Etf strategies and tactics

ETF STRATEGIES AND TACTICS This page intentionally left blank ETF STRATEGIES AND TACTICS HEDGE YOUR PORTFOLIO IN A CHANGING MARKET LAURENCE M ROSENBERG NEAL T WEINTRAUB ANDREW S HYMAN New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Copyright © 2008 by Laurence M Rosenberg, Neal T Weintraub, and Andrew S Hyman All rights reserved Manufactured in the United States of America Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher 0-07-164289-7 The material in this eBook also appears in the print version of this title: 0-07-149734-X All trademarks are trademarks of their respective owners Rather than put a trademark symbol after every occurrence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark Where such designations appear in this book, they have been printed with initial caps McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs For more information, please contact George Hoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069 TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc (“McGraw-Hill”) and its licensors reserve all rights in and to the work Use of this work is subject to these terms Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited Your right to use the work may be terminated if you fail to comply with these terms THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE McGraw-Hill and its licensors not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, in the work or for any damages resulting therefrom McGraw-Hill has no responsibility for the content of any information accessed through the work Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise DOI: 10.1036/007149734X Professional Want to learn more? We hope you enjoy this McGraw-Hill eBook! If you’d like more information about this book, its author, or related books and websites, please click here In memory of Joni Rosenberg; To my children David, Danny, Michael, and Emma; And to Jan, my wife, your support and love mean everything Laurence M Rosenberg I dedicate this book to the Maggini family of Roviano, Italy Their fortuitous courage and generosity helped my father survive a harrowing bail-out from his crippled bomber, as he returned from the famously troubled August 1943 raid on Regensburg Without their bravery and commitment to humanity, my dad may not have survived the war Neal T Weintraub This book is dedicated to my lovely wife, Adiel, and my daughter, Julia—for their forbearance during the writing of this book It is also dedicated to my in-laws, Juana and Candido, And to my parents, Judy and Leonard, For helping take care of Julia (so this book could get finished.) Andrew S Hyman This page intentionally left blank For more information about this title, click here CONTENTS Acknowledgments xiii Introduction xix What Are ETFs, and What Makes Them Good Investments? What Is an ETF? Origins of ETFs Growth of the ETF Market Product Varieties Why Investors Are Embracing ETFs ETFs Compared to Mutual Funds 11 The Investment Universe 12 Investment Companies 14 Expenses 26 Tax Efficiency 36 Similarities and Differences between Mutual Funds and ETFs 42 How ETFs Work 47 Buying and Selling ETFs: An Illustration 47 ETF Mechanism 49 Arbitrage and ETFs 51 Differences between Unit Investment Trusts and Open-End Companies 52 Grantor Trusts/HOLDRs 54 Actively Managed ETFs in the Future 57 • vii • viii • Contents ETF Regulation 61 ETFs and ETF Look-Alikes 62 Illustration of an ETF Look-Alike 64 Personnel Issues 66 Taxes 69 Regulations outside the United States 72 ETF Indexes 77 What Are Indexes? 