bright investing

Tom Lydon tells us that twenty new ETFs were added this week, from three different companies. That seems like a pretty full week.

Jim Cramer was suffering from ETF burnout back in July. But RealMoney.com contributer Chip Hanlon definitely thinks ETFs are the future.

I’m a big fan of the ETF movement, but I don’t know about all these thinly-sliced indexes. Call me boring, but I’m partial to VTI.

Tom Middleton’s criticism of traditional index investing doesn’t seem to jive with the reality that indexers beat almost everyone else, year after year. Nevertheless, he takes an interesting look at some new ETFs that claim to avoid overpriced stocks in this article. Excerpt:

WisdomTree takes a contrary approach, giving the most weight to stocks paying the highest dividends — that is, with the lowest relative prices. Academic research has demonstrated that value stocks deliver higher returns than growth stocks over very long periods.

Of course, what Tom doesn’t mention is that sometimes stocks are cheap for a reason. Even so, maybe there’s method to the madness:

According to Jeremy Siegel, the Wharton finance professor (and a WisdomTree consultant) who is author of “Stocks for the Long Run,” a dividend-weighted index outperformed the capitalization-weighted Russell 3000 total-market index by 1.23 percentage points a year between 1964 and 2005.

In the recent bear market, when the Russell went down nearly 50%, the dividend index declined only 20%. “The dividend-weighted index is now about 40% above its March 2000 close, whereas the S&P 500 and Russell 3000 are still not yet back to even,” Siegel says.

At the very least, these new “value” ETF’s are probably worth a look.

See also: WisdomTree

Finally:

The Dow Jones industrial average topped its record-high close this morning, reaching a milestone in Wall Street’s recovery from nearly seven years of corporate upheaval, economic recession and the impact of terrorism. The high close was 11,722.98 set on Jan. 14, 2000.

Lifted by growing optimism about stable interest rates and a soft landing for the economy, the Dow rose to 11,724.86 in morning trading, before slipping back to 11,699.08. It faced one more milestone, its intraday high of 11,750.28, before it could move into uncharted territory.

The benchmark still hasn’t closed at an all time high, or hit an all-time intraday high, but it looks like both might happen today.

UPDATE:  So close! 

Fortune Magazine has an interesting look at insider trading, including this successful method for getting illegal tips:

Plotkin and Pajcin allegedly recruited a young M&A analyst at Merrill Lynch to tip them off to pending transactions.

And this far less successful method:

Pajcin and Plotkin, the SEC says, coached exotic dancers on questions to ask Wall Street customers about possible deals. They never got anything useful.

Always remember, when it comes to insider trading: moles - good, strippers - bad.

McDonald’s (MCD) is increasing their dividend:

On Wednesday, fast-food king McDonald’s said its board has approved increasing its quarterly dividend to 25 cents from 17 cents — a roughly $1.2 billion hike.

With all those dollar items on the value menu, can an annual dividend of $1 a share be a coincidence?  Ok, it can.  Even so, McDonald’s investors must be pleased.

I just added 3 handy calculators to the site:

• Millionaire Calculator
• Future Value Calculator
• Monthly Saving Calculator

These links can also be accessed from the home page under “Tools”. There’s also a stock lookup form on the home page, in the quotestream box on the far right sidebar.  Finally, there’s a Market Overview page here.

Stockpickr.com lists stock picks from financial professionals like Mark Cuban, Carl Icahn, Warren Buffet, as well as hundreds of mutual funds and money managers. The relatively new site gathers information from public sources to compile portfolios. I’m not sure how accurate they are, or how useful this information is, but it’s an interesting idea.

Why are there so many index fund enthusiasts?  Because, “In the first half of 2006, three out of five large-cap managed funds – those that focus on the 500 biggest US companies – failed to beat the index.”   Why aren’t there more index fund enthusiasts?  Because those low expense ratios - sometimes just a tenth of what active funds charge - don’t leave a lot of money for advertising and aggressive marketing.  Plus, there’s the psychological appeal of attempting to “beat the market”.  Me?  I’d rather beat most investors than beat “the market”.

