The iShares Emerging Markets ETF Does a Poor Job of Tracking the MSCI Emerging Markets Index

The iShares Emerging Markets ETF (symbol: EEM) and the Vanguard Emerging Markets ETF (symbol: VWO) both track the same index, the MSCI Emerging Markets Index. However, iShare's EEM has underperformed the underlying index by about 5% so far in 2007 due to a tracking error. Through the end of August 2007, EEM had appreciated about 17.33% for the year, whereas Vanguard's VWO had appreciated about 22.10%. The reason for the performance difference from the two ETFs that track the same index is due primarily to sampling techniques and, to a lesser extent, the larger expense ratio of EEM (0.75%) versus that of VWO (0.30%).

Index funds often fail to purchase all of the securities in the index being tracked. As I understand it, the funds often do this because some of the securities in the index are not very liquid and the purchase of even a small number of shares can substantially move the price of some securities. Moreover, the transaction costs can theoretically be reduced by purchasing a smaller number of different securites in a smaller number of trades.

There are 830 different securities in the MSCI Emerging Markets Index. iShares' EEM holds shares of 552 securities of the MSCI Emerging Markets Index. VWO, on the other hand, holds shares of 858 securities (i.e., VWO holds shares of some securities that are not even in the index in an effort to better track the index).

I'm not sure how iShares decides which of the securities to hold and which to avoid. However, EEM's 5% tracking error this year is very disconcerting. I own shares of EEM in my own accounts. I purchased them a couple years ago because EEM had a much larger trading volume than VWO and the bid/ask spread was lower. However, the trading volume of VWO has definitely increased over the past year or so and the bid/ask spread has been decreasing. From now on, I will probably only purchase shares of VWO because it does a much better job of tracking the MSCI Emerging MArkets Index.

New Designs For The U.S. Penny Will Be Introduced In 2009 To Commemorate Lincoln's 200th Birthday

The U.S. Mint is changing the designs on the Lincoln penny in 2009 to commemorate the 200th anniversary of Abraham Lincoln's birthday and the 100th anniversary of the Lincoln penny. The face of the penny has remained the same since its introduction in 1909. The design on the reverse side, however, was changed in 1959 from wheat stalks to the current design of the Lincoln Memorial.

The U.S. Mint recently revealed that it will introduce four rotating designs on the 1-cent coin for 2009 that will depict different aspects of Lincoln’s life. Here are some of the designs being considered:


The commemorative coins will only be made in 2009; in 2010, news pennies will include a new permanent design.

I expect that the 2009 pennies will become collectors’ items, just like the 2004 and 2005 Westward Journey nickels have become. When 2009 rolls around, I will be sure to purchase a few rolls of the new pennies from my local bank branch.


*** Update - September 23, 2008 ***

The U.S. Mint revealed the four new designs for the U.S. penny in a ceremony on September 22, 2008. The four designs shown above in this post were merely among the proposed designs. The designs that are actually going to be used are discussed in a recent post I wrote discussing the new designs for the 2009 U.S. penny.

August 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio rebounded in August after registering negative returns in June and July. As of the market close on August 31, 2007, the Hypothetical Model Portfolio was up $1324, or about 0.88% during August. The Hypothetical Model Portfolio is now up about $6756 in 2007, a gain of 4.64%, as shown on the table below (click for a larger image of the table). The 2007 returns for the Hypothetical Model Portfolio now slightly trail the 5.14% return of the benchmark Vanguard S&P 500 Index fund (VFINX).

Tech stocks led the way in August, with the Nasdaq 100 ETF (QQQQ) rising 2.82%. QQQQ is now up an impressive 13.38% this year. I certainly never would have predicted at the beginning of the year that QQQQ would be one of the top performing U.S. stock market indices for the year.

Financials also performed very well in August, gaining back some of the ground they lost in June and July. The SPDR Financial components ETF (XLF) rose about 2.58% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rose about 2.05%.

