Posted by: Aaron Pressman on March 17, 2006
I have a story in the current issue of BW out today on using some of the newer and more targeted ETFs to fine tune a portfolio (
still behind the subscription wall). The idea is that some of the newer products offer, for the first time, low cost and liquid ways to invest in hard to reach places like gold, commodities generally or microcap stocks. A printed publication only has so much room and there are a few additional thoughts I wanted to offer here to supplement the story in the magazine and perhaps stimulate discussion.
One important strategy that didn’t make it into the story is to buy options that are available on many of the niche funds including the iShares Lehman TIPS Bond Fund and the SPDR Homebuilders fund. Shorting an ETF can be difficult if your broker can’t get shares for you to borrow and opens you up to unlimited losses if the trade goes the wrong way. Buying put options offers more of an insurance-like payout and is preferable in many situations.
I also didn’t have space to discuss the many new products that are in registration, including the Barclays iShares silver fund that’s gotten a lot of attention in the metals market. Rydex, which has gotten decent interest in its euro currency fund, has registered similar funds that will invest in Mexican pesos, Swiss francs, Canadian and Australian dollars and the Swedish Krona. Those funds permit you to take a position or hedge in currencies in a way that’s familiar to stock investors and doesn’t require a special forex account. Nuveen and Barclays also have commodity funds in registration that seem broader than the exisiting Deutsche bank fund (symbol DBC) which only includes oil, heating oil, gold, aluminum, corn and wheat.
Finally, both State Street and Barclays have registered a vast array of additional sub-sector funds. Barclays has oil & gas exploration, oil equipment and services and aerospace and defense, for example, among 10 ETFs in registration. State Street’s streetTRACKS (or just StreetTracks for those who don’t like to abide by wacky spelling conventions of fund sponsors) have registered another 17 products, including funds covering many of the same areas plus outsourcing and IT consulting, leisuretime and metals and mining.