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I'm looking to diversify some of my IRA into foreign ETF's. There is a great deal of weakness in US markets right now and I'm looking to invest in places like Russia, China, and India, as well as some emerging markets. I'm not really sure how ETF's work, and I'll need to do some research, but can anyone give me some general info.
RSX (russian energy play) and EWZ (general brazilian play) have been hot as of late, but I'm concerned that the fast money has already moved on. Then again, their economies are much stronger than the US and there still could be some money to be made. FXI (chinese play) is well of it's highs after recent sell off's of over valued chinese stocks, but the macroeconomic principles suggest that there is good money to be made in growing, producer based economy, with a high savings rate. Any ETF buffs out there?
An ETF is basically a mutual fund that trades on the open market like a stock in a company. Actually, more like an index fund than a mutual fund, as I don't believe most ETFs are actively managed at all. That also helps keep operating & management fees pretty low. The assets are the securities that it buys. Unlike traditional mutual funds, there is not an open ended number of shares to purchase from the company. There is an initial offering, and then if you want to buy shares you have to go to the secondary market. Sale price can be very different from the net asset value. They trade actively during the trading day, unlike mutual funds, and prices will fluctuate from minute to minute. Because they operate like stocks, you will usually need a broker to buy them, and will therefore will pay a commission.
One of the very first investment companies out there selling ETFs was Nuveen Investments. They are still a big player in the arena. Here's a link to their ETF education & resource center.
Last edited by Bill Keegan; 05-29-2008 at 06:33 PM..
Like Bill said, most ETFs are basically index funds that trade like stocks. However, some new actively-managed ETFs are showing up these days too. As for the spread between the market price and the NAV, it's usually not that great because certain arbitrageurs have the ability to take advantage of that, which brings prices back in line.
Plenty of information here: ETFConnect - Home
I have 80% of my portfolio in ETFs and CEFs but I would advise to be very careful about new funds, understanding the charter you are buying into.
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I use EFT connect and Yahoo EFT for learning and research. Fool.com has a training section that includes ETFs
After I identify the sectors or regions, I compare funds, then often use total sales volume, (for liquidity), current holdings, and reputation of offering company to refine my search. When I get my selection I then research for the buy and sell points. I often use a combination of daily volumes and the 50 and 200 day moving average to give me price targets. (I look for % spreads off DMA). The more financially astute (like my kids...) have better research protocol and use formulas + bollinger bands. There is a lot you can do with web linked excel data to keep you on top of pricing / performance if you have HS... which I don't). You can note when the institutions are done buying and selling by watching daily trading volumes. Be careful not to buy into a falling trend, wait for a recovery, and often a 'bounce' off a double bottom. With computer trading you don't get much latitude to grab bargains, so you better have a good strategy that you can stick with and a trading company that offers fast executions.
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