCY.

Nobody is yet certain what will be the next country to be thrown into turmoil by government debt problems after Greece. However, speculation abounds and most point to Europe or America as the source of the next wave of debt concerns. Investors that want to gain exposure to bonds in more fiscally sound countries, especially as western economies will need to pull the plug on stimulus over the course of this year, should turn to PEMDX.

<p style=”text-align: right;”><a href=”http://www.dionmm.com/py/site.py/disclaimer”>Disclaimer</a></p>

This week Warren Buffett and Berkshire Hathaway(BRK.A) were making headlines nearly every day.

Here are some of the most important Buffett stories from the past week.

On Monday, market commentators buzzed after Bloomberg reported that certain Berkshire Hathaway notes were being seen by the bond market as safer investments than U.S. government bonds with similar maturities. According to the report, Berkshire two-year notes were yielding 3.5 basis points lower than comparative government bonds.

Berkshire was not the only company found to be trading at lower yields than Uncle Sam. According to the report, Procter & Gamble(PG), Johnson & Johnson(JNJ) and Lowe’s(LOW) debt were also selling at premiums compared to similar government bonds.

Ultimately, holding U.S. government’s debt remains a theoretically risk-free investment (ignoring inflation) because of the government’s ability to turn on the printing press. However, the report highlights the growing risks that are associated with the nation’s ballooning budget deficit level.

Berkshire’s Liquor License

When Warren Buffett announced his plan to purchase Burlington Northern Santa Fe(BNI) toward the close of 2009, many analysts and market commentators questioned the move, speculating that it could be the financier’s last hurrah. However, Buffett proved this week he is still very much in a deal-making mood.

At the start of the week Kahn Ventures, a distributor of wine and liquor in Georgia and North Carolina, became Berkshire Hathaway’s newest acquisition. The deal was made through the Berkshire Hathaway subsidiary, McLane.

This is not the first time that Buffett has gotten into the alcohol business. Berkshire Hathaway held shares of Anheuser-Busch(BUD) until InBev purchased the firm for cash in 2008. In a statement following the Kahn deal, Buffett hinted at the possibility of further expanding into the distribution business.

Buffett Slashes Stake in Moody’s

In what has become a common occurrence, Warren Buffett’s company reduced its position again in Moody’s(MCO). According to the SEC filing, the most recent sale amounted to 815,905 shares of the troubled ratings agency. Berkshire still holds close to 31 million shares, or 13% of the company’s shares. This is down considerably from the 48 million shares held at the end of March last year.

Instead of taking the vocal approach to chastising this agency, whose improper debt ratings served as a major driver leading up to the global financial crisis, Buffett has expressed his disapproval through the habitual sale of his MCO shares throughout 2009 and the first part of this year. It will be interesting to see if the investor continues to dump shares in this manner until he has rid himself of the company completely.

Posco Gets the Kraft Treatment

Buffett spoke out against South Korean steelmaker Posco’s(PKX) plan to acquire shipbuilder Daewoo Shipbuilding & Marine Engineering. In an interview, Posco explained that shareholders, including Berkshire Hathaway, have urged the steelmaker to conduct a thorough review of the bid before proceeding.

Buffett expressed similar concerns at the end of 2009 when he expressed his disapproval toward Kraft’s(KFT) decision to buy U.K. candy-maker Cadbury. The Oracle’s concerns stemmed from the belief that the proposed deal required that Kraft issue an excessive number of shares to fund the bid.

Warren watchers and Posco investors will want to keep an eye on how this deal progresses. Buffett and other prominent shareholders are worried that Posco’s plan to buy the shipbuilder may be coming at a time when the shipbuilding industry is in the midst of a prolonged downturn.

Did Buffett’s actions this week affect any of your investment decisions? Feel free to leave a comment below.

Disclaimer

When you think of strong economies, China and India probably come to mind.

But how about Israel?

This nation’s economy fared better during the global recession than most other developed countries. Its GDP decreased by only 0.3% in 2009, compared with a drop of 2.4% in the U.S. and a decline of 4.0% in the European Union.

