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

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

The markets slipped slightly this week, as traders were occupied with higher oil and commodity prices, problems for sub prime lenders, weak housing, a worse than expected CPI report and Iran’s nuclear ambitions.

Our Trend Tracking Index (TTI) for domestic funds moved higher as well and now sits +6.03% above its long-term trend line (red) as the chart below shows:

The international index also moved higher and currently sits +10.63% above its own trend line, as you can see below:

For more details, please see the above link.

While this topic is a little bit outside of No Load Fund/ETF investing, it nevertheless struck a cord with me.

What happened? Chrysler announced a “shocking” plan to lay off some 13,000 workers and decrease annual production by 400,000 vehicles. Additionally, word leaked out that Mercedes is considering breaking its ties with Chrysler.

So far, this sounds like a good business decision to me, although I fail to understand why it took them 9 years to come to that conclusion. To me, it was a questionable deal to begin with, and I am not sure if it was simply ego driven (let’s see if we can do it) or if there were actual business fundamentals involved.

I think that the original takeover was based on the false premise that if Mercedes was in charge and could improve the quality of the Chrysler cars, higher profits would surely follow. As it turned out, this is a good news/bad news scenario.

The good news is that the quality of the cars has indeed improved remarkably. I can personally attest to that, since I am on my third Jeep Grand Cherokee/Laredo. The latest model was really a step up in terms of handling and overall design, which pleased me as a consumer. I am even more pleased by the fact that, for the latest model 2006, I paid about the same, if not slightly less, than for my first one 15 years ago.

That is not what Mercedes had in mind when they took over Chrysler.

I am sure that, along with an increase in quality was supposed to be an increase in price. This is where the bad news comes in. Mercedes miscalculated by not considering the “image factor” of the American car buyer. Unfortunately, as is well documented, American car manufacturers can only sell their cars if the accompanying offer includes a steep discount, a cash rebate or zero percent financing. It’s a sad fact of life.

Okay, so Mercedes looks to streamline the operation or possibly sell the Chrysler division to someone else. That’s understandable.

Here’s where it gets strange. The first suitor expressing an interest in such a deal is General Motors.

Huh?

A company in dire straights, which has not been able to compete in 30 years, has financial difficulties in most of their enterprise, including their sub prime loan division, and they’re still thinking they’re king of the hill.

If the Germans can off that albatross called Chrysler to GM, I have to worship the ground they walk on. If GM actually goes through with it, it’s got to be the dumb deal of the week or even the year.

I really would like to understand the reasoning, but I just can’t seem to figure it out. If you have some logic as to why Chrysler would be a good fit for GM, please share it with me.

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

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

The markets rallied sharply this week after soothing comments from Fed Chairman Bernanke about the economy. Our Trend Tracking Index (TTI) for domestic funds moved higher as well and now sits +6.10% above its long-term trend line (red) as the chart below shows:

The international index also moved higher and currently sits +11.07% above its own trend line, as you can see below:

We’re living in the information age, so it’s hard to imagine that an individual, claiming to be an investment professional, can get away with any type of scam. But it just happened again.

I am not talking about an advisor exposing your portfolio to undue market risk or failing to implement a stop loss discipline to limit any potential losses. I am talking about intentional fraud and deception.

A recent article in MarketWatch described a 38-year old, who was arrested in Las Vegas on charges of defrauding senior citizens of some $2 million. The “clients” were impressed by his obvious display of wealth via fancy automobiles and expensive watches. They did not know about his gambling debts, or his $5,000 per day strip club habit.

The article went on to say that none of the alleged victims had bothered to verify whether that individual was actually registered as any type of advisor. That’s hard to imagine.

Besides the obvious, what else can you do to avoid becoming a victim when selecting an advisor to manage your assets?

Here’s the most important advice I can give you. Any independent investment professional works with a reputable company that functions as the custodian for clients’ assets. There is no reason to ever make a check payable to anyone else but the custodian. Read that sentence again!

Most advisors work with well recognized custodians such as Fidelity, Schwab, Vanguard, TD Ameritrade and others. If it’s not a household name, you can certainly find out a lot by doing quick internet search or contacting the SEC.

In my advisor practice, it happens from time to time that a client sends me a check, maybe for an IRA contribution, and it is made payable to my company. I am not allowed to endorse it, I have to return it and get another one from him made payable to the custodian.

Bottom line is that, if anyone, pretending to be an investment professional, wants to have you make a check payable to him or his company name, run as fast as you can. You may have just avoided an expensive learning experience.

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

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

The markets meandered for most of the week, but retreated on Friday. Our Trend Tracking Index (TTI) for domestic funds followed suit and now sits +5.04% above its long-term trend line (red) as the chart below shows:

The international index also moved slightly lower and currently sits +9.47% above its own trend line, as you can see below:

With the explosion of Exchange Traded Funds (ETFs) over the past few years, there’s still some confusion among investors between the difference of buying an ETF or his close cousin, the CEF (Closed End Fund).

Unlike mutual funds, both of them are traded on stock exchanges as opposed to an open ended mutual fund, which is purchased directly from a fund company.

The main difference between the two is that ETFs represent mostly indexes while many CEFs have actively managed portfolios that allow the fund manager to adjust to changing market conditions. The fund manager’s job, in comparison to handling traditional open ended mutual funds, is made a lot easier.

How?

Since investors in traditional mutual funds can buy and sell shares at anytime, the manager has to deal with the constant inflow and outflow of money and liquidate or add to his positions during market conditions that may not be most favorable.

This can create even more of a problem in certain international markets that lack the liquidity which we are used to seeing here in the States.

With CEFs, however, the fund manager is not concerned with these issues. Once the original public offering of a closed end fund is completed, all further transactions are being handled on the secondary market. The fund manager knows exactly the size of the fund and how much money he has to work with. So he can focus on what he does best: Manage a fixed size fund to achieve the objectives as outlined in the prospectus.

Another advantage of CEFs is that they “can” trade at a discount (or at a premium) to the value of the underlying assets. This is not necessarily a reflection of performance but simply a function of supply and demand. But, before you rush out and buy any CEF that trades at a discount, be advised that they can stay at a discount for a long time.

It’s kind of like buying a new car at a discount from list price, because this model is out of favor. However, the quality or performance of that car is not impacted by the discount.

CEFs offer an advantage especially when investing internationally. As you may have found out, many conventional international mutual funds carry a sales load of some 5.75% and some are run by well know managers such as Mark Mobius from Templeton. While I personally don’t subscribe to the theory of picking a fund based on its manager, there are many investors who do.

CEFs can help you invest into funds run by such seasoned managers. For example TDF and EMF are 2 such funds that are run by Mobius and it only costs you a trading fee to buy into them (Neither I nor my clients have any holdings in those funds).

With all of these benefits, are there any disadvantages to using CEFs vs. ETFs?

First, both should be used when appropriate. Second, while ETFs have low annual fees of around 0.4%, expect to pay around 1.5% for CEFs, just like regular mutual funds. They are actively managed and therefore carry higher annual expense ratios.

Both, ETFs and CEFs have a place in an investor’s portfolio. Given the all too stringent holding and trading requirements of conventional mutual funds, ETFS and CEFS will gain more favor as investors understand and learn how to use them as a viable alternative.