Intelligent Speculator

Why you need to worry about more than the expense ratio for ETF’s

IS — Fri, 19 Mar 2010 10:00:36 +0000

Generally, I have been a major supporter of ETF’s, especially when compared with mutual funds alternatives. Two of the main reasons are how transparent they are and because of their low fees. Yesterday, when I published the list of the Top 50 Low-cost ETF’s, many were surprised to see some ETF’s with 0% MER (annual fees). I was as surprised and decided to take a deeper look into these funds. I found something that is not new but I had not noticed before. These ETF’s do not have the typical fee as a % of assets but rather have a fixed fee per share. In the case of OIH for example, that fee is a small 0.08$/share/year. That is insignificant and remains a muxch lower cost choice than the usual alternatives. The reason of course for this insignificant fee is that these funds do not rebalance and do not change. That has a lot of disadvantages, but one of the main advantages is little to no trading cost which means a very cheap fund in terms of fees. So yes, a fund like OIH is probably as cheap as you can find in terms of annual fees.

Then what is the problem?

However, what I don’t like about this is that such fee ratios do not give investors the whole picture. It is similar to other funds who charge an annual fee but also has other types of fees that are added in without being clearly stated. Of course, any investor can simply grab a prospectus like I did for OIH and find the exact fees that will be charged. But how many of you do that? I certainly don’t usually do so and probably would not have looked if I had not been writing about it.

Solutions?

I think it’s fair to ask from these funds to give their best indication of the fees to be expected in advertisements but also any other documents about the funds. Such funds could be estimated. For example, the fee per share of 2$ per 100 shares every year for OIH could be translated into an annual expense ratio. Sure, every time the price of OIH changes, that expense ratio will also be impacted. But an approximation is better than simply ignoring these changes.

Why the worry?

I worry about such disclosures (or lack of) because over time they can be abused and potentially ETF’s could lose their good name if such fees become more used. Why promote a fund with .50% fees if you can promote it at .15% and then have .35% of “other fees”.

What are your thoughts? Will ETF’s become another area of abuse by Wall Street firms?

OIH

Quick News – March 18 2010

IS — Thu, 18 Mar 2010 21:36:43 +0000

Palm (PALM) announces 11th straight quarter with a loss; 0.61$/share vs 0.42$/share (more)
Apple (AAPL) was asked by China Mobile to adapt Iphone so it could be used (more)
Amazon (AMZN) said to be in talks on ebook pricing ahead of the Ipad launch (more)
Google(GOOG) accurding Viacom of secretely uploading material on Youtube (more)
Google (GOOG) working on tv platform with Intel, Sony, Logitech (more)

Top 50 Low-cost ETF’s

IS — Thu, 18 Mar 2010 11:00:17 +0000

One of our readers told us she would like to know what the best low-cost ETF’s are. So we started looking and were not sure how to go about it. In the end, we decided to use the 50 best ETF’s on US markets in the past year that had a maximum expense ratio of .20%. Obviously, this list comes after an incredible stock rally with almost all indexes gaining double digits.

Some of you might be surprised to see that no leveraged ETF’s were among the top 50. That would not be because of their performance but rather because in general the expense ratios of leveraged ETF’s are considerably higher.

Also a sidenote, some of these ETF’s have an expense ratio of 0%. While that is technically true, I will explain tomorrow how these fees can be presented in a misleading way. The ETF’s presented here all belong here from what I could see. But permitting ETF’s to present their fees in such a way can be a bit misleading. I will get into that tomorrow.

So here we go, here is the top 50!

