Saturday, June 09, 2007
Another ETF Information Website
I have previously written about ETFconnect.com, one of the most informative websites pertaining to Exchange Traded Funds (ETFs). I discovered another good ETF-related website that was mentioned in this weekend's edition of the Wall Street Journal. The website is XTF.com and is operated by XTF Global Asset Management LLC. The website contains various ETF screeners, peer rankings, and ratings.
Saturday, June 02, 2007
Emigrant Direct Has Onerous Money Transfer Rules
I have had an online savings account with Emigrant Direct since the end of 2005, primarily because it has one of the highest interest rates available, which is currently at 5.05%. Up until last week I had only electronically transferred money into the account from a checking account with my primary banking institution.
Last week, however, decided to electronically transfer funds from the Emigrant Direct account to both my Vanguard and Ameritrade brokerage accounts. I have done such transfers in the past with my old ING Direct account, and never had any problem doing so. Unfortunately, Emigrant Direct has very onerous rules regarding money transfers. Apparently they will only electronically transfer money into "checking" accounts, but not into "savings" accounts. I'm not really sure what the legal distinction is between the two types of accounts, but apparently brokerage accounts are considered to be savings accounts. Emigrant Direct blocked the transfer and I ended up being hit with margin fees in my brokerage account because I had purchased some stock when I thought that the money had successfully been transferred.
The really annoying thing is that Emigrant Direct didn't even bother to notify me that my electronic transfer request had been rejected. Anyone who uses Emigrant Direct should consider himself or herself forewarned. I now realize that to transfer money into a brokerage account, I will need to first transfer the money into my checking account with my primary banking institution, and subsequently transfer that money from that particular checking account over to my brokerage account. I'm not sure why Emigrant Direct has this silly restriction, but it is pretty burdensome to say the least.
Last week, however, decided to electronically transfer funds from the Emigrant Direct account to both my Vanguard and Ameritrade brokerage accounts. I have done such transfers in the past with my old ING Direct account, and never had any problem doing so. Unfortunately, Emigrant Direct has very onerous rules regarding money transfers. Apparently they will only electronically transfer money into "checking" accounts, but not into "savings" accounts. I'm not really sure what the legal distinction is between the two types of accounts, but apparently brokerage accounts are considered to be savings accounts. Emigrant Direct blocked the transfer and I ended up being hit with margin fees in my brokerage account because I had purchased some stock when I thought that the money had successfully been transferred.
The really annoying thing is that Emigrant Direct didn't even bother to notify me that my electronic transfer request had been rejected. Anyone who uses Emigrant Direct should consider himself or herself forewarned. I now realize that to transfer money into a brokerage account, I will need to first transfer the money into my checking account with my primary banking institution, and subsequently transfer that money from that particular checking account over to my brokerage account. I'm not sure why Emigrant Direct has this silly restriction, but it is pretty burdensome to say the least.
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.
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.
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 Coinflation.com - 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.
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 Coinflation.com - 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.
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.
Saturday, April 28, 2007
Update on the 2007 Presidential Dollar Coins
Back in February I wrote about how the new Washington Presidential dollar coins were hard to find. Since I wrote that post, I returned to bank branches on several occasions and was finally able to obtain a $25 roll of these dollar coins. I am going to hold on to the roll and do not plan on opening the roll to see if there are and mis-strikes or error coins in the roll at this time.
I have yet to see any of the new dollar coins in circulation at any place other than at banks. It's pretty clear to me that people are hoarding these coins without any intention of using them as currency. I expect to eventually receive some of these coins in change at a postal stamp vending machine, but I would be very surprised to see them anywhere else other than at a coin shop.
A few months ago there were many articles being published about the new dollar coins and how they last far longer than paper dollars and that the maintenance cost of a dollar coin supply is therefore far less than that of a paper dollar coin supply. Many of these articles hinted at the possibility that these coins might eventually become widely used by shoppers. I honestly cannot see that ever happening. Paper dollars are far easier to carry in a wallet and take up less space and weigh far less. Dollar coins will probably never be viewed at anything other than a novelty unless or until the government abolishes paper dollars.
I have yet to see any of the new dollar coins in circulation at any place other than at banks. It's pretty clear to me that people are hoarding these coins without any intention of using them as currency. I expect to eventually receive some of these coins in change at a postal stamp vending machine, but I would be very surprised to see them anywhere else other than at a coin shop.
