blog25nov2007

Hot Off the Web
In WSJ’s “Trade oil, gold, rice and more in one fund”  Eleanor Laise discusses a new ETN, Total Return Elements RJI, tracking commodities based on Rogers International Commodity Index. We have covered ETNs earlier (they are essentially a bond reflecting a promise by the issuer to deliver the index after (0.75%/year) fees. This is a well diversified commodity index with energy accounting for only 44% (similar to DJ AIG Commodity Index), rather than 70% in the GSCI; the rest includes gold, agricultural commodities , livestock; you can look at the composition of the index at the Elements website  ( By the way you can buy a subset of the index if you already have adequate gold and energy coverage, for example, and you like to add some agricultural exposure, you can achieve that with RJA  ETN. While Barclays ETN family also includes a commodity suite, the Elements suite appears to offer broader diversification and better liquidity, based on current daily volume).
In another WSJ article by Eleanor Laise explores how target-date funds can be customized in “Customizing cookie-cutter funds” . She give examples such as an individual whose expected retirement date is close to 2030 choosing a 2050 target date fund to be more aggressive; or when employees who have pension plans are given the option of choosing much more aggressive (higher equity content) target date funds; still others allow investors to choose a target date and starting and ending asset allocations. New target date funds are also appearing with the labels of conservative, moderate and aggressive labels. There is now $168B in target date funds in the U.S.; not bad for a relatively new offering!
Jonathan Clements in WSJ’s “A nervous investor’s guide to overcoming market jitters”  reminds us that we instinctively do the wrong thing as the market begins to tank; we try to get out of harm’s way. But there is significant cost to pay when we follow our instincts; in fact stock holding period has dropped from 5.8 to 4.2 years over the past 30 years. Yet waiting is rewarded. He quotes Charles Farrell, who studied 52 rolling 30 year periods staring in 1926, and he showed that on the average you gained 8% and 32% of your wealth after the first and second decades of a $10,000 investment in a 70:30 stock: bond fund; i.e. 68% of the gain comes in the last ten years of each 30 year period. So it pays to stay put.
In Financial Post’s “Latest alchemy fails to deliver gold” Hugh Anderson joins the growing list of those who are not impressed with Manulife’s fast selling Income Plus guaranteed income for life product. This a mix of risk-free investments, “enhanced” with some equity participation but then “slapped” with 3.5-4% annual fees, and by the way the selling investment advisor gets 5% commission right up front. His conclusion is that “surely a good professional investment advisor should be able to put together a balanced and diversified portfolio that will do much more rewardingly what Income Plus offers, at much less cost.”
Arthur Drache in Financial Post’s “Strong loonie creates chances for tax-loss selling” suggests that there may be opportunities with the unusually strong loonie, whereby even if a foreign stock has appreciated in local currency, when converted to Canadian dollars the net effect is a loss. While you should not let the tax consideration drive your investment decisions, you may still explore the opportunity by calculating the Canadian dollar cost of your asset against the current Canadian dollar value (exact conversion rates can be obtained from Bank of Canada website) and make a decision to sell or not. If you still like the stock, he suggests that you may repurchase it after 31 days.
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