Two ETFs Likely To Be Influenced By G20 Meeting

At the recent G20 meeting in South Korea, the Group of 20 finance chiefs agreed to move towards a more market-determined exchange-rate system that reflects underlying economic fundamentals and refrain from competitive devaluation of currencies, potentially impacting the Market Vectors Chinese Renminbi/USD ETN (CNY), the WisdomTree Dreyfus Chinese Yuan Fund (CYB).

China’s successful economy has enabled it to implement destabilizing use of its fixed exchange rate which has further enabled the world’s second largest economy to build an export capacity.   Furthermore, China’s restraint of its Yuan and the weakness of the US dollar against other currencies have forced other emerging nations to temper gains in their own floating currencies to remain competitive, states Simon Kennedy of Australian News.

ETFs Are Superior To Mutual Funds For Good Reason

With the plethora of investment tools at one’s hands and the concept of indexing flooding newswires, exchange traded funds and their counterparts are extremely attractive and for good reason.

An alert investment advisor has probably heard of ETFs but doesn’t really know what they offer.  In a nutshell, ETFs offer the ability to be traded intraday on an exchange, unlike traditional mutual funds which can only be bought and sold at the end of a trading day.  They give investors the ability to access hard to reach markets, like commodities, currencies, emerging markets and alternative asset classes.  Some common ETFs that are included in the aforementioned hard to reach markets include the US Oil Fund (USO), which gives exposure to crude oil without having to put up margin requirements, the CurrencyShares Japanese Yen Trust (FXY), the iShares MSCI Malaysia Index (EWM) and the iShares Dow Jones US Real Estate (IYR).   

Understanding How ETFs And ETNs Are Taxed

August 18, 2010

As with all other sources of income, income that is generated through exchange traded funds (ETFs) and exchange traded notes (ETNs) are subject to increasing an investor’s tax liability.  So one doesn’t get hit out of left field, here is a summary of how ETFs and ETNs are taxed.

With the vast array of ETFs to choose from, taxes can get tricky.  In general the tax treatment of ETFs is relatively simple and is applicable to long-term and short-term capital gains rules and rates.  For example if one held the SPDY (SPY) for less than one year, any gains would be subject to short-term capital gains rates and if held for longer than one year, then the gains would be subject to long-term capital gains rates.

It gets tricky when one starts dealing with commodities ETFs.  These ETFs shoot of Schedule K-1’s, which track the gains and losses of the fund for the year, because they are actually limited partnership interests in the fund.  For example, United States Oil (USO) is formed as a partnership interest, so those who own the ETF have a partnership interest in the fund and will receive a K-1 outlining gains or losses.

The Many Benefits Of ETFs

One of the most favorable characteristics that ETFs have is their flexibility, or ability to be traded like stocks. 

This characteristic is beneficial because it enables an investor to get continuous intraday pricing and the ability to buy or sell a basket of securities through the trading day.  This further translates to pricing transparency, in that at any given time an investor knows exactly what the price of an ETF is.

Additionally, ETFs can be sold short, just like stocks.  This characteristic enables investors to bet against an entire sector, as opposed to just one stock.  For example, if an investor wants to bet against the financials, he can short the Financial Select SPDR (XLF) which will give him short positions in Bank Of America (BAC), JP Morgan Chase (JPM), Morgan Stanley (MS) and Wells Fargo (WFC) all in one trade; this will also reduce transaction costs.