A few months ago there were many articles being published about the new dollar coins and how they last far longer than paper dollars and that the maintenance cost of a dollar coin supply is therefore far less than that of a paper dollar coin supply. Many of these articles hinted at the possibility that these coins might eventually become widely used by shoppers. I honestly cannot see that ever happening. Paper dollars are far easier to carry in a wallet and take up less space and weigh far less. Dollar coins will probably never be viewed at anything other than a novelty unless or until the government abolishes paper dollars.
Sunday, April 08, 2007
March 2007 Returns For My Model Long-Term Portfolio
My Hypothetical Model Portfolio performed fairly well during March. As of the market close on March 30, 2006, the Hypothetical Model Portfolio was up $2159.30, or about 1.48% during March. The Hypothetical Model Portfolio is now up about $2243 in 2007, a gain of 1.54%, as shown on the table below (click for a larger image of the table).
Foreign holdings were the best performers, with the iShares Emerging Markets ETF (EEM) rising an impressive 6.15% and the Vanguard Developed Markets Index mutual fund (VDMIX) rising 2.58%. Several other holding rose more than 1% in March, including (a) iShares Dow Jones U.S. Select Dividend Index Fund (DVY), which rose 1.44%; (b) Vanguard Small Cap Index (NAESX), which rose 1.22%; and (c) Vanguard Index 500 mutual fund (VFINX), which rose 1.11%.
Unfortunately, however, negative performances were turned in by two holdings. The Templeton Russia closed-end fund (TRF) fell about 0.61% and the S&P 500 Financial components ETF (XLF) fell about 0.48%. TRF finished March down 19.35% so far during 2007. As I have previously discussed, TRF's performance is odd because its underlying net asset value ("NAV") has actually risen about 6.7% (from $63.23 to $67.48), but it share price has fallen because its premium has plummeted from 38.07% at the end of December 2006 to 4.34% at the end of March 2007.
Six of the holdings in my Hypothetical Model Portfolio paid dividends in March. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or a closed end fund (i.e., the Templeton Russia closed-end fund (TRF)) are not reinvested- they will accumulate as "CASH" on the performance table below until at least $100 has accrued, at which point that money will be reinvested in one of the mutual fund holdings. The reason I am doing this is because the index mutual funds in this portfolio do not charge a transaction fee for reinvesting dividends. To reinvent dividends for any of the ETFs or TRF, on the other hand, would cause me to incur transaction fees for the trading commissions.
VFINX paid a dividend of $0.55/share (a total of $134.36), which was reinvested on March 23rd to purchase an additional 1.016 shares at a price of $132.20/share. The Vanguard Mid Cap Index (VIMSX) paid a dividend of $0.005/share (a total of $5.75), which was reinvested on March 21st to purchase an additional 0.276 shares at a price of $20.86/share. The Vanguard Small Cap Value Index (VISVX) paid a dividend of $0.013/share (a total of $13.37), which was reinvested on March 21st to purchase an additional 0.762 shares at a price of $17.54/share. NAESX paid a dividend of $0.006/share (a total of $3.22), which was reinvested on March 21st to purchase an additional 0.095 shares at a price of $33.95/share. The iShares Dow Jones U.S. Select Dividend Index Fund (DVY) paid a dividend of $0.55956 on March 29th (a total of $55.96), which was moved to "CASH" on the table shown below. Finally, the S&P 500 Financial components ETF (XLF) paid a dividend of $0.148 on March 28th (a total of $14.50), which was moved to CASH.
*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.
February 2007 Returns
Foreign holdings were the best performers, with the iShares Emerging Markets ETF (EEM) rising an impressive 6.15% and the Vanguard Developed Markets Index mutual fund (VDMIX) rising 2.58%. Several other holding rose more than 1% in March, including (a) iShares Dow Jones U.S. Select Dividend Index Fund (DVY), which rose 1.44%; (b) Vanguard Small Cap Index (NAESX), which rose 1.22%; and (c) Vanguard Index 500 mutual fund (VFINX), which rose 1.11%.
Unfortunately, however, negative performances were turned in by two holdings. The Templeton Russia closed-end fund (TRF) fell about 0.61% and the S&P 500 Financial components ETF (XLF) fell about 0.48%. TRF finished March down 19.35% so far during 2007. As I have previously discussed, TRF's performance is odd because its underlying net asset value ("NAV") has actually risen about 6.7% (from $63.23 to $67.48), but it share price has fallen because its premium has plummeted from 38.07% at the end of December 2006 to 4.34% at the end of March 2007.
Six of the holdings in my Hypothetical Model Portfolio paid dividends in March. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or a closed end fund (i.e., the Templeton Russia closed-end fund (TRF)) are not reinvested- they will accumulate as "CASH" on the performance table below until at least $100 has accrued, at which point that money will be reinvested in one of the mutual fund holdings. The reason I am doing this is because the index mutual funds in this portfolio do not charge a transaction fee for reinvesting dividends. To reinvent dividends for any of the ETFs or TRF, on the other hand, would cause me to incur transaction fees for the trading commissions.
