MARKET COMMENT
November 13, 2006
ETF TSUNAMI ALERT
An informal calculation of the number of new ETF issues
coming to an exchange near you amounts to be around 300. What?!?
That’s right—around 300 ETFs are now in
registration with the SEC. Rydex has filed for 96, ProShares
[66], Wisdom Tree [60], PowerShares [35], and
Barclay’s, State Street
and others have some in the hopper as well.
They’re “carpet bombing” the market.
What’s an ETF expert to do? Only
one thing—head to higher ground and wait for the tide to recede.
We’re not unhappy with all the new issues coming to market
since within the rubble there will be some gems. But, given the sheer number they may be hard
to find, and that my friends is the challenge.
Even more difficult sometimes is in the issuer’s rush to get their products
out the door they often forget to provide quote vendors with appropriate
symbols or data history for linked indexes.
Getting adequate index history is step one and sometimes impossible. So, we’ll just create a new folder [maybe
labeled “research lab”] to put those in and let them age. You see, some issuers just “create an index
and go” not thinking anyone really wants to see any historical data since the
issues are just, well, really cool, so who cares? Silly us!
Wanting to do some due diligence is just getting in the way.
Meanwhile today markets responded to positive comments from
the Fed’s Fisher who basically said the economy is strong.
Investors are always curious about
overbought market conditions and just how long they can last in that
condition. Some overseas markets remind
me of the 1995-1999 period in US markets. Examine the “monthly” charts below and you’ll
note similarities between the NASDAQ then and ILF [Latin America ETF] today
which featured extended overbought conditions that persisted for a period
beyond most pundits’ ability to predict.
However, the longer these conditions persist, the sharper the correction
when it finally occurs.
It shouldn’t be too shocking to see so many new ETFs in registration.
Every issuer on WS wants to get in the game to either make fee income or
be bought out by another firm looking to get in the game quickly. Due diligence involving all these issues is a
challenge for the end-user naturally.
But like was mentioned previously, in all the rubble there will be some
winners.
Have a pleasant evening.
Disclaimer: The ETF
Digest maintains positions in: GLD, CEF, PBW, IEV, EWP, EWW, FXI, EWM, EWA, IFN
and ILF.