Dion Money Management Blog   Money Management for Retirees and Their Families

The heat came early this year, and even the thermometers in the normally cool Berkshires were spiking to 100 degrees in May. Stock markets heated up as well, as Greece brought European markets to a boil and scorched the euro. With Iceland’s government warning that the eruption of another volcano, Katla, may be imminent, financial reform about to be voted on in Congress and a high level of volatility in the markets, it looks like it will stay
hot for a while.

iPath S&P 500 VIX Short Term Futures ETN (VXX)
Investors were skittish in May. The issues facing Europe and Asia weighed on the minds of people around the globe, causing many to flee the market in fear. This type of scenario proved ideal for exchange-traded products designed to track the VIX. During this past month, VXX saw an impressive rally, breaking through its 50-day moving average before testing its 200-day levels.

With Spain becoming the center of attention in the ongoing euro crisis, it’s likely that investors will stay nervous well into the summer. VXX’s single-day movements throughout the ordeal will be exciting to watch, and most investors should do just that, since playing with this ETN is likely to burn a hole in your portfolio.

Claymore/AlphaShares Global Solar Energy Index ETF (TAN)
The sun may be out this summer, but it remains unclear whether the solar energy industry will be shining. TAN has tumbled for much of 2010, breaking down through various levels of support. Like many alternative energy sources, solar power companies rely heavily on government subsidies to offset their costs, and they have struggled as nations around the world turn their attention to budget deficits and other issues. Additionally, many of these governments are in the eurozone, and their devalued currency adds insult to injury for the solar industry.

TAN will likely be a fair-weather fund this summer. If global economic crises are worked out effectively, this fund will likely rally. If issues persist, investors can expect pain to ensue.

Claymore/NYSE Arca Airline (FAA)
A possible eruption of another Icelandic volcano is bad news for the airline industry, but a cheaper euro may entice more Americans to travel to Europe for vacation. FAA is one of the better performing ETFs in 2010, beating the S&P 500 Index by about 10%.

iShares MSCI Thailand Investable Market Index Fund (THD)
The ongoing political unrest in Thailand has sent the nation’s market on a roller-coaster ride. With red-shirt protesters rising up against government security forces, blood has spilled and lives have been lost. Still, the Thailand ETF held up well relative to other emerging markets and did not suffer as much during the sell-off in May.

Although tensions have cooled, investors playing this nation should continue to keep a close eye on developments from both parties. If more conflict breaks out, investors can expect the fund to struggle.

Global X Silver Miners ETF (SIL)
Silver trades at a discount to gold, based on the historic gold-to-silver ratio. As long as gold prices remain elevated, silver prices should outperform, and if gold experiences another rally, it is likely to perform very well. Combine a strong performance from the metals with a decent performance from the overall stock market, and SIL should be good for at least one big rally this summer.

ProShares UltraShort Euro (EUO)
Europe shuts down in August for continent wide vacations and this summer they might also want to shut down the financial markets. Although the euro is due for a brief rally, it is unlikely to regain its former glory. With Germany banning naked shorting of some financial products and Spain now on the hot seat, chances are the euro will be lower by the end of the summer.

PowerShares Dynamic Leisure and Entertainment Portfolio (PEJ)
Summer is in the air and for many this means replacing thoughts of board meetings and charts with amusement parks and iced coffees. Investors looking for a play on the next few months of relaxation and vacation should look to PEJ.

Boasting names such as Starbucks(SBUX), Disney(DIS), Marriott International(MAR) and Expedia(EXPE), PEJ is designed to track some of the most recognizable names from across the leisure industry.

The companies that make up PEJ may be all about fun and games, but this fund has enjoyed some serious gains thus far. Year to date, PEJ has gained more than 15%.

SPDR KBW Regional Banking ETF (KRE)
Washington is in the process of putting the final touches on a bill that will usher in the most sweeping financial reform since the Great Depression. Although it is unclear as to when this process will be complete, Rep. Frank (D., Mass.) has insisted that it will be ready for Obama’s pen prior to the July 4 recess.

Heading into the summer, I continue to advise investors looking for a play on the banking industry to aim small and choose a regional banking ETF like KRE over a large-cap fund like the iShares Dow Jones U.S. Financial Sector Index Fund(IYF). The firms which stand to lose the most from Washington’s onslaught will ultimately be the Wall Street kings. Therefore, investors should make an effort to avoid institutions like JP Morgan(JPM), Citigroup(C), Goldman Sachs(GS) and Bank of America(BAC).

