Investing etfs

Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net INVESTING WITH Intelligent ETFs Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net This page intentionally left blank Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net INVESTING WITH Intelligent ETFs Strategies for Profiting from the New Breed of Securities BY MAX ISAACMAN New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Copyright © 2008 by Max Isaacman 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 0-07-154390-2 The material in this eBook also appears in the print version of this title: 0-07-154389-9 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: 10.1036/0071543899 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Professional Want to learn more? 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If you’d like more information about this book, its author, or related books and websites, please click here Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net DEDICATION This book is dedicated to the late Sylvia Clough of San Francisco, a past president of the Nob Hill Association and the Comstock Apartment Board of Directors, who was a caring, selfless, and tireless worker for people in her community Sylvia inspired everyone who met her to reach for the stars, including at least one little boy Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Copyright © 2008 by Max Isaacman Click here for terms of use This page intentionally left blank Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net For more information about this title, click here CONTENTS Foreword xv Acknowledgments xxi Introduction The New ETFs Searching for Alpha The Index Revolution Intelligent Index Performance Using Alpha in Market Strategies Trading and Investing with ETFs 15 Chapter | Explaining Exchange-Traded Funds 17 Advantages of Trading and Investing in ETFs 18 The Creation and Redemption Process 22 Tax Considerations 26 ETFs and Mutual Fund Tax Consequences 28 Market Makers and Specialists 28 Harvesting Tax Losses Using ETFs 29 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net viii • Contents Chapter | Investing in a Rapidly Changing World 33 Gavekal’s View 34 What Revolution Are We In? 36 The “Platform” Operating Model 37 The Growing U.S Strength Using the Platform Model 42 The Present Economic Age 43 Types of Developing Growth 44 The New Global Manufacturing Process 48 The High Margins of the Platform Method 49 Lower Stock Market and GDP Volatility 49 The Lower U.S Household Savings Rate 51 The U.S Balance-of-Trade Deficit 53 Continued Global Expansion 55 The Shrinking Middle Class 56 Chapter | PowerShares 59 Using Intelligent ETFs 60 The Intellidex Index 61 Sector Consideration 64 The Intellidex Approach and Attribution 66 Intelligent Indexes in Relation to Stock Picking 68 Development of the Intellidex Index 71 False Signals and Intuitive Stock Selection 73 Factors Included in the Intellidex Model 74 The Intellidex Index Stock-Picking Model 74 Intellidex Compared to Other Quantitative Approaches 76 Intellidex Compared to Fundamentally Weighted Indexes 78 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Index • 217 Communism collapse, 45 Company worth, 90–91 Comparative advantage theory, 44–47 Consumer goods sector, 134, 138 Consumer services sector, 134, 138 Corporate business models (see platform operating model) Crashes and bubbles, 98 Creation and redemption of ETFs, 21–25, 102–103, 105–106, 117–119, 