Ticker	Name	CUR_MKT_CAP(M)	Price	1Y Ret	Ret YTD	Fees
VNQ	Vanguard REIT ETF	5523.695	48.67	98.19	7.219	0.12
VBR	Vanguard Small-Cap Value ETF	1496.493	59.49	88.204	8.829	0.11
RKH	Regional Bank HOLDRs Trust	181.4033	85.1	86.573	10.914	0
VB	Vanguard Small-Cap ETF	3143.904	62.561	84.357	8.753	0.1
VBK	Vanguard Small-Cap Growth ETF	1360.399	65.1	80.847	8.485	0.11
HHH	Internet HOLDRs Trust	140.8905	60.05	78.252	2.326	0
VXF	Vanguard Extended Market ETF	884.3387	46.63	76.911	7.919	0.08
OIH	Oil Services Holders Trust	2096.315	126.76	76.608	6.095	0
IWR	iShares Russell Midcap Index Fund	5427.055	88.77	75.183	6.884	0.2
IJR	iShares S&P SmallCap 600 Index Fund	5841.99	59.34	75.054	8.224	0.2
VO	Vanguard Mid-Cap ETF	2482.474	64.56	74.573	6.956	0.12
IJH	iShares S&P MidCap 400 Index Fund	7453.59	78.62	73.868	7.969	0.2
IWM	iShares Russell 2000 Index Fund	13206.83	67.64	73.726	8.088	0.2
IAH	Internet Architecture HOLDRs Trust	49.48956	51.6	70.987	2.417	0
QQQQ	Powershares QQQ	19639.51	47.39	65.292	3.257	0.2
VGK	Vanguard European ETF	2649.229	48.03	65.261	-2.001	0.16
VEA	Vanguard Europe Pacific ETF	4558.947	34.42	63.955	0	0.15
IVE	iShares S&P 500 Value Index Fund	3938.155	55.91	60.561	4.924	0.18
VPL	Vanguard Pacific ETF	1410.716	53.96	59.926	4.482	0.16
IWD	iShares Russell 1000 Value Index Fund	9270.169	60.52	59.319	4.878	0.2
VTI	Vanguard Total Stock Market ETF	14314.77	59.09	59.016	4.4	0.07
ELG	SPDR Dow Jones Large Cap Growth ETF	197.2036	51.33	58.633	3.492	0.2
IWV	iShares Russell 3000 Index Fund	3035.184	68.34	58.208	4.213	0.2
IYY	iShares Dow Jones US Index Fund	596.3782	57.8934	57.895	4.08	0.2
ISI	iShares S&P 1500 Index Fund	317.2015	52.47	57.413	4.128	0.2
VTV	Vanguard Value ETF	3451.523	49.96	57.337	4.126	0.1
IWB	iShares Russell 1000 Index Fund	5280.825	64.01	57.317	3.963	0.15
VV	Vanguard Large-Cap ETF	2584.152	52.83	56.332	3.769	0.07
VUG	Vanguard Growth ETF	4168.923	55.112	55.427	3.6	0.1
IVV	iShares S&P 500 Index Fund/US	22920.95	116.34	55.346	3.64	0.09
SWH	Software HOLDRs Trust	72.7623	42.09	55.325	0.432	0
SPY	SPDR S&P 500 ETF Trust	72165.63	115.95	55.312	3.634	0.0945
IWF	iShares Russell 1000 Growth Index Fund	11408.95	51.53	55.22	3.129	0.2
JKD	iShares Morningstar Large Core Index Fund	262.3622	66.5068	53.671	3.314	0.2
BHH	B2B Internet HOLDRs Trust	2.10128	0.47	53.653	2.251	0
MGK	Vanguard Mega Cap 300 Growth ETF	320.0263	43.33	53.378	2.89	0.13
MGC	Vanguard Mega Cap 300 ETF	235.056	39.93	52.904	3.065	0.13
MGV	Vanguard Mega Cap 300 Value ETF	211.4825	36.43	52.405	3.362	0.13
IIH	Internet Infrastructure HOLDRs Trust	10.11872	3.0454	52.181	16.858	0
DIA	SPDR Dow Jones Industrial Average ETF Trust	8413.977	106.73	51.492	2.663	0.17
IVW	iShares S&P 500 Growth Index Fund	5656.643	59.47	50.791	2.293	0.18
OEF	iShares S&P 100 Index Fund	2660.811	53.1	49.62	2.838	0.2
SMH	Semiconductor HOLDRs Trust	738.9135	27.56	49.247	-3.415	0
RTH	Retail HOLDRs Trust	356.9172	99.87	48.675	6.611	0
XLG	Rydex Russell Top 50 ETF	346.3561	85.71	45.861	1.986	0.2
NY	iShares NYSE 100 Index Fund	70.9385	56.76	44.899	3.215	0.2
MKH	Market 2000 HOLDRs Trust	21.43209	48.8425	38.127	-1.106	0
WMH	Wireless HOLDRs Trust	22.88913	46.25	34.517	-2.797	0
PPH	Pharmaceutical HOLDRs Trust	646.7308	66.1099	34.493	1.182	0
BDH	Broadband HOLDRs Trust	16.86915	11.422	30.054	-9.783	0

