This Week In ETFs: November 20th Edition

by on November 20, 2011

Markets welcomed good news this week with the announcement of an increase in the index of leading economic indicators for the month of October. The report indicated that the U.S. economy is finally beginning to gain momentum, which is better than what most investors had expected. Investors also responded to positive retail sales data, which showed growth of 0.5% versus the expected 0.3%. Major U.S. stock indexes started out strong this week, only to fall during Thursday’s trading session as euro-zone tensions and Washington’s debt negotiations continued to surface. The S&P 500 traded to its lowest price for the month on Thursday, which was followed by a slight reversal at the end of the week as stocks began to edge slightly higher. Much of this week’s volatility was the result of conflicting news reports from the euro-zone, which have largely overshadowed the increasingly positive domestic economic data. With European tensions easing on Friday, Treasury bonds slumped as investors chose riskier assets in hopes of finding higher gains. In the commodities space, crude oil futures dropped after hitting triple-digit levels earlier this week on the sale of an important U.S. oil pipeline. Gold prices were down 4% for the week as silver futures for December delivery climbed about 1.1% on Friday, recouping some of the previous day’s losses.

The ETF industry saw three new ETFs launched this week. iShares rolled out their new international preferred stock index fund while U.S. Commodity Funds provided investors with yet another way to gain exposure to domestic copper. The ETF industry was introduced to the first exchange traded fund that seeks to capture the performance of social-media companies such as Google and Groupon [see also Technology ETFs: Social Media, SSDs, Smartphones, and More].

Below, we outline the best ETF stories from around the web this past week:

Everything Wants To Be Called An ETF These Days at Barron’s:

With the rapidly expanding exchange-traded product industry comes a variety of new investing tools that are often mistakenly labeled under the umbrella term “ETF”. Although the vast majority of ETPs are in fact ETFs, there are also leveraged, inverse, and derivative-based commodity ETFs as well as exchange-traded notes (ETNs). Each of these products have major differences, which include varying tax treatments, risk profiles, and overall costs. In this article, author Michael Shari outlines the differences between ETPs, ETNs, and ETFs.

Why We Don’t Buy Corporate Bond ETFs at Rick Ferri:

Although many ETFs do efficiently track their underlying index and assets, there are some products that tend to deviate from their underlying’s net asset value (NAV). Corporate bond ETFs are an example of an exchange-traded products that do not always trade at their NAV. When the stock market falls sharply, corporate bond ETFs tend to trade at discount prices to NAV. This deviation is said to be caused by a liquidity issue, which is unique to many bond ETFs. This article, by Rick Ferri, explains how corporate bond ETFs’ prices deviate from their NAV and how this issue impacts buy, hold, and rebalance strategies.

 How ETF Investors Can Save $415 Million (Without Breaking A Sweat) at ETF Database:

Many investors have embraced the exchange-traded structure as an efficient vehicle for gaining exposure to nearly everything the market can offer. One of the featured benefits of ETF investing is its low-cost expense ratios relative to the generally expensive active mutual funds. Although ETFs are considerably cheaper than mutual funds, they are not always the most tax efficient. Some ETFs and ETNs can incur significant tax liabilities, which add to the overall cost of the product. In this article, author Michael Johnston discusses how investors can save money by choosing lower cost alternatives without altering the underlying index.

Disclosure: No positions at time of writing