Regional banks, on the other hand, have managed to avoid the regulatory heat. There is a strong chance that this trend will continue well into this summer even after the bill gets the final okay from Obama.

Disclaimer

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.

Here are three of his blogs from the past week.

How to Avoid Triage
Published 5/26/2010 4:16 PM EDT
Today’s market teetered on the upside as investors speculated as to whether the U.S. recovery could weather Europe’s debt problems. “Rebounded”, “moved to the upside”, whatever you’d like to call it.

In the past year, we’ve heard almost every adjective imaginable used in conjunction with the word “market”. Forget “bull” and “bear” — two perfectly good animals appropriated by economists. Consider the “soaring”, “sinking” and “crashing” that the market’s managed to do in such a short period. Every journalist’s thesaurus has been exhausted.

It’s no wonder that people are wound tight. With things described in such extreme terms, investors feel the need to react. Whether it’s going all in, or all to cash, all these adjectives have us doing the trading equivalent of sports-team suicides.

Before you wear yourself out thinking about tomorrow, there is another way. A well-balanced portfolio won’t outpace a “soaring” market, but it also won’t send you diving for cover every time “Europe” comes across the AP tape. Or BP (BP). Or Disney (DIS) executive assistants.

That’s why I like ETFs, in general, and funds like iShares Dow Jones Select Dividend Index (DVY), PowerShares QQQ (QQQQ), iShares Barclays TIPs (TIP) and SPDR Gold Shares (GLD), in particular. Instead of taking the edge off today’s trading with a cocktail, try mixing a few of these together to get the right combination for your risk tolerance.

Being a money manager can be a bit like being an ER doc. Portfolios come in banged up and beat, and a screaming individual often follows behind. If all goes well, you can rebalance the portfolio and recommend therapy for the individual.

I’ve seen a lot of banged-up portfolios in the past year, and I’m sad to say that ETFs have caused some of the problems, not always solved them. That’s why I always advocate a well-balanced combination. If you take care of your portfolio in the first place, there’s less of a chance you’ll be trailing it on a gurney.

Investors across America are rushing to see what’s new in Europe, looking at aerial shots of the spill and trying to figure out the next turn the market will make. They will be “elated”, “crushed” and, inevitably, “exhausted”.

I’m here to tell you there’s another way.

Financial ETFs for Angry Times
Published 5/24/2010 9:35 AM EDT
Though we may be distracted by Spanish banks, German austerity plans and the euro hangover, we should expect a refreshed attack on U.S. banks.

With all the craziness going on in Europe, it’s easy to forget that just weeks ago, Goldman Sachs(GS) and the unfortunate Fabrice Tourre were defending the trading of complex financial instruments.

While I’m a firm believer that economic recovery is well under way, and that Europe has been a mere bump in the road, I still believe that Wall Street rage hasn’t quite played out yet. In my May 12 blog, “What’s Next for Financials?” I urged investors to trade carefully during this period of increased scrutiny in the banking industry.

As attention shifts back from Greece, investors may see the media on the attack once more. Just this morning, I’ve seen headlines that suggest that the new financial bill will take it easy on big banks and that the U.S. has abandoned its case against AIG(AIG). These types of headlines could cause Americans to once again channel their anger against Wall Street, which many still blame for job losses and economic distress. Even though banks such as Goldman, JPMorgan(JPM) and Bank of America(BAC) are profiting, the average American is still not feeling the effects of the economic recovery.

While I am bullish on the financial sector over the long term, I believe we will see choppy activity in the big banks and in ETFs such as SPDR Select Financials(XLF) in the near term as anger rises against Wall Street. During this time, I suggest gaining exposure to the financial sector through a regional banking ETF such as the KBW Regional Banking ETF(KRE). With top holdings that include Webster Financial(WBS) and Fulton Financial(FULT), this fund avoids many of the Wall Street titans that are the target for anger.

For the longer term, I still like the SPDR KBW Bank ETF(KBE), which has mixed exposure to Wall Street giants and “super regionals.” While the portfolio includes names such as Citigroup(C) and Bank of America, it also includes U.S. Bancorp(USB), SunTrust(STI) and Fifth Third Bancorp(FITB).

Trading in the financial sector is going to be tricky in the months ahead as our government puts forth, adjusts and puts forth again numerous versions of financial reform. Rather than trying to pick names that will survive or thrive, try some of these financial ETFs for the short and medium term.