191–192 Currency risk, 203 CurrencyShares, 101–107 CurrencyShares Australian Dollar ETF (FXA), 104–105 CurrencyShares Euro Trust ETF (FXE), 106 D DAXglobal Russia + Index, 165 Dell, 53 Deutsche Bank, 169 DIA (Dow Jones Industrial Average ETF), 4, 6–7, 113 Diversification among asset classes, 62 Essential Portfolio Theory, 107–108 with ETFs, 17, 20 foreign currency ETFs, 104, 107–108 international, 145, 176, 202 magnified ETFs, 125–127 sector, 126–127 Van Eck methodology, 164–165, 168–169 weighting approaches to, 65, 157–159, 168–169 Dividend discount model, 77 Dividends, 3, 72–73, 141–149 Dividend-weighted indexes, 141–149, 188 Dogs of the Dow, 72, 155 Dow Jones Industrial Average, 65, 72 Dow Jones Industrial Average ETF (DIA), 4, 6–7, 113 Dow Jones Internet Index Fund (FDN), 188 Dow Jones Select Micro-Cap ETF (FDM), 187–188 Dow Jones short and ultra ETFs, 132, 136 Dow Jones U.S Technology Sector ETF (IYW), 30–31 Downtick rules, 18–20, 105 Dupont, 93–95 Dynamic Industry Intellidex Index method, 62 (See also PowerShares Dynamic entries) E Earnings-weighted indexes, 145 Efficient markets, 83–84 Emerging markets (See also China) BRIC ETFs, 1–2, 178–180, 185 currency risks of foreign ETFs, 203 economic growth, 36, 45, 53, 55 ETFs, 2, 148, 178–179 importance of investing in, 201–203 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net 218 • Index Emerging markets (Cont.) Russia, 162, 165–167, 168–169, 202–203 stock performance, 85–86 The End is Not Nigh (GaveKal Research), 52 Energy sector, 65, 126, 162, 167–168, 181–182 (See also oil and gas sector) Energy Select Sector SPDR ETF, 65, 126 Enron Corporation, 20, 142, 206 Environmental services ETFs, 162–163, 168 Equal-weighted indexes cap-size market segment effects, 111–112 cap-weighted strategies compared with, 108 mutual fund limitations, 110–111 Nasdaq 100 Equal-Weighted ETF, 198 Rydex Investments, 108–110, 111–113, 115–117 S&P 500 Equal Weight ETF (RSP), 101, 109–113, 115–116, 118–119, 154 S&P Equal Weight Index, 86–87, 111, 115–116 Essential Portfolio Theory (EPT), 107–108 ETFs (exchange-traded funds) (See also intelligent ETFs; specialized ETF approaches; weighting indexes; specific providers, i.e., ProShares) about, 17–18 actively-managed versus indexed, 212–213 advantages, 17–22, 65, 110–111 changing role of, 123–124 correlation between index and, 161–162 future of, 212–213 growth of, 4, 211–212 indexing compared with, 17 intelligent indexes compared with, 5–8 issuers, 212 liquidity, 21–22 mutual funds compared with, 17–19, 25, 26–28, 110–111 pricing, 18, 21, 23–24, 29, 60 safety, 207, 210–212 stock investments compared with, 4, 17–18, 60 trading, 18–19, 21–25, 28–31 ExxonMobil Corporation, 65, 93 F “Fallen angels,” 94–95 Financial sector, 134, 138, 199, 210 First Trust AlphaDEX Enhanced Index ETF series, 189–191 First Trust Amex Biotechnology Index Fund (FBT), 188 First Trust Dow Jones Internet Index Fund (FDN), 188 First Trust Dow Jones Select MicroCap ETF (FDM), 187–188 First Trust Morningstar Dividend Leader Index Fund (FDL), 188 “Flip-flop” companies, 94, 96 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net Index • 219 Foreign investments (See also emerging markets; MSCI entries) ADRs and, 179, 206–208 Claymore/Robeco ETFs, 2, 176–181, 185 currency risk, 203 CurrencyShares, 101–107 GDRs and, 169 intra-day portfolio value, 23–24 WisdomTree ETFs, 144–151 Forex, 104 FTSE RAFI US 1000 Index, 82, 100f FTSE RAFI US 1500 Small-Mid