Other broad U.S. stock market indices also registered decent returns. The Vanguard S&P 500 Index fund (VFINX) returned about 1.50%, the Vanguard Small Cap Value Index (VISVX) returned about 1.45%, and the Vanguard Small Cap Index mutual fund (NAESX) returned around 1.34%.

International stocks struggled during the month, with the Templeton Russia closed-end fund (TRF) dropping about 6.46% and the Vanguard Developed Markets Index mutual fund (VDMIX) dropping around 0.66%. TRF's return this year has been awful. As I have previously discussed, the primary reason for TRF's subpar returns has been due to premium compression of its closed-end shares due to the introduction of the first Russian stock market ETF. The Net Asset Value ("NAV") for TRF was actually up around 4% as of the end of August, but the shares were down more than 20% because the NAV premium fell from around 38% at the beginning of January 2007 down to about 0.67% as of the end of August.

The Model Portfolio's returns have been very volatile so far this year. Many pundits apparently think that the country is headed for recession. The FED will do everything in its power to prevent the U.S. economy from contracting and if the FED is successful, I expect the markets to soar much higher. On the other hand, if the FED is not successful, we will probably experience the first bear market since the awful contraction between 2000 and 2002.

*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.

July 2007 Returns

How To Construct a BRIC-Tracking Portfolio

I have previously written about the tremendous projected growth of the emerging markets of Brazil, Russia, India, and China (see posts from January 2007 and May 2007). Rapid economic development in each of these countries is projected for decades to come. As I mentioned back in January 2007, Goldman Sachs published a report in 2003 on the BRIC countries and projected that the economies of these countries will grow much faster than any of the current developed markets (including the U.S., Japan, Germany, the U.K., Italy, and France) and the local currencies of the BRIC countries will appreciate some 100-300% against those of the developed markets.

There are popular relatively low-cost emerging markets ETFs currently being offered, such as the iShares MSCI Emerging Markets Index Fund (symbol: EEM), which tracks the MSCI Emerging Markets Free Index. Another popular emerging markets ETF is the Vanguard Emerging Markets ETF (symbol: VWO), which tracks a slightly different emerging markets index, MSCI Emerging Markets Select Index. Both the iShares and the Vanguard ETFs are a good way to invest in emerging markets. However, both invest only around 40% of their assets in the BRIC countries.

I have been waiting for some time for a good BRIC ETF to be introduced that invests only in the BRIC countries. So far, two BRIC ETFs are trading on the market. The oldest is the Claymore BRIC ETF (symbol: EEB), which tracks the Bank of New York's BRIC Select ADR Index, as I discussed back in January 2007. The other BRIC ETF is the SPDR S&P Bric 40 ETF (symbol: BIK), which was introduced in June 2007 and tracks the S&P BRIC 40 Index.

Although I am glad that BRIC ETFs are finally available, I do not like either of the currently available BRIC ETFs. According to ETFconnect, the Claymore ETF invests in the BRIC countries according to these allocations:

• India - 13.56%
• China - 35.79%
• Brazil - 45.88%
• Russia - ???? (possibly 4.77%)

The S&P BRIC ETF invests in the BRIC countries according to these allocations:

• India - 6.70%
• China - 40.05%
• Brazil - 26.75%
• Russia - 25.05%
  

I don't like either of these BRIC ETFs because they both over-allocate investments in certain BRIC countries at the expense of other investments in other BRIC countries. For example, I fail to see the logic behind the index tracked by the Claymore ETF investing less than 5% in Russia stocks, or the index tracked by the S&P BRIC ETF investing only about 6.7% of assets in Indian stocks.