Buy Hedged Japan at Bargain Prices
Published 5/27/2010 7:52 AM EDT
With Japan’s Nikkei Index hitting six-month lows and Japan funds faring similarly, investors should consider picking up ETF exposure to the country at a bargain.

As I mentioned in an article on May 21, the fundamentals of the economy look strong, but, as in other countries right now, Japan’s markets have not been immune to the concerns coming out of Europe.

A report stating that China, a major trading partner for Japan, was reviewing its Eurozone bond holdings did not help the situation and has pushed the Japanese markets down to six-month lows. Still, for the past six months, iShares MSCI Japan Index (EWJ) has outperformed the S&P500.

An investment in Japan at this time, however, is complicated by the fact that the Japanese yen has gained in strength against the dollar and is currently at levels it has had difficulty holding in recent months.

This means that investors buying into Japan right now might be wise to choose WisdomTree Japan Hedged Equity (DXJ) over the better-known EWJ. DXJ shields investors from exposure to currency fluctuations, while providing similar exposure to the Japanese markets.

Recently, the yen’s strength has helped to hold up EWJ, but DXJ has continued to fall, making it more of a value investment at the moment, in my view. And, right now, Japan is looking oversold, despite some positive signs about the economy.

Interestingly, much of the selling in Japanese markets is being done by overseas investors. The net amount sold by foreigners last week exceeded the low seen in the third week of March 2009.

I’d consider shrugging off the panic, though, and taking this opportunity to add exposure to Japan via DXJ, underpinning the international part of your portfolio at value.

Winners

iShares MSCI South Africa Index Fund (EZA) +6.5%
A rally in base materials and precious metals helped buoy the South Africa ETF. Over the past two weeks, the fund has been consistently falling, revisiting 2010 lows. The past few days’ gains, however, have managed to drive EZA back above its 200-day moving average.

Looking ahead to next week, EZA may have some room to run as the nation makes final preparations in anticipation for the 2010 FIFA World Cup.

Market Vectors Junior Gold Miners ETF (GDXJ) +5.7%

Precious-metal strength helped to power not only physically backed products like ETFS Physical Palladium Shares(PALL) but also gold miners. GDXJ and its large-cap focused, slightly less volatile cousin Market Vectors Gold Miners (GDX) rose alike.

Because they are more volatile, GDXJ and PALL are funds best suited for risk-tolerant investors. On the other hand, GDX, or a physically backed gold fund like iShares COMEX Gold Trust(IAU), is a better option for more conservative buy-and-hold investors.

Claymore/NYSE Arca Airlines Index ETF (FAA) +5.8%
We are on the cusp of the summer vacation season, and the airlines dedicated to transporting us to paradise are seeing some impressive gains. FAA provides investors with pure-play exposure to companies including Southwest(LUV), Delta(DAL) and United Airlines(UAUA).

Conservative ETF investors cautious about playing a subsector fund like FAA can find comfortable exposure to airlines as well as other branches of the transportation industry using iShares Dow Jones Transportation Average Index Fund(IYT) or the Fidelity Select Transportation Fund (FSRFX).

Market Vectors Brazil Small Cap ETF (BRF) +6.5%
Small-cap firms are leading the BRICs this week, with BRF and the Claymore/AlphaShares China Small Cap Index ETF(HAO) turning out the strongest gains among ETFs designed to track this popular collection of emerging nations.

With Beijing taking steps to cool down China’s overheating housing market, large-cap China ETFs like the iShares/Xinhua China 25 Index Fund(FXI) will likely be volatile in coming weeks. I continue to stand by HAO as the strongest play on this popular nation.

Losers

iPath S&P 500 VIX Short Term Futures ETN (VXX) -14.3%
The VIX-based VXX has failed to capitalize on last week’s impressive gains. This week, the fund is the biggest loser by a comfortable margin. Most of the month of May has been kind to the VIX as concerns in Europe and Asia bred broad market fear and uncertainty. However, the final week has proved trying as bulls returned with a vengeance, powering the market higher and driving fear to the back burner. The short, sudden shot of confidence has been enough to wipe out a considerable chunk of VXX’s gains from the past month.
iShares MSCI Spain Index Fund (EWP) -4.2%

The markets found some support this week after spending much of May being battered by the issues facing developed and emerging nations abroad. This, however, does not mean that any of the crises are behind us. This week, in response to the ongoing debt issues in Europe, Spain was slapped with a Fitch downgrade, and EWP managed to find a place among the ETF industry’s biggest losers.

