Our trading system covers each of the decisions required for successful trading. It includes the following: . Market analysis - To make sure we are in a good trend. . Money management - We take volatility and risk into calculation to control the possibility of loss. Our systems install a stop loss at an optimized stop level. Open Positions will be automatically closed if position loss reaches the stop value. . Select high performing ETFs - We went through the system performance testing to select the high performance ETFs for our service. . When to buy and when to sell - We provide clear signals and daily report for buy and sell opportunities.
Our trading process enables you to plan and control profits for each position more accurately. Fewer automated process steps lead to a considerable reduction in the time of decision making. If you have the discipline to spend 10 minutes a day for making your trading decision, this is the process for you: 1. Review current market status 2. Review market to confirm - report status and chart 3. Review each individual ETF for a decision - report status and chart 4. Follow your execution plan with discipline
Here are the guidelines to follow: 1. Trade the signal on the next market opens when it's issued 2. Trade all the signals to receive the maximum profit 3. Never trade the signal after it was issued for a couple of days 4. Discipline... discipline... discipline!
Trading discipline implies the need to act consistently, in a reliable manner, and in accordance with the pre-determined trading strategy or system set forth in your trading plan. Discipline requires that you: . Trade on the basis of a trading plan or system and not on the basis of your hunches or emotions . Take a profit when you're supposed to in accordance with your pre-determined plan . Take a loss when you're supposed to in accordance with your pre-determined plan . Don't trade when there's no need to (over trading; trading for the sake of making a trade) . Trade using stop orders and limit orders, which allows investors to specify the price points at which they are willing to trade
In Alexander Elder book, Come Into My Trading Room , he sets out a number of examples of the behavior of a well disciplined trader. To summarize, he has noted that the disciplined trader ordinarily does all of the following: . Develops a unique trading plan or system based on his or her own personal techniques; . Constantly grades his or her own adherence to a chosen trading plan; . Keeps accurate records of all trades entered into; . Attempts to achieve, with only minor losses on a limited number of transactions, a positive overall performance return of at least 20% return per annum; . Is self-reliant and rarely shares information or listens to advice from others; . Finds the time to learn as much as possible about his or her chosen market; . Monitors the chosen markets every day even if he or she is not actively trading; and . Learns new ideas to improve trading methods, but does not use them before testing them
. Commitment . High level of discipline . High level of self-control . Financially stable . Knows one's limitations . Self-motivated, driven and having a burning desire to succeed . Patience . Meticulous, detail oriented . Positive thinker . Decision maker - Have the aptitude and the ability to make sound decisions . Leadership . Persistence
. Trading before acquiring the necessary knowledge and education. . Trading more money than they should - Lack of discipline and patience. . Lacking money management and risk management skills. . Increasing position size after losses to try and make it back. . Trading with negative emotions. . Trading success based on winning trades vs. losing trades. . Trading without a proven trading plan, a proven system or a proven methodology. . Taking small profits and letting losses run: the primary rule to successful trading should be cutting your losses short and let your profits run.
One of our highest priorities is to ensure your privacy, which we do by using some of the most advanced online security measures in the industry. These include: . State of the art encryption using SSL: protects the information sent between your computer and our secure site. . A unique user name/password system: prevents unauthorized users from accessing your account information.
An ETF is a type of investment that combines the advantages of mutual funds with the trading flexibility and continual pricing of individual stocks. Like shares of stock, ETFs are traded on a stock exchange and can be bought and sold through a brokerage account any time during exchange hours at intraday prices, rather than end-of day prices. Investors may also use other stock trading techniques, such as limit orders, buying on margin (with borrowed money), and selling short (selling borrowed shares).
Like mutual funds, most ETFs are registered investment companies that offer investors a proportionate share in a professionally managed portfolio. Since virtually all ETFs that exist today are designed as index funds that track specific market indexes, they offer the traditional advantages of indexing: very low operating costs, tracking of their benchmark index, the potential for high tax efficiency, and consistent investment strategies.