Tax facts many of your friends will refuse to believe:

The 2003 tax cut was the third in three years, but the tax code still remains highly progressive. The average tax rate ranges from 2.97 percent of income for the bottom half of the earning spectrum to 23.49 percent for the top 1 percent.

The top-earning 25 percent of taxpayers (AGI over $60,041) earned 66.1 percent of nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (84.9 percent). The top 1 percent of taxpayers (AGI over $328,049) earned approximately 19 percent of the nation’s income (as defined by AGI), yet paid 36.9 percent of all federal income taxes.

The wealthy are easy targets, but it’s hard to make the case that they don’t pay enough taxes when the top 1 percent pay 36.9% of all federal income taxes and the top 25% pay 85%.

Indexfundfan takes a look at the U.S. national debt, and finds that things aren’t as gloomy as one might suppose.  In fact, 34 nations have a debt-to-GDP ratio higher than ours.  The nation that surprises me most is Japan, which is number 4 on the list, with a debt that’s 158% of GDP.  Ours is only 64.7% of GDP.

Scott Burns looked at big mutual funds vs. small mutual funds, and found that Goliath (the 25 biggest funds) usually beats David (the remaining 10,000+ funds).  One advantage the big boys have is annual expenses — an average of .53% compared to the smaller fund average of 1.54%.  That gives the big funds a one percent head start each year.  Always remember the first rule of fund investing — expenses matter.

Oil funds bleed:

Mutual fund investors, captivated by oil’s 88 percent appreciation in two years, increased their energy holdings in 2006 just in time to lose $4.5 billion.

That’s the damage U.S. oil and gas funds recorded as crude plunged 23 percent from a record in July, according to data compiled by Bloomberg. The Guinness Atkinson Global Energy Fund is down 14 percent, and Fidelity Investments’ $2.7 billion Select Energy Portfolio has lost 12 percent. The U.S. Global Investors Inc. $1.3 billion Global Resources Fund slid 12 percent.

With gasoline at $2.04 a gallon where I live, it’s hard to get upset by this news. But then, I don’t bet on oil.

I wonder how much of these losses were based on speculation, and how much were hedging by oil-consuming companies? I guess most were the former, since the latter usually go directly to the futures markets instead of mutual finds.

Not bad:

U.S. stocks rallied, sending the Standard & Poor’s 500 Index to a five-year high, after Federal Reserve Bank of Dallas President Richard Fisher said the economy remains strong.

Of course, a new high is good, but that doesn’t mean prices will continue upwards. In fact, the doomsayers are claiming a crash is just around the corner:

We’re heading into a recession. You’ve heard about it for months, even years, what with the housing bubble, the war in Iraq, overextended consumer credit — you name it. A recent Merrill Lynch (NYSE: MER - News) report says that the U.S. economy will grow by only 1.9% next year, down from 3.4% this year, and slower than the global growth rate of 5.2%. Even slowpoke Europe should pass us at 2.1%, though the U.S. is ahead of the average European GDP growth rate of 2.7%.

I’m not entirely convinced, but caution is certainly warranted. The frustrating thing is that every bit of good economic news for the last few years have prompted this sort of doomsaying. Eventually, someone will be right, and they will be declared a genius. It’s often better to be lucky than smart.

Bad News for real estate investors:

The collapsing U.S. housing market crossed another milestone in August, as the median sales price of existing homes fell for the first time in 11 years and for just the sixth time in the past 38 years, the National Association of Realtors said Monday

Read more at Market Watch.

Standard & Poor’s new Global Challengers 40 index sounds intriging:

Standard & Poor’s also announced today the launch of the S&P Global Challengers 40 index, a highly liquid and investable subset of the broader S&P Global Challengers List. The index, which is an equal-weighted portfolio of the 40 fastest growing stocks with representation from around the world, will serve as an important, liquid and geographically diverse benchmark for global investors.

I wonder if an ETF will appear in the near future.