77 Development of an Index 79 Index Diversity 82 Major Indexes Measured by ETFs 83 Tax Issues 85 The ETF Universe 89 ETF Investment Options 89 Classification by Capitalization 99 Broad Market Index 100 Funds Classified by Market Capitalization of Investments 101 Style 104 International Funds 109 Sector 114 Specialty Funds 122 Commodity 125 Currency 125 Fixed Income 126 Support and Resistance with Pivots 129 Pivot Points and ETFs 130 Moving Averages and ETFs 133 What about Swing Trading? 135 ETF Money Management 145 Margin-to-Equity Parameter 145 Short Selling: Securities and ETFs 153 Short Selling Securities 154 Short Selling ETFs 154 Hedging Your Portfolio 156 BIBLIOGRAPHY Abramowitz, Pam, “ETFs Still Going Strong—Thanks to the Little Guy,” Exchange Traded Report, a sponsored supplement to Wall Street Letter, a publication of Institutional Investor News, November 2006, pp 12–17 Amenc, Noël, Felix Goltz, and Véronique Le Sourd, Assessing the Quality of Stock Market Indices: Requirements for Asset Allocation and Performance Measurement, EDHEC Risk and Asset Management Research Centre, September 2006 Bodie, Zvi, Alex Kane, and Alan J Marcus, Investments, 5th ed (New York: McGraw-Hill Irwin, 2002) Bogle, John C., Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (New York: John Wiley & Sons, 1999) Currier, Chet, “Index Fund Pioneer Sees Trouble on Horizon,” The Journal News, December 10, 2006, p 5D Delegge, Ronald, “ETF Reporter,” Research, March 2007, p 27 Dieckmann, Raimar, “Retail Certificates: A German Success Story,” Deutsche Bank Research Frankfurt Am Main, Germany, March 19, 2007, www.dbresearch.de/PROD/DBR_INTERNET_DE-PROD/ PROD0000000000208184.pdf “Experts Talk Strategy on ETFs,” Exchange Traded Report, a sponsored supplement to Wall Street Letter, a publication of Institutional Investor News, November 2006, pp 20–25 Gardner, Grant, Andra Kondra, and Mahesh Pritamani, “Russell Indexes: Examining the Frequency of U.S Reconstitution,” • 347 ã Copyright â 2008 by Laurence M Rosenberg, Neal T Weintraub, and Andrew S Hyman Click here for terms of use 348 • Bibliography Investment Policy & Research, Frank Russell Company, July 6, 2001 Gastineau, Gary L., The Exchange Traded Funds Manual (New York: John L Wiley & Sons, 2002) Gastineau, Gary L., “Re: Actively-Managed Exchange-Traded Funds File No S7-20-01.” Letter from Gary L Gastineau of Nuveen Investments to Jonathan Katz, Secretary of the Securities and Exchange Commission, in response to the commission’s request for comment on issues relating to actively managed exchange-traded funds (ETFs) [“SEC Concept Release: Actively Managed ExchangeTraded Funds.” SEC Release Number IC-25258; File S7-20-01 (November 8, 2001), 66 Fed Reg 575614 (Nov 15, 2001)] January 14, 2002 Internal Revenue Service, Instructions for Form 1120-RIC: U.S Income Tax Return for Regulated Investment Companies, Internal Revenue Service, 2005 International Organization of Securities Commissions, “IOSCO Membership and Committees Lists,” International Organization of Securities Commissions, www.iosco.org, accessed on April 2, 2007 Investment Company Act of 1940, August 22, 1940, ch 686, title I, 54 Stat 789 (15 U.S.C 80a–1 et seq.) Short title, see 15 U.S.C 80a–51 Investment Company Institute, A Guide to Understanding Mutual Funds Investment Company Institute, 2006, available online at www.ici.org iShares, iShares Bond Funds Prospectus, July 1, 2006 iShares, iShares Cohen & Steers Realty Majors Index Fund Prospectus, August 1, 2006 iShares, iShares Dow Jones Series Prospectus, August 1, 2006 iShares, iShares MSCI Series Prospectus, January 1, 2007 iShares, iShares Morningstar Series Prospectus, August 1, 2006 iShares, iShares Russell Series Prospectus, August 1, 2006 Bibliography • 349 iShares, iShares S&P Series Prospectus, August 1, 2006 (revised September 12, 2006) Jain, Siddharth, Introduction of KBW Regional Banking Index and KBW Mortgage Finance Index, Report published by Keefe, Bruyette, and Woods, Inc., July 22, 