This Week In ETFs: March 5th Edition

by on March 5, 2010 | ETFs Mentioned:

ETFs started March on a high note, as major indexes gained over 1% for the week. This increase came after a job market report saw the unemployment rate hold steady, slightly exceeding expectations. Industrials and technology stocks were some of the best performers as 1,000 jobs were added to the American manufacturing industry and Apple reached an all-time high in share price. Below, we offer our picks for the week’s most important and interesting ETF stories from around the Web:

Will Europe’s Financial Problems Spread? at ETF Guide:

This article highlights some of the ongoing problems in the euro zone and discusses why the current situation does not bode well for even the strongest of the European economies. While Greece’s problems have been well-documented, the main fear is that the credit crisis will spread to larger economies such as Italy or Spain. According to George Soros, the main problem with the euro is the lack of central Treasury agency. While central banks can inject more liquidity into troubled financial systems, only a Treasury can handle problems of solvency, which is what many euro nations will be facing in the coming months.

Does Your Portfolio Need A “RAFI ETF”? at ETF Database:

We discuss a different approach to ETF weighing strategies, the RAFI indexing system. Instead of using market capitalization as the basis for their weightings, RAFI indexes use five-year average sales, five-year average cash flow, book value, and five-year average dividends. Some investors believe that this methodology can help to eliminate the influence of irrational market factors on portfolios. Also, the use of four separate measures of firm size (three of which use five year averages) can help to limit the extent to which an outlying data point can impact the ultimate weighting given to a stock. Some of the funds based on these indexes, including the FTSE RAFI 1000 Portfolio (PRF) and the FTSE RAFI Emerging Markets Portfolio (PXH) have significantly outperformed their peers over the past few years.

Metals ETFs: Store of Value or Non-Productive Asset? at ETF Zone:

This article focuses on the differences between the various metal ETFs and discussed what these nuances mean for investors. First, the article discusses the cyclical nature of base metals and the often anti-cyclical nature of the precious metal segment of the market. Also highlighted is performance of these funds perform against the dollar. Lastly, the article discusses an often overlooked aspect of metal ETF investing: tax consequences. Whereas the long-term tax rate on equity ETFs–for example the Market Vectors Gold Miners ETF (GDX)–is 15%, bullion trades (such as GLD), are taxed by the IRS at the “collectibles rate” of 28%.

Mexico: Better Than Brazil? at Index Universe:

Year to date, the Mexico ETF has outperformed its Brazilian counterpart, squeaking out a 0.4% gain compared to Brazil’s 6.6% loss for the year. The article also takes a look at the iShares MSCI Mexico Index Fund (EWW), one of the best options for achieving exposure to Mexican equities. Reflective of the Mexican economy, this fund is dominated by a few big names; America Movil makes up just under a quarter of total assets while Wal-Mart de Mexico (9.5%) and Cemex S.A.B. (5.8%) round out the top three. Although the Mexican economy and political situation has been rocky as of late, Lara Crigger points out that if the U.S. recovery continues, Mexican equities could get a boost.

Disclosure: No positions at time of writing.