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Advice Pool - ETFs Unplugged
Is your financial advisor missing a critical piece to the ETF?
Exchange-traded funds (ETFs) are great investment tools but most have a flaw that investors and advisors usually miss. Let’s take a look under the hood and introduce some new and innov
Exchange-traded funds (ETFs) are great investment tools but most have a flaw that investors and advisors usually miss. Let’s take a look under the hood and introduce some new and innov
According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product
ative ETF products.
Essentially, ETFs are nothing more than an index fund that trades like a stock. Because of their simplicity, flexibility, low cost and tax efficiency they are growing fast. Last year the Barclays iShares family of ETFs brought in more
Essentially, ETFs are nothing more than an index fund that trades like a stock. Because of their simplicity, flexibility, low cost and tax efficiency they are growing fast. Last year the Barclays iShares family of ETFs brought in more
; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.
Examples of combination products may in
Examples of combination products may in
new money than the Fidelity mutual fund machine.
Diversification
Unfortunately, many investors and advisors are building portfolios of ETFs without looking inside the box and seeing where the money is going. One of the chief goals of a portfolio
Diversification
Unfortunately, many investors and advisors are building portfolios of ETFs without looking inside the box and seeing where the money is going. One of the chief goals of a portfolio
lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.
is diversification and many ETFs are not very diversified. This is because the companies in the ETF are weighted by size – specifically by the market value of its outstanding stock. This can result in an unwise concentration of risk and uneven performance
here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe
.
The index fund community’s preoccupation with market cap weighting may have a strong theoretical basis but to me it is contrary to common sense. To be blunt, I pay very little attention to it while building global portfolios for clients.
Most investor
The index fund community’s preoccupation with market cap weighting may have a strong theoretical basis but to me it is contrary to common sense. To be blunt, I pay very little attention to it while building global portfolios for clients.
Most investor
d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.
Combination pro
Combination pro
s would agree that just because a company is bigger doesn’t mean that it is a better investment. Let’s look at the most well known index – the S&P 500 index. Many investors think that investing in the S&P 500 means that their money is being divided equall
ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc
between 500 companies. This is far from the truth. Because the companies are weighted by size, 22% of your investment is going to the ten largest companies in the index and 60% of your investment is going to the largest 50 companies in the index.
Une
Une
easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi
qual Weighting, Unequal Returns
This is why I have been advising clients to invest in the Rydex S&P 500 equal-weight ETF (RSP) which weights each company in the index equally. In 2003 the equal weight S&P 500 ETF beat the S&P index by 11%, in 2004 it
This is why I have been advising clients to invest in the Rydex S&P 500 equal-weight ETF (RSP) which weights each company in the index equally. In 2003 the equal weight S&P 500 ETF beat the S&P index by 11%, in 2004 it
nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically
beat the index by 5% and year-to-date it is up slightly while the S&P index is down.
In my book, “The New Global Advisor”, I ask readers a provocative question. If you wanted exposure to the dynamic biotechnology industry, would you prefer to primarily
In my book, “The New Global Advisor”, I ask readers a provocative question. If you wanted exposure to the dynamic biotechnology industry, would you prefer to primarily
and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ
nvest in a few large well know biotech companies or would you prefer to spread your investment over thirty biotech companies? If you’re the former, you might invest in the iShares Nasdaq Biotechnology ETF (IBB) whereby 25% of your investment would go to t
ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi
hree companies. For those that prefer broader exposure including some small cap companies, I have discovered a new family of ETFs called Powershares.
The new and innovative Powershares family of ETFs essentially creates its own indexes based on rules-bas
The new and innovative Powershares family of ETFs essentially creates its own indexes based on rules-bas
ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.
Following aspects would a
Following aspects would a
ed quantitative analysis that they refer to as “intelligent indexes.” This seems to me to be more useful than blindly following market cap weighted indexes. There are two Powershares that I particularly like at this point.
Two I Like
The first is
Two I Like
The first is
dd to the challenges in developing combination products:
Which markets to tap where the combination products can do fairly well?
Which combination prod
Which markets to tap where the combination products can do fairly well?
Which combination prod
the biotech Powershare (PBE) that contains 30 biotech companies. If its holdings were weighted by market cap, two companies would account for more than 60% of its holdings. Instead your exposure is spread among 30 different companies with no company accou
cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin
nting for more than 5% of the total. 30% of your exposure is to large cap companies, 26% is to mid-cap companies and 43% is to small cap companies.
The biotech Powershare is an aggressive position so don’t get carried away. I think it is a smart play on
The biotech Powershare is an aggressive position so don’t get carried away. I think it is a smart play on
tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
What would be the developing cost?
How to tackle the risks encountered during combination product developmen
the tremendous opportunities for capital appreciation in the biotech industry which is showing some momentum after trading sideways since early 2004. The annual fee is only 0.60%.
The other Powershare that I like is the International Dividend Achievers P
The other Powershare that I like is the International Dividend Achievers P
t?
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel
wershare (PID) that contains 42 ADRs traded on U.S. exchanges. I am usually not a big fan of ADRs since they usually trade at a premium to the underlying security but they do offer some comfort to investors since they meet U.S. reporting requirements and
ping new procedures for reviewing their safety, efficacy and quality.
Professional from academic institutions, pharmaceutical industries, health care indust
Professional from academic institutions, pharmaceutical industries, health care indust
can be easily purchased on U.S. exchanges. The ADRs in this Powershare have to pass a stiff test: five fiscal years in a row of increased dividends. Again the top holdings are no more than 5% of the total index and so you get great diversification.
A
A
y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products
Better Way to Get Global Diversification
One problem with the most widely used international index, the MSCI Europe, Asia & Far East Index (EAFE) is its concentration in Japan and the United Kingdom which account for almost 50% of the index’s total v
One problem with the most widely used international index, the MSCI Europe, Asia & Far East Index (EAFE) is its concentration in Japan and the United Kingdom which account for almost 50% of the index’s total v
.
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de
lue. Meanwhile exposure to promising countries such as Ireland and Hong Kong are less than 2%. Last year, this Powershares index beat the MSCI EAFE index by 7% and companies in the ETF averaged a 29% return on equity. The index is re-balanced quarterly an
elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.
Companies that provide selfless information through particip
Companies that provide selfless information through particip
d has an annual fee of 0.50%. Right now 67% of the companies in the index are large cap, 20% are mid-cap and 13% are small cap companies.
Getting the right blend of ETFs takes some time and effort. Remember that all ETFs are not equal so choose carefully
Getting the right blend of ETFs takes some time and effort. Remember that all ETFs are not equal so choose carefully
tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products
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