SPDR Jumps 32.3% in 2013

Last year was a banner year for U.S. stocks and the ETFs that tracked them.

• Large caps in the S&P500 SPDR (SPY) soared 32.3%, their best performance since 1997, topping the index’s 29.6% rally.
• Small caps in the iShares Russell 2000 (IWM) surged 38.7%.
• All U.S. sectors posted gains:
• Consumer Discretionary Select Sector SPDR (XLY) rocketed 42.7%.
• Health Care Select Sector SPDR (XLV) surged 41.4%.
• Industrials Select Sector SPDR (XLI) soared 40.5%.
• Financials Select Sector SPDR (XLF) jumped 35.5%.
• Consumer Staples Select Sector SPDR (XLP) rose 2.63%.
• Energy Select Sector SPDR (XLE) leapt gained 26.3.%.
• Materials Select Sector SPDR (XLB) advanced 26.0%.
• Technology Select Sector SPDR (XLK) climbed 26.3%.
• Safe haven Utilities Select Sector SPDR (XLU) did the worst, but still gained 13.0%.
• Outside the U.S., developed markets tracked by the iShares MSCI EAFE ETF (EFA) gained 21.4% as investors noticed Europe’s bargain valuations and Abenomics fueled a rally in Japan.
• However, the iShares MSCI Emerging Markets (EEM) lost 3.7% as the resource-dependent economies of Brazil and South Africa saw sizeable declines.

All results are total returns, with dividends factored in

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ETFs to Buy on Outcome of Election

Election season always brings out investment professionals offering advice on how to best invest for both a Republican and Democratic outcome.

SPDR University, the ETF information arm of State Street Global Advisors, released a report yesterday, Election 2012: A Time of Polarizing Politics & Heightened Uncertainty, outlining the best ETFs to hold depending on who you think will win. Written by David Mazza, State Street’s head of ETF investment strategy, it’s no surprise that all the recommended funds comes from SPDR.

In this low interest rate environment, high yielding equities have been a favorite among investors. Under a Mitt Romney win, Mazza expects favorable tax treatment for dividends to continue, thus companies that pay dividends would be big beneficiaries. Certain sectors and industries would also benefit under a Romney administration. Increased domestic production would help the energy sector, while less regulation would boost the metals and mining sector. A less restrictive tax environment would help the transportation industry and an increase, or at least few cuts, in defense spending would help the aerospace and defense sector.

The ETFs SPDR suggests for a Romney win:

SPDR S&P® Dividend ETF (SDY)
Utilities Select Sector SPDR Fund (XLU)
SPDR S&P Telecom ETF (XTL)
Energy Select Sector SPDR Fund (XLE)
SPDR S&P Oil & Gas Exploration & Production ETF (XOP)
SPDR S&P Metals and Mining ETF (XME)
SPDR S&P Transportation ETF (XTN)
SPDR S&P Aerospace & Defense ETF (XAR)

Under another four years of President Obama taxes are likely to rise. Mazza suggests municipal bonds to investors in higher tax brackets. If taxes rise on dividends, REITs would offer a better choice for investors seeking income. However, increased government spending could spark a rally in the infrastructure sector. The healthcare industry should also “react favorably” to the president’s reelection.

The ETFs SPDR suggests for an Obama win:
SPDR Nuveen Barclays Capital Short Term Municipal Bond ETF (SHM)
SPDR Nuveen Barclays Capital Municipal Bond ETF (TFI)
SPDR Nuveen S&P High Yield Municipal Bond ETF (HYMB)
SPDR Dow Jones REIT ETF (RWR)
SPDR FTSE/Macquarie Global Infrastructure 100 ETF (GII)
Health Care Select Sector SPDR Fund (XLV)
SPDR S&P Health Care Services ETF (XHS)
SPDR S&P Biotech ETF (XBI)

Should the political paralysis that has gripped Washington over the past two years continue in the future, preventing major changes, Mazza suggests non-dollar denominated assets and those with low to no correlation to dollar-denominated assets. This could lead to a broad move away from U.S. assets to those in high growth emerging markets. For those looking to invest in local currencies, he suggests non-US fixed income. Gold would continue to rise if countries continue to devalue their currencies to boost exports or the U.S faces another debt crisis. And with increased government spending leading to a long-term inflationary environment, assets with a real return should rally.

