Trends I'm Watching

New WisdomTree Emerging Markets SmallCap ETF

Trend: WisdomTree continues to innovate in the ETF marketplace with the WisdomTree Emerging Markets SmallCap Fund (DGS).

David Levy at Seeking Alpha describes the first exchange-traded fund with exposure to small-cap emerging market stocks — WisdomTree Emerging Markets SmallCap Fund (DGS)—, which begins trading on Oct 31. Excerpts below.

Link: Jump Aboard WisdomTree's Emerging Markets SmallCap Train - Seeking Alpha

The fund has strong performance (based on back-tested data provided by WisdomTree) over the last one-, three- and five-year periods, outperforming both the MSCI Emerging Markets and the MSCI EAFE (international developed markets) indexes during the same timeframe. Year-to-date through Sept. 30, the back-tested index returned 36.71 percent; equally impressive are the one year return (63.26%), three year return (+40% annualized), and five year return (+43% annualized).

The fund complements WisdomTree’s line-up of fundamentally weighted indexes, and holdings are weighted based on annual cash dividends paid. While some fundamental measures vary from country to country, this metric appears to be the best way to compare fundamental metrics across broad geographic regions.

The fund’s volatility (measured in the chart above using downside deviation) is on par with WisdomTree’s other emerging market fund, but outpaces all of the other international funds and is nearly two times the level of the S&P 500. This serves as fair warning to the risky nature of investing in emerging markets.

The new international small-cap ETF is highly diversified by both country and sector. It contains 369 holdings and sports an impressive dividend yield of 4.82 percent. The countries with the highest allocations are Taiwan (24 percent), South Africa (13 percent), Korea (12 percent) and Thailand (11.5 percent). The sectors with the highest weightings are industrials (24 percent), consumer discretionary (18 percent), financials (14 percent) and materials (13 percent).

Disclosure: We may hold positions in any ETF mentioned at any time.

Best Performing ETFs for the Past 4 Weeks through 10/26/2007

Trend: iShares FTSE/Xinhua China 25 Index (FXI) led the 4 week performance (+19%, +5% for 1 week, +37% for 13 weeks).

The 20 ETFs with the best 4 weeks performance tracked by Morningstar is highlighted below.

Link: MSN Money Exchange Traded Funds (ETFs) Performance Tracker

Name	Ticker	Category	Holdings	Morningstar	Last Price*	1-Wk	4-Wks	13-Wks	YTD	52-Wks	3-Yrs	5-Yrs
iShares FTSE/Xinhua China 25 Index	FXI	Diversified Emerging Markets	holdings		$215.29	5.03	18.89	54.03	87.82	145.92	61.44	N/A
First Trust ISE Chindia	FNI	Foreign Stock	holdings		$31.35	6.74	17.45	37.46	N/A	N/A	N/A	N/A
SPDR S&P China	GXC	Pacific Stock	holdings		$111.18	5.10	17.41	51.66	N/A	N/A	N/A	N/A
Claymore/BNY BRIC	EEB	Foreign Stock	holdings		$57.38	8.61	16.52	41.76	73.55	104.12	N/A	N/A
SPDR S&P BRIC 40	BIK	Growth	holdings		$35.49	8.40	15.91	38.07	N/A	N/A	N/A	N/A
iPath S&P GSCI Crude Oil Tot Ret Idx ETN	OIL	Specialty - Natural Resources			$53.68	5.93	15.43	27.51	38.36	34.44	N/A	N/A
United States Oil	USO	Specialty - Natural Resources	holdings		$72.50	6.00	15.35	26.59	37.93	32.66	N/A	N/A
iShares MSCI South Africa Index	EZA	Foreign Stock	holdings		$152.08	10.51	14.46	21.45	31.89	57.56	33.39	N/A
iPath MSCI India Index ETN	INP	Growth			$89.05	11.94	14.17	31.11	56.99	N/A	N/A	N/A
PowerShares DB Oil	DBO	Specialty - Natural Resources	holdings		$33.90	4.78	14.01	20.93	N/A	N/A	N/A	N/A
iShares MSCI Brazil Index	EWZ	Foreign Stock	holdings		$84.44	9.12	13.58	32.64	76.24	99.15	67.56	66.33
PowerShares Gldn Dragon Halter USX China	PGJ	Diversified Emerging Markets	holdings		$38.33	3.57	13.27	43.40	77.04	121.76	N/A	N/A
SPDR S&P Emerging Asia Pacific	GMF	Growth	holdings		$102.11	6.76	13.17	29.81	N/A	N/A	N/A	N/A
SPDR S&P Emerging Markets	GMM	Foreign Stock	holdings		$85.64	7.27	12.37	25.15	N/A	N/A	N/A	N/A
Internet Infrastructure HOLDRs	IIH	Specialty - Technology	holdings		$5.74	1.07	12.28	9.04	3.85	0.89	13.77	25.79
Vanguard Emerging Markets Stock ETF	VWO	Diversified Emerging Markets	holdings		$117.09	8.02	11.95	23.38	48.78	65.15	N/A	N/A
BLDRS Emerging Markets 50 ADR Index	ADRE	Diversified Emerging Markets	holdings		$59.77	6.54	11.92	27.33	51.58	70.34	50.31	N/A
PowerShares DB Energy	DBE	Specialty - Natural Resources	holdings		$34.27	4.72	11.48	15.47	N/A	N/A	N/A	N/A
PowerShares FTSE RAFI Asia Pacific ex-Jp	PAF	Pacific Stock	holdings		$62.74	7.26	11.43	22.88	N/A	N/A	N/A	N/A
SPDR S&P Emerging Middle East & Africa	GAF	Foreign Stock	holdings		$76.85	7.89	11.42	18.01	N/A	N/A	N/A	N/A

