New warning over exchange traded funds (ETFs)

ETFs have become a trillion-dollar-plus trading instrument allowing investors to bet on the rise or fall in price of a vast range of commodities, indices and currencies without actually having to buy the assets themselves.

… particularly worried by so-called “synthetic” ETFs, which instead of tracking an index such as the FTSE or a basket of commodities, use derivatives to gain exposure, with risks passed on to third parties.

These contracts are not as transparent as we would wish, and there is a danger counterparties could go bust. I am not sure investors realise the risks involved.

Find out in the Guardian why ETFs may not be everyone’s cup of tea.

Many people have the misconception that ETFs are Index funds and are “low cost” instruments. This blog entry from Terry Smith – ETFs – you were warned, should give you greater insight on what ETFs are not.

Believe it or not, portfolio diversification has worked

It looks great on paper. Diversification is the hailed financial theory that says investors can reduce the ups and downs of their portfolio by sprinkling money all over the place in different types of investments, rather than plunking down everything on just household-name U.S. stocks.

Investors who take a closer look, though, can see that diversification has done what it’s supposed to do. And for investors looking for a prudent way to gear up for the stretch goal of saving for retirement, diversification can still be a big key to success.

“Diversification is like a free lunch, or at least a free hors d’oeuvre,” says Ian Ayres, professor of law at Yale University who has studied diversification. “You want to take advantage of it.”

“Diversification is a great tool to protect against risks of problems at a particular company or industry, but not if the entire financial system comes under strain.” Read how diversification can get more powerful over time and what the key ingredients to make your diversified portfolio work at USA Today.

Investment House Outlook (Nov 2011)

Source: Skandia

Charting 4 Bad Bears

Source: Advisor Perspectives

Source: Advisor Perspectives

Source: Advisor Perspectives

All at Business Insider.

The Latest Doomsayers on Europe’s Debt Crisis

“This may very well spread” — Moody’s

“This is the beginning of the end for the Euro Zone” — Bloomberg

“European officials aren’t acting quickly enough” — OECD

“European leaders have only days to act” — Financial Times

“This is what will happen if Europe doesn’t act” — Business Insider

Here’s a summary of what these doomsayer financial experts are saying about the EURO debt crisis.

New Apple Innovation – iYuan

Apple has begun accepting payment in Chinese yuan for purchases in its online App Store, the company’s latest expansion in what has become a key growth market.

Will this change everything? Apple’s acceptance Chinese Yuan in its App Store may start the snowball effect of wide adoption of Chinese Yuan for international transactions. It does make sense for corporations with sizeable manufacturing done in China to transact in Chinese Yuan. With Apple’s acceptance, China may be one step closer to expanding trading of of its currency outside of mainland.

Read about this in WSJ.

Investment House Outlook (Oct 2011)

Source: Skandia

ST – “Have property, may not profit”

There is never one “sure win” asset class. The principles of investment also apply when you invest in real estate.

Like the stock market, the property market moves in cycles, and if you are caught at the wrong end of the cycle, it may take years before you get to see the price you paid for that dream home again.

An old friend in the real estate business once estimated that only one in four investors here made any money out of investing in property.

Another friend remarked that on paper, it would appear that he had made a hefty gain on a condo unit he had bought for investment 15 years ago. But after deducting the interest paid on the mortgage and the sums spent over the years on repairs and maintenance, the returns worked out to a paltry 3 per cent a year.

And there lies another twist to his story: He said that unlike the current tight rental market, where landlords can pick and choose their tenants, there was a period between 2002 and 2005 when condo rentals plunged so badly that it was uneconomical for owners like himself to let out the unit.

However, those aiming to buy a condo unit as an investment should realise that it is not a sure road to riches.

Read the article by Straits Times Goh Eng Yeow here.

Investment House Outlook (Sep 2011)

Source: Skandia

Investment House Outlook (Aug 2011)

Source: Skandia