Friday, May 25, 2007

Barclays Offers the Only Indian Stock Market ETF

I have previously written about India and how the best way to invest in the Indian stock market was through closed-end funds that invest directly in Indian stocks. India is one of the rapidly growing emerging markets and was dubbed a "BRIC" country in a widely-read 2003 Goldman Sachs report on emerging markets. In the Goldman Sachs report, Goldman projected the Indian ecomony to rapidly grow over the next 40 years at a rate far faster than the western world. The image below is from the Goldman Sach's report and illustrates the projected annual growth rates of the various BRIC countries. As one can see, India's growth rate over the next 40 years is prjected to be far stronger than that of the other BRIC countries.

Although there will undoubteld be hiccups in India's growth, the appreciation of stocks listed on its exchanges should generally correlate to the country's overall economic growth. India is an open democracy with a rapidly expanding population and is probably more politcally stable than the other BRIC countries, Russia, China, and Brazil.

I was pleased to recently discover that Barclays now offers the first Indian stock market ETF (Barclay's actually offers an ETN, not an ETF, as discussed here). Apparently this ETF went public in Deceomber 2006, but I only recently read about it. The name of the ETF is the iPATH MSCI India Index ETF (symbol: INP). It seeks to represent approximately 85% of the free-float-adjusted market capitalization of equity securities by industry group within India. As of March 31, 2007, the Index was comprised of 69 companies listed on the National Stock Exchange of India (the "NSE"). According to Barclays, the index had annual returns of 38.1% over the past five years (through April 30, 2007), 40.33% over the past three years, and 30.36% over the past year.

I am glad to see that someone is finally offering an Indian ETF. ETFs generally have much lower expense ratios than similar mutual funds or closed-end funds and are becoming more and more popular with investors. I will probably purchase some shares of INP the nest time I invest in the stock market, as this new ETF appears to be the best way for small investors to profit from the Indian stock market.

Saturday, May 05, 2007

April 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed very well during April, generating its largest returns since October 2006. As of the market close on April 30, 2007, the Hypothetical Model Portfolio* was up $5,131.37, or 3.47% during April. The Hypothetical Model Portfolio is now up $7375 in 2007, a gain of 5.07%, as shown on the table below (click for a larger image of the table).

All of my holdings were up except for the Templeton Russia closed-end fund (TRF), which had fourth consecutive monthly drop in value due primarily to its ongoing premium compression, as I have discussed previously. Tech stocks, large caps, and financials led the way, with the Nasdaq 100 ETF (QQQQ) rising about 5.58%, the Vanguard Index 500 mutual fund (VFINX) rising about 4.42%, and the SPDR Financial components (XLF) rising about 3.87%. International equities were also strong, with the Vanguard Developed Markets index fund (VDMIX) rising about 3.81% and the Emerging Markets ETF (EEM) rising about 3.73%. Small caps lagged during April - the Vanguard Small Cap Index mutual fund (NAESX) rose about 2.67% and the Vanguard Small Cap Value Index (VISVX) rose a paltry 1.84%.

The Hypothetical Model Portfolio has risen the same amount as the S&P 500 (with dividends reinvested) - 5.07% so far during 2007. Considering that TRF is down over 19% so far this year, I'm pleased that the Hypothetical Model Portfolio has risen the same amount as the S&P 500. As of April 30, 2007, the premium on TRF is down to 2.91%. I suspect that TRF's premium compression is pretty much over and expect TRF to start outperforming other holdings in the Hypothetical Model Portfolio just like it did during the last few months of 2006.

*The Hypothetical Model Portfolio was created with an investment of $100,000 in securities as of the closing values on December 30, 2005 and an additional $25,000 was invested n securities as of the closing values on December 29, 2006. The reason why the total cost in the chart is greater than $125,000 is because the total cost accounts for the value of distributions reinvested into the mutual funds in the portfolio.

Friday, May 04, 2007

The Melt Value of U.S. Nickel Coins Is Still Increasing

I have mentioned several times that I am collecting U.S. nickel coins and copper pre-1982 pennies because the value of the physical base metals from which they are formed (i.e., the "melt value") exceeds their respective face values. Back on December 14, 2006, I mentioned that the metal value of pre-1982 pennies was 2.0752 cents (207.52% of face value), post-1982 zinc pennies had a metal value of 1.1257 cents (112.57% of face value), and nickels had a metal value of 6.9879 cents (139.75% of face value).

The value of zinc (the primary component of post-1982 pennies) has decreased about 13% since then. However, the values of raw copper and nickel metal have risen substantially since mid-December, with copper increasing about 22% and nickel increasing almost 49%. These metals have been soaring during the U.S. commodities boom that has been going on during the past several years. The cause of this boom is most likely due to a continuing weak U.S. dollar and rising demand for raw materials from fast-growing emerging markets such as China and India.

As shown in the chart below (taken from - click on the image for a larger view), the metal value of pre-1982 pennies is now 2.5237 cents (252.37% of face value), post-1982 zinc pennies have a metal value of 0.9953 cents (99.53% of face value), and nickels have a metal value of 9.7226 cents (194.45% of face value).

With the melt values of these metal substantially exceeding the face value for nickels and at about parity with face value for post-1982 pennies, the U.S. Mint is losing many millions of dollars each year by making these coins with their current compositions. As such, it is practically a guarantee that the U.S. Mint will change the base metals of these coins within the next couple years, at which point the current pennies and nickels in circulation will become collectors' items hoarded just like old silver coins were hoarded when the U.S. Mint abandoned the use of silver in its coins.

Wednesday, May 02, 2007

The First Russian Stock ETF Was Launched In April

I have written numerous posts about the Templeton Russia and Eastern Europe closed-end fund (symbol: TRF). I picked it for my Model Portfolio back in December 2005 because it was, at the time, by far the best investment vehicle for U.S. investors to invest in Russia stocks.

I posted back in March that TRF was performing poorly despite the solid performance of the Russian stock market. This underperformance was due to premium compression of TRF's share price relative to its underlying Net Asset Value ("NAV"), which plummeted from a premium of 38.07% at the start of 2007 to a mere 2.73% as of May 2, 2007.

The reason for this premium compression was perplexing and I could not determine a suitable explanation for it. Today, however, I finally found the cause of the compression - the first Russian stock market Exchange Traded Fund ("ETF") was announced earlier in the year. The Market Vectors Russia ETF (symbol: RSX) began trading on Monday, April 30, 2007, on the New York Stock Exchange. (A fact sheet is available at the Van Eck Global website.) TRF finally has a viable competitor in the form of RSX.

RSX tracks the performance of the DAXglobal Russia+ Index, a basket created by the Deutsche Bourse of the 30 most heavily traded Russian companies. Five of the stocks are listed in the U.S. as American depositary receipts (ADRs), 19 trade in London as global depositary Receipts (GDRs) and six trade on Russia's Micex Exchange.