Which Dividend ETFs Should We Buy?

Trend: When ETF segments get crowded, expertise is needed to select the top investments.

ETF Expert Gary Gordon evaluates 12 large-cap, U.S. dividend ETFs and picks two that provide the stability, yield and volume necessary for success. Excerpts below.

Link: ETF Expert: Dividend ETFs: Open Up The Closet Before Selecting Your Outfit.

...there are at least 12 large-cap, U.S. dividend ETFs. Do we really need this many?

iShares Dow Jones Select Dividend Fund (DVY)
Powershares Dividend Achievers Trust (PFM)
Powershares High Growth Rate Dividend (PHJ)
State Street SPDR S&P Dividend (SDY)
First Trust Value Line Dividend Fund (FVD)
First Trust Morningstar Dividend Leaders (FDL)
WisdomTree Total Dividend Fund (DTD)
WisdomTree Top 100 Dividend Fund (DTN)
Vanguard Dividend Appreciation (VIG)
Powershares High Yield Dividend Achievers (PEY)
Vanguard High Yield Dividend (VYM)
WisdomTree High Yield Equity Dividend (DHS)

When I seek out a dividend-oriented ETF, I look for 3 features:
(1) An adequate volume of shares trading hands,
(2) Limited drawdown, where the ETF performs better than the broader market in a downtrend, and
(3) A yield of 3% or more. (We want our dividend ETF to provide a bit of cash flow... don't we?)

The iShares Dow Jones Select Dividend Fund (DVY) and the SPDR S&P Dividend (SDY) provide the stability, yield and volume necessary for success. The former generates a reliable 3.3% of income by holding 100 of the highest dividend-yielding securities in the Dow Jones U.S. Total Market Index. The latter also offers 3.3% annually and pays out quarterly, tracking the S&P Dividend Aristocrat Index.

Best Performing ETFs for the Past Week through 10/26/2007

Trend: iPath MSCI India Index ETN (INP) led the 1 week performance (+12%, +14% for 4 weeks, +31% for 13 weeks). The home contruction ETF (iShares Dow Jones US Home Construction - ITB) is #2 on the list.

The 20 ETFs with the best 1 week performance tracked by Morningstar is highlighted below.

