THE YEAR OF THE ETF
Many investment gurus considered 2006 the "year of the ETF" because of the continued expansion of these tools as alternatives to traditional mutual fund investing. There were nearly 150 new exchange-traded funds introduced last year with focuses ranging from dividend-paying indexes to narrow market sectors.
Well, if 2006 was good for ETF fans, 2007 is shaping up to be even stronger. With only five months of the year under our belt, there have been 115 ETF initial public offerings (IPOs), many of which look even more promising than the best of last year’s crop. This continued surge has brought the total number of exchange-traded funds available in the marketplace to nearly 500.
Some of the highlights in this new generation of exchange-traded funds include ultra-short and ultra-long sectors; a basket of new health care industry group funds; and even some new country-specific offerings.
It’s no surprise that when ProFunds — one of the true pioneers in the mutual fund industry — decided to branch out into the ETF arena, the company was bound to turn some heads. Particularly attention-grabbing, especially for those really aggressive investors who love to play short-term trends in sectors, is the latest group of ultra-short and ultra-long ETFs from ProShares, a unit of ProFunds.
The "ultra" means that these funds are "2 beta." In layman’s terms, this means the funds are leveraged to perform twice the move of their underlying index. The ultra-long funds move twice as fast on the upside as their underlying index, while the ultra-short funds move twice the inverse of their underlying index.
The ProFunds ultra-short and ultra-long offerings are based on 11 Dow Jones sector indices. These 11 indices produce 22 new ETFs designed to make money not only when the market is going up, but in the case of the ultra-short funds, when the market also is going down. From basic materials to semiconductors and nearly everything in between, these funds give you the ability to invest with the precision that ETFs were designed to achieve. While these volatile tools are not suitable for most investors, you have to credit ProShares on its originality in coming up with offerings suited to all tastes.
Speaking of sectors, when it comes to slicing and dicing our way down to specific industry groups, no one does it better than the 17 new HealthShares funds released this year. These funds drill all the way to the core of the health care sector to bring out the best names in diagnostics, cancer, cardiology and more.
The funds typically target smaller companies in these industry groups to leverage advanced health care techniques that may some day save lives. One of the important technical indicators we are watching with these ETFs is their average daily volume, which has yet to exceed our comfort threshold of 100,000 shares a day.
One of the newest funds to be introduced this year is a country-specific ETF named Market Vectors Russia (RSX). The investment objective of RSX is to give investors direct access to a variety of Russian stocks that range from natural resources to communications companies. This is the first strictly Russian fund to come to the ETF universe. The fund is based on the DAXglobal Russia+ Index, which comprises 30 stocks. Those stocks are mostly large cap and either trade on global exchanges or take the form of American Depository Receipts (ADRs).
Keeping up to speed on all the ETFs coming to market isn’t an easy task in this "year of the ETF," but we’ll make sure we stay on top of all the action so that you won’t miss out on any potentially profitable opportunities.
Want to find out more about how to profit from ETFs on the cutting edge of the secular bull market?
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