The iShares MSCI Israel Capped Investable Market Index Fund(EIS) is the way for investors to play Israel’s robust economy.

Israel emerged relatively unscathed from the global financial crisis because of strict lending standards that helped it avoid much of the subprime mortgage issues that confronted other countries.

Israelis also have a higher saving rate than most Americans. Lower consumer debt levels helped the country avoid a drop in personal consumption when the worldwide decrease in economic activity constrained personal incomes.

There are also multiple signals that Israel’s economy is on track to continue recovering at a faster pace than its Western peers.

For one, Israel’s housing market is not as distressed as those in other parts of the world. Home prices increased in value in the fourth quarter of 2009 from a year earlier, whereas in most countries, they were still dropping or rising anemically.

Also, consumer confidence has risen to a 10-year high through February, signaling that domestic consumption will strengthen.

Israel’s economy is also very involved in exports, which have continued to increase even as the nation’s currency rose against the dollar over much of the past year. Its export market is highly developed, featuring internationally competitive companies in the high-technology and biotech sectors.

Despite the developed nature of Israel’s economy, EIS has been able to almost keep pace with or outperform the ETFs that track hot emerging economies such as China and India. In 2009, EIS rose 81.2%, while WisdomTree India Earnings(EPI) went up 95.1% and the iShares FTSE/Xinhua China 25 Index(FXI) gained 47.3%.

EIS allocates the most net assets to biotechnology company Teva Pharmaceutical(TEVA), which accounts for 24% of the ETF. Another large holding is Checkpoint Software Technologies(CHKP), an information technology security company, which accounts for 7.5% of the fund.

Bank Hapoalim, which reported strong earnings Wednesday, is also a top 10 holding, accounting for 4.8% of the fund. Overall, the financial sector receives 24.2% of net assets.

The third largest sector allocation, behind financials and health care, is materials, accounting for a 13.6% wedge of EIS.

Telecom companies Cellcom Israel(CEL) and Partner Communications(PTNR) receive 2.2% and 3.2% allocations, respectively, while, telecommunication services has the fourth most prominent sector allocation, accounting for 10.6%.

In total, the fund holds 81 companies and is well balanced aside from the large allocation to Teva. EIS has an expense ratio of 0.66% and daily average volume of about 75,000 shares, a healthy number.

The bottom line is that EIS exhibits emerging market performance while tracking a developed economy with a positive outlook. That makes it an attractive international play right now.

Disclaimer

With tensions coming to a boil in the dispute between Google(GOOG) and China, ETF investors may find a China Technology ETF to be a good way to play the domestic firms that will benefit in the absence of the search giant.

This week, the battle between Google and China escalated to a new level. Although it was previously rhetorical, the search giant took action on Monday in an attempt to override the Chinese government’s ability to censor its search results.

Web surfers looking to search Google’s China homepage, Google.cn, were forwarded to the uncensored Hong Kong landing page, Google.com.hk . By Tuesday, however, the government managed to continue to block China’s 390 million Internet users from searching controversial topics such as Tiananmen Square.

In light of Google’s action, a number of the company’s partners, including telecom giants, are mulling the possibility of pulling out of their respective deals with the search giant. Even Hong Kong billionaire, Li Ka-shing, has gotten involved in the dispute, dropping Google as the main search engine for his Tom Online Website.

Since the conflict between these two titans came to a boil at the beginning of January, investors looked to domestic Chinese Internet companies including Baidu(BIDU), Sohu(SOHU), and NetEase(NTES) to benefit from Google’s absence.

Sure enough, Baidu, China’s dominant search engine company, has seen impressive gains throughout the ordeal. Year to date through March 23, Google shares have dipped 11% while shares of BIDU have gained 44%. Sohu has fallen 5%, and NetEase has gained 3%.

Given the excitement surrounding these Internet companies, now may be an ideal time for investors to pay attention to the dominant China tech ETF on the market.