Link: MSN Money Exchange Traded Funds (ETFs) Performance Tracker

Name	Ticker	Category	Holdings	Morningstar	Last Price*	1-Wk	4-Wks	13-Wks	YTD	52-Wks	3-Yrs	5-Yrs
iPath MSCI India Index ETN	INP	Growth			$82.34	11.94	14.17	31.11	56.99	N/A	N/A	N/A
iShares Dow Jones US Home Construction	ITB	Specialty - Real Estate	holdings		$21.51	10.88	8.09	-20.83	-48.88	-45.96	N/A	N/A
iShares MSCI South Africa Index	EZA	Foreign Stock	holdings		$152.40	10.51	14.46	21.45	31.89	57.56	33.39	N/A
iShares MSCI Hong Kong Index	EWH	Pacific Stock	holdings		$23.32	9.84	11.15	31.01	45.75	61.13	31.93	27.14
SPDR S&P Homebuilders	XHB	Specialty - Unaligned	holdings		$22.88	9.71	7.60	-14.87	-38.22	-34.31	N/A	N/A
Ultra Basic Materials ProShares	UYM	Specialty - Unaligned	holdings		$106.00	9.13	9.89	24.01	N/A	N/A	N/A	N/A
iShares MSCI Brazil Index	EWZ	Foreign Stock	holdings		$82.57	9.12	13.58	32.64	76.24	99.15	67.56	66.33
Claymore/BNY BRIC	EEB	Foreign Stock	holdings		$55.64	8.61	16.52	41.76	73.55	104.12	N/A	N/A
Ultra Utilities ProShares	UPW	Specialty - Utility	holdings		$85.83	8.60	4.11	16.78	N/A	N/A	N/A	N/A
SPDR S&P BRIC 40	BIK	Growth	holdings		$34.60	8.40	15.91	38.07	N/A	N/A	N/A	N/A
iShares MSCI South Korea Index	EWY	Pacific Stock	holdings		$73.11	8.39	7.01	11.79	48.00	55.44	44.49	32.21
SPDR S&P Metals & Mining	XME	Specialty - Natural Resources	holdings		$69.67	8.32	10.64	17.83	42.52	45.34	N/A	N/A
Vanguard Emerging Markets Stock ETF	VWO	Diversified Emerging Markets	holdings		$115.14	8.02	11.95	23.38	48.78	65.15	N/A	N/A
SPDR S&P Emerging Middle East & Africa	GAF	Foreign Stock	holdings		$76.42	7.89	11.42	18.01	N/A	N/A	N/A	N/A
Market Vectors Russia ETF	RSX	Foreign Stock	holdings		$49.77	7.63	10.09	20.60	N/A	N/A	N/A	N/A
Market Vectors Steel ETF	SLX	Specialty - Natural Resources	holdings		$86.66	7.60	9.74	32.00	86.81	96.20	N/A	N/A
UltraShort Semiconductor ProShares	SSG	Specialty - Technology			$55.91	7.55	9.68	4.68	N/A	N/A	N/A	N/A
SPDR S&P Emerging Markets	GMM	Foreign Stock	holdings		$84.01	7.27	12.37	25.15	N/A	N/A	N/A	N/A
PowerShares FTSE RAFI Asia Pacific ex-Jp	PAF	Pacific Stock	holdings		$62.58	7.26	11.43	22.88	N/A	N/A	N/A	N/A
WisdomTree International Real Estate	DRW	Specialty - Real Estate	holdings		$55.42	7.17	5.89	12.92	N/A	N/A	N/A	N/A

Disclosure: We may own any EFT above at any time.

China Depends on Others for Prosperity

Trend: China depends on external sources for energy and the US for exports.

Why Peter Zeihan of Stratfor doesn't worry about China.

Link: Friedman Writes Back » Further Thoughts on ‘The Russia Problem’.

First, it has to import half of its energy from countries well beyond its naval/air reach — the U.S. can shut that off in a day without firing a shot.

Second, the bulk of their exports are either direct to the U.S. or to states that ultimately send their exports to the U.S. The U.S. can get most of what China produces from elsewhere, so a trade war would destroy China in a matter of weeks.

Third, the Chinese financial system makes the Three Stooges look like Einstein. They’ve chosen to deal with their bad loans issue by saying it has been magically solved. Fourth, all of the economic growth is concentrated on the coast, where only one-fourth of the population lives, leaving the interior very susceptible to Long Marches.

Finally, the $1 trillion-odd currency reserves is an expression of capital flight, not political leverage. The Chinese know that getting a 2-3 percent return on U.S. T-bills is more reliable than investing that money at home. And they can’t dump them either. If they did the remaining value of their reserves would plummet, and they’d risk destabilizing their primary market — which would hurt them (as an exporter of nonessential products) more than Washington.

Oil and the Dollar Trend in Opposite Directions

Trends: Oil is up 511% since 2001, and the dollar hits a 15 year low.

People who keep their savings in low-interest savings accounts cannot be happy with the dollar (if they see what is happening).

Link: The Big Picture | Crude Oil above $92.

Crude remains below its all-time inflation-adjusted high of $101.70 from April 1980. However, Crude has climbed 47.3% over the past 52 weeks, and since 2001, it is up ~511%, from $18 to $92.

The dollar is at 15 year lows versus a basket of currencies.