2005, http://media.corporate-ir.net/ media_files/irol/20/202535/news/KBWIndices_072505.pdf McBride, Kathleen, “Fundamental Indexing Goes Main Street: Breaking the Link between Market Cap and Index Weighting,” Investment Advisor, November 2006, pp 86–87 Morningstar, Morningstar Indexes Methodology Overview, 2004, http:// corporate.morningstar.com/us/documents/MethodologyDocuments/ FactSheets/MorningstarIndex_FactSheet.pdf The New Oxford American Dictionary, 2nd ed., Erin McKean, editor (New York: Oxford University Press, 2005) NYSE Regulation, “NYSE Informed Investor: What You Should Know About Exchange Traded Funds,” New York Stock Exchange, 2006, www.nyse.com PDR Services, Standard & Poor’s Depository Receipts Prospectus, January 26, 2007 Standard & Poor’s, “S&P U.S Indices Methodology,” report, January 2007, www.indices.standardandpoors.com State Street Global Advisors, Select Sector SPDRs Prospectus, January 31, 2007 State Street Global Advisors, “SSGA ETF Data Spreadsheet,” www.etfconnect.com/documents/ssga.xls streetTRACKS Gold Trust, Form S-3 Registration Statement under the Securities Act of 1933, November 30, 2006 Swensen, David F., Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment (New York: The Free Press, 2000) Swensen, David F., Unconventional Success: A Fundamental Approach to Personal Investment (New York: The Free Press, 2006) 350 • Bibliography United States Oil Fund, LP, Prospectus, February 2, 2007 U.S Securities and Exchange Commission, “Concept Release: Actively Managed Exchange-Traded Funds; Release No IC-25258,” U.S Securities and Exchange Commission, www.sec.gov/rules/concept/ ic-25258.htm U.S Securities and Exchange Commission, “Invest Wisely: An Introduction to Mutual Funds,” brochure published by the U.S Securities and Exchange Commission, www.sec.gov/investor/ pubs/inwsmf.htm Van Eck Global, Market Vectors Prospectus, April 9, 2007 INDEX Account fee, 27, 29 Actively managed ETFs, 57–60 All-cap growth category, 109 All-cap growth companies, 109 All-cap value category, 109 All-cap value companies, 109 American Stock Exchange (Amex), 242–245 home page, 330 Amex, 242–245 Arbitrage, 51–52, 159–164 Arnott, Robert, Assessing the Quality of Stock Market Indices: Requirements for Asset Allocation and Performance Measurement, 98 At-the-money, 167 Austria, 213–214 Back-end load, 27, 29 Barclays Global Investors (BGI), 205, 206 Belgium, 214 Bernstein, Peter, 82 BGI, 205, 206 BLDRS Europe 100 ADR Fund (ADRU), 207 Bogle, John, 89 Bond ratio, 176 Breakeven, 168 Cap weighting, 270 Cash drag, Cash flow, 178–179 Cheat the Street home page, 336 Claymore/Ocean Tomo 300 Patent (OTP), 90, 91, 123 Closed-end company, 338 Closed-end fund, 19, 21–22 Collar, 170 Commission, 27 Commodity-based funds, 125 Common stock ratio, 176 Competitive advantage, 179 Consumer discretionary sector, 115–116 Consumer Discretionary Select Sector SPDR (XLY), 91 Consumer staples companies, 116 Consumer Staples Select Sector SPDR Fund (XLP), 91 Contingent deferred sales load, 27 Covered call, 170 Cox, Chris, 329 Creation unit, 51 Currency Shares: British Pound (FXB), 207 Euro Currency (FXE), 207 Swedish Krona (FXS), 207 Swiss Franc (FXF), 207 Currency trusts, 125 Debt-to-equity ratio, 175–176 Deferred sales charge, 27 Design, maintain and manipulate the portfolio, 191–202 (See also Yahoo! Finance) ã 351 ã Copyright â 2008 by Laurence M Rosenberg, Neal T Weintraub, and Andrew S Hyman Click here for terms of use 352 • Index Discipline, 188 Distribution fee, 27, 28 Diversification, 7, 16 Diversified company, 23, 338 Dividend fund, 123 DJ Euro STOXX 50 (FEZ), 207 DJ STOXX 50 (FEU), 207 Dow Jones, 246–249 Earned surplus, 178 Ebner, Scott, 242–245 Energy funds, 116–117 Energy Select Sector SPDR (XLE), 91, 236–238 Equal weighting, 270, 282 ETF (exchange-traded