New ETFs on India and Nasdaq Indexes - How Will They Fare?

by: Gary Gordon August 26, 2008 | about stocks: DBP / EPI / IFN / KOL / SLX    
Gary Gordon

Gary Gordon

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In my office, I prominently display Smart Money's laughably absurd cover from March 2000. The popular magazine highlighted "15 Great Tech Stocks," and presented what they dubbed, "The Ultimate Tech Portfolio."

Naturally, March 2000 marked the bursting of the tech bubble. And, not surprisingly, the Smart Money "Ultimate Tech Portfolio" is still down more than 80%... 8+ years later. (You can pretty much expect that nobody will recover from 90%+ losses on Smart Money's picks for the tech boom that went bust.)

In truth, it's hard to blame any financial publication for doing what it does. Each shines a mirror on a present state of euphoria or gloom because... well... that's how it hooks the consumer/investor.

(Would you really expect a magazine cover today that focused on a 2009-2011 Bull Market Bash? Or would you expect titles like, "21 Good Things To Do In a Bad Market" and "7 Smart Moves For a Terrible Economy.")

Interestingly enough, the introduction of new indexes reminds me of magazine covers. In essence, when institutions roll out new indexes, they are looking for ETF companies to roll out a corresponding investment vehicle. But by the time the new ETF comes to the check-out aisle, the white hot investment trend may be cooling.

Consider WisdomTree's introduction of the "first" ETF for India, the India Earnings Fund (EPI). The hype on investing in India had been building for months, even years, prior to the late February 2008 roll-out of EPI. And over the prior 5 years, astute investors had been profiting handsomely in the closed-end stand-alone, the India Fund (IFN).

India_fund_ifn_etf
Notice the 400%+ gain for investors in the India Fund. And that's after a dramatic 30% pullback from $70 to $50.

Nevertheless, WisdomTree released the "first" ETF for India, the India Earnings Fund with tremendous fan-fare. EPI uses an earnings-based index and is passively managed, unlike its closed-end compadre, IFN.

New index, heavy marketing, new fund... and lots of investor interest. Yet the results for EPI over the last 6 months... Ouch! 25% losses since inception.

India_earnings_fund_epi

Fairness might dictate, the closed-end India Fund has performed no better than EPI. India has been clobbered by global recessionary forces, rising unemployment and rising inflation.

Nevertheless, wasn't the point of the WisdomTree Earnings Index Fund to separate itself from an existing exchange-traded vehicle? Should investors have been more concerned about the hype and heavy promotion than they were... since new indexes and new vehicles typically arrive at the tail end of an uptrend?

Just curious.

And what should we make of the new NASDAQ indexes? Last week, we were provided with the NASDAQ OMX Global Coal Index, the NASDAQ OMX Global Steel Index and the NASDAQ OMX Global Gold & Precious Metals Index. Since commodities have taken a bearish slide for the worse, perhaps I should hold off claiming that NASDAQ was predictably chasing hot commodities.

Then again... they probably were. They were just a little late to the party.

How have steel, coal and precious metals been faring? Over the last 3 months, the Powershares Precious Metals Fund (DBP), the Market Vectors Coal ETF (KOL) and the Market Vectors Steel ETF (SLX) have flirted with bearish territory.

Coal_etf_steel_etf
Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Advisor with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.

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This article has 2 comments:

  •  
    Aug 26 10:39 AM
    It's unfair to compare performance in this market, esp for EPI which is out for just 6 months.
    I think India is a great play for the long-term future and investors having a 3-5 year horizon will do well, just as in IFN.
    I am bullish on India and if the elections next year bring back the Dr. Singh govt, things would really be bullish. Keep an eye out for this.
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  •  
    Aug 27 10:16 PM
    I agree with author about the hype. India is great place to invest for long term, but in next 1 year there will be more pain than gain. India yet to see the real estate melt down. When that happens, coupled with high inflation it would take couple of years to recover. Govt is in messy state and the market is driven by foreign investment. Unless domestic funds participate more in the market, there will be more melt down coming.
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