ProShares launches short international ETFs

Trend: ETF investors gain more investment vehicles for adapting to market downdrafts.

On October 25, ProShares launched the first-ever short international ETFs, designed to go up when a foreign market goes down.

Link: ProShares Launches First Short International ETFs

The six new ProShares, each to be listed on the American Stock Exchange, are:

ProShares	Daily Objective*	Ticker Symbol
Short MSCI EAFE	Daily returns equal to the inverse of the daily return of the MSCI EAFE Index	EFZ
UltraShort MSCI EAFE	Daily returns equal to two times the inverse of the daily return of the MSCI EAFE Index	EFU
Short MSCI Emerging Markets	Daily returns equal to the inverse of the daily return of the MSCI Emerging Markets Index	EUM
UltraShort MSCI Emerging Markets	Daily returns equal to two times the inverse of the daily return of the MSCI Emerging Markets Index	EEV
UltraShort MSCI Japan	Daily returns equal to two times the inverse of the daily return of the MSCI Japan Index	EWV
UltraShort FTSE/Xinhua China 25	Daily returns equal to two times the inverse of the daily return of the FTSE/Xinhua China 25 Index	FXP

*Before fees and expenses

Presentations on Investing in Renewable Energy

Tom Konrad at Alternative Energy Stocks recently did two presentations about investing in renewable energy. You can download the powerpoint files at the link below.

Link: Two Recent Presentations on Investing in Renewable Energy | Alternative Energy Stocks

GE cleaner technology R&D Investment to Reach $1 Billion by Year End

Trend: Cleaner technology is gaining momentum as large companies see big opportunities in reducing pollution and improving energy efficiency.

Some excerpts from an October 23 press release by GE.

Link: GE ecomagination R&D Investment to Reach $1 Billion by Year End, Driving Expansion of Advanced Technology Pipeline : Press Releases : News : GE.

GE announced that it will invest more than $1 billion on cleaner technology research and development (R&D) for 2007, drawing closer to its pledge to invest $1.5 billion annually on ecomagination R&D by 2010. One of four GE ecomagination commitments originally made in 2005, R&D investment has reached a total of more than $2.5 billion since the program’s inception.

Today’s announcement was made by Lorraine Bolsinger while she was onsite at GE’s Global Research Center (GRC) in Niskayuna, NY to host a day-long briefing session on the innovative portfolio of ecomagination products, which are currently being developed at the facility.

Research and development funding for ecomagination is shared between GE’s four GRCs (Schenectady/Niskayuna, NY, Shanghai, Munich and Bangalore) and each of GE’s major businesses. The GRCs serve as dedicated labs for long-term R&D commitments and work to develop a broad technology portfolio to help meet a wide-range of energy and environmental challenges.

GE researchers are working on a broad array of technology initiatives that cut across GE’s business portfolio. These projects include:

• Renewable energy -- exploration of advanced concepts in wind, solar and biomass to improve the economics and availability of these clean, renewable energy sources
• Advanced gasification technologies -- for GE’s Integrated Gasification Combined Cycle (IGCC) System to increase plant efficiency, lower emissions and make these systems carbon capture ready
• Fuel efficiency -- research in composite materials, advanced aerodynamics, turbine alloys and advanced coatings and combustion systems to improve the fuel efficiency and overall performance of present and future generations of aircraft engines and electric power generation systems
• Hybrid systems -- research to support the development of the next generation hybrid locomotive
• Lighting -- several energy efficiency initiatives such as Organic Light Emitting Diodes (OLEDs) to reduce our energy consumption
• Water -- programs to provide more affordable, less energy-intensive solutions to water purification and re-use that enable an increase in the quantity and quality of clean water around the globe.

via Earth2Tech

Wishing Wealth Indicators Moving Lower

Trend: The Wishing Wealth indicator suggests a market downturn.

Dr. Wish's indicator has been remarkably accurate at predicting tops and bottoms in the stock market.

Link: Wishing Wealth

The GMI fell to 4 (of 6) and the GMI-R is now at 50%. There were more than twice as many new lows than new highs in my universe of 4,000 stocks (226/91) on Friday, an ominous sign. Many of the new lows are banks, apparel companies and trucks, possible indications of a slowing economy. Less than one half (47%) of the Nasdaq 100 stocks closed above their 30 day averages, a level not seen since late last August. I should have noticed earlier last week that there are now 3 times as many bullish advisors than bearish advisors in the latest poll, with over 60% being bullish--almost at the 5 year high.