VFINX paid a dividend of $0.55/share (a total of $134.36), which was reinvested on March 23rd to purchase an additional 1.016 shares at a price of $132.20/share. The Vanguard Mid Cap Index (VIMSX) paid a dividend of $0.005/share (a total of $5.75), which was reinvested on March 21st to purchase an additional 0.276 shares at a price of $20.86/share. The Vanguard Small Cap Value Index (VISVX) paid a dividend of $0.013/share (a total of $13.37), which was reinvested on March 21st to purchase an additional 0.762 shares at a price of $17.54/share. NAESX paid a dividend of $0.006/share (a total of $3.22), which was reinvested on March 21st to purchase an additional 0.095 shares at a price of $33.95/share. The iShares Dow Jones U.S. Select Dividend Index Fund (DVY) paid a dividend of $0.55956 on March 29th (a total of $55.96), which was moved to "CASH" on the table shown below. Finally, the S&P 500 Financial components ETF (XLF) paid a dividend of $0.148 on March 28th (a total of $14.50), which was moved to CASH.
*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.February 2007 Returns
Sunday, March 11, 2007
February 2007 Returns For My Model Long-Term Portfolio
February was a very volatile month for my Hypothetical Model Portfolio. The portfolio was performing very well until February 27th when the market corrected with the Dow dropping about 3.3% (416 points), the S&P 500 index dropping about 3.5%, and the NASDAQ composite dropping about 3.9%.
As of the market close on February 28, 2007, the Hypothetical Model Portfolio* decreased in value by $1684.95, or about 1.14% during the month of February. However, despite February's lousy returns, the Hypothetical Model Portfolio is still up about $84.57 in 2007, a gain of 0.06%, as shown on the table below (click for a larger image of the table).
Only two of the holdings failed to decrease in value - the Vanguard Developed Markets Index mutual fund (VDMIX) and the Vanguard Mid Cap Index (VIMSX). VDMIX rose about 0.31% and VIMSX closed the month at the same price at which it ended in January. VIMSX has performed surprisingly well so far this year and is up about 3.65% through the end of February.
Emerging markets were the worst performers, with the Templeton Russia closed-end fund (TRF) decreasing by about 4.40% and the iShares Emerging Markets ETF (EEM) dropping about 3.98%. The only other holding to drop more than 3% was S&P 500 Financial components ETF (XLF), which fell about 3.05%. TRF has now dropped about 18.85% during the first two months of 2007. The primary reason for TRF's poor performance is compression of its closed-end Net Asset Value premium, as I have previously discussed.
It seems as though 2007 is going to be a volatile year. However, stock market valuations, especially those of U.S. markets, are still right around historical averages. Consequently, I don't see a huge sustained market drop happening anytime soon. I still anticipate my Hypothetical Model Portfolio performing well in 2007 and note that despite the February market turbulence, the Hypothetical Model Portfolio is outperforming the S&P 500 Index by about 0.57%.
*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.
January 2007 Returns
As of the market close on February 28, 2007, the Hypothetical Model Portfolio* decreased in value by $1684.95, or about 1.14% during the month of February. However, despite February's lousy returns, the Hypothetical Model Portfolio is still up about $84.57 in 2007, a gain of 0.06%, as shown on the table below (click for a larger image of the table).
Only two of the holdings failed to decrease in value - the Vanguard Developed Markets Index mutual fund (VDMIX) and the Vanguard Mid Cap Index (VIMSX). VDMIX rose about 0.31% and VIMSX closed the month at the same price at which it ended in January. VIMSX has performed surprisingly well so far this year and is up about 3.65% through the end of February.
Emerging markets were the worst performers, with the Templeton Russia closed-end fund (TRF) decreasing by about 4.40% and the iShares Emerging Markets ETF (EEM) dropping about 3.98%. The only other holding to drop more than 3% was S&P 500 Financial components ETF (XLF), which fell about 3.05%. TRF has now dropped about 18.85% during the first two months of 2007. The primary reason for TRF's poor performance is compression of its closed-end Net Asset Value premium, as I have previously discussed.
It seems as though 2007 is going to be a volatile year. However, stock market valuations, especially those of U.S. markets, are still right around historical averages. Consequently, I don't see a huge sustained market drop happening anytime soon. I still anticipate my Hypothetical Model Portfolio performing well in 2007 and note that despite the February market turbulence, the Hypothetical Model Portfolio is outperforming the S&P 500 Index by about 0.57%.
