effin' ETFs!

Members present: Brian, Bickford, Yousef (and a unicorn?)

We finally bought some ENZL, but not when we were expecting. We put in a bid price for when the market opened on Monday, but the stock opened a few cents more per share, so Scottrade didn't buy it. However, when the fund dipped below a few days later, we were able to get it at about $4 lower, nearly taking care of the trading cost!

The bid-ask spread was really big with ENZL, partially because the volume is really small and also because it was the weekend. Because the bid-ask spread was large we would have spent several dollars more per share to buy the stock. Since we are dealing at such low dollar amounts, we have to take a look a our margins being eaten up. The bid-ask difference goes into paying the middlemen along the way. If we were dealing in larger dollar amounts it wouldn't be as significant to us.

Speaking of ENZL, from an article on seeking alpha:

             New Zealand's GDP grew a much faster-than-expected 1.1% in Q1, helped by a rise in   

             agriculture and business services. Economists had targeted 0.5% growth. It's NZ's fastest pace  

             of growth in nearly five years, but some strategists worry "the large rise will only cast further  

             doubt on the veracity of the national accounts data, which have been subject to considerable 

             revisions recently. 

                    (link here)

Seeking Alpha has some neat-o stats and links to news related to a particular stock or fund. It is worth checking out for research and monitoring. Glancing over the site, though, we noticed some unfamiliar terms and started talking about parsing all the financial-ese. Here's a nifty glossary for some of those terms. 

Take for example concentration risk, which is a numerical value that tries to explain just how diverse (or not diverse) a fund is. A high concentration risk would mean that there are a lot of different parts to the stock and it is fairly diverse. Take SPY, the S&P ETF--it has a concentration risk of about 8%, whereas ENZL has one hovering at 22%. This means ENZL is less diverse, and while that might not be a problem, it is good to be aware the makeup of an investment. 

The diversification of an ETF means that if one individual stock in a fund tanks, the other parts mitigate that, which is really the appeal of an ETF in the first place. 

You have a few types of ETFs:

Market Share Weighted:

     Market share indexes are based on the number of shares of each company in that exist in the   

     market.

Capitalization Weighted

      Capitalization weighted indexes are based on the market capitalization of the company--the size of   

      the company. 

Float Weighted:

      Each stock is based on how many stocks are floating, or being traded.

Price Weighted:

     Two stocks of the same value, A and B.

     A has double the market cap of B. 

     A makes up twice the percentage of the portfolio than B because of the market capitalization (based   

    on how big a company it is). A will have twice the impact on the value of the fund because it is 

    twice the percentage of the portfolio. 

    The DOW is price-weighted, which means it only depends on the price of the stock. The DOW has   

    fifty stocks, and the fund has one share of each of the stocks. The value of one share of the DOW is  

    the combined price of one share of each of those fifty stocks. Only a cool thirteen large. 

And then there's a few more stuff that we're not even going to attempt to get into (Price, market share, market capitalization, fundamental). 

     

The point of all this is to try and understand what exactly effects the value of an ETF. Really getting this might help us be more informed when we select (and eventually sell) shares of various funds. 

It's a process, yo!

Profit!