fund): actively managed, 57–60 advantages, 4–5, 7–10 buying and selling, 47–49 characteristics, 43 defined, 19 lists of U.S., 287–312 mechanism, 49–51 money management, 145–151 mutual fund, compared, 43 preliminary steps, 224–225 product varieties, 6–7 what is it, ETF arbitrage, 159–164 ETF Connect home page, 327 ETF Guide home page, 326 ETF indexes, 77–88 foreign tax credit, 87–88 index diversity, 82 international indexes, 84 rebalancing and taxes, 86–87 RIC compliance, 85–86 selection of components, 79–80 tax issues, 85–88 U.S indexes, 83–84 weighting, 80–82 what are indexes, 77–79 ETF investment options, 89–127 all-cap growth companies, 109 all-cap value companies, 109 broad market index, 100–101 classification by capitalization, 99–100 community, 125 ETF investment options (Cont.): currency, 125–126 ETF look-alikes, 90–97 fixed income, 126 international funds, 109–114 large-cap companies, 101–102 large-growth companies, 107 large-value companies, 107–108 micro-cap companies, 104 mid-cap companies, 102–103 mid-growth companies, 108 mid-value companies, 108 sector, 114–122 (See also Sector) small-cap companies, 103–104 small-growth companies, 108 small-value companies, 108 specialty funds, 122–124 style investing, 104–109 ETF look-alikes, 62–66 ETF mechanism, 49–51 ETF money management, 145–151 ETF regulation, 61–71 ETF look-alikes, 62–66 foreign tax credit/foreign tax deduction, 71–72 personnel issues, 66–69 regulations outside U.S., 72–75 taxes, 69–72 ETF spreads, 233–238 ETF Web screens: ETF spreads, 233–238 individual web sites, 323–336 large blend funds, 226 large growth funds, 227 large value funds, 226 mid-cap blend funds, 229 mid-cap growth funds, 229 mid-cap value funds, 228 small growth funds, 231 small value funds, 230 Europe Dividend (DEB), 207 Europe High-Yielding Equity (DEW), 207 European (VGK), 207 European currency ETFs, 211–212 European ETFs, 203–222 Austria, 213–214 Index • 353 European ETFs (Cont.): Belgium, 214 ETF choices, 205 European currency ETFs, 211–212 Eurozone issues, 212–213 France, 214–215 Germany, 215 Italy, 215–216 managers, 205–209 Netherlands, 216–217 regulation, 210 Russia, 220–221 Spain, 217 strategies, 211 Sweden, 218 Switzerland, 218–219 taxes, 209 United Kingdom, 219–220 European SmallCap Dividend (DFE), 207 Eurozone issues, 212–213 Evaluating ETFs, 173–183 bond ratio, 176 common stock ratio, 176 debt-to-equity ratio, 175–176 financial ratios, 175–176 management, 179–180 operating income, 177–178 P/E ratio, 173–174 P/S ratio, 174–175 preferred stock ratio, 176 R&D, 179 research, 179–180 working capital, 177 Exchange fee, 28, 29 Exchange-traded fund (see ETF) Expenses, 26–36 “Experts Talk Strategy on ETFs,” 338 External Data toolbar, 196 Face-amount certificate company, 18, 337 Fehrenbach, Andreas, 206, 210, 211, 250–255 Feldman, Jeffrey L., 275–286 Fidelity.com: ETF opening page, 332 home page, 331 mutual funds product opening page, 332 Financial Industry Regulatory Authority (FINRA) home page, 329 Financial ratios, 175–176 Financial sector, 117–118 Financial Select Sector SPDR Fund (XLF), 91 First Trust Advisors Morningstar Dividend Leaders (FDL), 91 Fixed expectations, 188–189 Fixed-income market, 126 Foreign tax credit, 71, 87–88 Foreign tax deduction, 71 Formula One Index, 247 France, 214–215 Franklin, Benjamin, 69 Front-end load, 26, 28 Fundamentally weighted index, 270 Gecko Software home page, 333 Germany, 215 Grantor trust, 25, 54–57 Growth funds, 104–105 Health-care sector, 118 Health Care Select Sector SPDR Fund (XLV), 91 HealthShares, 275–286 HealthShares European Drugs ETF (HRJ), 207 Hedge fund strategies, Hedging, 9, 156–157, 161, 320–321 Herd mentality, 232–233 HOLDR, 25, 54–57 Horizons Beta Pro S&P TSX 60 Bear Plus (HXD.TO), 91 Howard, John, 256–259 Hunt, Bob, 129 