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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Published: September 27, 2004
These are interesting times in ETF land. In the coming months, you
should see a new fund based on shares of companies that achieve most of
their revenues from China. There may also soon be a substantial addition
to the Powershares family of funds, which are actively managed based on
a quantitative methodology. Also, the American Stock Exchange (AMEX) is
feverishly working to develop a series of actively-managed ETFs.
(Remember, with the exception of the Powershares, all ETFs are based on
passive indices. Active management would expand ETFs into direct
competition with most open end mutual funds.) And someday – who knows
when – one of the long talked about gold funds might finally come to
market.
As a warm up, State Street Global Advisors recently launched the new
S&P 500 SPDR O-STRIP (symbol OOO). The O-Strip holds all S&P 500
Index components that trade on the Nasdaq.
The fund was created largely in response to institutions that desired an
easy way to hedge their S&P 500 based portfolios via program
trading. Buying and selling the Nasdaq portion of their portfolios can
be very expensive (it is actually cheaper to trade on the New York Stock
Exchange, according to most studies). The OOO allows market participants
to buy and sell this whole block of stocks via one trade. This
capability does not come without cost; OOO charges a 0.36% expense
ratio, nearly double the 0.20% charged by the Nasdaq-100 Trust (QQQ) and
more than triple the 0.10% charged by the S&P 500 SPDR (SPY).
However, this is still far less than it would cost to buy and sell this
group of stocks individually.
As of now, the AMEX website shows that you can only trade OOO in a
minimum increment of 100 shares. I have contacted AMEX to have this
corrected. State Street Global Advisors, the managers of the fund,
confirmed that you can buy or sell as few as one share of OOO at a time.
This would be important to most retail accounts since this fund
currently trades at well over $135 per share.
Although the O-Strip adds financial sector stocks (such as banks and
brokers), the fund actually has a heavier weighting in technology
relative to QQQ. Below you'll find a listing of the various indices' top
sector weightings:
| Sector |
Nasdaq
Comp. |
Nasdaq 100
|
O-Strip |
| Info. Tech. |
51.1% |
60.4% |
68.4% |
| Cons.
Discr. |
13.0% |
15.9% |
10.6% |
| Health Care |
13.5% |
13.4% |
10.0% |
| Financials |
11.1% |
0.0% |
5.3% |
| Industrials |
5.6% |
4.9% |
2.5% |
Microsoft (MSFT) and Intel (INTC) account for more than 27% of OOO's
value. This compares with less than a 14% weighting in the QQQ and
around 15% in the Nasdaq Composite. So, despite the addition of
financial stocks, OOO is far more concentrated than many other
comparable funds. The O-Strip also holds just 75 different companies. As
a result, the fund is likely to be a bit more volatile than its
peers.
Not too surprisingly, the correlation among these indices is fairly
high. The table below shows how closely the three Nasdaq indices track,
along with the S&P 500 and the Technology SPDR (XLK).
| O-Strip
Daily Correlation |
| Nasdaq 100 |
98.95% |
| Nasdaq
Composite |
98.40% |
| S&P 500 |
88.30% |
| Technology
SPDR |
97.33% |
The OOO will become an interesting product for investors to use when
analyzing sector trends. Spreads between the O-Strip, the Nasdaq 100 and
the Nasdaq Composite will be interesting and may provide valuable
information. However, due to its high share price, and the fact that it
will be used most likely as a program trading vehicle, I doubt that OOO
will become a major retail product. There may be some good opportunities
in it though, and I will keep an eye on it for our readers.
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