Exchange traded funds are "created" by large investors and institutions in block-sized units of shares (or multiples thereof) known as "Creation Units" of a respective ETF. A creation requires a deposit with the trustee for a specified number of shares of a portfolio of securities closely approximating the composition of the specific index and a specific amount of cash in return for shares of a specific exchange traded fund. Similarly, block-sized units of exchange traded fund shares can be redeemed in return for a portfolio of securities approximating the index and a specified amount of cash.
Shares of ETFs are created when a securities firm deposits into a fund a large basket of stocks that generally matches the holdings of the index; the firm receives a block of ETF shares in return. The securities firm then offers these shares to investors on a stock exchange. When investors buy and sell these shares on the exchange, the fund's portfolio is unaffected. Thus, the fund is insulated from the transaction costs and any tax consequences of trading individual shares.
As with a mutual fund, the investment advisor of an ETF monitors the portfolio holdings and ensures that the operations of the fund are in line with its stated objective. Each share of an ETF entitles the holder to a proportionate share of income and any realized gains or losses the portfolio produces.
Advantages of stocks and mutual funds combined: . Lower fees (ordinary brokerage commissions apply) . Lower capital gains taxes
The advantages of ETFs:
Tax efficiency ETFs, like index funds in general, tend to offer greater tax benefits because they generate fewer capital gains due to low turnover of the securities that comprise the portfolio. Generally, an ETF only sells securities to reflect changes in its underlying index. Exchange trading of ETFs further enhances their tax efficiency. Investors who want to liquidate shares in an ETF simply sell them to other investors through exchange trading. Because of this unique structure, ETFs are not required to sell securities to meet investor cash redemptions, potentially generating capital gains tax liability for remaining investors. Keep in mind that the sale of an ETF will generate capital gains/losses for the investor liquidating shares.
Lower costs Expenses can have a significant impact on returns for investors. ETFs, in general, have significantly lower annual expense ratios than other investment products. ETFs are less likely to experience high management fees because they are index-based, not "actively" managed. And, since they trade on an exchange, ETFs are insulated from the costs of having to buy and sell securities to accommodate shareholder purchases and redemptions. Of course, an investor selling ETF shares may realize capital gains or losses, as with common stocks. Purchases or sales of exchange traded funds are subject to brokerage commissions.
Transparency ETFs are designed to generally replicate the holdings and correspond to the performance and yield of their underlying index.
Buying and selling flexibility Because they are exchange traded, ETFs can be: . Bought and sold at intraday market prices . Purchased on margin . Sold short, even on a downtick (unlike common stocks) . Traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade
All day tracking and trading ETFs are priced and traded throughout the day, and are not restricted to once-a-day trading at the end of the day. And because the pricing of ETFs is continuous during trading hours, investors will always be able to obtain up-to-the-minute share prices from their broker or financial adviser.
Diversification Because each ETF is comprised of a basket of securities, it inherently provides diversification across an entire index. Additionally, the expanding universe of ETFs available at the American Stock Exchange offers exposure to a diverse variety of markets, including: . Broad-based equity indexes (such as total market, large-cap growth, and small-cap value) . Broad-based international and country-specific equity indexes (such as Europe, EAFE, and Japan) . Industry sector-specific equity indexes (such as healthcare, energy, and real estate) . U.S. bond indexes (such as long-term Treasury bonds and corporate bonds)
Dividend opportunities Dividends paid by companies and interest paid on bonds held in an ETF are distributed to ETF holders, less expenses, on a pro rata basis. Of course, not all companies will pay dividends. Based on past performance, few, if any, distributions can be expected from certain ETFs. There may also be opportunities for reinvestment of distributions.
Investors can capitalize on the convenience and flexibility of ETFs to pursue a wide variety of investment strategies.
Core investment Investors can use ETFs as a core investment for their portfolio. The purchase of shares in a single ETF can provide broad market exposure of a portfolio of stocks or bonds for long-term holding that is easy to establish, easy to track, inexpensive, and tax efficient.