Quick News – March 17 2010

IS — Wed, 17 Mar 2010 21:34:51 +0000

-Yahoo (YHOO) confirmed it is buying Citizen Sports (more)
-China issues warnings to Google’s (GOOG) partners (more)
-Google’s (GOOG) Nexus one phone will be made available on Sprint
-AOL (AOL) sets up $10 million venture fund to back local startups (more)
-Google (GOOG) was deemed “Iressponsible” in launching Buzz without proper testing according to an FTC official

Chinese Internet Stock Picks…in search of the next Baidu (BIDU)

IS — Wed, 17 Mar 2010 10:20:34 +0000

Generally, I follow two types of stocks on IntelligentSpeculator, ETF’s and internet stocks. As far as the internet, I don’t think many would argue that China represents a land of opportunity for internet businesses. With over 1 billion people, a fairly closed market (thanks to the language barrier among other factors) and a population rapidly becoming richer, the opportunities are almost endless. Last year I had an incredible run taking Baidu (BIDU) in my 4 stock picks. I currently am struggling having chosen Sohu which for some reason, is still struggling this year. More on that later on.

Finding new stocks to follow

I had described in the past how I use a dashboard to track possible stock opportunities. In the past month or so, I have improved the ways I’m gathering news and numbers which has made it easier to track these stocks. With 5 stocks live most of them time, I am now looking to add 1-2 stocks to the ones that I follow. I will probably not trade these stocks right now as I will continue to track news and numbers before making a pick. It is similar to AOL, which I have been tracking for a few months now and will soon “give myself the ok” to start trading. But I will get there and I think it’s better earlier than later.

Chinese internet space

One thing I miss about the US internet space is the pre-Google era. Remember a few years ago when there were tens of decent internet players. We had Yahoo, MSN, Altavista, Lycos, etc, etc. All of these competed for market share and it created many trading opportunities. I still think that these will come back but right now, the main internet battles are between two or three players in the US.

In China however, consolidation has not yet taken place and apart from Baidu in search, there are not many dominant players. This creates many different possibilities for all of the stocks listed on US exchanges. Most of them are and right now, I would not get involved with the others, which are listed on Chinese stock markets. There are many reasons but obviously trading costs are one. But also, one of the advantages of investing in those listed in the US is that I have more confidence in their financial statements because US regulations are very strict and while there are some exceptions, generally this makes it more challenging to “falsify” numbers.

Challenges

Obviously, the main challenge is the language. This makes it difficult to visit the actual websites, get information from the companies and so. I would say that I must rely a lot more on research reports for these companies than I would for US companies which I can either be a consumer of, or at least get an idea of what they are offering.

As well, since I am not a Chinese consumer, I do not know the resources that would best track these companies and while I have been improving my information sources, they are still not up to par with sources for traffic trends for example on their websites.

Finally, being so far from the end consumer also means that I am not fully aware of trends, what is “in”, and what isn’t as well rumours about all of these companies. This can make a difference obviously.

Currently Tracked

As discussed above, I currently track 3 internet companies:

Baidu (BIDU): Largest Chinese search engine, which has been getting an incredible amount of time on the news in recent days and weeks as speculation of a Google pull out from the Chinese markets intensify. An already volatile stock, the speculation around its main competitor has made Baidu a great day trading position. Since that is not what I’m doing, I’m not currently trading Baidu.

Sohu (SOHU): 2nd largest portal (similar to a Yahoo business model), but the largest one traded on US markets. It looks attractive at the current valuations so I’m very ok being long the stock despite its poor performance so far this year.

Ctrip (CTRP): Ctrip is an online travel agent, that has a very good position in the Chinese market. I’ve had trades on the name before and things went well!