Portfolio, 99f FTSE RAFI US 1500 Small/Mid-cap index, 82 FTSE/Xinhua China 25 Index ETF (FXI), 208f, 210 Fundamentally-weighted indexing (See also cap-weighted indexes) about, 78 company worth approach, 91 dividend-weighted indexes, 141–149, 188 intelligent ETFs, 1, 3, performance, 92–93, 98 PowerShares, 59, 60, 78 Research Affiliates, 82–83, 88 sector weighting, 96–100 stock rotation in, 95–96 G Gave, Charles, 46 GaveKal Research, 34–35, 37, 41, 46, 50, 52–55 GDP volatility, 49–51 GDRs (Global Depository Receipts), 169 General Electric, 90–91 General Motors, 93, 95 “Get Big Fast” (GBF) theory, 194 GICS (Global Industry Classification Standard) 10 Sectors, 116 Global Depository Receipts (GDRs), 169 Global economy (See also emerging markets; manufacturing; platform operating model; United States) alternative energy ETFs, 162, 167–168 competition, 34–35, 44, 46–47 expansion of, 36, 37, 55–56 GaveKal’s view, 34–35, 37, 41, 46, 50, 52–55 GDP volatility, 49–51 government intervention and problem-solving, 34–35 PowerShares ETF offerings, 78–80 present economic age, 43–44 revolutions in, 36–37 Ricardian economics model, 44–47 Schumpeterian economics model, 46–47 shrinking middle class, 56–58 stock markets, 49–51 trade imbalances, 35, 41–42, 53–55 value chain progression, 43–44, 49 water-related businesses, 180–181 Global Industry Classification Standard (GICS) 10 Sectors, 116 Gold sector, 103–104, 106, 160–162 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net 220 • Index Golden Dragon Halter USX China (PGJ), 207 Goldman Sachs, 180 Growth models, 44–47 Growth stocks and ETFs, 89–90, 114, 115, 133, 134, 137 H Halter USX China Index, 204–210 Health care sector, 126, 135, 138, 191–192 HealthShares, 191–192 HealthShares Composite ETF, 192 Hedging with ETFs, 21, 105–106, 123–124, 127–128, 130–131 Household debt or savings, 41–42, 51–53, 57–58 How to be an Index Investor (Isaacman), I Independent verification and validation (IVV), 4, 24, 126, 127 Index investing with ETFs, 4, 17, 65, 121–123, 190–191, 212–213 Index portfolios, 91–93 India-domiciled companies, 1–2, 178–180, 185 Industrials sector, 135, 138 Information Coefficient (IC), 72–73 Information technology (IT) sector (see technology sector) Insurance companies, 210 Intel, 29–31, 63 Intellidex Index about, 61–64 attribution in ETFs, 66–68 development, 71–73 fundamentally-weighted indexes compared with, 78 other quantitative approaches compared with, 76–77 portfolio-weighting approach, 65 sector consideration, 65 stock selection, 63–64, 68–71, 73–76, 178, 191 Intelligent ETFs (See also weighting indexes; specific providers, i.e., Van Eck) about, 4, 153–154 American Stock Exchange role, 153–154 investment strategies, 154–157 modified cap-weighting methods, 157–158 newest generation of, 1–2, 4, 60–61, 154–155, 159–162, 209 origins, 154–156 passive indexes compared with, 5–8 stock selection, 63–64, 68–71, 73–76, 178, 191 using, 60–61 weighting diversification in, 158–159, 168–169 Internal Revenue Service (IRS), 106, 158 International investing (see foreign investments) Internet industry, 188, 194–195 Intra-day portfolio value (IPV), 23–24, 29 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Index • 221 Inverse ETFs, 122–124, 127–129, 131–135 Investment Company Act of 1940, 102, 211 IPod, 42, 49 IPOX-100 Index Fund (FPX), 188 IRA accounts, 122–123 IRS (Internal Revenue Service), 106, 158 IShares Dow Jones U S Technology Sector ETF (IYW), 30–31 IShares