E-mail exchanges and conversations with thousands of my readers over the past few years have exposed me to an unusual and at times odd behavior when it comes to money and investments.

One thing I found was that some investors on one hand are trying to save pennies while on the other wasting dollars by the thousands without even being aware of it, or at least not thinking about it. To me, it’s an oddity when you have to convince someone that paying an upfront load is a total waste of money in today’s environment of low cost ETFs and no load, no transaction fee mutual funds.

Yet, at the same time, that same investor has just spent several hours of his time online trying to save $50 on his next vacation trip or his new PC.

What gives?

For the most part, I think it is just lack of understanding of how brokers make their money. Or annuity salesmen, for that matter. It’s an abusive world out there, and if you don’t educate yourself, you’ll end up holding the short end of the stick.

Most every investor is interested in the same thing when it comes to investment advice: To get an unbiased, honest opinion and receive some guidance without financial motivation based on the product involved.

Sounds simple and yet so difficult. I am not trying to toot my own horn here, but the key is the relationship between you and your advisor. If you engage the services of a fee-only advisor, you can be assured of three things:

1. He is only paid the fee rate you agreed upon

2. He has taken an oath to act in the client’s best interest

3. He does not earn money off any particular product, is not tied to a particular investment firm and is thereby free to offer unbiased advice.

Today, that’s as close as you can get to someone whose financial priority is you and not their own pocket. Compare that to a commissioned salesman who heavily promotes a company sponsored ‘loaded’ product and you know (or you should know) that if you buy, he stands to make thousands of dollars in upfront fees.

How is that for conflict of interest?

Recently, I read a story in TheStreet.com called “Hot Yields Drive Rebirth of Closed-End Funds.”

It did a good job describing the reasons for the renewed interest in CEFs. As baby boomers are aging and moving into retirement, the goal seems to be to generate as much income as possible. While 5% bond yields are common and boring to some, 8% to 9% yields are definitely better.

In February 07, the largest IPO in history for a closed end fund was launched raising some $5.5 billion for the Eaton Vance Global Tax Managed Equity Income Fund (EXG), which yields over 9%. That high yield is being generated by investments in domestic and foreign stocks that pay big dividends. Additionally, the managers use strategies such as issuing covered calls, index call options and preferred securities.

Before you jump right in and put your entire retirement savings on the line for this juicy yield, let’s look at a chart of EXG:



Obviously, this fund has only been around for a few months, but the trend has been down so far. To me, getting a great 9% yield is one thing, but losing value at the same time with the fund deteriorating is another.

When hunting for income generating instruments, I like to not just look at yield, but also at a fund’s ability to hold its value. Otherwise, you’re just trading dollars.

While this is not an exact science, it pays in this scenario to have longer term data available before committing your dollars. That way you can analyze how an income fund has performed during various market conditions. You will never find a fund that will fulfill your requirements 100%, but at least you should make an effort to weed out those that may be totally unsuitable.

Disclosure: I have no holdings in this fund.

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

Despite higher oil prices, a pre-Fed announcement rally pushed the major indexes slightly higher

Our Trend Tracking Index (TTI) for domestic funds/ETFs is now positioned +3.30% above its long-term trend line (red) as the chart below shows:



The international index has now moved to +6.69% above its own trend line, as you can see below:



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

As you have seen in the last 2 weekly issues, the StatSheet has been expanded to contain more momentum data, which is now presented in PDF format. This allows me to more easily add new ETFs from the ever increasing menu of choices and enables you to better print out only those areas you’re interested in.

Here are some of the latest changes:

1. The New Venture funds have been included in the Sector ETF section, which now features 197 ETFs. You will note that many are fairly new and have not yet been around long enough to show momentum figures for all time periods. However, I think it’s worthwhile to have them included to see how they develop.

Additionally, many new health care ETFs have been added. It’s is amazing how much they have been sliced and diced into mini sectors. Same here; while they should not be used as an investment at this time due to lack of historical data, they will hopefully be of value in the future.

2. The bear market fund/ETF listings have been expanded to include 31 funds

3. The domestic ETF listings are now featuring 201 funds

4. In case you are interested in income ETFs, a new section called “Bond and Dividend ETFs” has been added.

5. If you like to get the big picture of the ETF world, the Master ETF list has now been increased to show 497 ETFs. That means our StatSheet currently features every worthwhile ETF available.

To keep the same consistency throughout, the sorting order for all tables remains at ‘4-wk.’ I am contemplating other changes as more investment products become available.

Selecting individual country funds for your portfolio can be a challenge due to the above average volatility. Additionally, you’ll never know when one country’s bull market run suddenly peters out while another one continues to scale to new highs.

A better and more conservative way is to use an ETF which covers an entire region such as emerging markets (EEM). While you’re spreading your dollars over a larger area and limiting your gains, you’re also reducing your risk considerably.

For example, everybody would have liked to be participating in the China bull market last year, but many missed that boat including me. Not that I didn’t see the strong momentum numbers develop, I just didn’t like the risk.

But there are still ways to participate more conservatively in regions with great current and future promise called the BRIC countries (Brazil, Russia, India and China). While you can buy an individual country ETF for each of those, you can also buy the entire BRIC community with one ETF called EEB.

Take a look at the following 6-months chart, which shows the EEB performance compared to all other BRIC members:



The advantage of using EEB vs. individual ETFs becomes clear as we’re dealing here with countries of extreme volatility. Leading the pack, you have Brazil (EWZ) as the top performer smoothing out a sub par performance by India (IFN) while Russia (RSX) and China (FXI) are sitting below EEB performance wise.

This is not meant to be a green light for you to jump in with your portfolio, it merely points out another investment option that you may not have been aware of.

I currently have no invested position in the BRIC region but that may change in the future.

Reader Nitin pointed to an article in the NYT called “The Crowd Is Restless, but Maybe That’s a Good Sign.”

It deals with contrarian analysis, which simply means that historically the tendency for investors is to be wrong at major turning points. Market tops are reached when there are very few bears left and therefore no money is available on the sidelines to push the market higher.

Conversely, the same happens at the bottom when every bull has thrown in the towel and there is not much selling pressure left. Contrarians follow this approach by focusing on sentiment among investment newsletter editors, who allegedly represent the mood of the average investor.

How can that be?

Very simple. The problem with most newsletter writers is that their views and recommendations are based on their personal “predictions” (some of them short-term) of where the market might be headed. They in essence react as a bunch emotionally no different than the individual investor. The Hulbert Financial Digest has found that the stock market performs better on average after periods when newsletters are bearish rather than when they were bullish.

He argues that currently, the average newsletter editor recommends only a 30.2% allocation to stocks and the balance in cash. This is in contrast to November last year when the Dow was 8% lower, but newsletter editors as groups were recommending an equity exposure of 70.8%. If the theory holds true, the current bull market.

While this maybe interesting, it is not a reliable indicator for use in making buy and sell decisions. Hulbert admits that much and cites several examples. Based on that, it becomes clear that most newsletter advice that is based on predictions is faulty when it counts most.

For example, in early February 2001, the record high bullish sentiment reading was 79.7% after about 1 year into the bear market. Contrarians, who took that as a sell point, were rewarded because the Dow ended up dropping another 33% before the bear ran out of breath. Of course, our Trend Tracking method had us on the sidelines as of October 13, 2000 without having to guess sentiment or making any predictions.

My point is that most newsletters that are based on anything other than tracking cold hard numbers may work well in bull markets, but they’re useless when the bear rears its ugly head.