Wednesday, May 28, 2008

Market Exposure Via ETFs

Looking to trade hot markets but wondering how to do it outside of futures? More times than not the hot, and cold, markets will be indicated by exchange-traded funds (ETFs) that follow stocks from a particular country.

51 ETFs now track stock markets from specific countries giving a good indication of growth and decline in the underlying market.

So far this year, equities from Brazil (Ticker: EWZ) are ahead by a sizzling 22.4 percent, Canada is (Ticker: EWC) up by 10.0 percent and Taiwan (Ticker: EWT) has jumped 9.4 percent. Stock markets of underperforming countries include China (Ticker: GXC) which is off by 12.6 percent, South Korea (Ticker: EWY) is down 11.1 percent, and Malaysia (Ticker: EWM) has declined by 9.2 percent.

What can help you to choose the best country ETFs?

Here are a few things to keep in mind:

Country funds are often industry sector bets

With most single country ETFs, you aren’t just betting on a country’s equity market but also on a specific industry sector. For example, 57.80 percent of EWZ’s sector representation is to basic materials and energy. This fund will be acutely affected by any rise or fall in commodity prices.

Country funds carry unique risks

Many countries don’t have large, deep and diverse stock markets like that of the U.S. and other developed nations. It’s common for single country ETFs to own just a handful of stocks and to be overweighted in just the largest of those companies. Another risk factor to consider is geo-political risks that can sometimes come into play. All of this may create unwanted volatility inside your portfolio.

Country funds are more expensive than broadly diversified international funds

According to ETFguide.com, the average annual expense ratio for country ETFs is 0.58 percent compared to just 0.47 percent for broad equity international funds. Can the higher ownership costs of country ETFs be overcome with better performance? There are no definitive answers.

Equally important is a clear understanding of the different investment approaches to equity exposure.

The iShares offered by Barclays Global Investors largely follow MSCI country indexes, which may attempt to represent a certain market, but not necessarily the same exact performance of a particular country’s leading benchmark. In contrast, Northern Trust recently launched a series of single country ETFs that follow established equity benchmarks in various countries.

Where do country ETFs fit into your investment plan?

After you’ve laid the foundation of your portfolio to a diversified mix of funds that cover the major asset classes, single country ETFs can be used as a handy tool.

For example, if you feel that Canadian stocks are the place to be over the next few years, you can overlay EWC onto your current portfolio positions. In other words, you can overweight countries you believe offer the best opportunities.

If you’re too timid to invest in single country ETFs a better approach for most investors is to just go with a broadly diversified international fund. Instead of trying to guess which areas are the best, you can leave the country picks up to someone else.
More Information at www.etfguide.com

Tuesday, May 20, 2008

Flowers In Their Hair?

It has always been an uneasy alliance between commerce and the environmental community, but it seems, even in this time of hightened awareness and high oil prices, that there has been a decline in investments in clean technology.

According to research group New Energy Finance, private equity investment in clean energy solutions dropped by more than two thirds for the first quarter of this year. Dropping from $2.5bn from $3.7bn in the same period last year, commentators are blaming the credit crunch and global jitters for the decline.

Buyout groups are the main culprits with private equity investment slipping by 65%. Venture capital groups, however, increased investment from $1.2bn to $1.5bn compared to the same period last year.

"Some assets are overvalued with too much money chasing too many transactions in venture capital. There is more supply in the market than last year, with investors paying top prices for assets" said Mortimer Menzel, partner and head of merchant bank Augusta & Co's renewable energy practice.

"Vendors recognise there is a boom and want to sell to capitalise on high valuations" he added.

Initiatives are on the go, however, with Kohlberg, Kravis, Roberts, the buy-out giant, last week pledging support for the global green agenda after teaming up with Environmental Defense Fund to improve the environmental performance of KKR's portfolio companies.

Companies will, no doubt, begin to increasingly focus on this area when the markets return to normal, with several firms setting up dedicated investment departments to seek out opportunities.

I can't see the board of Kohlberg, Kravis, Roberts sitting at Glastonbury with flowers in their hair smoking 'herb' but they and others are definately taking this market, and this issue, seriously.

Sunday, May 18, 2008

Swiss Car-Haters? Harsh but.....

I have a confession, and living in Switzerland it can be an obsession that does not go down well with the locals. Yes, I am afraid to say.... I am a car freak.

OK, I have said it now...I feel much better, but I can feel my residents permit being wrenched from my grasp. You see Switzerland is not the most car-loving nation on the planet. The Swiss themselves, have no problem, the amount of Porches and Ferraris on the A1 into Geneva in the morning are more numerous than the M4 that is for sure. No, the problem here is with the authorities.

Clarkson calls Switzerland 'car haters' which may be a little harsh but they are non too happy about you breaking laws... any of them... especially in your car. From checking the variable speed limits (sometimes they are lowered for 'environmental' reasons) to taking a spare pair of spectacles if you drive in them (I kid you not), the place to break traffic law is not here.

