Monday, September 29, 2008

Sell Your ETNs

Last February Lehman introduced several exchange-traded notes (ETNs) under the “Opta” brand name. Unlike exchange-traded funds (ETFs), which represent actual share holdings, ETNs are backed by the credit of the issuing bank. That didn’t seem like a big deal a few months ago, but it does today. The Lehman ETNs no longer exist.

Morgan Stanley has four currency ETNs. This firm moved to traditional banking status allowing them to more easily borrow from the Fed in an emergency, but the risk of default remains.

Barclay’s is a big player in ETNs and they are the most financially strong, but in today’s climate that can change fast. AIG was considered in good standing just two weeks before their failure.
The ETN market is much smaller than the ETF market. With today’s credit crunch, the ETN market may get smaller still. I see no reason to subject portfolios to the credit risk of ETNs.

David Vomund
http://www.etfportfolios.net/

Wednesday, September 17, 2008

Investing is akin to driving. You start and point A and want to get to point B, but you don’t go there in a straight line. When the road turns, you turn with it.

The same goes with the market. Earlier this year TheStreet.com interviewed me asking for my favorite ETFs. At the time commodities were rising so I chose an inverse bond fund and an energy fund. The inflation road turned as commodities plunged. Inflation is less worrisome so an inverse bond fund is no longer appropriate.

Commodities have sold off but so have equities. So much for the theory of diversification helping an investor avoid draw-downs. The panic of the 2008 credit crisis is underway and people are re-evaluating their portfolios. Unfortunately the time to make portfolio decisions is not during a crisis. More on that in an upcoming blog. In the meantime, here is a short interview in today’s Tahoe Bonanza:

http://www.tahoebonanza.com/article/20080917/NEWS/809169965/1050&ParentProfile=

David Vomund