FTSE/Xinhua China 25 Index, 208f, 210 IShares FTSE/Xinhua China 25 Index ETF (FXI), 208f, 210 IShares S&P 500 Index ETF (IVV), 4, 24, 126, 127 IT sector (see technology sector) J JPMorgan Chase, 169 L Large-cap stocks, 61, 63–66, 87–90, 112–114, 117 Lehman Aggregate, 84, 202 London Stock Exchange, 169 The Long Tail (Anderson), 40 M Magnified ETFs, 2, 122–130 Manufacturing capital allocation, 48–49 outsourcing, 35, 37–38, 41, 45–48, 53, 56 Ricardian theories on, 45 task allocation, 48–49 trade deficits and, 35, 53–56 Mao Tse-tung, 45 Margin accounts, 18, 104–105, 122–123 Market capitalization (See also capweighted indexes; mid-cap stocks; small-cap stocks) ETFs, 131–133, 136–137 hedging strategies, 128 large-cap stocks, 61, 63–66, 87–90, 112–114, 117 mega-cap ETFs, 113–114 micro-cap ETFs, 187–188 performance drag, 84, 87–90 Market efficiency, 83–84 Market makers, 25, 28 Market segments, 17–18, 27, 29–30 Mass customization, 39–40 Mega-cap ETFs, 113–114 Micro-cap ETFs, 187–188 Microsoft, 63, 66 “Microsoft index,” 158 Mid-cap stocks Claymore/Sabrient ETFs, 174 performance, 63, 112–113 PowerShares ETFs, 82 ProShares ETFs, 131, 132, 133, 136, 137 Rydex ETFs, 114–115 Middle class, 56–58 Mining stocks, 160 Models (see Intellidex Index; platform operating model) Modern Portfolio Theory (MPT), 83–84, 108–109 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net 222 • Index Modified cap-weighted indexes, 157–159, 168–169 Money managers, 4, 33, 68 Morgan Stanley (See MSCI entries) Morningstar Dividend Leader Index Fund (FDL), 188 MSCI EAFE Value Index, 151f MSCI Emerging Markets Index, 179, 201–202 MSCI Europe Value Index, 150 MSCI Japan Index, 146–147 MSCI Pacific ex-Japan Value Index, 149–150 Mutual funds and ETFs compared, 17–19, 25, 26–28, 110–111 N Nasdaq 100 Equal-Weighted ETF (QQEW), 198 Nasdaq 100 Equal-Weighted Index, 198 Nasdaq 100 Index, 12–13, 124, 198–199 Nasdaq 100 Index ETF (QQQQ), 4, 117, 131, 132, 136, 157–158, 198–199 Nasdaq 100 Technology Sector Index, 198 Nasdaq 100 Technology Sector Index ETF (QTEF), 198 Nasdaq Biotech Index, 14–15 Nasdaq Composite Index, 12–13 Nasdaq Financial 100 Index, 199 Net asset value (NAV), 18, 21, 23, 60 New York Stock Exchange (NYSE), 29, 206 Nike, 37–38, 41 “The Noisy Market Hypothesis” (Siegel), 142 NYSE (New York Stock Exchange), 29, 206 NYSE Arca Tech 100 ETF (NXT), 196–197 NYSE Arca Tech 100 Index, 196–197 O Ocean Tomo 300 Patent Index, 182–183 Ocean Tomo, LLC, 182–183 Oil and gas sector, 126, 127, 135, 138, 210 (See also energy sector) Oil sands sector, 181–182 O’Neill, Jim, 180 Organization for Economic Cooperation and Development (OECD), 203 Outsourcing, 35, 37–38, 41, 45–48, 53, 56 P Passive indexes or ETFs, 6–7, 14, 153 Passive investing, 61 Patent indexes, 182–183 Performance drag, 84, 87–90 Personal debt or savings, 41–42, 51–53 PetroChina, Ltd (PTR), 210 Philadelphia Options Exchange (PHLX), 153 Platform operating model about, 37 Apple Computer example, 42, 49 developed country roles, 37–38, 53 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net Index • 223 Nike example, 37–38, 41 outsourcing, 37–38, 41, 45–48 Ricardian economics, 44–47 Schumpeterian economics, 46–47 Starbucks example, 38–41 stock market and GDP volatility, 49–51 U.S company strength, 42–43, 49 Portfolio weighting approach (see weighting indexes) PowerShares Biotech ETF (PBE), 15 PowerShares Capital Management, LLC (See also Intellidex Index; RAFI) equity universe, 63–64 global