I would prefer to see a BRIC ETF that invests about 25% of assets in each of the BRIC countries. Country-specific ETFs and ETNs are available for small investors to create their own relatively low-cost BRIC-tracking portfolio. I personally would invest according to the following allocation:

• Brazil - 25% - iShares MSCI Brazil Index Fund (symbol: EWZ)
• Russia - 25% - Market Vectors TR Russia ETF (symbol: RSX)
• India - 25% - iPath MSCI India Index ETN (symbol: INP)
• China - 25% - iShares FTSE/Xinhua China 25 Index Fund (symbol: FXI)
  

In order to minimize transaction costs, I would invest via a low-cost brokerage, such as Ameritrade Izone, which only charges $5 per trade. I would also purchase a minimum of $1500-2000 of each security at the time I create the portfolio, and I would rebalance once per year. Because of the inherent volatility of emerging markets, I would probably limit a BRIC investment to 5-10% of my overall portfolio.

How to Collect Pre-1982 Pennies and Nickels

I have previously mentioned that I am collecting nickel coins and pre-1982 pennies because their intrinsic melt values (i.e., the commodity value of the metals comprising the coins) exceed their respective face value. According to coinflation.com, as of the market close on August 10, 2007, a U.S. nickel coin has a melt value of 6.34 cents (i.e., 26.88% above face value) and a pre-1982 penny has a melt value of about 2.42 cents (i.e., 142% above face value).

I am saving nickels and pre-1982 for their commodity value and because I passively enjoy coin collecting. The odds are that I'll never make that much money off collecting coins for their commodity value. To be perfectly honest, if I didn't enjoy collecting coins, this would probably be a waste of time.

I have seen people attempting to sell pre-1982 pennies for prices well above face value (and even above the melt value). This seems like a total rip-off to me, given the fact that pre-1982 pennies (and nickels) are still widely abundant in circulation. I know that many people are hoarding these coins, but don't forget that the U.S. Mint produced many billions of these coins that are still being used in commerce.

I personally save all of the nickels and pre-1982 pennies I receive in change, except for the ones that have gum on them or are extremely dirty. I also occasionally purchase rolls of pennies and nickels from bank branch offices. There is a bank branch office right across the street from where I live, so these rolls are easy to get.

I have purchase rolls of coins at face value from different bank branches and have never been hassled or charged a fee for doing so. I stopped purchasing rolls of pennies a long time ago because it was too much of a hassle to search through 50-penny rolls for pre-1982 pennies. However, every once in awhile I still purchase a few rolls of nickels. Once of the reasons why I like purchasing rolls of nickels is because I rarely receive and of the 2004 and 2005 "Westward Journey" commemorative nickels in circulation anymore. Luckily, however, I can usually find a few of the Westward Journey nickels in $2 rolls of nickels available at bank branches.

Vanguard Provides a New ETF That Tracks the MSCI EAFE Index

I have previously mentioned that the Morgan Stanley Capital International, Inc. Europe, Australasia Far East index (a.k.a., the MSCI EAFE index) is the "S&P 500" of foreign stocks. Until recently, the best ETF tracking the index was an iShares ETF (symbol: EFA). EFA is a core holding of my Hypothetical Model Long-Term Portfolio.

Accordingly to the iShares website, EFA currently has an expense ratio of about 0.35% and is the largest foreign stock ETF, with about $45 billion in net assets. Although 0.35% is a very low expense ratio, Vanguard has decided to undercut iShares with its own ETF tracking the same index. On July 26, 2007, the new Vanguard Europe Pacific ETF (symbol: VEA) began trading on the American stock exchange. VEA tracks the MSCI EAFE index and has an expense ratio capped at 0.15%.

Vanguard's new offering is welcome by investors and should sell quite well. I look favorably upon the ever-decreasing expense ratios of index-tracking ETFs.

July 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed very poorly during July as the overall market swooned. As of the market close on July 31, 2007, the Hypothetical Model Portfolio was down $5,560.57, or about 3.55% during July. July 2007 was the worst month for the Hypothetical Model Portfolio since last May, 2006 when the Hypothetical Model Portfolio dropped 4.92%. Despite the awful July results, the Hypothetical Model Portfolio is still up about $5432 in 2007, a gain of 3.73%, as shown on the table below (click for a larger image of the table). Morever, the Hypothetical Model Portfolio is still outperforming the 3.58% return of the benchmark Vanguard S&P 500 Index fund (VFINX).