Portfolio diversification ETFs cover virtually every segment of the equity market and several segments of the U.S. bond market, providing an easy and convenient way to adjust the investment mix of a core portfolio.
Hedging Exchange traded funds can be purchased on margin and sold short (even on a downtick), which has opened up risk management strategies for individual investors that were once available only to large institutions. For example, ETFs can be sold short to hedge a core stock portfolio or interest rate fluctuations. This allows investors to keep their portfolio intact while protecting them from market losses. In a declining stock market or rising interest rate environment, profits from a short position can offset some of the losses in a portfolio. (Investors are required to make arrangements to borrow securities before selling short.) Listed options, available on some ETFs, also offer opportunities for additional hedging or to increase income. Investors should contact their broker regarding initial and maintenance margin requirements. To view a list of ETF options that are listed at the Amex, click here.
Rebalancing Investors can adjust ETF positions at any time throughout the trading day, without redemption fees or short-term restrictions. Again, usual brokerage commissions will apply.
Tax loss strategy An investor can sell a security that is underperforming and claim a tax loss but retain exposure to its sector by investing in an ETF. Consult a tax advisor about a tax loss strategy.
ETF shareholders are subject to risks similar to those of holders of other diversified portfolios. A primary consideration is that the general level of stock or bond prices may decline, thus affecting the value of an equity or fixed income exchange traded fund, respectively. This is because an equity (or bond) ETF represents interest in a portfolio of stocks (or bonds). When interest rates rise, bond prices generally will decline, which will adversely affect the value of fixed income ETFs. Moreover, the overall depth and liquidity of the secondary market may also fluctuate.
An exchange traded sector fund may also be adversely affected by the performance of that specific sector or group of industries on which it is based.
International investments may involve risk of capital loss from unfavorable fluctuations in currency values, differences in generally accepted accounting principles, or economic, political instability in other nations.
Although exchange traded funds are designed to provide investment results that generally correspond to the price and yield performance of their respective underlying indexes, the trusts may not be able to exactly replicate the performance of the indexes because of trust expenses and other factors. . Past performance is no guarantee of future results.
ETFs have several clear advantages over traditional mutual funds. Most notably, their annual expense ratios are considerably lower. They're also more tax-efficient, and they can be traded throughout the day. Nevertheless, they aren't suitable for everyone.
ETFs may be an appropriate investment option for you if you meet some or all of the following criteria:
. You are comfortable investing through a brokerage account. . You need liquid investments for short-term trading needs. . You want the ability to buy and sell shares throughout the day. . You engage in large transactions, so that brokerage commissions are spread across sizable sums. . You want to buy shares on margin. . You can accept the risk that shares may trade at a discount to NAV. . You wish to follow a long-term buy-and-hold strategy so you benefit from low expense ratios.
Yes. ETF may be offered through 401(k) retirement plans and it can be purchased for Individual Retirement Accounts (IRAs), both of which can be tax deferred.
Investors can buy or sell exchange traded funds through a broker, the same as stocks.
As easily as buying or selling shares of stock. Exchange traded funds are listed on an exchange and can be traded intraday, making it easy for investors to buy or sell ETFs.
Investors can purchase as little as one share.
Exchange traded funds may be purchased on margin, subject to the same terms that apply to common stocks. Investors should contact their broker regarding initial and maintenance margin requirements.
Yes. All exchange traded funds may be sold short, representing the sale of "borrowed" shares in anticipation of lower prices. ETFs are exempt from the rule that requires shares to be sold short on a plus or zero plus tick (i.e., a sale price higher than the last different regular way sale in the security). Investors are required to make arrangements to borrow securities before selling short.
While exchange traded funds are not subject to sales loads, usual brokerage commissions for securities purchases and sales will apply.