market ETFs, 78–80 intelligent ETFs, 59–61, 154 micro-cap ETFs, 187–188 RAFI indexes and ETFs, 59, 82–83, 90, 93, 97, 191 strategic approach of, 63–64, 98–100, 178, 191 PowerShares Dynamic Biotech & Genome Intellidex Index, 14–15 PowerShares Dynamic Developed International Opportunities ETF (PFA), 80 PowerShares Dynamic Market Intellidex Index (PWC), 5–7, 11–12, 60–61, 111, 154 PowerShares Dynamic OTC Intellidex Index, 199 PowerShares Dynamic OTC Intellidex Index ETF (PWO), 12–13, 60, 111, 154 PowerShares Dynamic OTC Portfolio ETF (PWO), 199 PowerShares Dynamic Software Intellidex Index (PSJ), 66–67 PowerShares FTSE RAFI US 1000 ETF (PRF), 82 PowerShares FTSE RAFI US 1000 Portfolio, 100f PowerShares FTSE RAFI US 1500 Small-Mid Portfolio, 99f PowerShares FTSE RAFI US 1500 Small/Mid-Cap ETF (PRFZ), 82 PowerShares Golden Dragon Halter USX China (PGJ), 207 PowerShares QQQ (Nasdaq 100 Index ETF) (QQQQ), 4, 117, 131, 132, 136, 157–158, 198–199 Price-weighted indexes, 159 Pricing ETFs, 18, 21, 23–24, 29, 60 ProShares about, 122 costs to ETF buyers, 130–131 diversification, 125–127 inverse funds, 122–124, 127–129, 131–135 magnified ETFs, 122–130 market cap-size hedging, 128 sector shorting, 127 Short And Ultrashort Market Cap ETFs, 131–133 Ultra Marketcap ETFs, 136–137 Ultra ProShares ETFs, 136 Ultra Sector ETFs, 137 Ultra Style ETFs, 137 Ultrashort Sector ETFs, 134–135 Ultrashort Style ETFs, 133–134 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net 224 • Index ProShares inverse S&P 500 Index (SDS), 128 ProShares magnified Healthcare ETF (RXL), 126 ProShares magnified S&P 500 Index (SSO), 126 ProShares magnified Technology ETF (ROM), 126 ProShares Short Dow 30 (DOG), 132 ProShares Short MidCap 400 (MYY), 131 ProShares Short QQQ (PSQ), 131 ProShares Short Russell 2000 (RWM), 132 ProShares Short SmallCap 600 (SBB), 132 ProShares Short S&P 500 (SH), 131 ProShares Ultra Basic Materials (UYM), 138 ProShares Ultra Consumer Goods (UGE), 138 ProShares Ultra Consumer Services (UCC), 138 ProShares Ultra Dow 30 (DDM), 136 ProShares Ultra Financials (UYG), 138 ProShares Ultra Health Care (RXL), 138 ProShares Ultra Industrials (UXI), 138 ProShares Ultra MidCap 400 (MVV), 136 ProShares Ultra Oil & Gas (DIG), 126, 138 ProShares Ultra QQQ (QLD), 136 ProShares Ultra Real Estate (URE), 139 ProShares Ultra Russell 1000 Growth (UKF), 137 ProShares Ultra Russell 1000 Value (UVG), 137 ProShares Ultra Russell 2000 (UWM), 136 ProShares Ultra Russell 2000 Growth (UKK), 137 ProShares Ultra Russell 2000 Value (UVT), 137 ProShares Ultra Russell MidCap Growth (UKW), 137 ProShares Ultra Russell MidCap Value (UVU), 137 ProShares Ultra Semiconductors (USD), 139 ProShares Ultra SmallCap 600 (SAA), 128, 136–137 ProShares Ultra S&P 500 (SSO), 136 ProShares Ultra Technology (ROM), 139 ProShares Ultra Utilities (UPW), 139 ProShares UltraShort Basic Materials (SMN), 134 ProShares UltraShort Consumer Goods (SZK), 134 ProShares UltraShort Consumer Services (SCC), 134 ProShares UltraShort Dow 30 (DXD), 132 ProShares UltraShort Financials (SKF), 134 ProShares UltraShort Health Care (RXD), 135 ProShares UltraShort Industrials (SIJ), 135 ProShares UltraShort MidCap 400 (MVV), 132 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Index • 225 ProShares UltraShort Oil & Gas (DUG), 135 ProShares UltraShort Oil & Gas Sector ETF (DUG), 127 ProShares UltraShort QQQ (QID), 132 ProShares UltraShort Real Estate (SRS), 135 ProShares UltraShort Russell 