Although the debt-laden nation’s leaders have taken steps to avoid a Greece-like catastrophe from taking place, for now it is not enough to make me
bullish on the region. Continue to steer clear.

iPath Dow Jones-UBS Sugar Total Return Subindex ETN (SGG) -8.9%
Sugar prices have continued to tumble into the end of May. The sweetener, which soared into the start of 2010, has since been on a nearly uninterrupted fall. Since the start of 2010, SGG has trimmed nearly half of its value. This week, sugar prices fell hard after top producers, Brazil, and India speculated that they would have stronger output.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

United States Natural Gas Fund (UNG) 1.9%
UNG’s performance on Thursday was interesting. The EIA natural gas storage report saw a larger than expected stockpile increase over the past week, yet UNG managed to avoid taking a gut-wrenching hit. While I do not condone adding this troubled fund to any portfolio, the outlook for this energy source is looking more optimistic given the issues facing oil.  Investors looking for a more reliable way to play natural gas should look to the First Trust Revere-ISE Natural Gas Index ETF(FCG)  or the JPMorgan Alerian MLP ETN(AMJ).

iPath S&P 500 VIX Short Term Futures ETN (VXX) 2.4%
The markets have failed to hold onto yesterday’s welcomed rally and major indices are once against heading lower. In response to this slump, the fear index is once again gaining steam.

VXX is a dangerously volatile fund and should be avoided. Investors looking for a defensive play on a down market should opt instead for SPDR Gold Shares(GLD) or the iShares Barclays 20+ Year Treasury Bond Fund(TLT).

Losers

iPath Dow Jones-UBS Sugar Total Return Subindex ETN (SGG) -6.6%
Sugar prices are taking a shot across the bow during May’s final day of trading. BusinessWeek explains that today’s fall is sugar’s largest in three weeks and can be attributed to optimistic yields forecast from top producers Brazil and India.

Stay away from SGG. This fund has been on a nearly uninterrupted slide since the start of February.

iShares Dow Jones U.S. Oil Equipment & Services Index Fund (IEZ) -5.1%
BP continues to struggle to contain the DeepWater Horizon oil spill which recently surpassed the Exxon Valdez as being the worst oil U.S. oil spill. On Friday, President Obama took dramatic steps toward preventing disasters like this from occurring. Among the actions is extending a halt on new deepwater drilling for six months.

The oil industry is not only battling the current spill, but also a PR storm which will likely torment the industry well into the future.

Claymore/MAC Global Solar Energy Index ETF (TAN) -3.6%
Although TAN saw a nice day in the sun yesterday, during Friday’s session the troubled alternative energy sector has once again headed lower.

Predicting where TAN will head next is difficult given the macroeconomic issues facing many of the nations which the industry relies on for growth.

Claymore/AlphaShares China Real Estate Index ETF (TAO)  -2.4%
Since the first weeks of April, TAO has fallen as Beijing lawmakers take steps to cool down China’s overheating housing market. The pressure on the nation’s real estate industry has weighed on other large-cap China ETFs as well.

Investors looking to play this popular Asian nation should avoid TAO or the iShares/Xinhua China 25 Index Fund(FXI) and instead go small with the Claymore/AlphaShares China Small Cap Index ETF(HAO). By avoiding financials and real estate, this fund has a better chance of seeing upside.

Disclaimer

Although the fledgling sell-off has entered full-correction territory, taking the S&P 500 Index down more than 12 percent from its late-April high, buyers rushed in on Tuesday to reverse the slide and momentum continued on Thursday. Up until last week, the decline had been typical in magnitude from other post-March 2009 setbacks, none of which took market levels lower than 10 percent before eventually gaining 80 percent from the bottom.

But once the market sentiment went from bad to worse and the selling accelerated, traders feared that many of the reliable bullish patterns, such as low volatility and appreciation of riskier assets, were coming undone. Whereas a lack of volatility told traders to press riskier bets, high-volatility pressured them to shrink those trades and seek safe havens like Treasury bonds.

Although the faltering euro has remained the focus of global investors, the fear of another economic downturn here or abroad would have the widest implications. While economic data has been mixed over the past month—from positive manufacturing surveys to falling building permits—they represent signs of slowing momentum rather than a reversal of growth. And just as one data point does not make a trend, the U.S. recovery remains on track and deserves the benefit of the doubt, especially when gross domestic product for 2010 and 2011 is still projected to grow around 4 percent.