Candidates

So here are the main names I considered adding to my dashboard in order to eventually trade them:

Ticker	Sector	Name	Mkt Cap (m)	last price	Ret YTD	1Y Return	EPS	EPS CUR	PE	PE NEXT YEAR
SINA	Portals	Sina Corp/China	2470	$40.95	(9.63)	108.10	7.53	USD	14.51	21.70
JOBS	Ecommerce	51job Inc	509	$18.19	1.63	189.58	0.59	USD	30.83	15.91
JRJC	Ecommerce	China Finance Online Co Ltd	173	$8.00	7.95	-10.76	0.96	USD	72.73	30.77
LONG	Ecommerce	eLong Inc	257	$10.94	(1.00)	85.11	0.124	USD	113.96	N/A
GSOL	Ecommerce	Global Sources Ltd	310	$6.96	11.36	70.59	0.35	USD	19.33	10.88
GA	Gaming	Giant Interactive Group Inc	1707	$7.57	7.41	6.27	0.56	USD	14.02	10.96
NTES	Gaming	Netease.com	5160	$39.86	5.98	83.31	2.11	USD	19.16	12.10
PWRD	Gaming	Perfect World Co Ltd	1964	$39.41	(0.08)	210.54	20.57	CNY	13.78	8.57
SNDA	Gaming	Shanda Interactive	2836	$42.41	(19.25)	22.00	3.48	USD	12.63	10.88
NCTY	Gaming	The9 Ltd	186	$7.40	2.49	-42.77	3.5	CNY	2.71	N/A
CYOU	Gaming	Changyou.com Ltd	284	$31.84	(4.19)	N/A	2.87	CNY	N/A	7.82
KONG	Wireless	KongZhong Corp	249	$7.33	(41.00)	46.2	-0.58	USD	24.37	13.33
LTON	Wireless	Linktone Ltd	75	$1.79	4.68	44.35484	0.01	USD	N/A	N/A

Among those, I personally believe the two more interesting ones to add are:

Shanda (SNDA)
NetEase (NTES)

Both are of signifciant size, growing fast and are in the booming online gaming industry. So there you go! Do any of you like any of the other stocks?

Quick news – March 16 2010

IS — Tue, 16 Mar 2010 21:18:13 +0000

-More bad news for Yahoo (YHOO) as senior vice-president Joanne Bradford is leaving the company
-Yahoo (YHOO) is rumored to be shopping for Citizen Sports
-Yahoo (YHOO) signs advertising deal with British music streaming service We7 which may lead to product integration
-More indications from China that Google (GOOG) is about to move out of the country as it license to operate might not be renewed in March
-Facebook was the most visited website in the US last week according to Hitwise, taking over Google’s #1 spot
-Ebay’s (EBAY) Paypal unit launched a new “Send Money” application for Iphone
-Google’s Nexus one sales not doing as well as hoped so far

BRIC ETF stock picks

IS — Tue, 16 Mar 2010 10:00:16 +0000

Ten years ago, the world relied on G7 countries to provide world growth but that changed to a point where the world turns to China for most of its growth. China is one of four developing countries with high growth potential with Brazil, India and Russia. They are now known to all as the BRIC countries and while they are very different, they all share a story of stunning growth that has brought them among the economic powers of the world. Think it’s by chance that 3 of the recent&upcoming Olympic games will be held in these countries? Socchi (Russia) and Rio de Janeiro (Brazil) are anxious to show off to the world and match China’s impressive performance in hosting the 2008 Beijing Olympics.

Who belongs in BRIC?

It’s always interesting to see analysts discuss if a country or another does not belong in the group because of specific problems. For Russia, reasons often discussed are its reliance on commodities and its aging population part of a bigger demographic problem. India also often needs to defend its membership in the select group. India is perhaps not yet at the level of the 3 others in terms of income and GDP but it’s potential is certainly comparable to China’s because its demography.

So I thought I would take a look to compare ETF’s for the BRIC countries to those from one of the four specific countries.