1000 Growth (SFK), 133 ProShares UltraShort Russell 1000 Value (SJF), 133 ProShares UltraShort Russell 2000 (UWM), 133 ProShares UltraShort Russell 2000 Growth (SKK), 134 ProShares UltraShort Russell 2000 Value (SJH), 134 ProShares UltraShort Russell MidCap Growth (SDK), 133 ProShares UltraShort Russell MidCap Value (SJL), 133 ProShares UltraShort Semiconductors (SSG), 135 ProShares UltraShort SmallCap 600 (SDD), 133 ProShares UltraShort S&P 500 (SDS), 132 ProShares UltraShort Technology (REW), 135 ProShares UltraShort Utilities (SDP), 135 Prospectus, 17, 24 Q QQQQ (PowerShares QQQ/Nasdaq 100 Index ETF), 4, 117, 131, 132, 136, 157–158, 198–199 QSG Developed International Opportunities Index, 79–80 QSG Service Group, 79 R RAFI (Research Affiliates Fundamental Indexation) ETFs based on indexes by, 59, 82–83, 99f, 100, 191 fundamental weighting by, 82–83, 88, 93 index calculations by, 90 sector analysis by, 97 RAFI US Fundamental Index 1000, 92f Real estate sector, 135, 139 Redemption of ETFs, 21–25, 117–119 Research Affiliates Fundamental Indexation (see RAFI) Research, 20, 71–73 Retirement accounts, 110, 122–123 Ricardian economics, 44–47 Ricardo, David, 44–46 Risk, 63–67, 122–130, 203 Robeco, 176–177 Robeco Developed World Equity Index, 176 Russell 1000 Index, 91, 133, 137 Russell 2000 Index, 2, 99f, 132, 133, 134, 136, 137 Russell 3000 Index, 11–12, 142 Russell MidCap ETFs, 133, 137 Russell Top 50 Index ETF (XLG), 113–114 Russia, 162, 165–167, 168–169, 202–203 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net 226 • Index Rydex Equal Weight Sector ETFs, 115–117 Rydex Equal-Weighted Technology Sector ETF (RYT), 116–117 Rydex Global Advisors, 154 Rydex Investments about, 101 bull/bear market studies, CurrencyShares, 101–107 equal-weight ETFs, 108–110, 111–113 equal-weight sector ETFs, 115–117 Essential Portfolio Theory, 107–109 large-cap ETFs, 113–114 mutual fund limitations and, 110–111 style ETFs, 114–115 Rydex Nova Fund, 101 Rydex Russell Top 50 Index ETF (XLG), 113–114 Rydex S&P 500 Equal Weight ETF (RSP), 101, 109–113, 115–116, 118–119, 154 Rydex S&P 500 Pure Growth ETF, 114 Rydex S&P 500 Pure Value ETF, 114 Rydex S&P MidCap 400 Pure Growth ETF, 115 Rydex S&P MidCap 400 Pure Value ETF (RFV), 114–115 Rydex S&P SmallCap 600 Pure Growth ETF, 115 Rydex S&P SmallCap 600 Pure Value ETF, 115 Rydex Style ETFs, 114–115 S Sabrient Insider Sentiment Index, 174–176 Sabrient Stealth Index, 173–174 Sabrient Systems LLC, 173–176, 185 Safety of ETFs, 207, 210–212 Samsonite Corporation, 110 Sarbanes-Oxley Act, 206 Schumpeter, Joseph, 47 Schumpeterian economics, 46–47 Sears, 40 Sector rotation indexes, 183–184 Sector weighting, 96–100 Sectors, 29–30, 62, 116, 124–127 (See also specific sector, i.e., energy sector) Securities Act of 1933, 102–103, 106, 211 Securities analysts, 68–71 Securities and Exchange Commission (SEC), 20, 102, 155, 158, 206–207, 212 Select Sector Energy SPDR ETF (XLE), 65, 126 Semiconductor sector, 135, 139 Shorting with ETFs benchmarks and, 117 foreign currency strategies, 105 in IRAs, 122–123 ProShares inverse funds, 122–124, 127–129, 131–135 Rydex strategies, 108, 113 uptick/downtick rules, 18–21, 105 Siegel, Jeremy J., 142 Singapore GDP, 42 Small-cap stocks ETFs, 82, 128, 132, 133, 136–137, 173–174 performance, 63, 99f, 112–113 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net Index • 227 Social Stratification in the United States (Rose), 56–57 Software sector, 66–67 S&P 500 