*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.
January 2007 Returns
Saturday, March 10, 2007
The NAV Premium For The Templeton Russia Fund (TRF) Has Plummeted in 2007
The Templeton Russia and Eastern Europe closed-end fund (symbol: TRF) has plummeted since the start of 2007. This has happened despite the fact that the Russia stock market has been strong so far this year. As of February 28, 2007, TRF is down 18.85%, dropping from $87.30 to $70.84 since the start of 2007. The Net Asset Value ("NAV") of TRF, on the other hand, has risen 2.96%, from $63.23 to $65.08. A chart of the TRF share price and its NAV is shown below (FYI, I copied this chart from ETF Connect).
As I have discussed previously, closed end funds almost always trade at a discount or premium to their NAVs. The vast majority of closed end funds trade at a discount to their NAVs. TRF is one of the rare ones that typically trades at a premium. Between the start of 2007 and February 28, 2007, TRF's premium dropped from 38.07% to 8.85%, a drop of nearly 30%, as shown below.
I suspect that most of the compression in TRF's share price is over. TRF has typically traded at a premium of around 10-15% over the past few years and I see no reason as to why this trend will be broken now.
As I have discussed previously, closed end funds almost always trade at a discount or premium to their NAVs. The vast majority of closed end funds trade at a discount to their NAVs. TRF is one of the rare ones that typically trades at a premium. Between the start of 2007 and February 28, 2007, TRF's premium dropped from 38.07% to 8.85%, a drop of nearly 30%, as shown below.
I suspect that most of the compression in TRF's share price is over. TRF has typically traded at a premium of around 10-15% over the past few years and I see no reason as to why this trend will be broken now.
Wednesday, February 28, 2007
The New Presidential Dollar Coins Are Hard To Find
As I have posted previously, I collect pre-1982 pennies and all nickels because their intrinsic values (i.e. melt values) exceeds their respective face values. As of today, February 28, 2007, a pre-1982 penny has an intrinsic value of about 1.8254 cents (i.e., 182.54% of its face value) and a nickel has an intrinsic value of about 7.80 cents (i.e., about 156.01% of its face value). (See Coinflation.com.) I wouldn't call myself a serious collector, although I do save these coins when I receive them in change.
I enjoy collecting coins because coins are piece of American history. From a certain point of view they are small and readily accessible pieces of art. As such, I was really looking forward to the unveiling of the new Presidential dollar coins which were released on February 15, 2007. The first Presidential dollar coin contains a picture of the first president of the United States, George Washington.
Unfortunately, the new dollar coins are hard to find. The U.S. Mint is supposedly making 300 million of them, but I have yet to see one of them. I have been to three bank branches over the past three weeks, but each one has been out of the new coins. I was informed today that the branch I most recently visited had received a big box of the coins but that they were quickly snapped up by customers. I assume that this means that some people are hoarding a lot of these coins. I generally don't have a problem with people hoarding coins, as I do the same. However, I really wish banks would set limits on how many of these coins they sell to individual customers, as it doesn't seem right that someone can purchase hundreds of dollars of the new coins and then turn around and sell them on eBay or in a coin shop at a premium price.
I enjoy collecting coins because coins are piece of American history. From a certain point of view they are small and readily accessible pieces of art. As such, I was really looking forward to the unveiling of the new Presidential dollar coins which were released on February 15, 2007. The first Presidential dollar coin contains a picture of the first president of the United States, George Washington.
Unfortunately, the new dollar coins are hard to find. The U.S. Mint is supposedly making 300 million of them, but I have yet to see one of them. I have been to three bank branches over the past three weeks, but each one has been out of the new coins. I was informed today that the branch I most recently visited had received a big box of the coins but that they were quickly snapped up by customers. I assume that this means that some people are hoarding a lot of these coins. I generally don't have a problem with people hoarding coins, as I do the same. However, I really wish banks would set limits on how many of these coins they sell to individual customers, as it doesn't seem right that someone can purchase hundreds of dollars of the new coins and then turn around and sell them on eBay or in a coin shop at a premium price.
Thursday, February 15, 2007
The Motley Fool Has Lost A Lot Of Credibility Over the Past Few Years
During the mid- to late 1990s I was a relative novice when it came to stock market investing. I read several books in the late 1990s to increase my investing knowledge base and frequented the Motley Fool website. The Motley Fool was a great resource at the time. The founders of the website would post various stock market-related articles daily and really seemed to be champions of the small investors.
