Important Updates for Investors
Carla Pasternak's Premiere Issue of High-Yield International Just
Released
Income expert Carla Pasternak's debut issue of High-Yield
International covers a Taiwanese manufacturer yielding 9.5%... a
rare Mexican monopoly yielding 13.4%... and other top-performing
investments yielding up to 19.0%.
Government's Biofuel Timetable Could Spell +15,900% Growth
+15,900% growth might seem far-fetched... but it's not. In fact, it
is mandated by law. And I've identified the ONLY stock positioned to
capture this growth.
The
Silver Lining to a Falling Dollar
Despite the U.S. national debt, there is a silver lining for income
investors. This massive spending, combined with movement out of U.S.
Treasuries, is going to take its toll on the dollar, and
international income investors could reap the rewards in the form of
higher dividends. |
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| ETF
Spotlight -- Russell 1000 Value iShares (IWD) |
Published: May 10, 2004
The Russell 1000 Value iShares (IWD) is
an exchange-traded fund that represents an interest in a basket of 1000
value stocks.
Everybody knows what the Russell 2000 is -- it measures the performance
of the 2000 smallest companies in the Russell 3000. Hundreds of smallcap
mutual funds are benchmarked against this index. But what about the
Russell 1000? Do a little math; the Russell 1000 measures the
performance of the 1000 largest stocks in the Russell 3000. This means
that the Russell 1000 has a lot more in common with the S&P 500 and
the Dow than it does with the Russell 2000.
The difference does not end at the fact that the Russell 1000 represents
a basket of large companies. Notice the word "value" in the
fund's title. The value here comes from the fact that this fund invests
in slower-growing companies with low price-to-book ratios.
The methodology employed by Russell is not completely straightforward
and is at least partially proprietary. Russell uses a complex algorithm
that combines price-to-book ratio and Wall Street analysts' growth
estimates. They then combine this information into what they call a
Composite Value Score, or CVS. The lower the CVS, the closer the
company's shares are associated to growth stocks. Higher CVS scores mean
a firm is most similar to a value play.
This methodology in essence assigns a
probability to a stock acting like a growth or a value stock. Therefore,
Russell may include shares of the same stock in both its value index and
its growth index. However, if a stock is seen as having a 20% chance of
its shares being representative of a growth stock, then Russell will
place 20% of the firm's market capitalization into the growth index and
80% into the value index.
Russell uses different criteria to create these scores for large stocks
(Russell 1000) than it does for small capitalization issues (Russell
2000). This is because they feel that there are fundamental differences
between small companies and large companies. If you were to try to
compare growth estimates and price-to-book ratios between the two
indices, you would find different growth and value profiles between
these two universes.
Remember, as is the case with all ETFs, the Russell 1000 Value iShares
(IWD) is not an actively managed fund. Russell reconstitutes the index
itself every year in June by re-ranking the 3000 largest stocks in its
investing universe. Therefore, the top performers from the Russell 2000
in the prior year will enter into the Russell 1000, while the weaker
Russell 1000 firms tend to gravitate toward the Russell 2000.
The Russell 1000 Value iShares (IWD) is a true contrarian play. The low
average price-to-book ratio of the fund's components also means that the
fund is very heavily weighted in the financial sector -- a sector that
typically sports low price-to-book ratios -- to the tune of 34.89% of
the fund's value. As you can see from the tables below, IWD has a fairly
high correlation with the Financial SPDR (XLF). This means that you may
be able to purchase IWD options as a decent replacement for options in
XLF, which tend to be much less liquid. When it comes to other
components, utilities and consumer discretionary issues comprise 12.52%
and 10.89% of the fund, respectively. Although ExxonMobil (XOM) is the
single largest holding (5.41%), that stock accounts for more than half
of the integrated oil weight (9.14%) in the IWD portfolio.
| Russell
1000 Value iShares (IWD) |
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| Type: |
Broad Index |
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| Similar funds: |
Dow
DIAMONDS (DIA) |
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S&P
500 SPDR (SPY) |
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Financial
SPDR (XLF) |
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| Options?: |
Yes, Illiquid |
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| Performance
Data |
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| 52-week High: |
$61.76 |
3/5/2004 |
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Annualized
return since: |
| 52-week Low: |
$47.37 |
5/20/2003 |
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One-year |
22.13% |
| YTD Return: |
-1.10% |
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Three-year |
0.57% |
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Five-year |
N/A |
| Dividends: |
$1.17 |
past
12-mos |
Life of fund* |
2.49% |
| Expense Ratio: |
0.20% |
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*
- Started trading 5/26/2000 |
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| Correlation
Data* |
(1/02/02-4/30/04) |
Holdings* |
(as of 5/5/2004) |
| Dow
Jones Industrials |
94.9% |
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ExxonMobil (XOM) |
5.41% |
| S&P 500 |
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96.3% |
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Citigroup (C) |
4.61% |
| Nasdaq
Composite |
83.6% |
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Bank of America
(BAC) |
3.13% |
| Nasdaq-100 |
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79.9% |
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Verizon (VZ) |
1.92% |
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Chevron-Texaco
(CVX) |
1.86% |
| DIA |
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93.7% |
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Wells Fargo (WFC) |
1.65% |
| SPY |
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95.2% |
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Altria Group (MO) |
1.60% |
| IWF |
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90.9% |
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SBC Comm. (SBC) |
1.56% |
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Amer. Intl. Group
(AIG) |
1.48% |
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JP Morgan Chase (JPM) |
1.42% |
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* Percent top ten
are of total |
24.64% |
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| Average
Daily Volume |
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Average
Daily Price Range |
| Apr-04 |
545,286 |
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Apr-04 |
1.2% |
| 2004 YTD |
484,482 |
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2004 YTD |
1.1% |
| 2003 |
304,921 |
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2003 |
1.5% |
| *
- Correlation measures how closely the two items track each
other |
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*
Includes prior day's close (true range) |
HOW TO MAKE MONEY IN
IWD THIS YEAR
The Russell 1000 Value iShares (IWD, $57.45)
is nearing short-term corrective targets. I doubt prices can move
substantially below $57. Instead, this fund is likely to trade up to at
least $64-$65 before another correction begins. The longer-term picture
suggests that IWD should trade between roughly $50 and $70 throughout
the next twelve months.
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