These Best In Breed Etfs Hold Amazing Profit Potential

Share:    

Exchange Traded Funds (ETFs) have taken hold as one of the most popular investments on the market today

. Now, with global assets in ETFs estimated to hit $1 trillion by 2010, a new class of actively managed ETFs is poised to become the next big thing for your portfolio.

Heres a look at how these exciting new investments are gaining ground and how you can get a piece of the action with an ignored small-cap fund

ETFs baskets of securities that trade on major exchanges were introduced 15 years ago by State Street Global Advisors. The funds were originally designed to provide an easy way to invest in major indexes like the S&P 500 or Dow Jones U.S. Real Estate Index. What set this class of investments apart from the rest was the ease of investing in assets once deemed untouchable to retail investors. Todays ETFs provide a portal to invest in everything from gold to oil to world currencies as easily as buying shares in GE or Wal-Mart.

But until recently, the major limitation of ETFs has been that the funds are relegated to tracking indexes.

That all changed in March 2008 when the first actively managed ETF launched on the American Stock Exchange. Unlike traditional index funds, which basically run on autopilot, changing their holdings to match their benchmark index, actively managed ETFs are run on a daily basis by investment managers much like active mutual funds.

And while the current financial crisis has done a good job of stymieing growth of most investment products, actively managed ETFs have been introduced at a fast pace this year.

ETFs and Small-Caps Dont Go Hand-in-HandYet

With close to a dozen actively managed ETFs on the market right now, every major ETF issuer has been scrambling to register new funds with the SEC. Over the course of the next year, theres little question that the number of active ETFs will double.

Some of the most interesting actively ETFs on the market right now include the Grail American Beacon Large Cap Value ETF (NYSE: GVT), PowerShares Active Alpha Fund (NYSE: PQZ), and the IQ Hedge Macro Tracker ETF (NYSE: MCRO).

What youll find absent from that list, however, is an actively managed ETF for small-cap investors.

Right now, there isnt a true actively managed small-cap ETF on the market. And there hasnt been a whole lot of talk of introducing one this year. Thats largely because of transparency issues right now, the SEC requires ETFs to provide their daily holdings to the investing public. That means that any large funds who take days to enter and exit positions will have to let everyone know their moves as theyre making them, offering investors a chance to front-run the moves. While thats been a non-issue for the high-volume blue chips that promulgate most of the active ETFs right now, it could mean a huge problem for a small-cap actively managed ETF.

The SEC is currently considering proposed regulation changes that could make it easier for actively managed small-cap ETFs to operate, but until then were left without. But there is a way that you can invest in a sort of actively managed small-cap ETF right now

The PowerShares Dynamic Small-Cap Portfolio ETF (NYSE: PJM) is a small-cap index ETF that tracks the Dynamic Small-Cap Intellidex Index. But what sets this fund apart from other index-tracking funds is the way the Dynamic Small-Cap Intellidex operates. The index uses a proprietary quantitative method to select new small-caps quarterly to add to the index. That means that the index has a relatively high level of trading action (compared to a static, hand-picked index like the Dow Jones Industrial Average). And since its index is relatively obscure, the fund can deliver market outperformance more similar to an actively managed-fund.

Indeed, in the last month, PJM has beaten the S&P by 40%

Things could get interesting when actively managed small-cap ETFs come around. Theyll provide investors who want a professionally managed portfolio with an incredibly simple and inexpensive option to invest in small-cap stocks. Until then, at least small-cap investors have options.

International Utility Profits Through ETFs

Thats not to say that regular ETFs are any less effective at pulling in profits. In fact, one forgotten industry could hold the key to some serious profits in the coming year.

In the last six months the S&P 500 has been on a tear, rocketing 42%. But while the masses celebrate their investment gains, that overreaching rebound has smart investors pretty nervous. Thats why its time to turn to a recession resistant industry thats set to soar right now today, Im going to give you the names of a few investments that are best positioned to profit in the process. More on that in a minute

It seems like utilities are the only industry that havent had a great year in 2009. Thats a shocking fact for many investors who counted on stable recessionary profits from utilities stocks.