Hence setting up a race through Switzerland may have not been the best idea for eight drivers who got caught.

In the latest incident, police in canton Graub√ľnden revealed on Thursday that the drivers were caught in identical model Audi TTs while driving in “a racing manner”. One shot through the mountain village of Rona at 92 kilometres per hour on Wednesday morning, while several others were later seen driving along the road up to the nearby Julier pass at speeds of up to 133 kmh, where the limit is normally 80. Police said in a statement that eight British drivers were stopped and reported to judicial authorities. Three of them had their licences withdrawn.

Nine other people still remain in preventive custody in Zurich after they were caught speeding along a local motorway on May 5 at speeds of nearly 200 kilometres per hour. They are due to be questioned by a local magistrate tomorrow. Zurich cantonal police told the Swiss news agency ATS that the group appeared to be on a race from Milan to Paris. Their expensive British and Italian-registered high-powered sports cars, some of which were hired, were seized. The drivers could face fines of up to one million Swiss francs.

Read that again...one million Swiss Francs... you see the authorities now link your speeding fine to your income. Racing through the country in a Lamborghini and then trying to explain you are a plumber from Peckham who hired it and you are broke, may not wash with the Swiss fun-busters.

Drink driving is a complete no-no. The husband of a friend of my wife just spent 4 months in jail for being over the limit...for the first time.

There is a marvellous system however, if you loose your license because of an accumulation of points. You are forced to drive around in a Smart car at 45KPH maximum with a big sticker saying so...marvellous.

The odd thing is, however, with all these rules and most people sticking, completely, to the speed limit, you would have thought the Swiss would be fabulous drivers. I am not seeking to upset my wonderful hosts but, unfortunately, they have one flaw. Tailgating, as it is known in the UK (driving inches from the car in front) is prosecuted by the Police in the UK as 'Reckless Driving'. In Switzerland this appears to be something that is actually on the driving exam.

I can just imagine the instructor encouraging you to get closer and closer to the bumper of the car in front until he yields and pulls over. This happens even if there is mass traffic in front of you and a train of buses ten miles long in the slow lane...it is a national obsession.

I spent much of my initial time driving in Switzerland using 'international gestures of displeasure' at everyone who came anywhere near me. It didn't work.

My solution, like many here, was to buy a bigger car. We got the huge VW Touareg and now coast along the motorways oblivious to the BMW's attached to the back of our bumper and unseen in the rear view mirror because they are too close... job done.

So if you are coming to Switzerland for the Euro 2008 I would recommend leaving your car behind, it is much safer that way.... oh..and if you are of the hooligan inclination and happened to have stumbled across this blog looking for less savoury activities in our country, then ponder one thing... If they fine you for not carrying a spare pair of spectacles, bang you up for having one too many at the wheel, nick your Ferrari and fine you one million Swiss for speeding, imagine what they will do if you decided to cause some aggro in the local bars.... good luck with that..

Hop Suisse!

Wednesday, May 14, 2008

Hedge Funds Heroes?

In an amazing turn around hedge funds are now being touted as the possible 'heroes' of the market as reported by the FT.

Having been pilloried by the regulators before the credit crunch for earning too much money and being 'secretive' to being blamed for their 'slap dash' approach to leverage it is all the more amusing that they should be portrayed as the potential heroes of the moment.

The story has been born from the fact that some assets do not, at this precise moment, have a price. Basically if you hold a bunch of US mortgage-backed securities, which are sub prime, for example, you have no idea what they are worth. This is what has lead to the 'death by a thousand cuts' and 'Groundhog day' headlines when the banks have trickled out the news on write downs.. the truth..nobody knows what they are worth.

In rides our hero the hedge fund manager, with balls of steel and a calculator attached to MIT Grads, Harvard scholars and Oxford analysts. The hope is he will come up with a valuation stick a zillion dollars into the bet and save the day....

Hmmm....

Personally, I thought that UBS, for example, would be able to afford some pretty serious talent and employ some pretty serious capital. Why would they need a hedge fund to bail them out? These were the analysts that spent some of that valuable knowledge predicting the outcome of the Euro 2008... (I kid you not)

The 'hedge funds as heroes story' eminated from a recent roundtable on hedge funds. Ian Plenderleith, chairman of Brevan Howard's BH Macro fund, said that hedge funds help markets to function properly again by taking their own positions on the pricing of assets.

Mr Plenderleith said: "Where there is a difficulty in pricing assets there is a terrific opportunity for hedge funds whose specialisation after all is to try to reach a view on the values and to back their own judgement with their own and their investors' capital if they think the market has got it wrong and they have got it right.

"By putting their money into markets and backing their judgement it helps to regenerate market liquidity and ultimately to get them functioning properly again. I do not think I would claim that hedge funds are doing that out of a sense of philanthropy or charity, they do it by pursuing profit opportunities for their own clientele but, in doing so, because they are active in markets they are helping them to function properly again and that is a valuable public policy contribution."