The ETFs SPDR suggests for an political paralysis:

SPDR Barclays Capital Emerging Markets Local Bond ETF (EBND)
SPDR Gold Trust (GLD)
SPDR SSgA Multi-Asset Real Return ETF (RLY)

Utilities Fund Receives Bearish Signal

The Recognia Report says that the Utilities Select Sector SPDR ETF (XLU) has hit what is known in technical analysis as a Diamond Top.

This intermediate-term bearish signal indicates that the stock price may fall from Friday’s closing price of $32.80 to the range of $27.70 – $28.60. Since it took 73 days for this pattern to form, technical analysis says this is roughly the period of time in which the target price range may be achieved.

Talking About Beating Bond Yields

Charles Wallace, a great business writer, gave me and Dividend Stocks for Dummies a nice write up in his AOL Daily Finance piece on where to invest in a rocky market.

“In a volatile environment, where the stock market can go down and bonds are paying extremely low interest, a good place to beat the rate of return on bonds is dividend stocks,” Lawrence Carrel says. “If you can get potential upside in your investment at a yield that is 60% to 100% better than the 10-year Treasury, why wouldn’t you take it?”

I mention a few stocks posting yields much higher than bonds, as well as Utiities Select Spider Fund (XLU), which currently yields 4.1% or 52% more than the 10-year Treasury.

For the full article go to DailyFinance.

Podcast of My Recent Radio Appearance

I recently spoke on The Index Investing Show with Ron DeLegge. Here is a podcast of the July 25 show.

I talk about the best dividend-paying industries and the best ETFs for dividend investing. I explain how WisdomTree’s dividend-based ETFs pay dividends and mention Vanguard REIT ETF VNQ, which yields 4.6%, and the Utilities Select Sector SPDR (XLU), which yields 4.3%.

This is a podcast of the entire show, which is 45 minutes long. It’s a good show, but if you just want to hear me, I come on 33 minutes into the show.

Select Sector SPDRs Sue Over Shadow Symbols

The Select Sector SPDR Trust sued INVESCO PowerShares Capital Management over ticker symbols. Filed Thursday in U.S. District Court in Houston, the suit charges PowerShares with trademark infringement and misappropriation.

Select Sector SPDRs offers a family of ETFs that divides the S&P 500 into nine individual sector funds. In April, PowerShares launched a family of nine sector ETFS for the small-cap market based on the S&P 600, a small-cap index. (Blog Postings: Small-Cap Investors Get Sector Funds and Sector ETFs Help You Avoid Single-Stock Risk)

The PowerShares funds, which trade on the Nasdaq Stock Market, use four-letter ticker symbols that add an “S” to the end of the ticker for the Select Sector SPDR funds covering the same industry. Those trade on the NYSE Arca.

“This is a deliberate and unconscionable act on the part of PowerShares to confuse both institutional and retail investors,” said Dan Dolan, director of wealth management strategies for the Select Sector SPDR Trust in a written statement. “PowerShares has succeeded in casting an unfortunate shadow on Wall Street’s efforts to eliminate financial opacity.”

Dolan noted that 101 out of 102 ETFs previously launched by PowerShares have tickers that start with “P.” The sector funds in question are the only products in PowerShares ETF family that begin with an “X.”

