Today, Vanguard’s new Total World ETF (VT), tracking the FTSE All World index, became available to trade. It’s too early to get into the ETF, because there is virtually no volume, but this fund deserves watching. The FTSE All World Index covers 47 countries and 2,908 companies, including both developed and emerging markets. FTSE says the index covers 98% of the investable world universe. The ETF from Vanguard charges a 25 basis point fee. The sister mutual fund (VTWSX) has a higher expense ratio and charges a 2% fee for redemptions in the first two months (not a factor for the ETF). In the short term, the mutual fund would be a better choice if you have a time horizon over 2 months, because of the liquidity factor. The mutual fund will definitely execute at NAV on the day you place your buy order and will definitely execute at NAV on ...

Barron’s June 16, 2008 featured an article, Keeping the Faith, about how funds adhering to Islamic (Shariah) investment principles have avoided the greatest effects of the current credit crisis.

We found the same tendency to be true in a study we performed for Business Islamica Magazine of Dubai, U.A.E in 2007. (download PDF version of article here).

Interest, whether paying or earning it, is to be avoided in Shariah compliant investing. The result is that banks and insurance companies, for example (fund proxies: KBE, KIE, and XLF) are not found in Islamic funds.

There are other prohibited investments, but the overwhelming economic impact of Shariah investing is the avoidance of financial companies and leveraged companies.

The story is not all positive however. As logic would suggest, and as our study demonstrated, Shariah compliant funds outperform the general market (whether US, Europe, or Japan) in times when financials do badly, and …

Commodities are all the rage lately.  How are they doing?  Generally, they are ahead for the year-to-date period. The energy commodity funds are leading the pack. The broad based commodity funds GSG, DJP and DBC, which we reviewed in some detail in a prior article, show middling performance.  The other narrow scope commodity funds are generally doing less well than the broad based funds. On a three-month basis, the narrow scope funds are generally in negative territory. Many of the funds currently have too few assets under management and too little trading volume to warrant investment.

Lately, it’s been hard to find a safety zone in the markets. Most key classes are down for the YTD, 4-week and 2-week periods. Only commodities, oil in particular, have been bright spots. The following charts use these ETFs as proxies for key asset classes: VTI - US stock market EFA - non-US developed stock markets EEM - non-US emerging stock markets VNQ - US equity REITs DJP - global commodities* USO - oil alone AGG - US aggregate bond market * DJP represents the DJ-AIG Commodity Index which is a “balanced” index. It limits any one of the 19 commodities it follows to a 15% weight, and any of the 5 commodity groups to a 33% weight. Since oil has been the overwhelming performer lately, DJP underweights oil in comparison to its world significance. The S&P GSCI Commodity index represents its commodities on a world production basis. For a more detailed ...

Now that the primaries for both US political parties are over, it is time for investors to begin to evaluate the likely tax change scenarios under the new government that will soon be installed.

All signs are that taxes will rise, but how much and in what ways will differ depending on who is president and which party controls the House and the Senate.

None of the changes are likely to be favorable to investors in general.  Accordingly, there will probably be shifts in what is more or less attractive to investors, with resulting changes in money flow and returns for types of investments.  Company behavior may change as well.

For example, dividends are a case in point.  After the tax laws changed to reduce taxes on dividends, equity income became more popular, several high-yield funds were launched, and companies increased dividend payouts.

If dividends taxes are increased, there may be a shift toward

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Large banks are way down in the past 12 months, and as a consequence their trailing yields are well above normal.  That potentially creates substantial long-term equity income opportunity, but the big question is whether the dividends that make those yields will hold or be cut. 

If you subscribe to the “buy it when it’s cheap” philosophy, then you really need to evaluate any sector when it sinks the way large banks have done.

If you conclude that taking a position (partial or full) in large banks is the right thing to do, we believe that you should buy the sector, not individual banks (unless you have high research-based conviction about the individual company).

If you buy the sector, you are exposed to systematic risk for banks (general market risk and industry specific risk, such as more mortgage market trouble).  You would probably hold some stinkers in the group, but you would also hold

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It is ironic that US REITs year-to-date have outperformed US stocks, non-US developed market stocks, and emerging market stocks, as well as directly owned commercial and residential real estate. Only commodities have outperformed REITs so far this year.

VNQ, ICF, IYR and RWR are still down from 17% to 20% on a trailing 12-month basis, but they provide a 12-month distribution yield of from 3.90% to 4.75% which is more than the current 10-year T-Bond rate of about 3.70%.

How vulnerable REITs are to a reversal of fortune is unclear.  If the economy is as vulnerable to major recession as some say, the rental income of REITs may not prove as strong as expected, which would tend to lower the distribution yield.  Continued outperformance itself, would reduce the yield rate.  Rising interest rates due to inflation* could reverse the yield spread between REITs and T-Bonds, which would take steam from the REITs.

*

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The ETF market is looking crowded in terms of numbers and diversity of funds, and the number of ETF sponsors. However, the market shares are highly concentrated with a steep gradient of fund sizes and sponsor market shares.

As of April (according to score keeping by Vanguard) the top ETF sponsors by asset market share were:

#1 Barclays: 53.0% (iShares & iPathETNs) http://www.ishares.com http://www.ipathetn.com

#2 State Street: 24.8% share (SPDRs) http://www.ssgafunds.com

#3 Vanguard: 8.0% share (Vangurd) http://www.vanguard.com

#4 Invesco: 6.5% share (Power Shares) http://www.invescopowershares.com

#5 ProFunds: 2.8% share (ProShares) http://www.proshares.com

#6 Merrill Lynch: 1.1% share (Holders) http://www.holdrs.com

#7 Rydex: 1.0% share (Rydex Funds & Currency Shares) http://www.rydexfunds.com http://www.currencyshares.com

The top four sponsors have 92+% market share.  The top seven sponsors have 97+% share.  All the rest divide less than 3% between them.

Richard

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We selected the single country funds available in the Index Universe database for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each fund as follows:

red for returns < -5% yellow for returns between 5% and -5% (or no data) green for returns > 5%

Funds with no data, were not in operation for those full years.

If you are interested in those country index funds with missing data, you may benefit by researching the index on which the fund is based to estimate how the fund might have done had it been in operation during the missing years. Don’t

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We selected 70+ stock, bond and other indices for calendar year return analysis. Cumulative and annualized returns are important, but so too are discreet calendar years.

While statistical tools may theoretically, adequately describe variation or consistency of returns, a visual impression can be quite helpful too. This analysis is primarily visual.

Within the list we used a traffic metaphor with colored backgrounds of red, yellow and green for each year for each index as follows:

red for returns < -5% yellow for returns between 5% and -5% green for returns > 5%

The file is physically large at 1104 X 1075 pixels (399 Kb data size). Depending on your screen resolution you may have to scroll around the image to see all of it.

Click image to enlarge.

Richard Shaw QVM Group LLC