The Motley Fool used to track several different portfolios on the website and would provide daily updates to inform readers as to how well their holdings did on a particular day. The portfolios were interesting because the Motley Fool would notify everyone before they purchased a stock and all purchases were made with real money. The portfolios were loaded with tech stocks and performed phenominally well throughout the 1990s. As I recall they started tracking the first of the portfolios in 1994 and continued tracking the portfolios until the 2001 or 2002 when the portfolios took major hits during the terrible bear market.
The Motley Fool writers often railed against the mutual fund industry for charging exorbitant fees relative to the returns they provided. They were also strong advocates of index funds and often explained why it was almost impossible to beat the various indices over time with an actively managed mutual fund.
Unfortunately, times have changed for the Motley Fool. For the past three or four years the Motley Fool seems to be more concerned with making money off advertsiing and selling its own products than educating investors. For example, the website's current view of mutual funds is radically different than it was in the 1990s - the Motley Fool now advocates investing in the actively managed mutual funds it once shunned and sells a product entitled "Champion Funds" for $149 that recommends various actively-mutual funds to be purchased.
The Motley Fool also has a nasty (and annoying) habit of recycling old articles. I check stock and mutual fund quotes on Yahoo! Finance every day. Yahoo! Finance lists the five or so most recent relevant articles for each of the stocks and mutual funds I check. To ensure that its website is in the top five, the Motley Fool often takes an article that first appeared on its website months ago and updates maybe one paragraph and links it to Yahoo! Finance as a new article. They frequently do this for articles relating to dividends.
It's really a shame that the Motely Fool website has gone downhill. Don't get me wrong - there's still a lot of good information on that website. However, one needs to take what is written over there with a grain of salt because it seems as though making money off of the website is now priority #1 for the Motley Fool.
The Motley Fool used to track several different portfolios on the website and would provide daily updates to inform readers as to how well their holdings did on a particular day. The portfolios were interesting because the Motley Fool would notify everyone before they purchased a stock and all purchases were made with real money. The portfolios were loaded with tech stocks and performed phenominally well throughout the 1990s. As I recall they started tracking the first of the portfolios in 1994 and continued tracking the portfolios until the 2001 or 2002 when the portfolios took major hits during the terrible bear market.
The Motley Fool writers often railed against the mutual fund industry for charging exorbitant fees relative to the returns they provided. They were also strong advocates of index funds and often explained why it was almost impossible to beat the various indices over time with an actively managed mutual fund.
Unfortunately, times have changed for the Motley Fool. For the past three or four years the Motley Fool seems to be more concerned with making money off advertsiing and selling its own products than educating investors. For example, the website's current view of mutual funds is radically different than it was in the 1990s - the Motley Fool now advocates investing in the actively managed mutual funds it once shunned and sells a product entitled "Champion Funds" for $149 that recommends various actively-mutual funds to be purchased.
The Motley Fool also has a nasty (and annoying) habit of recycling old articles. I check stock and mutual fund quotes on Yahoo! Finance every day. Yahoo! Finance lists the five or so most recent relevant articles for each of the stocks and mutual funds I check. To ensure that its website is in the top five, the Motley Fool often takes an article that first appeared on its website months ago and updates maybe one paragraph and links it to Yahoo! Finance as a new article. They frequently do this for articles relating to dividends.
It's really a shame that the Motely Fool website has gone downhill. Don't get me wrong - there's still a lot of good information on that website. However, one needs to take what is written over there with a grain of salt because it seems as though making money off of the website is now priority #1 for the Motley Fool.
Sunday, February 11, 2007
January 2007 Returns For My Model Long-Term Portfolio
January 2007 was decent month for my Hypothetical Model Portfolio, despite trailing the broader market returns. As of the market close on January 31, 2007, the Hypothetical Model Portfolio* increased in value by $1769.52, or about 1.22% during the month of January. The Hypothetical Model Portfolio has now gained a total of $22,246 since it was created in January 2006 with $100,000 and an additional $25,000 was added at the beginning of 2007.
Midcaps led the way during January, with the Vanguard Mid Cap Index Fund (VIMSX) rising about 3.65%. It would be nice if midcaps have a strong year in 2007, as they trailed the S&P 500 by about two percentage points during 2006. The next strongest performers in the portfolio were small caps and tech stocks. The Vanguard Small Cap Index (NAESX) rose about 2.40%, the Vanguard Small Cap Value Index (VISVX) rose about 2.01%, and the Nasdaq 100 ETF (QQQQ) rose about 2.11%.
