Features and News

Countries, Commodities, and Correlations

 HAI's newest contributor says that buying stocks from commodity producing countries is not the same as buying the commodities themselves.


Features and News

Tortillas, Beer And Pasta

The ethanol boom appears to be the best thing ever to happen to the Atkins diet.

HAIMay 30, 2007

Features and News

Home Prices Stumble

Want to catch a falling knife? Buy into the American dream...

U.S. home prices went negative in March for the first time in 15 years. Home price gains have now officially reversed course: The latest reading from the S&P/Case-Shiller U.S. National Home Price Index showed prices down 1.4 percent from year-ago levels and 0.7% from Q4 2006. This is the first time that the national price index has fallen into negative territory since 1990-1991.

“The fall of the National Index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the U.S. residential real estate market,” says Robert J. Shiller, Chief Economist at MacroMarkets LLC. “The National Index was yielding solid returns as recently as a year ago. Q1 2006 growth rates were up 11.5% vs. Q1 2005, a sharp contrast to the returns we are seeing today.”

Home prices are in an out-and-out free fall in certain markets: prices in Detroit are down 8.4 percent over year-ago levels, as that market continues to see a population exodus. Prices are also down sharply in San Diego (-6.0%), Boston (-4.9%) and Washington, D.C. (-4.8%). Certain markets remain strong: Seattle prices are up 10.0% over year ago levels, and crept up a health 0.9% in March. Charlotte is also hot, with prices up 7.4% on an annualized basis and 0.9% on a month-to-month basis. But the net trend is not pretty, and the chart … well, that speaks for itself.

Features and News

SSgA Joins Fixed-Income ETF Rush

State Street Global Advisors (SSgA) will launch five new fixed-income exchange-traded funds (ETFs) onto the American Stock Exchange (AMEX) on Wednesday, May 30, as the fixed-income ETF market continues to heat up.

At the start of this year, Barclays Global Investors (BGI) was the only company to offer fixed-income ETFs, providing just five funds. Since January 1, BGI has launched eleven new fixed-income ETFs; Vanguard has added four funds of its own; and Ameristock Funds has registered for its own line-up of fixed-income ETFs.

Now, SSgA is jumping into the mix, with a line-up that focuses primarily on Treasuries. The five new SSgA funds are:





Expense Ratio

SPDR Lehman 1-3 Month T-Bill


Lehman Brothers 1-3 Month Treasury

1-3 Month




Barclays US Government Inflation-Linked



SPDR Lehman Aggregate Bond ETF


Lehman Brothers U.S. Aggregate



SPDR Lehman Intermediate Term Treasury ETF


Lehman Brothers Intermediate U.S. Treasury (1-10 year)

1-10 Year


SPDR Lehman Long Term Treasury ETF


Lehman Brothers Long-Term U.S. Treasury

10+ Year


Of all the new funds, the most interesting may be the 1-3 month T-Bill fund (AMEX: BIL). Short-term bond ETFs have been a surprise hit with investors. The iShares Lehman Short Treasury Bond Fund (NYSE: SHV), for instance, has been far-and-away the fastest growing of the new iShares fixed-income ETFs, pulling in nearly $200 million in assets in its first four months on the market, compared to just $20-$40 million for most of the other funds. The same is true of the Vanguard Short-Term Bond ETF (AMEX: BSV), which has outpaced the other Vanguard bond ETFs, pulling in $120 million since launch.

Common sense suggests that much of this money comes from mutual funds and other holders looking for a quick and liquid way to park cash. With that in mind, what’s interesting about the new SSgA fund is that it is the shortest duration bond ETF on the market: the fund only holds Treasuries with durations of one to three months, compared to 1-12 for BGI’s SHV, and 1-5 years for Vanguard’s BSV.

Will investors search out the short-term access? OR will they be satisfied with the longer-term exposure offered by the Vanguard and SSgA funds. It remains to be seen.

SSgA has taken a middle road with its price points on these ETFs: the funds are substantially cheaper than the BGI fixed-income products, but more expensive than the 11 basis points (0.11%) charged by cost-leader Vanguard.

Features and News

Fidelity Enhances Indexes

Fidelity Investments has expanded its offering of index funds targeted at individual investors. On May 1, it announced the addition of three funds to its line-up. They aren’t, however, exactly traditional index funds.

Features and News

China Sector Indexes

FTSE Xinhua has launched a series of sector indexes for the Chinese market. The sector indexes are subsets of the FTSE/Xinhua 200 Index, which tracks the largest 200 A-share companies listed on the Shenzhen and Shanghai stock exchanges.

