Joshua Byrini's Market View

Byrini's obeservations should not be considered recommendations, advice or suggestions to buy, sell or hold securities, commodities, commodity contracts, options, futures, warrants, insurance contracts, real estate, gemstones, art work or derivatives, as he is neither a registered securities, commodities or real estate broker, diamond merchant, art dealer, or investment advisor. These observations are for informational purposes only. In other words, you are on your own chief.

Monday, January 16, 2006

Getting out of the dollar, and new ideas in Indexing and ETFs

AWF-- World dollar fund

FSIIX-- Fido's overseas index

VDMIX-- Vangard's overseas index

VWO-- ETF by Vangard does emerging markets

EEM-- ETF emerging markets

EFA-- Index ETF. With EFA you're buying the EAFE [Europe, Australia, Far East] here. Japan represents 25% of total holdings; the U.K. has 22%. This is an international non-dollar-denominated index fund, which trades at a liquid price and with expenses an individual investor can afford. The average annual expense is 0.35%. It's an equity play as well as a weak-dollar play.

New concepts on Indexing

Some smart people began questioning Cap weights of indexes such as the S and P awhile ago. Then, some students with more time than money on their hands back tested and published results. Then guys with more marketing quotas than time, began doing something about it (Rydex started the fund-- RSP, now Powershares brings us indexes weighted by other measures, see below.)

RSP is an equal weighting index of the S & P. This has rocked for me after reading about it in the Journal of Finance in 2003. Bill Gross explains why people are down on Cap weighting and up on other ways of weighting indexes. This is a new trend that be profitable. Bill Gross explains it well as follows in Barrons this week:

Gross: There's a new phenomenon in the index business, introduced by Rob Arnott, who technically is associated with Pimco but basically runs his own shop. He's a brilliant asset allocator and the man behind Pimco's All-Asset Fund. Normal equity indexes such as the S&P 500 are capitalization-weighted, which means that as they go up in value, an index fund has to buy more shares of the stocks in the index. He argues, and I would agree, that in many cases stocks in the S&P, and the S&P itself, are overvalued.
Arnott created an index that isn't cap-weighted. His index and this fund are weighted by sales, income, book value and dividends. He has back-dated the concept relative to cap-weighted indexes, and its outperformance is measurable.
The index Gross is talking about is:
PRF Dec. 19th, 2005 the PowerShares FTSE RAFI U.S. 1000 Portfolio (PRF) began trading on the New York Stock Exchange. The ETF is based on a controversial new "fundamental" indexing strategy pioneered by Robert Arnott, chairman of Research Affiliates and editor of the Financial Analysts Journal.

How to protect yourself in a board market home building decline, if rate rise fast enought to choke of mortgages-- Short this!

ETFs focusing on the homebuilding sector may be late to the party. In late October, the PowerShares Dynamic Building & Construction Portfolio ETF (PKB) began trading.
If the housing market deflates in 2006 after a multi-year run and momentum investors seek other shelter, this fund could take a hit. Aside from homebuilders, the PowerShares ETF also holds stocks from related industries such as home-improvement retailers such as Home Depot Inc.(HD)and Lowe's Companies Inc.(LOW).

posted by BoxedMerlot # 12:02 AM

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Joshua Byrini's Market View

Monday, January 16, 2006

Getting out of the dollar, and new ideas in Indexing and ETFs

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