ETF Update: Aerospace ETFs, International Real Estate, Short ETFs

by: Tom Lydon posted on: June 26, 2008 | about stocks: DRW / IFGL / IYT / PPA / PRY / RSW / RWX / RXD / SKF / WPS

Boeing, Durable Goods Ground Transportation, Aerospace ETFs

A double whammy of bad news took the aerospace and defense ETF lower yesterday.

First, orders for durable goods (those items meant to last three years or more) were stagnant last month. Metals, machinery and autos were among the items that felt slowing demand in May, reports Bob Willis for Bloomberg.

It was, however, the flat reading that economists were expecting. Any strength in May came from a 10.3% jump in demand for commercial aircraft and a 14.9% increase in orders for military planes and parts, reports Martin Crutsinger for the Associated Press.

The transportation ETF, iShares Dow Jones US Transportation (IYT), got a slight lift thanks to the orders in planes offsetting weakness in auto sales.

Second, Boeing (BA) shares fell to a 30-month low after Goldman Sachs downgraded its shares to "sell." The analyst cited high oil prices and the slowing economy in his rating, reports the Seattle Times. Boeing is 7.7% of the PowerShares Aerospace & Defense (PPA).

IYT is up 10.3% year-to-date, while PPA is down 13.1%.

For full disclosure, some of Tom Lydon's clients own shares of IYT.

International Real Estate ETFs Can Be Like Apples and Oranges

Two ETFs can sound alike, but pulling back the curtain can often reveal big differences, such as those between two international real estate funds.

The PowerShares FTSE/RAFI International Real Estate Portfolio (PRY) was born on Dec. 28, 2007, joining the WisdomTree International Real Estate ETF (DRW), which launched on June 5, 2007.

Both ETFs offer similar exposure, but have different methodologies in their construction.

Their trading volume alone is vastly different: over a three-month period, PRY traded 1,600 shares per day compared to DRW's 34,700 shares. DRW holds more assets, too. This is likely a case of the first fund to market being the recipient of the lion's share of the assets.

Both funds offer exposure for investors who are looking for real estate markets that aren't in the troubled United States, says Don Dion for Seeking Alpha.

PRY gives international exposure to real estate in developed countries that fulfill criteria such as book value, funds from operations, dividends and sales. DRW uses a numbers-based dividend weighting method and has a 0.58% expense ratio vs. PRY's 0.75%.

Both ETFs share the same top holding, and the top three countries allocated, but DRW has 192 components, while the largest five holdings make up 28.8% of the fund. PRY has 146 components, with the five largest holdings making up 23.9% of the ETF.

Australia, Hong Kong and Japan make up the top countries represented in each fund, with different percentages given to each country, depending on the fund.

Year-to-date, PRY is down 13.5% while DRW is down 14.2%. Interestingly, some of the domestic real estate ETFs have been doing better year-to-date, although they're down, too.

When the global real estate market rights itself, other ETFs that can take you abroad are:

SPDR Dow Jones Wilshire International Real Estate (RWX), down 14.7% year-to-date
iShares FTSE EPRA/NAREIT Global Real Estate ex-US Fund (IFGL), down 18% year-to-date
iShares S&P World ex-US Property Index Fund (WPS), down 17.9% year-to-date

A Triple-Threat in the Markets Makes Short ETFs Popular

Is there are triple crisis threatening to hurt the economy, Wall Street and ETFs?

Martin D. Weiss for Money And Markets reports that he warned us one week ago about a severe U.S. recession, surging inflation and high chances of a Wall Street meltdown. Now, he says, there's been some news that confirms his warning:

Deepening U.S. recession: Vehicle sales are anticipated to drop off, and dealer lots are already overloaded with gas-guzzling SUVs they can't sell. S&P has also put Ford, GM and Chrysler on "credit watch negative."
Airline bankruptcy: More than 20 airlines worldwide have been hit, and the top 10 U.S. airlines are expected to post pre-tax losses at $18 billion this year and next.
Surging inflation: For May, producer prices jumped 7.2%. Import prices were up 17.8%, the biggest ever recorded.
Bond insurance disaster materializes: Another wave of bank losses, and write-downs are sure to come, exceeding the losses we've seen from the current housing/credit crisis. The finances of many states and local governments are financed through this industry, and Moody's has just downgraded the credit rating of both MBIA (MBI) and Ambac (ABK).
Stocks suffer: The financial sector has been hurting especially badly, and it wasn't helped by Monday's news that a recent upgrade for the sector was in error.

It's no wonder that some short ETFs have been popular with investors this year. Some of the strongest performers include:

ProShares UltraShort Financials (SKF), up 41.1% year-to-date
ProShares UltraShort Health Care (RXD), up 30.8% year-to-date
Rydex Inverse 2x S&P 500 (RSW), up 18.3% year-to-date

The Federal Reserve decided to leave interest rates unchanged for the time being on Wednesday, but we're not out of the woods. Until the economy is on sure footing, short ETFs can be an option for investors looking to keep generating returns while the markets decide which way they'd like to go.