Import Data Window, 196 Index ETFs, 41 Index fund, 2–3, 41 Index Universe home page, 328 INDEXCHANGE, 250–255 Indexes (see ETF indexes) Individual investing, 13–14 Industrial sector, 119 Industrial Select Sector SPDR Fund (XLI), 91 354 • Index Interexchange spread, 161 Intermarket spread, 161 International funds, 109–114 Internet Web pages (see ETF Web screens) Interviews (see One-on-one interviews) International indexes, 84 In-the-money, 167 Intramarket calendar spread, 161 Intrinsic value, 168 Investment company, 14–26 Investment Company Act of 1940, 62, 337, 341 Investment company terminology, 19 Investment management fees, Investment universe, 12–14 Investor protection, Investor’s Business Daily Web site home page, 334 iShares: Cohen & Steers Realty Index of Major REITs (ICF), 91 FTSE UK Dividend Plus ETF (IUKD.L), 91 Lehman TIPS Bond Fund (TIP), 90, 91 Morningstar Large Value Index Fund (JKF), 105 MSCI Austria (EWO), 207 MSCI Belgium (EWK), 207 MSCI Brazil Index Fund (EWZ), 91 MSCI EMU Index Fund (EZU), 207, 213 MSCI France (EWQ), 207 MSCI Germany (EWG), 207 MSCI Italy (EWI), 207 MSCI Netherlands (EWN), 207 MSCI Spain (EWP), 90, 91, 207 MSCI Sweden (EWD), 207 MSCI Switzerland (EWL), 207 MSCI United Kingdom (EWU), 207 Russell 2000 Growth Index Fund (IWO), 90, 108 Russell 2000 Index Fund (IWM), 90 Russell 2000 Value Index Fund (IWN), 90, 108 Russell 3000 Growth Index Fund (IWZ), 90 Russell 3000 Index Fund (IWV), 90 iShares (Cont.): Russell 3000 Value Index Fund (IWW), 90 Russell Microcap Index Fund (IWC), 90 S&P 400 ETF (IJH), 90 S&P 400 MidCap Growth Index Fund (IJK), 90 S&P 400 MidCap Value Index Fund (IVE), 90 S&P 500/Citigroup Growth (IVW), 90 S&P 500/Citigroup Value (IVE), 90 S&P Europe 350 (IEV), 207 S&P Global Telecommunications Index Fund (IXP), 90, 91 iShares Germany, 250–255 Italy, 215–216 Jain, Siddarth, 256–259 Jobs & Growth Tax Relief Reconciliation Act of 2003, 318 Keefe, Bruyette, and Woods, 256–259 LRosenberg Consulting, 334 Large blend funds, 226 Large growth funds, 227 Large value funds, 226 Large-cap companies, 101–102 Large-growth companies, 107 Large-value companies, 107–108 Leverage, 45 Levitt, Arthur, 268 Liquid markets, 10 Liquidity: Amex, 243 iShares Germany, 251–252 mutual fund, 44 WisdomTree, 271–272 List of U.S ETFs, 287–312 Load, 28 Long-Term Capital Management (LTCM), 148 Maintain and manipulate the portfolio, 191–202 See also Yahoo! Finance Management, 179–180 Index • 355 Management company, 18, 20–21, 337, 338 Management fee, 28, 29 Managers, 38–39 Margin-to-equity parameter, 146 Market activity, 183–190 Market capitalization, 80 Market Vectors Russia ETF (RSX), 207 Materials sector, 119–120 Materials Select Sector SPDR Fund (XLB), 91 Melas, Dimitris, 211, 260–264 Micro-cap companies, 104 Mid-cap blend funds, 229 Mid-cap companies, 102–103 Mid-cap growth funds, 229 Mid-cap value funds, 228 Mid-growth companies, 108 Mid-value companies, 108 Modified equal weighting, 271 Momentum traders, 199 Money management, 145–151 Morningstar’s style breakdown criteria for determining a stock’s style, 106 Moving averages, 133 MSCI BARRA, 260–264 MSCI Spain Index, 111 Mutual fund, 19, 42–46 My Portfolio pull down menu, 192 Nasdaq-100, 83 Net asset value (NAV), 19 Netherlands, 216–217 Nondiversified company, 23, 338 One-on-one interviews: Amex, 242–245 Dow Jones, 246–249 Ebner, Scott, 242–245 Fehrenbach, Andreas, 250–255 Feldman, Jeffrey L., 275–286 HealthShares, 275–286 Howard, John, 256–259 INDEXCHANGE, 250–255 iSHARES Germany, 250–255 Jain, Siddarth, 256–259 Keefe, Bruyette, and Woods, 256–259 One-on-one interviews (Cont.): Melas, Dimitris, 260–264 MSCI BARRA, 260–264 Prestbo, John, 246–249 Siracusano, Luciano, III, 268–274 Van Eck Global, 265–267 WisdomTree, 268–274 XShares, 275–286 Open-end company, 19, 22–23, 