Tag Archives: VEA

Vanguard Takes 4 of 5 Best for 2011

Steven Goldberg at Kiplinger.com writes a lot about ETFs. He starts out his article on the 5 best ETFs for 2011, telling you the worst ones to buy.

He doesn’t like tiny ETFs that invest in a single industry or a single country. I don’t like tiny ETFs, too much risk with an unproven idea. But single industry ETFs can be quite useful. Do you think the oil industry is going to rally this year? Buy the Energy Select Sector SPDR Fund (XLE).He doesn’t like exchange-traded notes, which are essentially debt instruments backed only by the company that issues them. These can be risky too, as in the case of Lehman ETNs. However, I think for most firms, credit risk is not an issue.

Goldberg thinks the majority of ETFs are little more than high-priced gimmicks. Definitely true for some. However, he doesn’t like the WisdomTree family of ETFs, which weights holdings based on dividends or earnings rather than on the more-traditional basis of market capitalization. I think dividend-weighted indexes have less volatility and don’t fall as much in market crashes. I do agree that actively managed ETFs aren’t ready for prime time, either.

Goldberg likes:

  • Vanguard Mega Cap 300 Growth (MGK), he says put 40% of your portfolio in this.
  • iShares MSCI EAFE Growth Index (EFG)
  • Vanguard Total Stock Market ETF (VTI)
  • Vanguard Europe Pacific (VEA)
  • Vanguard Emerging Markets Stock (VWO)
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GlobalShares Takes on EAFE

GlobalShares made its second foray into the ETF market last week with a mild twist on an old favorite, it adds Canada to the developed world outside the U.S. The GlobalShares FTSE Developed Countries ex US Fund (GSD) launched Feb. 10 on the NYSE Arca. It tracks the FTSE Developed ex US Index, which is comprised of more than 1,400 stocks in 23 developed countries, including Japan, the United Kingdom, France and Germany.

It’s a pretty bold move considering GSD is going against one of the most popular funds on the market, the iShares MSCI EAFE Index Fund (EFA). The MSCI EAFE, which stands for European, Australasian, and Far Eastern markets, is the most popular benchmark for tracking the world outside the U.S. It’s the fourth largest ETF in the world, according to the National Stock Exchange, or NSX, with $33.64 billion in assets under management.

Right off the bat, both funds have the same top ten holdings, although with different weightings. GlobalShares representatives call it the low-cost alternative. However, it charges the same 0.35% as EFA. In fact, the real low cost alternative is the Vanguard European Pacific ETF (VEA), which also tracks the MSCI EAFE, for just 0.16%. VEA is the 37th largest ETF in the U.S. with $4.22 billion in assets, according to the NSX. In addition, the bigger funds offer instant liquidity and very low volatility.

With 7.1% of the GSD portfolio, Canada will make the big difference here. Cinthia Murphy of IndexUniverse says Canada “carries a lot of weight in the commodities markets, and commodities have been a hot ticket in recent months.” She adds WisdomTree and PowerShares have ex-U.S. funds with Canadian stocks, but these don’t have a market-cap weighting like the GSD.

GlobalShares says over the past ten years, the FTSE Developed ex US Index beat the MSCI EAFE 2.58% to 1.79% on an annualized basis. However, commodities have taken a hit lately, and the one month returns favors the EAFE -4.40 vs. -4.77

GlobalShares is the ETF unit of Old Mutual Global Index Trackers, an index tracker/fund manager with the bizarre abbreviation OMGxT. Looks like “Oh My God” times taxes. OMGxT is a unit of mutual fund stalwart Old Mutual, an asset manager with $400 billion under management. Based Johannesburg, South Africa, the 165 -year-old firm became the first African company to list an ETF on the New York Stock Exchange with the December launch of the GlobalShares FTSE Emerging Markets Fund (GSR), which tracks the FTSE Emerging Markets Index. That fund also takes on the big boys, especially the iShares MSCI Emerging Markets Index Fund (EEM), the third largest ETF in the world, with $35.53 billion in assets.

Old Mutual expects to launch three more ETFs within the coming weeks.