ETF holders are eligible to receive their pro rata share of dividends, if any, accumulated on the stocks held in an ETF, and interest on the bonds held in an ETF, less fees and expenses. Of course, based on past performance, little, if any, dividend distributions can be expected on certain ETFs. There may also be the opportunity for dividend reinvestment.
Investors can find exchange traded funds listed in the financial section of many newspapers under the heading "American Stock Exchange Listed Stocks." They are also listed under "Exchange Traded Portfolios" in the financial section of the Wall Street Journal.
Not necessarily. The share price of many exchange traded funds is initially set at a percentage of the index upon which they are based, but may differ over time due to costs and other factors.
There are a number of differences between ETFs and mutual funds.
A different way to buy and sell shares To buy or sell ETF shares, you must place your order through a discount or full-service brokerage firm. Shares can be bought any time the stock market is open at the then current market price. Conventional no-load shares of a mutual fund are usually bought from and redeemed with the fund at the shares' net asset value (NAV) determined at the close of the financial markets each trading day.
A different method of calculating prices The price of an ETF's shares depends on their net asset value (which depends in turn on the prices of the securities the ETF holds), as well as supply and demand for the ETF's shares. The market price of an ETF share changes throughout the day, and at any moment it may be above or below the NAV. This difference is typically quite small, but it can become significant in times of market volatility. On the other hand, the price of a conventional mutual fund's shares is always the same as its NAV, which is calculated only once per day, at the end of the trading day.
Trading flexibility If you want to buy or sell ETF shares during a volatile trading day to take advantage of an upward price spike or sharp decline, you can do so and receive the current market price for those shares. You can also place a limit or stop order to specify a price at which your broker is to buy or sell shares. For example, you can place a stop-loss order instructing your broker to sell your shares if prices fall to or below a predetermined level. (If the specified price isn't reached, your order is not executed.) You can also make short sales, whereby you sell shares that you have borrowed from your broker. After the sale, if prices drop, you can make a profit by purchasing the shares back at a lower price, replacing the shares, and keeping the difference. The risk in this strategy, however, is that you could lose money if the share price goes up rather than down. You can also buy and sell using a margin account, in which money is borrowed from your broker to purchase shares (you must post a specified percentage of the purchase price with your broker as collateral). The trading flexibility of ETFs makes them an attractive option for investors seeking to hedge on the direction of a particular sector or market segment. It also makes it possible to use strategies such as tax-loss harvesting, in which the highest-cost shares are sold first in the event share prices have decreased and the resulting losses can be used to offset other gains. Although this trading flexibility enhances the appeal of ETFs, these strategies can be difficult to execute successfully and may expose you to greater risks or tax costs than you anticipated.
Potentially lower operating expenses ETFs often, though not always; feature expense ratios that are even lower than corresponding mutual funds. That's because investors in ETFs place transactions through brokerage firms, so the underlying funds do not incur added administrative costs for items such as telephone call centers, correspondence, postage, and account recordkeeping. Although some ETFs have expense ratios as low as 0.09%, it is important to consider the "total cost" of purchasing and selling ETFs and mutual funds. These costs include not only the expense ratio, but also any commissions or other transaction costs you may incur to buy and sell shares.
Potentially higher transaction costs You must pay brokerage commissions to buy or sell ETFs. You also incur the costs of bid/ask spreads-the difference between what a prospective buyer will pay for a security and the somewhat higher price at which a seller will sell the same security. By contrast, you purchase and redeem shares of no-load mutual funds directly from the issuing fund so you do not incur either brokerage commissions or a bid-ask spread. Unless an investment is quite large, the costs associated with buying and selling ETFs may outweigh the potential savings from their lower expense ratios. Ultimately, it is up to investors to balance their needs for trading flexibility with the execution costs of investing in ETFs or mutual funds.