What we have experienced in May is a mix of seasonal weakness—in which traders exit profitable positions and reassess the health of the market—and a rotation from some of the riskier trades toward quality or undervalued positions. Recent activity is not so much a response to weakening growth but an attitudinal change to risk and the desire to quantify corporate earnings projections and S&P 500 target levels. In other words, rather than investors feeling complacent to potential risks, they are taking stock of potential headwinds, which I still believe have yet to derail the global growth story.

Moreover, the timing of this correction is fairly typical relative to historical patterns. According to Fidelity Investments, there have been 20 corrections during bull markets that did not develop into bear markets. Although this reversal arrived 3 months earlier than the overall average of 17 months, the preceding gains this time were 80 percent versus the average of 57 percent, so one could argue that a correction was overdue. What has made it more memorable, however, is that it took half the time, just 24 days, to surpass the 10 percent decline threshold.

Disclaimer

Among the financial world are a number of gurus whose reputations and investing prowess have earned them memorable nicknames

Thanks to his investing savvy and successful managing of Berkshire Hathaway’s (BRK.A) legendary portfolio, Warren Buffett is often referred to as the Oracle of Omaha. For managing the world’s largest mutual fund, the Pimco Total Return Fund(PTTRX), and heading the bond conglomerate, Pimco, Bill Gross is referenced as the “Bond King.” Jim Rogers has earned a nickname, “the Indiana Jones of Finance,” after circling the world on two different occasions.

Meanwhile, New York University economics professor Nouriel Roubini has earned the title of “Dr. Doom.”

Different from the other market commentators and financial leaders listed above, Roubini has not gained a following through his investing savvy. Rather, this professor has risen to fame in the business world for his notoriously pessimistic forecasts for the U.S. and global economy.

Born in Istanbul, Roubini spent his early childhood living in both Tehran and Tel Aviv. Upon graduating from an Italian college he moved to the United States to study for his doctorate in International Economics at Harvard University. After receiving his degree, he began teaching at Yale University. In 1995, he joined NYU’s Stern School of Business where he has remained since.

Throughout his career, Roubini has also worked for the IMF, the Federal Reserve and the World Bank.

Today, Dr. Doom lives in Manhattan and continues to teach at NYU while serving as chairman of Roubini Global Economics. Founded in 2004, RGE is a consultancy firm that provides clients with research and analysis pertaining to global macroeconomics. Additionally, Roubini’s newest book, Crisis Economics was released in early May.

In 2006, Roubini made waves and earned his moniker when, in front of an audience of economists at the International Monetary Fund, he offered a dire warning. He predicted that in the near future the United States would witness a credit crunch and face a once-in-a-lifetime housing bust. Ultimately, this would lead to recession.

At the time, listeners were unconvinced by this professor’s pessimistic outlook. However, in the following year those opinions changed. The dominos began to fall just as Roubini had predicted: the housing market went bust, lenders went under and the broad stock market tanked. The global economy was on the brink of collapse and once dismissed Roubini was now being touted as a prophet.

Roubini was not the only one who accurately foresaw the events leading up to the most recent global economic meltdown. The professor, however, has set himself apart from some other crash forecasters with his unwavering persistency even after the Great Recession. Since the 2006 prediction that put him on the map, Roubini has followed up with more fire and brimstone warnings for the global economy. Even throughout the market’s staggering recovery in 2009, Dr. Doom refused to shy away from the bearish stance. During times of market strength and uncertainty alike, his unfaltering negative outlook for the global economy’s future has earned him plenty of press. Today he is featured as a popular guest on many top financial news programs as well as a speaker at reputable economic summits.

This week, in light of the current economic crises facing developed and emerging regions of the world, Roubini has again added to the conversation. This time, Dr. Doom forecast that markets could continue to head lower, tumbling as much as 20% in the near future thanks to broad global weakness. In order to protect against this expected downturn, Roubini suggests holding cash and investing in short-term debt issued by the nations freest of debt. Germany and Canada are among the nations whose debt he would approve of holding.

Nouriel Roubini’s consistently bearish outlook for the U.S. and global economy has earned him both adoring fans and harsh critics. What are your feelings toward this professor? Is he a macroeconomic sage? Feel free to leave a comment below.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

Market Vectors Russia ETF (RSX) 7.8%

The Russia ETF is turning out big gains today, following crude’s rally. Nearly half of RSX’s portfolio is dedicated to oil and gas companies with Lukoil(LUKOY), Gazprom(OGZPY) and Rosneft Oil representing 8%, 8% and 7% of the fund’s index respectively.  Given its heavy energy exposure, investors looking to play RSX should keep a close watch on oil and gas in the near future. If prices fail to remain higher, this fund may have room to drop.