When looking at trades I love to hear this talk, we have said time and time again that the volatility in this market is a function of the new instruments and funds. From derivatives to hedge fund managers the numbers involved are mind-boggling and when that money is pointed in one direction few companies, markets, or sectors can resist. If you don't believe me take the case of oil, OPEC said (and frankly they should know) that the oil price has $30-$40 within the price which is pure speculation. Now if the oil market can be swayed the financial sector, for example, has no chance...as we saw.

The simple fact is that leverage is available to all. If you download the trading system at www.hf-markets.com and open an account for as little as £10,000 you will have, at the touch of a button, control of up to £1mn (depending what you trade) that's pretty serious leverage if you have $1bn.

'Heroes of the piece' probably not, but talk like this is good... its only a matter of time until the hedgies pull the trigger and I, for one, shall be using my leveraged account to great affect on the ride back up....

Monday, May 05, 2008

Commodity flotation signal an end to commodity bull run?

Ah, the joys of Spring; hayfever, deads chicks in our garden and the cats leaving dead mice at our door. I suffer badly from hayfever, am allergic to cats and am not particularly found of sweeping away mangled mice and birds from my doorstep, so as you can imagine, spring turns me into a grumpy old man.

The good news however is that someone will be having a good spring and at the same time it gives a signal that the commodities market may be reaching a top.

You may recall our article 'Hedge Funds and Private Equity firms at their peak?' which discussed the flotations of these companies which we believed signalled a top. Well here is another indicator, and another billionaire in the making.

Sprott Asset Management Inc.'s initial public offering this week will make a billionaire of the hedge fund company's founder, spurring speculation Canada's decade-old commodities boom is ending, investors say.

Eric Sprott's bets on gold and oil pushed his Toronto-based flagship fund to an average return of 27 percent a year since 1998, more than three times the gain of Canada's Standard & Poor's/TSX Composite Index. The fund bought mining stock Thompson Creek Metals Co. in 2006 prior to a rally that lifted it tenfold.

Sprott is cashing out eight years after forming the company that made him one of Canada's best-known speculators. The C$230 million ($226 million) IPO is reminiscent of last June's share sale of U.S. private-equity firm Blackstone Group LP, said Stephen Jarislowsky, chief executive officer of Jarislowsky Fraser Ltd. in Montreal. That IPO preceded a 56 percent decline in monthly takeover volume in the U.S.

``When the LBO firms went public, the next day, the game was up,'' said Jarislowsky, whose firm manages about $56 billion. ``Why is he going public? If it's going that well, why would you let anybody in on it? Why doesn't he just sell to his partners?''

Insiders led by Sprott filed last month to sell as much as 15 percent of the company, which manages C$6.9 billion in mutual funds and hedge funds. Sprott Asset plans to sell as many as 23 million shares, according to the sale documents. The founder's 78 percent stake would be worth about C$1.17 billion at C$10 a share, the mid-range of the estimated offering price. The shares are expected to be sold on May 7.

So don't sell your SUV just yet and put on hold the food storage facility you were building in your basement... The commodity rally may just be coming to an end.

Saturday, May 03, 2008

Boris is Mayor!!!!

What a victory we have to celebrate today. Boris is Mayor of London! If I was not ensconced in beautiful Switzerland I may even consider returning to the 'Old Smoke'.

I used to live in Henley-on-Thames where Boris started his political career. I was at a Conservative party dinner at the famous Leander Rowing club when Boris launched himself into my affections.

Bare in mind this dinner was full of the blue rinse brigade with only a few younger people all sat at one table (and we had been voraciously tucking into the wine) when Boris said "It is odd that I should be making a speech at the famous Leander Club, especially when I spent much of my time at university catching crabs!". Now for those non-rowers 'catching a crab' is when you catch the water on the back swing of a stroke while rowing.

Of course the double entendre went straight over the head of the blue rinsers but made most of our table spit our wine out. I must admit, it got my attention and forever had Boris down as a 'good egg'.

The fact is that this guffawing 'joke' (as the Labour party labelled him) is simply one of the most intelligent people I have ever met and London needs a shot in the arm from someone with brains.

'Red Ken', in my opinion, has been the biggest disaster for the city since the blitz. He put the 'con' in 'congestion charge' by doubling the charge if you happened to be in a meeting after 12 at night, whereas Boris will allow it to be paid the following day.

Systematically recreating the GLC, 'Red Ken' ruled London like his own socialists fiefdom piling more and more misery on the already put-on inhabitants of our great city.

Boris, obviously, will be a controversial character. He is prone to terrible gaffs and does not suffer fools lightly, however, he now has this opportunity to use his massive intellect to do something to make London great again. I doubt he will serve more than one term, but hope that while he is Mayor he will turn London around.

"I do not for one minute believe that this election shows that London has been transformed overnight into a Conservative city but I do hope it does show that the Conservatives have changed into a party that can again be trusted after 30 years with the greatest, most cosmopolitan, multi-racial generous-hearted city on Earth on which there are huge and growing divisions between rich and poor."

Go for it Boris.....