53–54, 338 Operating expenses, 28 Operating income, 177–178 Options, 165–171 optionsXpress, 239 Other expenses, 28, 29 Out-of-the-money, 168 Overconfidence, 149–150 Over-trading, 149 P/E (price/earnings) ratio, 173–174 P/S (price/sales) ratio, 174–175 Pattern Trapper, 129, 135 Pivot points, 129–143 Preferred stock ratio, 176 Premium, 168 Prestbo, John, 246–249 Price behavior patterns, 185–186 Price/earning (P/E) ratio, 173–174 Price/sales (P/S) ratio, 174–175 Probability, 188 Professional management, 16 Purchase fee, 26, 28 QID, 198 QLD, 198 RAFI indexes, 87 Ratio analysis (see Evaluating ETFs) R&D (research and development), 179 Rebalancing and taxes, 86–87 Record keeping, 15 Redemption, 37–38 Redemption fee, 28, 30 Registered investment companies, 17 Regulation: RIC compliance, 85–86 RIC/UCITS rules, 247–248, 254 UCITS compliance, 262 356 • Index REIT (real estate investment trust), 121–122 Representative sampling, 53 Research and development (R&D), 179 Responsibility, 189 Retained earnings, 178 RIC compliance, 85–86, 247–248, 254 Russell 1000, 83 Russell 2000, 83, 103–104, 108 Russell 3000, 100 Russell Microcap Index, 104 Russia, 220–221 Rydex Euro Currency (FXE), 90, 91 S&P 400, 103, 108 Sales charges/loads, 5, 28 Sector, 114–122 consumer discretionary, 115–116 consumer staples, 116 energy, 116–117 financials, 117–118 heath care, 118–119 industrials, 119 materials, 119–120 REIT, 121–122 technology, 120–121 utilities, 121 Sector SPDRs (see SPDR strategies) Securities investing options, 12 Seeking Alpha home page, 335 Select Sector SPDRs (see SPDR strategies) Selling short, 153–157 Shareholder service fees, 28, 29 Short selling, 42, 153–157 Siegel, Jeremy, 268 Siracusano, Luciano, III, 268–274 Small-cap companies, 103–104 Small growth companies, 108 Small growth funds, 231 Small value companies, 108 Small value funds, 230 Spain, 217 SPDR S&P Emerging Europe (GUR), 207 SPDR (SPY), 90 SPDR strategies, 6, 313–321 asset allocation by sector, 315–316 customized/diversified equity portfolio, 313–314 SPDR strategies (Cont.): hedging, 320–321 materials and energy, 319 tax swaps, 319–320 utilities, 318–319 weightings, 317–318 Specialty international dividend category, 124 Spreading/spread trading, 162–163, 233–238 Steinberg, Jonathan, 269 Steinhardt, Michael, 268, 269 Stock evaluation (see Evaluating ETFs) StreetTracks Gold Trust (GLD), 56, 340 Style investing, 104–109 Sweden, 218 Swing trading, 135–143 Switzerland, 218–219 12b-1 fees, 27 Tax deferral, 37 Tax efficiency, 8–9, 36–41 Tax liability, 40 Tax swaps, 319–320 Taxes, 4–5, 8–9 Dow Jones, 248 ETF look-alikes, 69–70 European ETFs, 209 foreign tax credit, 71 indexes, 85–88 MSCI BARRA, 264 rebalancing, 86–87 SPDRs, 319–320 when paid, 39–40 WisdomTree, 273 XShares, 283 Technology sector, 120–121 Technology Select Sector SPDR (XLK), 90, 91 Time value, 169 Tracking error, 65 Transaction costs, Transparency, 45 Trend change, 184–185 Trend trading, 133–134 UCITS compliance, 247–248, 254, 262 Unit investment trust (UIT), 18–20, 52–53, 337–338 Index • 357 United Kingdom, 219–220 U.S indexes, 83–84 United States Oil Fund (USO), 65, 90, 91, 125 Uptrend, 184–187 Utilities sector, 121 Utilities Select Sector SPDR (XLU), 91 Value funds, 105 Value strategy, 200 Van Eck Global, 265–267 Vertical investing, 282 Volume, 185–186 Volume traders, 200–201 Web screens (see ETF Web screens) Web sites: www.amex.com/etf/ETMain.jsp, 330 www.cheatthestreet.com, 336 www.etfconnect.com, 326–327 www.etfguide.com, 325 www.fidelity.com, 331 www.finance.yahoo.com, 323–325 www.finra.org, 328–330 www.geckosoftware.com, 333 www.indexuniverse.com, 327–328 www.investors.com/etf, 333–334 www.lrosenberg.com, 334 www.optionsxpress.com, 337–338 Web sites (Cont.): www.seekingalpha.com, 335 www.vanguard.com, 336 Weber, Cliff, 