Russia, however, is not the only BRIC nation to score gains today. Brazil and China ETFs designed to track the nation’s small-cap firms are also pulling out impressive gains. Claymore/AlphaShares China Small Cap Index ETF(HAO) and Market Vectors Brazil Small Cap Index ETF(BRF) are up 5.4% and 6.0% respectively.
iShares MSCI Italy Index Fund (EWI) 7.6%
Spain’s parliament managed to succeed in passing an austerity plan by a single vote, helping to power some of the most debt-laden European nations higher.

EWI and iShares MSCI Spain Index Fund(EWP) have swung wildly over the past few weeks as the EU continues to find a way to successfully avoid another Greece-like event. Investors should still steer clear of these two and other Europe ETFs for now.
iShares MSCI Australia Index Fund (EWA) 6.6%
In recent weeks the Australia ETF has taken its lumps thanks to a combination of a falling Australian dollar and a proposed mining tax which threatens major commodity producers based in the nation.

On Thursday, however, EWA has managed to pull off gains after reports that the proposed mining tax may be watered down.

Claymore/MAC Global Solar Energy Index ETF (TAN) 6.6%
The sun is shining here in the Berkshire Hills and the solar energy ETFs is heating up. Much of TAN’s rise on Thursday can be attributed to a single holding, SunPower (SPWRA), which was up over 20% during early afternoon trading. The firm’s shares rallied after announcing a joint venture with AU Optronics(AUO).

iShares MSCI South Korea Index Fund (EWY) 6.0%
After tumbling in recent weeks in light of increased tension between the two halves of the peninsula, the South Korea ETF has managed to recover a good portion of its losses.

ETF investors should remain cautious when playing EWY. Although I feel the nation has the chance to be a strong player in the near future, as long as there is tension between North and South, this fund will be risky.

Losers

iPath S&P 500 VIX Short Term Futures ETN (VXX) -8.1%
The iPath VIX ETN is continuing to tumble in light of a broad market rally. Today’s tumble has managed to erase a considerable chunk of this fund’s ascent during the first half of the month, with today’s price currently below the May 7 closing price.

As I’ve explained in the past, VXX is a dangerous fund for the typical retail investor to hold. Its consistent appearance on these winners and losers lists testifies to its whipsaw behavior.

iShares Barclays 20+ Year Treasury Bond Fund (TLT) -2.0%
In light of broad market strength, investors are pouring out of the “safe-haven” ETFs such as TLT. This is the third consecutive day of falling prices and rising yields for the long-term Treasuries.

Disclaimer

Two of the most promising options for investors seeking exposure to the world of commodity producers are the Market Vectors-RVE Hard Assets Producer ETF (HAP) and the Fidelity Global Commodities Stock Fund(FFGCX).

Both FFGCX and HAP are relatively new to the investing scene. HAP, the elder of the two, made its first appearance in late August, 2008. A little over a half a year later, in March, 2009, Fidelity’s mutual fund option was launched. Though young, both products have managed to gather impressive assets. FFGCX boasts $392 million assets under management while HAP has $100 million.

Based on the Rogers-Van Eck Hard Assets Producers Index, HAP exposes investors to a diverse selection of names hailing from various branches of the commodity industry. The fund’s roster is dominated by the top four holdings: Exxon Mobil(XOM), Monsanto(MON), Potash of Saskatchewan(POT) and Deere(DE), which combine for 17% of assets. The portfolio quickly becomes more balanced, however, and in total, HAP’s top 10 positions represent less than one-third of its total portfolio.

HAP also lives up to its global title, holding positions in some of the most popular resource producers from around the globe. Russia’s Gazprom(OGZPY), Italy’s ENI(E) and South Korea’s Posco(PKX) all appear in the portfolio.

HAP carries a 0.65% expense ratio.

Unlike HAP, the Fidelity Global Commodities Stock Mutual Fund has a manager, Joe Wickwire. FFGCX’s assets are allocated across three sectors: energy, metals and mining, and agriculture. Many of the firms held by FFGCX to represent these sectors are the same as those in HAP. Top holdings include Monsanto, BHP Billiton(BHP), Exxon Mobil, Syngenta(SYT) and Rio Tinto(RTP). Together, FFGCX’s top ten positions account for less than 30% of the fund’s total portfolio.