The weakest returns were turned in by the Templeton Russia closed-end fund (TRF) and the iShares Emerging Markets ETF (EEM). TRF plummeted about 15.12% and EEM rose a paltry 0.11%. The Russia stock market was steady during January and the value of the Russian and Eastern European stocks held by TRF was also steady. However, as I have discussed previously, closed-end funds typically trade at a variable premium or discount to their underlying Net Asset Value ("NAV"). According to ETF Connect, TRF traded at a 38.07% premium to its NAV at the end of December 2006 and at a 17.63% premium on January 31, 2007. TRF has traded at an average premium of around 10-15% since its inception in 1995 so TRF's premium compression is probably about over for now. If Russian and Eastern European stocks perform well this year TRF should provide another solid year of returns.
TRF paid a distribution of $566.33 on January 16, 2007. This distribution was declared at the end of December 2006 and I listed this as a "pending distribution" in the portfolio chart for December. As I mentioned in my earlier post regarding my 2007 portfolio rebalancing, this distribution was reinvested in the Vanguard mutual funds in the portfolio because these funds do not charge a transaction fee. On January 17, 2007, the following purchases were made with this distribution:
*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.
December 2006 Returns
Midcaps led the way during January, with the Vanguard Mid Cap Index Fund (VIMSX) rising about 3.65%. It would be nice if midcaps have a strong year in 2007, as they trailed the S&P 500 by about two percentage points during 2006. The next strongest performers in the portfolio were small caps and tech stocks. The Vanguard Small Cap Index (NAESX) rose about 2.40%, the Vanguard Small Cap Value Index (VISVX) rose about 2.01%, and the Nasdaq 100 ETF (QQQQ) rose about 2.11%.
The weakest returns were turned in by the Templeton Russia closed-end fund (TRF) and the iShares Emerging Markets ETF (EEM). TRF plummeted about 15.12% and EEM rose a paltry 0.11%. The Russia stock market was steady during January and the value of the Russian and Eastern European stocks held by TRF was also steady. However, as I have discussed previously, closed-end funds typically trade at a variable premium or discount to their underlying Net Asset Value ("NAV"). According to ETF Connect, TRF traded at a 38.07% premium to its NAV at the end of December 2006 and at a 17.63% premium on January 31, 2007. TRF has traded at an average premium of around 10-15% since its inception in 1995 so TRF's premium compression is probably about over for now. If Russian and Eastern European stocks perform well this year TRF should provide another solid year of returns.
TRF paid a distribution of $566.33 on January 16, 2007. This distribution was declared at the end of December 2006 and I listed this as a "pending distribution" in the portfolio chart for December. As I mentioned in my earlier post regarding my 2007 portfolio rebalancing, this distribution was reinvested in the Vanguard mutual funds in the portfolio because these funds do not charge a transaction fee. On January 17, 2007, the following purchases were made with this distribution:
- Vanguard Index 500 mutual fund (symbol: VFINX): 1.262 shares at $131.81/share, a total investment of $166.33
- Vanguard Midcap Index mutual fund (symbol: VIMSX): 4.970 shares at $20.12/share, a total investment of $100.00
- Vanguard Developed Markets Index mutual fund (symbol: VDMIX): 7.930 shares at $12.61/share, a total investment of $100.00
- Vanguard Small Cap Index mutual fund (symbol: NAESX): 3.045 shares at $32.84/share, a total investment of $100.00
- Vanguard Small Cap Value Index mutual fund (symbol: VISVX): 5.862 shares at $17.06/share, a total investment of $100.00
*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.
December 2006 Returns
Sunday, February 04, 2007
Updated Model Long-Term Portfolio For 2007
As I mentioned in my post discussing the December 2006 returns for my Hypothetical Model Portfolio, I have added another $25,000 to this portfolio. This money is allocated according to the original portfolio allocation discussed in my January 2006 post regarding the creation of this portfolio. In short, this money is being added to rebalance the portfolio. My rules of rebalancing are that I will not sell any of the holdings, although I am allowed to purchase additional shares. Although this is a purely hypothetical portfolio, I have attempted to make this as realistic as possible and do account for trading commissions that would normally be incurred. In my portfolio, commissions would be incurred when purchasing any of the ETFs or the closed end fund. There are no commissions, on the other hand, for purchasing additional shares of any of the Vanguard index-tracking mutual funds.
As discussed in my last post, the portfolio included $739.97 in CASH (from dividends and capital gains distributions). Accordingly, a total of $25,739.97 is being re-invested at this time. I am not reinvesting the $566.33 in pending distributions for the Templeton Russia Fund (symbol: TRF) because it had not yet been distributed as of the start of 2007. The purchases of the securities in the portfolio were made as of their respective closing prices on December 29, 2006, the last trading day of 2006.