Equal Weight ETF (RSP), 101, 109–113, 115–116, 118–119, 154 S&P 500 Equal Weight Index, 86–87, 111, 115–116 S&P 500 Index dividend yield, 3, 147 earnings multiples, 196 as economic benchmark, 112 historical return, 2, 121 history, 81 magnified ETFs on, 124, 128 performance, 8–12, 14–15, 84–86, 100f, 109–110, 118, 201–202, 208f ProShares ETFs on, 126, 128, 131, 132, 136 Rydex ETFs on, 101, 109–116, 118–119, 154 technology sector stocks, 86–87 U.S equities capitalization, S&P 500 Index ETF (SPY) broker and specialist roles, 24–25, 28–29 early ETFs, 4, 155 magnified ETFs on, 126, 127 performance, 5–7, 67, 79 shorting with ETFs, 21, 127, 128, 132 stock selection criteria, S&P 500 Sector SPDR ETFs, 155, 158 S&P 500 Small-Cap 600 Index, 128 S&P 500 Volatility Index (VIX), 50 S&P Global Sector Indexes, 116 S&P Global Water Index, 180–181 S&P MidCap 400 Index, 115 S&P SmallCap Index, 99f S&P SuperComposite Biotech Index, 14–15 S&P SuperComposite Industry Index, 62 S&P SuperComposite Software and Services Index, 66–67 S&P/Citigroup Style Indexes, 114–115 SPDRs (Standard & Poor’s Depositary Receipts), 65, 126, 155, 158 Specialist roles, 24–25, 28–29 Specialized ETF approaches (See also weighting indexes) AlphaDEX enhanced index ETFs, 189–191 First Trust Portfolios, 187–188 HealthShares, 191–192 information technology sector, 192–199 sampling, 172 “sum of the evidence,” 76–77 weighting and adding intelligence, 190–191 Sports analogies, 74, 76–77 SPY (see S&P 500 Index ETF) Standard & Poor’s Corporation, 112, 196 Standard & Poor’s Depositary Receipts (SPDRs), 65, 126, 155, 158 Standard Oil of New Jersey, 93, 95 Starbucks, 38–41 State Street streetTRACKS Gold Shares Trust (GLD), 103–104 Steel industry ETFs, 162, 163–165, 168 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net 228 • Index Stock markets asset class performance, 61–62, 84–87 bull/bear cycles, 3, 87, 92–93, 142–143 ETFs in weak markets, 20–21 volatility, 8–10, 49–51 Stock rotation, 93–96 Stock selection, 4, 63–64, 68–71, 73–76, 178, 191 (See also specific providers, i.e., Claymore Securities) Sustainable Oil Sands Sector Index, 181–182 Swaps, 129–130 T Tax considerations benchmark matching, 117 capital gains and losses, 24, 26–28, 106, 117–119 dividend income, 141–142 ETF creation and redemption process, 117–119 harvesting tax losses using ETFs, 29–31 liquidating distributions, 210–211 mutual funds and ETFs compared, 26–28, 110–111 Rydex CurrencyShares, 106 Technology sector attribution in, 66–67 dot-com era study, 193–195 ETFs, 30–31, 116–117, 126, 135, 139, 196–199 fundamental and cap-weighting in, 96–98 future of, 195–196 growth of, 50 harvesting tax losses using ETFs, 29–31 Internet industry, 188, 194–195 large-cap stock index, 117 magnified ETFs on, 126 market cap and, 63, 65–67 performance, 86–87, 92, 192–193 in S&P 500 Index, 86–87 Telecom sector, 116, 196, 210 Theories comparative advantage, 44–47 creative destruction, 46–47 efficient markets, 83–84 Essential Portfolio Theory, 107–108 “Get Big Fast,” 194 Modern Portfolio Theory, 83–84, 108–109 Ricardian economics, 44–47 Schumpeterian economics, 46–47 Thoma, Mark A., 57–58 Trade deficit, 35, 41–42, 53–56 Trading ETFs, 18–19, 21–25, 28–31 Tyco International, 206 U Ultra ProShares (see ProShares) Unit Investment Trusts (UITs), 102, 156, 187 United States balance-of-trade deficit, 35, 41–42, 53–56 GDP volatility, 49–51 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Index • 229 growing