So let’s start with China ETF’s

Ticker	LONG_COMP_NAME	MKT_CAP (millions)	last price	FEES	Return YTD	1Y return
GXC	SPDR S&P China ETF	556.22	$71.21	0.59	0.17	75.743
CHIX	Global X China Financials ETF	48.95	$13.74	0.65	(2.61)	N/A
CHII	Global X China Industrials ETF	25.76	$15.08	0.65	(1.22)	N/A
CHIQ	Global X China Consumer ETF	25.26	$16.79	0.65	2.59	N/A
CQQQ	Claymore China Technology ETF	19.10	$27.23	0.7	5.31	N/A
CHIM	Global X China Materials ETF	9.37	$13.21	0.65	N/A	N/A
CHIB	Global X China Technology ETF	3.17	$15.73	0.65	4.01	N/A
CHIE	Global X China Energy ETF	2.85	$14.30	0.65	(3.53)	N/A
FCHI	iShares FTSE China HK Listed Index Fund	57.28	$47.36	0.72	(1.60)	60.589
CZM	Direxion Daily China 3X Bull Shares	29.60	$36.39	0.95	1.72	N/A
CZI	Direxion Daily China 3X Bear Shares	7.45	$37.85	0.95	(13.52)	N/A
FXI	iShares FTSE/Xinhua China 25 Index Fund	7,905.10	$40.65	0.73	(2.41)	61.07
HAO	Claymore/AlphaShares China Small Cap Index ETF	331.41	$26.86	0.88	3.08	118.066
YAO	Claymore/AlphaShares China All-Cap ETF	77.13	$24.74	0.7	(0.71)	N/A
TAO	Claymore/AlphaShares China Real Estate ETF	59.49	$17.89	0.78	(0.90)	96.362
XPP	ProShares Ultra FTSE/Xinhua China 25	49.16	$65.14	0.95	(5.92)	N/A
CHXX	INDXX China Infrastructure Index Fund	-	$20.60	0.85	N/A	N/A
FXP	ProShares UltraShort FTSE/Xinhua China 25	428.92	$8.52	0.95	(1.31)	-75.761
PGJ	Powershares Golden Dragon Halter USX China Portfolio	455.51	$24.33	0.69	2.28	85.823

Brazil

Ticker	LONG_COMP_NAME	MKT_CAP (millions)	last price	FEES	Return YTD	1Y return
EWZ	iShares MSCI Brazil Index Fund	10,977.47	$72.69	0.65	(1.85)	107.839
BRF	Market Vectors Brazil Small-Cap ETF	730.83	$46.56	0.71	(4.03)	N/A
BZF	WisdomTree Dreyfus Brazilian Real Fund	159.41	$26.55	0.45	0.15	41.392
BZQ	ProShares UltraShort MSCI Brazil	25.30	$23.12	0.95	(1.60)	N/A
BRXX	INDXX Brazil Infrastructure Index Fund	9.62	$21.38	0.85	N/A	N/A

India

Ticker	LONG_COMP_NAME	MKT_CAP (millions)	last price	FEES	Return YTD	1Y return
INP	iPath MSCI India Index ETN	1,069.89	$63.83	0.89	0.36	142.971
EPI	WisdomTree India Earnings Fund	804.07	$22.40	0.88	2.27	134.893
PIN	PowerShares India Portfolio	393.85	$21.78	0.78	(1.00)	109.825
INDY	iShares S&P India Nifty 50 Index Fund	38.64	$25.70	0.89	2.21	N/A
ICN	WisdomTree Dreyfus Indian Rupee Fund	28.38	$25.68	0.45	2.70	17.553
INDZ	Direxion Daily India Bear 2x Shares	4.05	$40.53	0.95	N/A	N/A
INDL	Direxion Daily India Bull 2x Shares	3.89	$38.89	0.95	N/A	N/A

Russia

Ticker	LONG_COMP_NAME	MKT_CAP (millions)	last price	FEES	Return YTD	1Y return
XRU	CurrencyShares Russian Ruble Trust	6.74	$33.96	0.4	3.65	23.154
RSX	Market Vectors - Russia ETF	1,854.20	$32.93	0.69	6.86	147.699
RBL	SPDR S&P Russia ETF	2.99	$29.94	0.59	N/A	N/A

One very surprising fact in my opinion is that I’ve read in many places that investing in a BRIC index ETF was not a good idea because you would be stuck with the two underperformers, Russia and India. Turns out that their 1 year returns are 147.70% (RSX) and 142.97% (INP) which is much higher than the main ETF’s from China and Brazil.