Tax efficiency ETFs can be extremely tax efficient when a buy-and-hold, low-turnover approach is employed. ETFs' tax efficiency is facilitated by an "in kind" redemption process, which enables authorized institutional investors to redeem shares of the ETF for a portfolio of stocks representative of the underlying benchmark. Since in-kind distributions from a registered investment company do not trigger capital gains, the ETF manager assigns shares with the lowest cost basis to departing investors, thereby eliminating embedded capital gains that otherwise would be distributed to remaining shareholders. In addition, when an investor sells ETFs, those securities can be bought by another investor rather than being liquidated. In this way, ETFs can further control turnover and capital gains distributions.
Limited dividend reinvestment options Shareholders of ETFs and conventional funds both may receive distributions of income and capital gains. Conventional fund shareholders can elect to reinvest these distributions in additional shares of the fund at no charge. ETF holders, on the other hand, may not be able to reinvest these distributions directly into additional shares of the ETFs unless their brokers provide a reinvestment service. Even if the broker does offer this service, there may be a fee for it.
The following chart illustrates the differences between ETFs and traditional mutual funds.
Exchange traded funds are designed to provide investment results that generally correspond to their underlying benchmark index by holding a portfolio of securities designed to give similar price and yield performance. In the secondary market, one mechanism that helps to keep an ETF trading on the exchange at a price close to the value of its underlying portfolio is arbitrage. Because exchange traded funds are both created from the securities of an underlying portfolio and can be redeemed into the securities of an underlying portfolio on any day, arbitrage traders may move to profit from any price discrepancies between an exchange traded fund and the portfolio, which in turn helps to close the price gap between the two. (ETF creations and redemptions are restricted to large transactions, typically in multiples of 50,000 shares but ranging from 25,000 to 600,000 shares, usually transacted by large investors and institutions.) Of course, because of the forces of supply and demand and other market factors, there may be times when shares of an exchange traded fund trade at a premium or discount to its underlying portfolio value.
A quick comparison of similarities and differences between the two:
It's important for investors to understand the key differences between individual stocks and exchange traded funds (ETFs). Each has its advantages and disadvantages. This knowledge can translate into making intelligent investment decisions. Let's focus on a few key points.
Fees Investing in both stocks and exchange traded funds will usually result in brokerage commissions. However, unlike ETFs, individual stocks do not charge a management fee. The annual management fees or expense ratios of exchange traded funds (ETFs) are often lower versus traditional active mutual funds, and even some index funds. You can find the breakdown of fees and expenses for ETFs in the fund prospectus.
Taxes Exchange traded funds are required to distribute capital gains and dividends to fund shareholders. Capital gains distributions can be caused by index rebalancing, diversification rules, or other factors. Stocks, with the exception of REITS (Real Estate Investment Trusts), are not required to distribute income or capital gains to investors. Anytime you sell your stock or ETF for a gain it has the potential to generate tax consequences.
Diversification Diversification is another attractive feature of ETFs. Instead of taking concentrated risks by purchasing individual stocks, investors can diversify by choosing an index ETF. As a side benefit, some investors have significantly reduced their research time and costs by simply focusing on funds that benchmark industry sectors with favorable economic prospects. Owning individual stocks has special risks and often requires diligent attention. By utilizing ETFs, investors may greatly reduce the risk and volatility involved with owning individual companies.
The unique "exchange traded" structure offers several advantages to ETF investors: . buy and sell at any time during the trading day . instantly get exposure to a portfolio of stocks of your choice . ability to sell short . ability to buy on margin . no sales loads, although brokerage commissions will apply . no high management and sponsor fees . tax efficiencies
Unlike other ETFs, investors in Merrill Lynch's HOLDRs can exchange their HOLDRs for the underlying stocks at any time by paying a charge of up to $10. That feature should keep HOLDRs' prices in line with the value of their holdings: If a HOLDR trades at a discount to the net asset value of its underlying portfolio, investors could buy the HOLDR, exchange it for the underlying stock, and sell the stock at a profit.