Financials experienced their second consecutive awful month, with the SPDR Financial components ETF (XLF) plummeting 9.07% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) dropping 5.02%. Financials are still performing poorly due to the overhang from problems in the subprime lending market. Another poor performer with a large amount of financial exposure was the Vanguard Small Cap Value Index (VISVX), which dropped 7.21%. Other small cap issues also underperformed, resulting in the Vanguard Small Cap Index mutual fund (NAESX) dropping 5.76% during the month.

The only moderately impressive returns were registered by the iShares Emerging Markets ETF (EEM), which rose 0.70%, the Templeton Russia closed-end fund (TRF), which rose 0.46%, and the Nasdaq 100 ETF (QQQQ), which only fell by 0.07% in a weak market. This marks the second consective month during which TRF has registered a gain, following five months of declines from January - May 2007.

As of the end of July, two of the portfolio holdings are up in double digits so far in 2007 - EEM, which is up just over 16%, and QQQQ, which is up just over 10%. The performance of QQQQ has really surprised me, as I had not anticipated tech stocks to outperform this year.

Two of the holdings in my Hypothetical Model Portfolio paid dividends in July. 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 - instead, 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.

QQQQ paid a dividend of $0.037/share (a total of $7.76) on July 31st, which was moved to "CASH" on the table shown below. DVY paid a dividend of $0.58298 on July 5th (a total of $58.29), which was also moved to "CASH" on the table shown below.

The stock market's performance recently is somewhat disconcerting. However, I do not see any cause for alarm. The pullback during May and June 2006 was far worse than this one, and everything turned out well by the end of 2006. I think we are merely experiencing a correction right now. Corrections are absolutely necessary to maintain an orderly market with manageable levels of risk.

*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.

June 2007 Returns

June 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio registered a negative return during June 2007. As of the market close on June 29, 2006, the Hypothetical Model Portfolio was down $1682.12, or about 1.06% during June. However, due to strong results earlier in the year, the Hypothetical Model Portfolio is still up about $10,992 in 2007, a gain of 7.56%, as shown on the table below (click for a larger image of the table). The Model Portfolio is still outperforming the 6.91% return of the benchmark Vanguard S&P 500 Index fund (VFINX).

Foreign holdings were the best performers, led by the 3.82% increase in the iShares Emerging Markets ETF (EEM) and the 2.96% gain in the Templeton Russia closed-end fund (TRF). June was the first month since December 2006 during which TRF has posted a gain. Perhaps the premium compression of TRF is finally over.

Financials were the worst portfolio performers during June, with the SPDR Financial components ETF (XLF) dropping 4.00% and the iShares Dow Jones U.S. Select Dividend Index Fund (DVY) dropping 3.99%. Financials performed poorly due to the overhang from problems in the subprime lending market. Another poor performer during June was the Vanguard Small Cap Value Index (VISVX), which dropped 2.51%. VISVX has a fairly large exposure to financial stocks and is now paying the price for it.

Three of the holdings in my Hypothetical Model Portfolio paid dividends in June. 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.

The Vanguard Index 500 mutual fund (VFINX) paid a dividend of $0.57/share (a total of $139.82), which was reinvested on June 22nd to purchase an additional 1.011 shares at a price of $138.82/share. TRF paid a long-term capital gain of $3.9272 on June 19th (a total of $251.34), which was moved to "CASH" on the table shown below. Finally, the S&P 500 Financial components ETF (XLF) paid a dividend of $0.204 on June 27th (a total of $19.98), which was moved to CASH.

