Investment Product Palooza

Earlier this week I received an email telling me that tomorrow we should expect the launch of the Market Vectors Vietnam ETF (VNM). It will be heaviest in financials at 37% followed by energy and materials and that is all I know for now.

Yesterday on my blog I wrote about the Rogers Sugar Income Trust (RSI-UN in Canada and RSGUF on the pinksheets in the US). Late yesterday I stumbled across info about the Liquor Stores Income Trust (LIQ-UN in Canada and LQSIF on the pinksheets in the US). Liquor Stores for cripes sake. There are also trusts for other things including ice distributors.

One very obvious theme that I started writing about years ago was that investment products would proliferate and this would have both upside and downside. The upside is that exchange traded products provide narrow access to people who perform diligent research. The downside is that exchange traded products provide narrow access to people who DO NOT perform diligent research. Neither is the fault of the product so much as about human nature.

Be that as it may I am a huge believer is using very narrow products (mostly individual stocks) to construct portfolios that capture very specific traits. A small country like Vietnam offers access to a very young population willing to work hard at what seems like low wages based on US standards which ultimately means the country will become more prosperous and more relevant in the world economic order. This has been the case with Vietnam for years and has lead to big upswings and painful declines and there will be more of both in the future which is where diligent research comes into play.

These types of products fascinate me but the caveats abound. For example the Canadian trusts, and there really are some very interesting concepts in the space, mostly got crushed in the bear market with many dropping 50-80%. The share prices tend to be far more volatile than the underlying businesses which makes them difficult to own.

Other types of investment products have other types of issues to grapple with. You probably know about the troubles at the US Natural Gas Fund (NYSE: UNG) regarding owning too many contracts hindering the ability to create more shares, it is a real mess. I have taken a liking to the recently listed iShares Peru ETF (NYSE: EPU), but do not own it for now, but it is 65% allocated to materials stocks with Compania Minas Buenaventura (NYSE: BVN) and Southern Copper (NYSE: PCU) each having massive weightings making the fund very volatile. I could easily see people buying too much of something like EPU too late in a move and getting burned.

Again these examples are about how people use funds not the funds themselves. I am all for learning about all of them and using a couple of them selectively and in moderation but the more moving parts, the more leverage used the more wary I would be about going heavy. Used in moderation there is plenty of utility.