6, 338 Weighting: Dow Jones, 248 Ebner, Scott, 242 indexes, 80–82 SPDRs, 317–318 Van Eck, 266 WisdomTree, 270–271 XShares, 282–283 Whipsaws, 134 Wilshire 5000, 84 WisdomTree, 208, 268–274 Working capital, 177 XLE price and volume, 236 XShares, 275–286 Yahoo! Finance, 191–202, 323–325 develop a list of ETFs, 191–194 export the portfolio into Excel, 194–197 maintain/manipulate the portfolio, 191–202 momentum traders, 199 volume traders, 200–201 Yahoo! Finance Center opening page, 325 Yahoo! Finance home page, 192, 324 Yahoo! Finance investing categories, 324 This page intentionally left blank ABOUT THE AUTHORS Laurence M Rosenberg began his career in the financial services industry in 1961 at the Chicago Board of Trade In 1965 Mr Rosenberg became a member of the Chicago Mercantile Exchange (CME) His commitment to active membership at the Chicago Mercantile Exchange brought him to the chair of many committees that are integral to the exchange and its relationships with both the public and government Mr Rosenberg served on the CME board of directors for 24 years and, during this period, served the maximum allowable three terms as chairman He also served as first vice chairman of the board for years and was a member of the executive committee for 20 years, during which time he held the chair for three terms Mr Rosenberg also served as chief legislative liaison and as chairman of the international steering and strategic planning committees He was also elected senior policy advisor to the board Mr Rosenberg has held several senior financial services management positions over the past 35 years Currently Mr Rosenberg runs LRosenberg Consulting, a financial services consulting company based in Chicago He is a graduate of Lake Forest College with a degree in economics, and he served in the U.S Army Counter Intelligence Corps Copyright © 2008 by Laurence M Rosenberg, Neal T Weintraub, and Andrew S Hyman Click here for terms of use Neal T Weintraub is a former floor trader who now trades securities and futures through Fidelity and World Wide Chicago He currently teaches fundamental analysis, fed policy, and spread trading at the Chicago Mercantile Exchange and gives ETF seminars for investors in Chicago and Singapore Mr Weintraub’s corporate experience includes MTV, The Disney Channel, Nickelodeon, and The Chicago Board of Trade, where he directed marketing and sales activities He is the author of Tricks of the Floor Trader, Trading Chicago Style, and The Weintraub Day Trader Mr Weintraub received a direct commission as an officer in the U.S Naval Reserve Andrew S Hyman is marketing director at Fiske Walter Capital Management, a commodity trading advisor Before that, he worked at the Global Energy, Utilities, and Mining Group at PricewaterhouseCoopers, where he served as a consultant and knowledge manager He also does institutional and public seminars on exchange-traded funds Mr Hyman recently served as the cochairman of the Chicago steering committee of the Professional Risk Managers International Association (PRMIA) He has been a member of the steering committee since its inception He was the lead author of Energy Risk Management: A Primer for the Utility Industry and coauthored America’s Electric Utilities: Past, Present and Future and The Water Business: Understanding the Water and Wastewater Industry, all published by Public Utilities Reports He also contributed to Weather Derivatives: An Introduction published by the ICFAI University Press in India Mr Hyman has a B.S degree in applied physics from Tufts University, a master of public policy degree from Vanderbilt University, and a master of arts in geography degree from the University of Illinois at Urbana-Champaign He lives in Chicago with his wife, Adiel, and his daughter, Julia