The Chinese stock market is extremely complex, offering different share classes for different investors: A shares can only be held by mainland Chinese citizens and some foreign institutional investors; B shares can be held by foreigners; and H shares represent companies incorporated in China but listed on the Hong Kong exchange (or a foreign exchange). The markets all perform quite differently, with the A-Shares market often moving at odds with the foreign-available shares. This is in part due to investor demand, but more due to the different kind of companies that list in different locations: the majority of B and H share companies are large-cap firms, while many smaller companies list on the A market.

FTSE Xinhua already markets sector indexes tied to the FTSE Xinhua 600 index, which comprises the 600 largest listed stocks in the Chinese stock market by market capitalization. And the group is not alone: In September 2005 Dow Jones Indexes and its partner China Business Network introduced 14 Dow Jones CBN China Blue-Chip Sector indexes derived from its Dow Jones CBN China 600 Index using the ICB.

“The introduction of these indices reflect not only the increasing demand from our clients for a way to track the growing Chinese industries, but also FXI’s continued commitment and leadership in responding to the changing market demand both internationally and domestically,” says FTSE Xinhua Index Managing Director Norman Yen.

Features and News

Indian Iron = Veggie Burgers

 Commodity investors often lose sight of the fact that all this wheat and ore has to eventually get somewhere. A recent move by India may be showing us that this could be an Achilles' heel – and it's floating in the Pacific.

HAIMay 24, 2007

Features and News

Barclays Launches BuyWrite ETN

Today Barclays Global Investors expanded its iPath family of exchange-traded notes (ETNs) with the launch of the iPath CBOE S&P 500 BuyWrite Index ETN (symbol: BWV). The new products tracks—of course—the CBOE S&P 500 BuyWrite Index.

The CBOE index was launched in 2002 and represents the performance of a buy-write investment strategy as applied to the S&P 500. In a buy-write strategy, an investor buys stocks and then writes covered call options on them. The funds make money from the premiums on the calls, which in most cases, is paid out on a quarterly basis. Currently, closed-end buywrite funds, like the Eaton Vance Tax-Managed BuyWrite Fund (NYSE: ETB), are yielding around 9%.

The scheme usually does best in sideways markets, and offers some protection against downward markets; however, it sacrifices performance when the market is on an upswing.

BuyWrite Interest

Although buy-write—also known as “covered call”—strategies are nothing new, they are not quite mainstream. The strategy can seem too complex to the average retail investor, and will dramatically lag the market during strong bull markets. However, given the choppy markets of the last few years, buy-write strategies have regained a significant foothold.

Mainly, the strategy is available through closed-end funds, although late last year, the CBOE launched futures on the CBOE S&P 500 BuyWrite Index, and firms such as Citigroup and Merrill Lynch have also introduced notes on the index.

A flurry of closed-end funds were launched beginning in 2004, when the market entered a somewhat neutral performance period. The funds range widely. IQ Investment Advisors manages the closed-end S&P 500 Covered Call Fund (NYSE: BEO), which tracks the same CBOE BuyWrite Index as the new closed end fund. Most closed-end buy-write funds, however, are actively managed. Fund manager Eaton Vance is probably the leader in the space, offering five buy-write funds that collectively hold more than $5 billion in assets. Other companies with closed-end funds include Nuveen Investments, BlackRock, and First Trust.

Why An ETN?

BWV offers a new angle on the buy-write strategy. The iPath ETNs are intended to provide investors exposure to “difficult-to-reach market sectors and strategies,” according to BGI’s Web site. The family currently covers commodities, currencies and emerging markets (India). The notes are senior, unsecured, unsubordinated debt securities issued by Barclays Bank PLC, and their returns are linked to the performance of their underlying benchmarks. You buy the ETN, and Barclays promises to pay you the amount reflected in the index, minus fees.

The big calling card for ETNs is tax efficiency. BGI believes that, under current tax law, ETNs should be treated as "prepaid contracts." If that’s the case, the funds will never pay distributions, and shareholders will only owe taxes when they sell the fund. If you hold for more than a year, all the gains will be long-term gains, taxed at 15%.

In contrast, closed-end funds and other buy-write strategies generate income … lots of it. As mentioned, most strategies are now yielding 9-10% per year. This income gets paid out, and shareholders must pay taxes on it. The difference between paying taxes now and deferring them into the future can add up.

There are a number of people, however, who believe that Barclays' tax treatment of the ETNs is too aggressive, and that it is unlikely that they will qualify for such favorable treatment. If that happens, shareholders could be exposed to back taxes on gains.

The other downside of the ETNs, of course, is that they are debt. If Barclays were to go bankrupt, ETN-holders would be essentially out of luck. That's unlikely, but stranger things have happened (if rarely).

BWV carries an annual fee of 0.75%, significantly higher than the expense ratio of most ETFs (particularly BGI’s iShares), but is significantly cheaper than comparable buywrite closed-end funds, which generally have not only higher expense ratios, but also significant underwriting fees.