Although ETF investors looking for access to China have traditionally been directed toward large-cap instruments such as iShares FTSE/Xinhua China 25 Index Fund(FXI) or small-cap funds like the Claymore/AlphaShares China Small Cap ETF(HAO), a number of new China funds have provided investors with sector exposure to the country, including tech.

Currently, there are two Chinese technology ETFs: the Claymore/AlphaShares China Technology ETF(CQQQ) and the GlobalX China Technology ETF(CHIB). Although both provide ample exposure to a broad array of tech firms including Baidu and Sohu, their performance throughout 2010 has diverged considerably. Investors holding GlobalX’s CHIB fund have seen considerable underperformance. Year to date through March 23, CHIB has gained 2% while CQQQ has gained 6%.

One reason for CHIB’s lagging return is the 13% exposure to the Chinese telecom industry. While the combined performance of China Mobile(CHL), China Telecom(CHA) and China Unicom(CHU) hasn’t been bad this year, the allocation to these companies has reduced the fund’s exposure to faster growing Internet firms.

Comparatively, CQQQ lacks exposure to any of the three telecom companies.

Instead of playing China’s telecom goliaths, CQQQ devotes larger portions of its portfolio to more popular and fast-moving firms. For instance, not only does CQQQ’s nearly 10% exposure to Baidu trump CHIB’s 7% position, but CQQQ also has exposure to BYD, the popular electric car company partially owned by Berkshire Hathaway(BRK.A). BYD accounts for more than 7% of the Claymore offering while, in CHIB, the company is absent.

With both parties now taking action, there is a good chance that the China/Google dispute will rage on. Investors looking for the best way to play this ongoing battle should turn their attention to CQQQ.

Disclaimer

Better-than-expected earnings from Lennar(LEN) lifted shares of the homebuilder this morning and also helped boost the iShares Dow Jones U.S. Home Construction(ITB) ETF, in contrast to weakness in the major averages.

Lennar reported a loss of 4 cents per share, well ahead of analyst expectations for a 30 cents and greatly improved from the year-ago loss of 98 cents. Lennar’s CEO cited cost-cutting and reduced marketing as part of the reason for the solid quarter. The firm also expects to be profitable for the year.

On Tuesday KB Home(KBH) lost 1.7% after reporting a larger-than-expected loss in the first quarter of 71 cents per share. Expectations were for 42 cents. There also wasn’t much improvement from the year-ago loss of 75 cents, but the company did say it expects to be profitable later this year. Shares fell, but the ETFs advanced thanks to housing data.

The National Association of Realtors reported that sales of existing homes were up in February from the same period in 2009, although inventories of existing homes stood at 8.6 months, up from 7.8 months in January. For comparison, inventories were at five months in 2005 and reached a peak of 10.1 months in April 2009.

New-home sales data for February were released Wednesday morning. The Census Bureau reported that sales were 2.2% below January levels and 13.0% below February 2009 levels, while supply is up to 9.2 months. With a margin of error slightly north of double digits, this report should be taken with a grain of salt, but the supply trends do align with the existing home sales report from the National Association of Realtors.

Putting the two reports together, it appears that existing-home sales are cutting into new-home sales in a very difficult market for home sellers. Additionally, mortgage rates are up, and applications are down in the past week, and they are also down from last year.

Investors are stuck trying to gauge which trends are most powerful in this space. Right now, the fundamental data are neutral to negative. On the other side, the homebuilders appear to be improving financially, and the stocks continue to beat the broader market. If the market continues to power higher, the homebuilder-related funds could continue to outperform, but eroding housing market fundamentals mean investors need to be on the alert for a potential market reversal.

Year to date, ITB has advanced 14%. SPDR S&P Homebuilder(XHB) has gained 12%, while the Fidelity Select Housing & Construction (FSHOX) mutual fund has added 11%. Meanwhile, the S&P 500 has climbed 5.3%.

Investors have the above three funds to choose from in the homebuilding space, each with a slightly different approach. While they all hold basically the same companies, their weightings in each segment of the industry vary.