strength of, 42–43, 49 household debt or savings rate, 41–42, 51–53 manufacturing shifts, 35, 45, 53, 56 Ricardian model growth, 45–46 shrinking middle class, 56–58 stock market volatility, 8–10, 49–51 Univariate research, 72 University of California, San Diego, 193 University of Maryland, 193 University of Oregon, 57 University of Pennsylvania, 142 Uptick rules, 18–21 U.S Fundamental Index (RAFI) 1000, 92f Utility sector, 96–97, 116, 135, 139 V Value chain, 43–44, 49 Value stocks and ETFs, 114–115, 133, 134, 137, 149–151 Van Eck Environmental Services ETF (EVX), 162–163, 168 Van Eck Global Alternative Energy (GEX), 162, 167–168 Van Eck Global ETFs, 159–161, 168–169, 187 Van Eck Russia ETF (RSX), 162, 165–167, 168–169 Van Eck Steel ETF (SLX), 162, 163–165, 168 Van Eck U.S Gold Miners ETF (GDX), 160–162 Vanguard, 211 Venture capitalists, 193–195 Vertical index creation, 191–192 W Wal-Mart, 40–41 Wash sales, 30–31 Waste-management industry ETFs, 162–163 Water-related businesses, 180–181 Weighting indexes (See also capweighted indexes; fundamentally-weighted indexing) asset class performance, 84–87 company worth measurements, 90–91 diversification, 65, 158–159, 168–169 earnings-weighted indexes, 145 efficient markets and, 83–84 equal-weighted indexes, 86–87 performance-drag problem, 87–90 Research Affiliates approach, 82–83 sector weighting in, 96–100 stock rotation in, 93–96 unique portfolios, 91–93 Wells Fargo, 110 Wharton School, 142 WisdomTree cash dividend transparency, 142–143 dividend-weighted index criteria, 143–144 dividend-weighted indexes, 141–143 domestic indexes, 143–145 as index creator and ETF sponsor, 144–145 international and domestic dividend indexing, 145–148 Trắc nghiệm kiến thức chứng khốn Mỹ : www.sachchungkhoan.net 230 • Index WisdomTree (Cont.) international indexes and returns, 144–146, 149–151 methodology and transparency, 148 WisdomTree DEFA ETF, 148 WisdomTree DEFA High-Yielding Equity ETF (DTH), 150–151 WisdomTree DEFA Index, 147 WisdomTree Emerging Markets ETF (DEM), 148 WisdomTree Europe High-Yielding Equity ETF (DEW), 150 WisdomTree Japan Dividend Index, 146–147 WisdomTree Japan ETF (DXJ), 146–147 WisdomTree Pacific ex-Japan High Yield ETF (DNH), 150 WisdomTree Pacific ex-Japan HighYielding Equity Index, 149–150 World stocks (see foreign investments) WorldCom, Inc., 20, 142, 206 X Xerox, 94 Xinhua China 25 Index, 208f, 210 XShares Group, LLC, 192 Z Zacks ETFs, 171–172, 183–184, 185 Zacks Sector Rotation Index, 183–184 Zacks Yield Hog Index, 171–172 Zero plus-tick and downtick, 19–21, 105 Ziegler Capital Management, 196–197 Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net ABOUT THE AUTHOR Max Isaacman was a Financial Consultant at Merrill Lynch, a manager at SG Cowen, a vice president at Lehman Brothers, and performed other functions in his 40-plus years as an advisor and broker He is a Registered Investment Advisor with East/West Securities in San Francisco, advising individuals and institutions Isaacman was a financial columnist for the San Francisco Examiner and wrote for many publications, including Delta Airlines Sky magazine Among his appearances are CBS MarketWatch, Tech TV, and the FTSE Global Index Conference, Geneva, Switzerland Isaacman is the author of How to be an Index Investor (McGraw-Hill, 2000), which introduced investors to ETFs Trắc nghiệm kiến thức chứng khoán Mỹ : www.sachchungkhoan.net Copyright © 2008 by Max Isaacman Click here for terms of use