Not all chocolate chip cookies contain the same amount of oil

Oct 28, 2006 by

There are some items in life that appear to be commodities, but in fact really aren’t. While at first, all chocolate chip cookies seem the same, upon examiniation, they aren’t. Some are really oily and “chewy,” like Chips Ahoy! Others are dry and brittle. Some contain cane sugar; others contain high fructose corn syrup.

Well, the same is true for ETFs. Investors desiring exposure to the Chinese market can choose between iShares FTSE/Xinhua China 25 Index (FXI), PowerShares Golden Dragon Halter USX China (PGJ), and probably several other ETFs. The naive investor compares the past performance of FXI and PGJ, observing that the direction of their movement has differed at times, while at other times been concurrent. Why might that be? Check out their holdings:

http://finance.yahoo.com/q/hl?s=FXI
http://finance.yahoo.com/q/hl?s=PGJ

Although both labeled as Chinese ETFs, FXI has 36% of its holdings in financial services, while PGJ has only 5% of its holdings in financial services. FXI has 8% of its holdings in business services, while PGJ has 22% of its holdings in business services.

This contrast is even more dramatic for iShares S&P Latin America 40 Index (ILF) and iShares MSCI Brazil Index (EWZ). While both appear to be good sources of Latin American exposure, EWZ has 40% of its holdings in energy, while ILF has only 10.5% of its holdings in energy. Given that petroleum prices are determined by global performance, EWZ provides nearly as much exposure to the global energy market as it does to the Latin American economy.

Thus, when it comes to ETFs, some are oily, while others contain little oil, even though both varieties often bear a similar label. Make sure to both their contents and the proportions in which their ingredients are used before buying.

Readers: In which ETFs would you invest $2,000? Please provide me with the rationale behind your investment decisions. You may either post comments on this page, or e-mail me directly at: invest AT adampowell.com

I will post responses anonymously in a future entry on this blog.

2 Comments

  1. Great idea to drive traffic from amazon.com’s Turking site!!!

    ETF’s are good when you don’t have a clue what you’re doing. you get the broad market so you’re less vulnerable to individual stock issues.

    I’ve invested in PTR[petro china], Sino-forest in china
    a japanese reit
    an argentinian reit
    mining stocks with mines in australia, new zealand, south africa and south america
    canadian energy trusts,
    individual oil & gas projects

    in my opinion thats a lot safer than just investing my money in one country’s ETF!!!

  2. Leslie

    The cookie recipe analogy is a good one with one exception. Classic Chips Ahoys are not oily and chewy. They are dry and crunchy.

    This brings to light the idea that one must be clear about the product or vehicle in which one is investing.

Leave a Reply

Your email address will not be published. Required fields are marked *