ITB is the purest play on the homebuilders, with 66% of assets in homebuilding and only 8.5% split between home-improvement retailers Home Depot(HD) and Lowe’s(LOW). The rest of the fund is mainly suppliers such as Owens Corning(OC), Sherwin Williams(SHW) and Masco(MAS).

XHB has only 8% in Home Depot and Lowe’s, but also holds retailers such as Williams-Sonoma(WSM), Bed, Bath & Beyond(BBBY), Pier 1 Imports(PIR) and Aarons(AAN), lifting exposure in the retail sector to almost 25% of assets. The fund uses an equal weight index with 25 holdings.

As of January 29, FSHOX held 20.1% in HD and 17.3% in LOW, plus smaller retail holdings, making it the most retail-focused fund.

For investors looking to play homebuilders specifically, ITB is the better choice.

Disclaimer

Brazil, Russia, China and India make up the BRIC nations that have attracted much discussion and investment over the past few years.

The term BRIC came to fame in a report by Jim O’Neill for Goldman Sachs(GS). and in subsequent research that argued the four countries could see their combined economies eclipse those of today’s richest nations by 2050.

However, while these four nations could become a major force in the global economy, the term BRIC was the creation of an investment bank and these countries are not an economic union or political bloc.

There are some complementary aspects in their economies, such as Russia exporting natural resources and Brazil supplying the raw materials for growth in India and China, but beyond these similarities in the stage of development, they are four different countries. And as the performance of various ETFs shows, investors would be wise to treat of these countries separately.

One maxim of investing is diversification, especially if you know little about an area of the market. But in the case of BRICs, are investors really diversifying?

First comes the question of whether these four countries deserve to be grouped together. The fact that new BICK ETFs (swap Russia for Korea) may be on the way suggests that this is more about marketing than investing. More important, however, is the weighting of each country within the BRIC ETFs. Even investors who want to own the BRIC concept may not be getting what they want.

The oldest and largest BRIC ETF (first mover advantage continues to mean a lot in the ETF world) is the Claymore/BNY Mellon BRIC ETF(EEB). Its B-R-I-C weighting is 57%, 3%, 11% and 29%, respectively.

The iShares MSCI BRIC Index Fund(BKF) weighs those four at 35%, 14%, 16% and 37%, respectively, while the SPDR S&P BRIC 40 ETF(BIK) allocates them as follows: 27%, 22%, 8% and 43%.

EEB is basically a Brazil-China fund. BKF is more evenly allocated, but it is underweight India and Russia. BIK has the most even allocation, but it is still heavily overweight China and underweight India. (One reason for the major underweight of Russia in EEB is that it tracks an ADR index and there are fewer Russian ADRs.)

Investors aren’t getting an even split across the BRIC countries, and that’s important because Russia and India ETFs have bested their Brazilian and Chinese counterparts this year. There are a few ways to deal with this situation, however.

One is to stay with a BRIC fund, such as BKF, but add Market Vectors Russia(RSX) and WisdomTree India Earnings(EPI) separately to even out the weightings. For instance, if you had 70% of your BRIC allocation in BKF and 15% each in EPI and RSX, the weight for each country would come to about 25%.

Another strategy is to build your own BRIC. By taking the aforementioned Russia and India ETFs and adding Market Vectors Brazil Small Cap(BRF) and Market Vectors China Small Cap(HAO) you can add exposure to small-cap stocks.

Year to date through March 22, the three BRIC ETFs — EEB, BKF and BIK — had negative returns of 1.6%, 0.3% and 1.7%. Matching BKF with RSX and EPI as outlined above would have resulted in a positive return of 1.2%. The build-your-own BRIC would be up 1.6%.

By substituting the small cap ETFs for the most popular large-cap Brazil and China ETFs — iShares MSCI Brazil(EWZ) and iShares FTSE/Xinhua China 25(FXI) — the return would dip to 0.7%.

Finally, another strategy is to abandon the BRICs as a concept and stick with individual country ETFs where they make sense. Right now, India looks compelling because interest rates are moving higher after a surprise rate hike on Friday, but India’s finance minister still expects GDP growth above 8% this year. Further increases should support the country’s currency, a plus for foreign investors.