The portfolio includes a total of ten securities and I have purchased shares of nine of the securities in this rebalancing. TRF is the only security for which I did not add additional shares. TRF substantially outperformed the portfolio last year and is actually still overweighted in the portfolio despite the additional of new money.
The following purchases are made with the $25,739,97 I had to invest:
22.000% VFINX
15.700% VIMSX
12.950% VDMIX
12.075% VISVX
12.075% NAESX
8.050% EEM
6.250% QQQQ
4.900% DVY
3.500% TRF
2.500% XLF
The model portfolio after rebalancing is shown in the chart below (click on the image for a larger view)**:
* I have decided that because I am going to add an additional $25,000 at the end of each year to this portfolio, I will reinvest the dividends and distributions from the ETFs and the closed end fund immediately after they are distributed. I will only reinvest this money into the Vanguard index-tracking mutual funds because Vanguard does not charge commissions. The minimum investment for the Vanguard mutual funds is $100, so I will wait until at least $100 has accumulated before reinvesting the dividends and capital gains distributions.
**The total cost of all of the securities in the model portfolio is greater than the total of $125,000 that I initially added (i.e., $100,000 in 2006 and $25,000 in 2007) because $2,168.33 in dividends and capital gains distributions were reinvested. When purchasing new shares with such dividends and capital gains distributions, I added the amount purchased into the "cost" column of the chart shown above. The reason why I did this is because this is how one would need to account for such purchases on a taxable basis, so it makes sense to account for them the same way in this model portfolio.
***The Model Portfolio returned 20.50% in 2006. The way I calculated this was by dividing the $20,476 portfolio gain by $100,000, the total amount initially invested. However, because I added $25,000 in new money to the portfolio, the overall return decreased to 16.38% ($20,476 divided by $125,000) in the chart shown above.
As discussed in my last post, the portfolio included $739.97 in CASH (from dividends and capital gains distributions). Accordingly, a total of $25,739.97 is being re-invested at this time. I am not reinvesting the $566.33 in pending distributions for the Templeton Russia Fund (symbol: TRF) because it had not yet been distributed as of the start of 2007. The purchases of the securities in the portfolio were made as of their respective closing prices on December 29, 2006, the last trading day of 2006.
The portfolio includes a total of ten securities and I have purchased shares of nine of the securities in this rebalancing. TRF is the only security for which I did not add additional shares. TRF substantially outperformed the portfolio last year and is actually still overweighted in the portfolio despite the additional of new money.
The following purchases are made with the $25,739,97 I had to invest:
- Vanguard Index 500 mutual fund (symbol: VFINX): 48.151 shares at $130.59/share, a total investment of $6288.04
- Vanguard Midcap Index mutual fund (symbol: VIMSX): 242.719 shares at $19.78/share, a total investment of $4800.99
- Vanguard Developed Markets Index mutual fund (symbol: VDMIX): 188.190 shares at $12.58/share, a total investment of $2367.43
- Vanguard Small Cap Index mutual fund (symbol: NAESX): 105.816 shares at $32.62/share, a total investment of $3451.71
- Vanguard Small Cap Value Index mutual fund (symbol: VISVX): 177.484 shares at $17.05/share, a total investment of $3026.11
- iShares Emerging Market Index ETF (symbol: EEM): 11 shares at $114.17/share + $5 commission (through Ameritrade Izone), a total investment of $1260.87
- Nasdaq 100 ETF (symbol: QQQQ): 56 shares at $43.16/share + $5 commission, a total investment of $2421.96
- iShares Dow Jones U.S. Select Dividend Index ETF (symbol: DVY): 20 shares at $70.74/share + $5 commission, a total investment of $1419.80
- SPDR Financial components ETF (symbol: XLF): 19 shares at $36.74/share + $5 commission, a total investment of $703.06
22.000% VFINX
15.700% VIMSX
12.950% VDMIX
12.075% VISVX
12.075% NAESX
8.050% EEM
6.250% QQQQ
4.900% DVY
3.500% TRF
2.500% XLF
The model portfolio after rebalancing is shown in the chart below (click on the image for a larger view)**:
* I have decided that because I am going to add an additional $25,000 at the end of each year to this portfolio, I will reinvest the dividends and distributions from the ETFs and the closed end fund immediately after they are distributed. I will only reinvest this money into the Vanguard index-tracking mutual funds because Vanguard does not charge commissions. The minimum investment for the Vanguard mutual funds is $100, so I will wait until at least $100 has accumulated before reinvesting the dividends and capital gains distributions.