Conclusion

What I think should be drawn is that all four of these countries are very interesting investments and personally I would much prefer investing in a BRIC index than trying to choose the individual country. The margin for error is simply much smaller. So without waiting, here are the main BRIC ETF’s.

Ticker	LONG_COMP_NAME	MKT_CAP (millions)	last price	FEES	Return YTD	1Y return
BIK	SPDR S&P BRIC 40 ETF	428.69	$24.69	0.48	(0.36)	83.412
EEB	Claymore/BNY BRIC ETF	1,030.77	$42.14	0.64	-	91.437
BKF	iShares MSCI BRIC Index Fund	873.07	$45.37	0.72	0.19	100.098
BRIS	Direxion Daily BRIC Bear 2x Shares	3.99	$39.89	0.95	N/A	N/A
BRIL	Direxion Daily BRIC Bull 2x Shares	3.90	$38.95	0.95	N/A	N/A

Closing new trade

IS — Mon, 15 Mar 2010 22:15:10 +0000

For some reason, markets have been kind to me the last few Monday’s and this is another instance as the trade that had Long Ebay/Short Knot had a solid day and I will actually be closing off the trade when markets open tomorrow. The return as of tonight is +24,27%.

Not much news on Ebay today from what I could find, at least nothing major. There were some announcements regarding cheaper solutions for Paypal small transactions, but nothing major really.

In any case, another good trade, let’s hope things can keep up. This will also allow me to make another trade next Monday.

Quick News – March 15 2010

IS — Mon, 15 Mar 2010 21:00:30 +0000

-Baidu (BIDU) was raised to “BUY” by Mirae Asset Securities, target price of 645$
-Chinese Google (GOOG) advertisers are being urged to switch their budgets to rivals such as Baidu (BIDU)
-Thanks to growing possibilities of a Google pull-out from China, Baidu’s stock price moved past Google’s today
-Ctrip (CTRP) rated neutral by initial rating done by Cowen
-Rackspace (RAX) raised to outperform at RBC Capital

New Stock Pick: Long Google(GOOG) & Short Valueclick(VCLK)

IS — Sun, 14 Mar 2010 11:00:24 +0000

Here we are again looking for a new trade to execute and while taking a look at my stock screener, it now looks like the right time to go short on Valueclick, one of the more important online advertising companies. The major problem with Valueclick is that its technology and properties have fallen behind and are no longer on the cutting edge. Some years ago, Valueclick looked like an attractive target to major players such as Google (GOOG) and Yahoo (YHOO). But I don’t see that as being as likely right now. Valueclick’s sales have been drowning. Here is a quick summary:

Year	Annual sales
2007	616.51
2008	455.44
2009	422.72

Scary hey? Of course, because of this, Valueclick trades at a very low P/E ratio but I still consider that it is too high, especially when I compare it with the ratios of Google. Bloomberg estimates that Valueclick’s P/E ratio for next year will be 13.46 while Google’s will be 18.54. Google has been struggling to find high revenue growth (mainly because its revenues come almost exclusively from one source) but when you compare its growth to Valueclick, it looks much more attractive.

While Google has been trying various different strategies to generate new revenues, Valueclick seems content on remaining still. Of course, that is not good enough. With diminishing sales, there are few ways to make profits apart from cutting costs, and you can only do that to a certain extent. To give you an idea, just take a look at the Press Page on Valueclick’s page, there is nothing new in recent months. Compare that to Google which is launching almost one new product or initiative every week and you can understand why Valueclick is falling behind.

Here is a quick comparison of both firms financially:

	Price	EPS	PE Ratio	PE next year	Return YTF	SALES_GROWTH
VCLK	10.12	0.71	12.49383	13.46	0	-7.18
GOOG	581.14	20.62	28.4733	18.54	-6.264713	8.51

Finally, here are the stock charts for both stocks. You can see how Google has now moved above its 50 day moving average and could hopefully break out to the upside. Google’s stock has suffered greatly this year but I am counting on a rebound with hopefully good results in Q2 (to be announced in April).