Russian stocks are also doing well, but the central bank is cutting rates to weaken the ruble and deter hot money flows. While this may be supportive of stocks in the short run, it is a headwind for foreign investors. In the long run, it’s also likely to have unintended consequences. For the next few months, EPI seems the better choice over RSX.

I had picked HAO as the best China ETF for 2010 and so far that pick is panning out: HAO is up 4.6% this year, as of March 22. For investors looking for broad China exposure, this remains the best play.

Disclaimer

The IndexIQ Australia Small Cap ETF (KROO) and the IndexIQ Canada Small Cap ETF(CNDA) are two exchange-traded funds likely to find a lot of interest from investors and bring IndexIQ their first hits in the ETF arena.

With nearly 1,000 products currently trading, making a lasting impression in the ETF realm has become a difficult task. This is especially true for the various small providers that must compete with titans like State Street (STT), iShares and Vanguard which have a substantial lead when it comes to total ETF assets.

IndexIQ is one small issuer that has attempted to dig its own niche in the industry by launching a collection of ETFs which employ alternative and actively managed strategies. These instruments include the IndexIQ ARB Merger Arbitrage ETF (MNA), the IndexIQ Inflation Hedged ETF (CPI) and the IndexIQ ARB Global Resources ETF (GRES).

Though the products and their unique investing strategies have managed to grab headlines, unfortunately the same can’t be said for investor interest. Together, the combined average daily trading volume of these three complex funds fails to break 20,000.

This week, however, the company debuted a pair of more mainstream funds, a move that could end up putting this small firm on the map.

IndexIQ Tuesday unveiled the IndexIQ Australia Small Cap and the IndexIQ Canada Small Cap ETF. Unlike their previous offerings, these new funds utilize passive indexing methodologies to provide investors access to new regions of the market.

KROO, like it large-cap cousin, the iShares MSCI Australia Index Fund (EWA), is designed to track the broad Australian economy. However, because the fund seeks to do so from a small-cap perspective, a number of differences become instantly clear, most notably in the funds’ diversification.

EWA is dominated by Australia’s banks and iron ore producers. Looking at the fund’s sector outline, 45% and 25% of the fund’s portfolio is dedicated to the financial and materials industries, respectively. Additionally, the fund is particularly top-heavy. BHP Billiton (BHP), the fund’s number one holding, accounts for 15% of the index.

KROO’s index trumps that of EWA when it comes to diversification thanks to its more evenly weighted index. Though, like EWA, a quarter of the portfolio’s assets are weighted in the materials sector, the fund’s top miner, Aquarius Platinum , makes up less than 2% of the fund’s total portfolio.

KROO’s small-cap focus also provides investors with a better play on the Australian consumer. Consumer discretionary firms represent slightly less than 25% of KROO, making it the second largest slice. In EWA, comparatively, this sector makes up only 2% of the index.

Like KROO and EWA, CNDA and its large-cap cousin, the iShares MSCI Canada Index Fund(EWC), diverge as well, but in a different fashion. In this case, CNDA provides investors with a more sector specific play on its Canada’s markets than its large-cap kin.

EWC has the vast majority of its portfolio allocated across three sectors: financials (34%), energy (24%) and materials (19%). CNDA, on the other hand, has most of its portfolio allocated to materials and energy, which represent 50% and 19% of the fund, respectively.

While more concentrated in sectors, the IndexIQ offering is more diversified among its individual holdings than EWC. Royal Bank of Canada (RY), EWC’s top holding, represents over 7% of the fund. Red Back Mining, CNDA’s top holding, accounts for less than 4% of the fund’s index. Together, EWC’s top 10 holdings account for over 40% of the fund’s portfolio, while in CNDA these positions only represent 25% of the fund.

Recently, small ETF providers have had success launching small-cap international funds. Claymore’s Claymore/AlphaShares China Small Cap ETF (HAO) has drawn investor interest by avoiding China’s large government controlled firms and increasing exposure to consumer industries. The fund currently has $343 million in assets.