**The total cost of all of the securities in the model portfolio is greater than the total of $125,000 that I initially added (i.e., $100,000 in 2006 and $25,000 in 2007) because $2,168.33 in dividends and capital gains distributions were reinvested. When purchasing new shares with such dividends and capital gains distributions, I added the amount purchased into the "cost" column of the chart shown above. The reason why I did this is because this is how one would need to account for such purchases on a taxable basis, so it makes sense to account for them the same way in this model portfolio.
***The Model Portfolio returned 20.50% in 2006. The way I calculated this was by dividing the $20,476 portfolio gain by $100,000, the total amount initially invested. However, because I added $25,000 in new money to the portfolio, the overall return decreased to 16.38% ($20,476 divided by $125,000) in the chart shown above.
Saturday, January 27, 2007
FED Model - Updated Through January 26, 2007
I wrote a post in February 2006 in which I argued that the S&P 500 was undervalued. Since then, the S&P 500 has risen from about 1283 to 1422, a return of 10.83%, excluding dividends. This is a strong gain and I think that the S&P 500 has further to go. Relative to bonds, the S&P 500 still appears to be undervalued.
According to Standard & Poor's, the projected reported earnings through 12/31/07 for the sum of the components of the S&P 500 is about $89.10/share. As discussed above, the S&P 500 index currently trades at about 1422. Accordingly, the forward P/E ratio of the S&P 500 index is about 15.96* (1422/$89.10). This is slightly higher than the historical P/E ratio of around 14-15. However, bonds are still more richly valued than their historical averages. Other asset classes such as real estate and commodities are also richly valued right now and have been for several years. As I wrote last February, it seems inevitable that stocks will eventually catch up to the performance of these other asset classes.
Stocks have been weighed down over the past couple years in large part due to high energy prices and a FED that had been steadily raising short-term interest rates. However, consumer price inflation is still low and bonds are expensive relative to historical averages. The yield on the 10-yr US bond is currently about 4.88%. The earnings yield on the S&P 500 based on estimated 2007 earnings* is about 6.27% (i.e., the inverse of the 15.96 P/E ratio). The earnings yield on the S&P 500 is therefore about 1.45% higher than the 10-yr bond yield. This is still a large disparity and will probably shrink over the next few years as the S&P 500 outperforms the 10-yr bond.
2007 should continue to be a good year for the S&P 500. The S&P 500 probably won't increase in value every month, but even after accounting for a pullback or two this should be a good year nevertheless.
* I used estimated "as reported" earnings in calculating the 2007 estimated earnings. Many stock market analysts use estimated "operating earnings" in calculating forward P/E ratios. The "as reported" earnings account for miscellaneous supposedly non-recurring "one-time" charges and expenses deducted from operating earnings. The "as reported" earnings provide a more realistic estimate of earnings because such miscellaneous non-recurring "one-time" charges and expenses occur every single year. It seems disingenuous to not factor them into the calculation of the forward P/E ratio.
According to Standard & Poor's, the projected reported earnings through 12/31/07 for the sum of the components of the S&P 500 is about $89.10/share. As discussed above, the S&P 500 index currently trades at about 1422. Accordingly, the forward P/E ratio of the S&P 500 index is about 15.96* (1422/$89.10). This is slightly higher than the historical P/E ratio of around 14-15. However, bonds are still more richly valued than their historical averages. Other asset classes such as real estate and commodities are also richly valued right now and have been for several years. As I wrote last February, it seems inevitable that stocks will eventually catch up to the performance of these other asset classes.
Stocks have been weighed down over the past couple years in large part due to high energy prices and a FED that had been steadily raising short-term interest rates. However, consumer price inflation is still low and bonds are expensive relative to historical averages. The yield on the 10-yr US bond is currently about 4.88%. The earnings yield on the S&P 500 based on estimated 2007 earnings* is about 6.27% (i.e., the inverse of the 15.96 P/E ratio). The earnings yield on the S&P 500 is therefore about 1.45% higher than the 10-yr bond yield. This is still a large disparity and will probably shrink over the next few years as the S&P 500 outperforms the 10-yr bond.
2007 should continue to be a good year for the S&P 500. The S&P 500 probably won't increase in value every month, but even after accounting for a pullback or two this should be a good year nevertheless.
* I used estimated "as reported" earnings in calculating the 2007 estimated earnings. Many stock market analysts use estimated "operating earnings" in calculating forward P/E ratios. The "as reported" earnings account for miscellaneous supposedly non-recurring "one-time" charges and expenses deducted from operating earnings. The "as reported" earnings provide a more realistic estimate of earnings because such miscellaneous non-recurring "one-time" charges and expenses occur every single year. It seems disingenuous to not factor them into the calculation of the forward P/E ratio.
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