Typical of mutual funds, FFCGX’s expense ratio is considerably higher than its ETF competitor. Investors are charged 1.42% to hold FFGCX, and it also has a 1% short-term trading fee for shares held less than 30 days.

Both instruments’ exposure to Monsanto has me somewhat concerned. As I explained last week in the article, Agribusiness Bulls Led to Slaughter, this agricultural titan has recently run into its fair share of hurdles, reporting poor earnings, reducing forecasts, and struggling with its RoundUp branch. This week, the company announced that it was lowering its full year guidance. Throughout 2010, the company’s shares have taken a nosedive, dipping over 33%.

MON accounts for slightly more than 4% of both FFGCX and HAP.

Since it tracks a passive index, HAP does not have the ability to move in and out of a troubled holding like Monsanto on a whim. FFGCX’s portfolio manager on the other hand, has the ability to reduce or exit positions at any time in order to best position the fund for gains. While the most recent data suggests that he’s stuck with Monsanto, he does have a larger weight in BHP Billiton and Rio Tinto, and a smaller weight in Exxon, and this has helped FFGCX outperform HAP since inception. Also, over the past one-year period, HAP is down about 1%, while FFGCX has gained nearly 5%.

Further strengthening the case for FFGCX over HAP is the ETF’s low volume. Although not dismal, the fund’s average volume is only slightly over 50,000.

For now, investors looking for broadly diversified global commodity producers should stick with FFGCX.

Disclaimer

Aside from these physically backed and futures-backed products, another alternative to playing these shiny metals is through the use of the various precious metals miner ETFs available. Unlike SPDR Gold Shares(GLD)  and iShares Silver Trust(SLV), the ETFs listed below track a basket of companies rather than a physical stockpile or futures contracts and these funds are just like other equity-backed ETFs. In contrast, the mutual funds may hold some precious metal in the portfolio.

Gold
Van Eck’s Market Vectors Gold Miners ETF(GDX) and Market Vectors Junior Gold Miners ETF(GDXJ) dominate the gold miner ETF market niche. Using GDX, investors can gain access to some of the most popular miners from around the world including Barrick Gold(ABX), GoldCorp(GG) and Newmont Mining(NEM). GDX carries a 0.55% expense ratio.

GDXJ, on the other hand, tracks the junior miners industry. This slice of the broad gold mining sector is made up of smaller and more volatile explorers and producers. Top holdings in GDXJ include New Gold (NGD), Alamos Gold(AGIGF), SEMAFO(SEMFF), and Hecla Mining(HL).

Similar to a traditional, broad market small-cap ETFs, investors typically view these funds as having stronger growth potential than their large-cap kin. GDXJ does boast a higher expense ratio than GDX, however, charging investors 0.60%

Silver
A newcomer in 2010, Global X Silver Miners Fund(SIL) is the first fund designed for investors looking for concentrated exposure to the largest silver mining companies. Although this fund tracks a basket of 25 different firms, its top four holdings largely drive the fund’s performance. Together, Silver Wheaton(SWC), Pan American Silver(PAAS), Fresnillo(FNLPF) and Industrias Penoles(IPOAF) account for half of the fund’s portfolio. SIL carries a 0.65% expense ratio.

Although it has been available for only two months, SIL has still managed to gain a following, changing hands nearly 175 thousand times each day.

Platinum
Launched only a month before SIL, the First Trust ISE Global Platinum Index(PLTM) tracks a basket of firms responsible for mining the platinum group of metals (PGM). Ores falling under the PGM umbrella include platinum, palladium, osmium, iridium, ruthenium and rhodium.

Top positions include Anglo Platinum(AGPPY), MMC Norilsk Nickel(NILSY), Aquarius Platinum, and Impala Platinum(IMPUY).

PLTM charges investors 0.70%, making it the most expensive precious metals miner ETF available. Unlike SIL, PLTM has so far failed to gather much of a following. The fund currently has $6.4 million assets under management and has an average volume of only 13,000. Ultimately, for now this fund is too risky for investors looking to move in or out quickly.

Mutual Funds

Gold. While any of the above gold-miner ETFs or products listed in Guide to Precious Metals: Gold can provide investors with ample exposure to the yellow metal, investors desiring active management can opt for popular gold mutual funds like the Toqueville Gold Fund(TGLDX) or Fidelity Select Gold Fund(FSAGX). Combining the strengths of GDX with GLD, TGLDX and FSAGX track not only physical gold, but also an impressive collection of gold miners.