In the past, utilities have been touted for their recession resistance. Brokers even went so far as to call them widow-and-orphan stocks because as USA Todays John Waggoner puts it, A stockbroker could sell utilities stocks to old Widow Brown (or Orphan Annie) without worrying that the townspeople would someday chase him down Main Street with dogs and torches.

The torches would certainly have come out in 2008 when the sector shed 27% of its value and again this year, when utility stocks lost another 30% as the S&P 500 rebounded by 15%.

Indeed, while the average publicly traded stock has increased in valuation by 40% since March, utilities have only seen a 24% reprieve from the depths of the markets lows.

Believe it or not, thats exactly why one subset of the utilities industry is such an attractive investment right now.

Why an Industry Mired in Doubt Could Pave Your Path to Profits

Dont get me wrong; there are plenty of reasons to continue to stay away from the utilities sector as a whole. Utilities stocks are slow growing, they deal with all of the drawbacks of extensive government regulation, and with interest rates again on the rise, the cost of capital is liable to increase dramatically for the second-largest corporate borrower behind the financial sector.

But each of those arguments against investing in utilities is a double-edged sword that falls short when it comes to international utility stocks.

Thats because international utilities that operate in emerging markets are actually growing at a breakneck pace as countries like China and India develop their infrastructure and deliver things like electricity and clean water to their citizens. Overseas, where in many cases utilities have more say in the regulatory process, these companies act like government-sponsored monopolies.

And with dovish economists nervous to overcompensate on the interest front, its unlikely that any interest rate increases that we see in the next several quarters will materially hurt utilities stocks especially those in high-growth areas.

So while domestic utilities continue to be mired with doubt and concern, investing in international utility stocks seems like a pretty exciting recession play right now.

Another of the utilities sectors biggest draws is dividend income. Historically, utilities are one of the top-paying sectors when it comes to dividends yet another reason why theyre so well-liked during recessions. When capital gains dry up during a bear market, dividends can often mean the difference between keeping your head above water and sinking with the ship. Even as utilities staged their disappointing tumble last year, consistent dividend income has lived up to expectations.

Naturally, one of the best ways to get exposure to international utilities is through exchange-traded funds (ETFs).

At present the ETF offering for utilities is staggering from broad based utilities index funds like the Utilities SPDR ETF (NYSE: XLU), which is based on the S&P 500s utility components to the PowerShares Progressive Energy ETF (NYSE: PUW), which invests in utilities that engage in environmentally friendly practices. But for international exposure, there are only two funds that stand out right now

First is the iShares S&P Global Utilities ETF (NYSE: JXI). This fund, which is based on the utility components of the S&P 1200 Global index offers investors a good spectrum of international utility stocks as well as the stability of a few domestic plays thrown in. The funds top five holdings are all diversified overseas utility providers that operate in emerging and high growth markets, including E.ON AG, GDF Suez, and Enel SpA.

A relatively low expense ratio (0.48%), coupled with a 4.81% dividend yield make JXI a very attractive fund right now.

The other fund worth looking at is the WisdomTree International Utilities Fund (NYSE: DBU), which has thinner volume than JXI and a somewhat higher expense ratio (0.58%), but offers slightly more exposure to small-cap utility plays. Both funds share a very similar investment philosophy and hold many of the same stocks.

From a fundamental perspective, its clear that international utilities are being undervalued by investors right now. And from a technical perspective, these ETFs look primed to take off in the short term with a potential 20% upside for investors willing to take the plunge.

Cheers,

Jonas Elmerraji

by: panny1

POST COMMENT

Seeking For The Best Book Keeping Services In Uk Email Subject Line Use Accountant In London To Help You Succeed In Your Business Articles For The Internet Blankets The World Some School Fundraising Idea : Name Your School For A Day Contest. Funeral Planning: Cemetery And Cemetery Plots Advantages Of Buying Christmas Presents Online Tips For Buying Christmas Corporate Presents For Clients Ah, Skype: - A Victim Of Their Own Success.,. Why Are Not You Blogging Yet Spectacular Direct Traffic For A Improvement The Best Freelance Job Boards For Writers Frbiz.com Reports The Development Of Cmmb Profit Model Is Not Clear In Trouble