Van Eck’s Market Vectors Brazil Small Cap ETF (BRF) is another recent addition to the ETF industry that has captivated investors with access to consumer industries in emerging markets. Launched in May 2009, BRF has already attracted $700 million in assets and a three-month average daily trading volume of 534,000 shares.

Unlike HAO and BRF, CNDA and KROO won’t focus on emerging markets. Still, with strong currencies and resilient economies, Canada and Australia still have been popular nations for investors looking for reliable developed market plays. By playing the small-cap area of these two countries’ economies, investors are treated to unique market exposure not seen with traditional large-cap funds.

Ultimately, investors will want to keep an eye on these funds as they make their debuts. Liquidity may be an issue at the launch, so I would hold off on jumping in right away. However, in the near future these funds may end up being the blockbuster success IndexIQ has been looking for.

Disclaimer

Last week, investors saw the launch of two new funds from First Trust, the ETF provider behind a number of popular instruments including the First Trust ISE Revere Natural Gas Index Fund(FCG), the First Trust NYSE Arca Biotechnology Index Fund(FBT) and the First Trust Dow Jones Internet Index Fund(FDN).

The First Trust ISE Global Copper Index Fund(CU) and the First Trust ISE Global Platinum Index Fund(PLTM) provide investors with the first asset-backed, pure-play exposure to miners of copper and the platinum group of metals (which includes palladium and rhodium, among others).

In the past, investors looking for exposure to companies responsible for producing platinum and copper have been forced to settle for either broad materials sector ETFs like the iShares S&P Global Materials Sector Index Fund(MXI) or single-nation ETFs heavily focused on the production of these two metals.

For instance, platinum miner exposure can be gained through the iShares MSCI South Africa Index Fund(EZA), while copper players such as Southern Copper(SCCO) can be found within the iShares MSCI All Peru Capped Index Fund(EPU).

With the inception of CU and PLTM, investors now have the ability to enhance their exposure to platinum and copper the same way one would with gold using the Market Vectors Gold Miners ETF(GDX).

Investors should be aware however that, when playing platinum and copper, there are different factors to keep in mind than when playing gold. Unlike the yellow metal, whose prices are influenced by fear and uncertainty, platinum and copper serve specific industrial needs.

For instance, platinum is an essential ingredient in the production of catalytic converters for automobiles. Therefore, strength in the auto industry will drive the price of platinum and the profits for platinum miners higher.

Given this fact, investors will want to do their homework on both platinum and copper before playing either metal.

One unique aspect of PLTM and CU is that they employ a linear weighting strategy to track producers of these two metals. Using this technique, companies comprising the index are weighted based on revenue exposure to either copper or platinum group metals. Based on this exposure, the firms are placed into one of four equally weighted quartiles. According to First Trust, this allows smaller, more focused firms to have adequate weighting in the indexes.

Top positions of PLTM include Anglo Platinum, Aquarius Platinum, Impala Platinum MMC, Norilsk Nickel and Johnson Matthey. In total, the PLTM’s top 10 positions account for over 60% of the fund’s total portfolio.

Top positions of CU include BHP Billiton, Freeport-McMoRan Copper & Gold(FCX), SCCO, Antofagasta and Xstrata. CU’s top 10 constituents account for 57% of the instrument.

First Trust’s newest instruments appear to provide investors with exposure to exciting and previously untapped slices of the market. However, for now it will be best to watch both PLTM and CU from the sidelines. Given the funds’ short track records, the volume is still very low.

One possibly strategy to use until volume picks up would be to pair a small position in these ETFs with greater exposure to the underlying metal. Direct exposure to copper futures contracts is possible with the iPath Dow Jones-UBS Copper Subindex Total Return ETN(JJC). Platinum exposure is achieved with the physical metal-backed ETFS Physical Platinum Shares(PPLT), while palladium exposure is available through ETFS Physical Palladium Shares(PALL).

Disclaimer