Nearly two-thirds of the fund’s portfolio is dedicated to its top 10 equity holdings. These companies include Barrick Gold, Newmont Mining, and Gold Corp. Miners, however, account for only 94% of the fund’s total portfolio. The remaining 6% slice of FSAGX is dedicated to gold bullion.

As of the end of March, the Toqueville Gold Fund set aside 9% of its portfolio for exposure to physical gold, making it its largest single position. The remaining 91% of the portfolio is allocated across popular miners. The collection of miners representing the largest positions, however, is considerably different from the Fidelity fund. Top holdings in TGLDX include Ivanhoe Mines(IVN), Osisko Mining, Rangold(GOLD) and Iamgold(IAG).

Thanks to its fund manager, John Hathaway, this fund has handedly outperformed the Fidelity fund over the past 10 years.

However, FSAGX should not be counted out. Rather, by charging 0.85%, FSAGX appeals to mutual fund investors looking to reduce costs. Comparatively, TGLDX carries a 1.5% expense ratio.

Additionally, investors should note that FSAGX and TGLDX have short-term redemption fees. FSAGX charges 0.75% for shares held less than 30 days, TGLDX charges 2% for shares held less than 120 days.

Precious Metals. Investors looking for a broad play on the precious metal industry should look into the U.S. Global Investors Gold and Precious Metals Fund(USERX). Launched in 1974, USERX is advertised as being the first no-load gold mutual fund in the U.S.

Although this title implies that the fund invests solely in the gold industry, as of the end of April, this fund had nearly 13% of its portfolio allocated across the silver and platinum industry as well.

Top holdings include Rangold, Redback Mining, and Agnico-Eagle Mines. Although the fund boasts over 60 different positions, the fund’s top ten constituents represent close to half of the fund’s total portfolio.

Although it has lagged both FSAGX and TGLDX recently, over the most recent five year period, USERX has come out on top. It has a 1.54% expense ratio and a 0.5% short-term trading fee for shares held less than 30 days.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

Market Vectors Indonesia Index ETF (IDX) 7.0%
Indonesia’s markets are scoring strong gains today. According to Reuters, the nation’s benchmark stock index saw its biggest single day jump in 18 months Wednesday. IDX may prove to be a good position if the markets continue to exhibit strength.

Market Vectors Coal ETF (KOL) 3.9%
The coal ETF tumbled along with the rest of the market throughout much of May, but in recent days this decline has slowed, leading the way to Wednesday’s jump.

Coal and other basic materials like steel will continue to benefit if the market can hold onto gains. Aside from KOL, investors looking to play the bounce may also wish to check out Market Vectors Steel ETF(SLX).

iShares MSCI South Africa Index Fund (EZA) 4.1%
South Africa is among the top gaining international ETFs on Wednesday. The fund’s heavy exposure to mining companies is likely the main driver to the fund’s performance.

The South Africa ETF may continue to see a boost in the near future as tourists flock to the nation to watch the FIFA World Cup.
GlobalX Silver Miners Index ETF (SIL) 3.4%
Silver miners are benefiting from a broad market up tick, sending SIL higher. Although it has only been available to investors for two months, this fund by Global X has managed to amass an impressive following. Currently, SIL is the only ETF available for investors looking for a pure play on silver producers.

SPDR S&P Homebuilders ETF (XHB) 2.7%
After an optimistic report from Toll Brothers, the SPDR homebuilder ETF is scoring strong gains. During the most recent three-month period, the luxury builder saw its losses narrow. They followed up their numbers with an optimistic forecast for the broader housing industry.

Losers

iPath S&P 500 VIX Short Term Futures ETN (VXX) -7.2%
VXX enjoyed a nice rise over the past few weeks as investors fled the markets to avoid Europe debt crisis and Chinese tightening. However, on Wednesday, bulls are driving the major indices higher, suffocating the fear-based VIX. In recent days I have warned investors that, while VXX’s performance has been impressive, it can tumble just as easily. Today’s dip alone has managed to erase a large chunk of last week’s gains.

iShares MSCI Spain Index Fund (EWP) -2.4%
Although the U.S. markets are treading higher today, the issues in Europe persist. Taking one of the biggest hits among the euro-bloc is Spain. EWP’s descent over April and May has brought the fund back to levels seen a year ago. Investors should continue to exercise caution when looking abroad for investing opportunities.

Disclaimer