Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
ETFs That Cast a Wide Net
07/10/2007 12:00 am EST
Jim Lowell, editor of the Forbes ETF Advisor, finds some ETFs that give investors broad market exposure or offer ways to pursue more targeted strategies.
I think that the major markets of the world are where the majority of our assets ought to be invested. Not only do they provide more reliable returns over time with less risk relative to emerging markets, but they also can deliver some significant upside. [Here are some ETFs to buy:]
iShares Dow Jones US Total Market Index Fund (AMEX: IYY). Owning the map of the US market as imaged by the holdings and performance of the Dow Jones US Total Market Index (which represents 95% of the market cap of all US companies) makes sense. If it ever didn’t, investing elsewhere would also be suspect. The top three sectors are financials (20.5%), technology (13.7%), and industrials (13.4%); making this a reasonable blend of growth and value companies with real products, real earnings, and real market share in a marketplace that we want to be in. (It closed near $75 Monday—Editor)
iShares MSCI-EAFE Index Fund (AMEX: EFA) If the IYY let’s us cover our US bases, the EFA enables us to cover the established market bases beyond the US’s pale. The MSCI EAFE Index represents the Europe, Australasia, and Far East markets. The top three country allocations are the UK (23.1%), Japan (22.3%), and France (9.5%). As you well know, I think the global economy is the key to long-term growth. If I’m right, this is the vehicle that fits that key. (It closed below $83 Monday—Editor.)
PowerShares Dynamic Market (AMEX: PWC). The PWC is top-ranked in our quantitative ranking system in the large-cap category, and as such merits ownership; but knowing what you own is more difficult with such “next-generation” ETFs. Here, the PWC seeks investment results that correspond to the price and yield performance of the Dynamic Market Intellidex Index, which is made up of stocks from all market capitalizations and sectors based on a proprietary metric that opts for holdings based on their potential for capital appreciation. (Large cap stocks make up 49% of the holdings while small caps make up 8%.) (It closed below $55 Monday—Editor.)
Defensive growth stocks will have their day in the sun, and when they do, a dose of the iShares S&P Global Healthcare (AMEX: IXJ) will serve us well. True, this has not been the case year to date, or over the prior five years. But that only makes the companies that this ETF holds better valued and hence the most likely safe-haven play when the bear comes knocking on Wall Street’s door. (Think of it as a life raft on our growth ship.) The S&P Global Healthcare Sector Index (which is made up of health care stocks from the S&P Global 1200 Index) maps to its world as follows: US stocks make up 64.3% of the holdings followed by Switzerland (12.3%), and the UK (11.2%). (It closed below $60 Monday—Editor.)