As of June 29, 2007, there was a total of $347.45 in CASH. Because this amount was greater than $100, I reinvested this money in the Vanguard mutual fund holdings that lagged my target allocation by the largest amount. In this case, VISVX and VFINX were the only two Vanguard mutual fund holdings of which less than the target allocation amounts were held as of June 29th. Accordingly, on the 29th, $200 from CASH was re-invested in VISVX to purcash 11.179 shares at $17.89/share, and $147.45 was re-invested in VFINX to purchase 1.065 shares at $138.43/share. I put more into VISVX than into VFINX because VISVX trailed its target allocation by a larger amount than VFINX. These re-investments are indicated on the June chart below.

*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.

May 2007 Returns

May 2007 Returns For My Model Long-Term Portfolio

My Hypothetical Model Portfolio performed very well during May, generating its largest dollar increase since January 2006 and the largest return, on a percentage basis, since October 2006, matching the 3.47% return achieved during April 2007. As of the market close on May 31, 2007, the Hypothetical Model Portfolio* closed up by $5,299.73 during May. The Hypothetical Model Portfolio is now up $12,674 in 2007, a gain of 8.71%, 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 its fifth consecutive monthly drop in value due primarily to its ongoing premium compression, as I have discussed previously. The other nine holdings in the Model Portfolio all rose, led by the 4.93% return of the iShares Emerging Markets ETF (EEM) , the 4.41% return of the Vanguard Small Cap Index mutual fund (NAESX), and the 4.34% return of the Vanguard Midcap Index mutual fund (VIMSX). Financials lagged slightly during May, with iShares Dow Jones U.S. Select Dividend Index Fund (DVY) rising only 1.97% and the SPDR Financial components ETF (XLF) rising 2.40%.

Through the end of May, the Model Portfolio is up 8.71%, slightly trailing the 8.74% return of the Vanguard Index 500 mutual fund (VFINX). Four of the holdings are up over 11% so far this year. VIMSX is the biggest winner so far, having risen 13.12% in 2007, EEM has risen 11.06%, the Vanguard Developed Markets Index mutual fund (VDMIX) has risen 11.03%, and NAESX has risen 11.02%. The only negative performer so far has been the 2006 portfolio leader, TRF, which is now down a huge 21.25% in 2007.

None of the holdings paid dividends during May. However, QQQQ paid a dividend during April (on April 30, 2007) that I inadvertantly neglected to mention during my summary of the April results. The QQQQ dividend was $0.027/share, a total of $5.67. This dividend is listed in the chart below and was added to the CASH position. As I mentioned in a previous post, the dividends from mutual fund holdings are reinvested, but the dividends from ETFs or 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.

As of May 31, 2007, the premium on TRF is still a relatively low 6.18%, down from the typical double digit premium of the past few years. I still 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.

April 2007 Returns

Barclay's Offers an Indian Stock Market ETN (Not an ETF)

A couple months ago, I wrote a post about the iPATH MSCI India Index exchange traded security (symbol: INP) that tracks an India stock market index. I indicated that this was the first India stock market Exchange Traded Fund ("ETF"). However, I have since discovered that INP is an Exchange Traded Note ("ETN"), not an ETF.

The ETN is a derivative (perhaps similar to futures) that is designed to track the MSCI India Total Return Index. ETFs typically hold shares of stock of the underlying constituents of the various indices that they are designed to follow. An ETN, on the other hand, is an issued security that the issuer promises will track the index. Accordingly, because no shares of the underlying index securities are held within the ETN, the owner of an ETN puts his or her faith in the issuer to maintain the appropriate value to track the designated index. Accordingly, the credit-worthiness of the issuer is a concern for anyone purchasing an ETN.

The Motley Fool published a gloom-and-doom article about this a few months ago. As usual, the Motley Fool's article was very superficial and did not really explain how the ETN's value is derived. I will admit that I am no expert on ETN, but I have to believe that Barclay's (the issuer of INP) hedges its risk through a combination of futures and/or options tied to the benchmark MSCI India Total Return Index.

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.

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.

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.

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.

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.