Below is a list of the funds side-by-side:

Sector SPDR Consumer Discretionary (XLY)
PowerShares S&P SmallCap Consumer Discretionary Portfolio (XLYS)

Sector SPDR Consumer Staples (XLP)
PowerShares S&P SmallCap Consumer Staples Portfolio (XLPS)

Sector SPDR Energy (XLE)
PowerShares S&P SmallCap Energy Portfolio (XLES)

Sector SPDR Financials (XLF)
PowerShares S&P SmallCap Financials Portfolio (XLFS)

Sector SPDR Health Care (XLV)
PowerShares S&P SmallCap Health Care Portfolio (XLVS)

Sector SPDR Industrials (XLI)
PowerShares S&P SmallCap Industrials Portfolio (XLIS)

Sector SPDR Materials (XLB)
PowerShares S&P SmallCap Materials Portfolio (XLBS)

Sector SPDR Technology (XLK)
PowerShares S&P SmallCap Information Technology Portfolio (XLKS)

Sector SPDR Utilities (XLU)
PowerShares S&P SmallCap Utilities Portfolio (XLUS)

Calling the PowerShares symbols “astoundingly similar,” Dolan told the Wall Street Journal: “I don’t think there’s any other way of looking at it than they’re trying to jump on our back.”

He’s right, of course. If PowerShares planned to latch onto this already understood product, it was a brilliant marketing strategy. The Select Sector SPDRs are probably the most recognizable ETFs in the world. Their marketing campaign of spiders making webs in the shapes of industry icons, such as an oil rig for its energy ETF or a stethoscope for the health care ETF, has been a huge success, both in explaining that ETFs are financial products and what a select sector is. Traders, large and small, call stocks by their tickers not their company names. So, if you wanted the small-cap fund for energy, instead of XLE, you would simply remember the “S” for small.

The question becomes who owns a ticker symbol and can you trademark the first two or three letters of a ticker symbol? Currently, the Intermarket Symbols Reservation Authority, run by the Options Clearing Corp., or OCC, assigns ticker symbols to companies and ETFs. “The ISRA operates a uniform, transparent system for the selection, reservation, assignment and transfer of securities trading symbols by NMS Plan participants.”

Since there are only so many possibilities for three- and four-letter combinations, aren’t there always going to be tickers similar to yours? For instance, most people assume INTL is the ticker for Intel, but it’s not; it’s INTC. Surprisingly, among the many media outlets that reported this story, no one seems to have called the OCC for its opinion.

I did, but the OCC hasn’t gotten back to me.

Meanwhile, I would say the amount of market confusion is minimal. The Journal says the nine Select Sector SPDRS have $31 billion in assets under management. Meanwhile, the nine PowerShares funds in question hold only $50 million. Most hold less than $6 million, and have an average daily trading volume of less than 10,000 shares a day. The Select Sector SPDRS see average daily volumes in the tens of millions.

Top Movers in a Volatile Market

Street Insider.com lists some of the most active ETFs today.

At 2 pm:

iPath S&P 500 VIX Short-Term Futures ETN (VXX) rose 8.37% to $28.30, on midday volume of 44 million shares, already four times more than its daily average volume. The ETF tracks the CBOE VIX, which is up 28.5% today to a near-term high of $42.15.

United States Natural Gas (UNG) gained 1.2% to $6.89 midafternoon on volume of 20.2 million vs. 26.8 daily average.

Utilities Select Sector SPDR (XLU) up 0.34% to $29.35, volume was already double the daily average at 10.6 million. People are moving to utilities for safety and dividends.

United States Oil (USO) fell 1.89% to $36.26 as crude oil futures posted steep losses for the fourth consecutive day. Mid-morning, the June 10 contracts hit an 11-week low near $74.50 a barrel, but were down $1.46 to $75.43 late afternoon. Volume was up 80% to 18 million.

Financial Select Sector SPDR (XLF) was actually flat at 2 p.m. at $15.26. Volume had surged to 260 million from a daily average of 103 million. Goldman Sachs (GS) is up 1.7% to $144.65 in the wake of its annual shareholder meeting.

PowerShares/Van Eck Tie for Most Innovative U.S. ETF

Invesco PowerShares and Van Eck’s Market Vectors shared the 2008 award for the Most Innovative ETF the Americas at the 5th annual Global ETF Awards recently. Daiwa FTSE Sharia Japan 100 won Most Innovative ETF in Asia, while db x-trackers and Lyxor Asset Management tied in Europe.

The actual ETFs weren’t listed, as voters aren’t required to mention the fund’s name, just the firm’s. It’s probably just as well. I surmise that PowerShares won for producing the first family of active ETFs in the U.S. rather than any particular fund. PowerShares’ Active Alpha Multi Cap Fund (PQZ), Active AlphaQ Fund (PQY), Active Low Duration Fund (PLK) and the Active Mega-Cap Fund (PMA) were all launched on April 11, 2008. Does any one fund stand out as more innovative than the others? I don’t think so. I suggest they won more for bringing the active concept to the U.S. market.

PowerShares actually didn’t launch the first active ETF. It had been in a race to come out with the first active ETF, but lost to Bear Stearns by just a matter of weeks. However, when Bear Stearns died, so did its active fund, leaving PowerShares with the first viable active ETFs in the U.S.

Meanwhile, Market Vectors launched five ETFs last year. If I had to guess, I would say they won for their funds covering frontier markets, Africa Index ETF (AFK) and Gulf States Index ETF (MES).

The SPDRs brand of ETFs from State Street Global Advisors again won Most Recognized ETF Brand in the Americas. This is probably due to the fact that the SPDR (SPY) was the first ETF and is the largest and most liquid ETF on the U.S. market. But I’m sure a lot of this has to do with the ad campaign for Select Sector SPDRs.

These commercials, which run often on CNBC, show spiders building webs in the industry-signifying shapes such as an oil derrick for the Energy Select Sector SPDR (XLE), a hard hat for the Materials Select Sector SPDR (XLB) or light bulb for Utilities Select Sector SPDR (XLU). The ad makes a really good connection between the name SPDR and that fact that these are funds to invest in. SPDR also surprised many people by winning Most Informative Website, SPDRS.com. The site is a big advancement over the previous incarnation and much easier to use.

The Global ETF Awards are like the Oscars of the ETF industry. They are unique on Wall Street, because as far as I know these are the only awards in which an industry is invited to vote on itself. This makes winning extremely special because it’s your competitors who say you’ve done a good job, rather than a few individuals.

Some people who read my previous note about the awards seemed to think the conference and awards deal only with the international market. That’s not right. As I clearly stated previously, it’s the only conference that deals with BOTH U.S. AND INTERNATIONAL issues. Nearly every company in the U.S. ETF industry attended and many had representatives speaking on panels. However, unlike other ETF conference I’ve attended, which are completely focused on the U.S., this conference also addresses issues affecting ETF providers outside the U.S.

It was a great opportunity to network with not just State Street, Bank of New York Mellon, ProShares, PowerShares and Barclays, to name a few, but also representatives from the Bank of Ireland, France’s Lyxor, the London Stock Exchange and China Asset Management.

The conference and awards dinner are presented by ExchangeTradedFunds.com and were held at the Grand Hyatt Hotel in New York City.

For the complete list of winners go to ExchangeTradedFunds.com.

Select Sector SPDRs Lowers Fee by 8.7%

The Select Sector SPDRs family of ETFs reported on Tuesday it lowered the expense ratio on all nine ETFs by two basis points, or 8.7%,, to 0.21% from 0.23%. The change is effective Jan. 31.
Launched in 1998, the Select Sector SPDRs were the first ETFs to track market sectors and originally charged an expense ratio of 0.65%. The family divides the S&P 500 index into nine sector index funds

· Consumer Discretionary SPDR (XLY), which equals 7.85% of the estimate weight of the S&P 500 as of Feb. 9.
· Consumer Staples SPDR (XLP) – 12.34% estimate weight of S&P 500
· Energy SPDR (XLE) – 14.26% of S&P 500
· Financials SPDR (XLF) – 10.97% of S&P 500
· Health Care SPDR (XLV) – 15.69% of S&P 500
· Industrials SPDR (XLI) – 10.65% of S&P 500
· Materials SPDR (XLB) – 3.11% of S&P 500
· Technology SPDR (XLK) – 20.68% of S&P 500
· Utilities SPDR (XLU) – 4.45% of S&P 500
As of Feb. 6, together the nine held more than $19.8 billion in assets. In 2008, they traded an average of 260 million shares per day.

For more on Select Sector SPDRS see ETFs for the Long Run, page 35.