HOLDRs have their limitations, however: Whereas individual investors can trade ETFs over an exchange in lots of any size, HOLDRs can only be bought and sold in 100-share lots. That puts many of them well out of the reach of individuals. Currently available HOLDRs also focus on narrow sectors such as biotechnology, semiconductors, and broadband. Thus, even if you can afford them, they should probably play a limited role in your portfolio. Finally, HOLDRs never add stocks to their portfolios, and will drop holdings whose stocks are merged out of existence. As a result, their portfolios, which only hold 20 stocks to start with, can become concentrated in fewer names over time.
There may be tax advantages as well -- ETFs can't be forced to sell profitable stock positions if too many shareholders cash out at once like index funds can. That has always been one of the disadvantages of index funds. No one likes an unexpected capital gain. Besides having to pay the taxes on it, there's the hassle of reporting it.
Yes. All ETFs may be sold short, representing the sale of "borrowed" shares in anticipation of lower prices when the borrowed shares must be replaced. Certain ETF products are also exempt from the rule that requires shares to be sold short only on an "up tick" (i.e., a last sale price higher than that of a security's preceding last sale. Investors are required to make arrangements to borrow securities before selling short.
ETFs may be purchased on margin, generally subject to the same terms that apply to common stocks. You should contact your broker regarding initial and maintenance margin requirements.
ETF holders are eligible to receive their portion of dividends, if any, accumulated on the stocks held in trust, less fees and expenses of the trust. Of course, little if any dividend distributions can be expected on certain stock portfolios, based on past performance of the stocks.
The benefits of ETF are:
Simplicity ETFs are easy to understand and manage. You don't need to guess the investing styles of different managers.
Low cost ETFs involve lower transaction costs as index fund manager only trade stocks when there is a change in the index. Also, ETFs generally charge lower management fees as index fund managers don't need to spend time and resource to research and visit companies.
Diversification Index funds are broadly diversified since they typically hold all securities in an index. This diversification helps reduce risk.
Performance A number of studies have shown that the typical active fund manager in most markets does not beat the index. Therefore, since index funds tend to have lower investment fees and transaction costs, index funds should outperform the average active manager after fee
As luck would have it ETFs are also quite tax-efficient. Because of the way they are created and redeemed, they allow an investor to pay most of his capital gains upon final sale of the ETF, delaying it until the very end. There is no way to avoid capital gains, but delaying it is valuable because the amount that would have been paid to taxes can continue to accumulate wealth. Exactly how much an investor benefits after-tax depends on their marginal tax rate, the return of the investment, and how long they hold the investment. Overall, ETFs are similar to tax managed index mutual funds, slightly more efficient than standard mutual funds, and significantly more efficient than actively managed mutual funds.
Traditional mutual funds accumulate unrealized capital gains liabilities for stocks that have risen in value. Upon sale of these stocks the fund calculates and periodically distributes the capital gains to its investors in proportion to their ownership. The following table illustrates a comparison of ETFs versus standard index mutual funds:
One key advantage that ETFs have over traditional mutual funds is trading flexibility. ETFs trade throughout the day, so you can buy and sell them when you want. However, the arbitrage mechanism (for more on this, see Part I of this guide) that keeps the prices they trade at in line with their NAV isn't fail-safe. Heavily traded issues such as SPDRs (which track the S&P 500) and QQQs (which track the NASDAQ 100) should trade right around the value of their underlying securities, but premiums and discounts could arise, especially for thinly traded funds. Moreover, it is not yet known how ETFs might behave in the face of a full-fledged market correction. It's conceivable that investors wishing to sell in the midst of such an event would have to part with their shares at prices below their net asset values.
In terms of the annual expenses charged to investors, ETFs are considerably less expensive than the vast majority of mutual funds. SPDRs, for example, recently reduced their annual expense ratio to just 0.12%. IShares' annual expense ratios range from 0.09% for iShares S&P 500 Index, to 0.99% for several of its IShares MSCI Series offerings (formerly known as WEBS). Still, investors need to put these numbers in perspective. On a $10,000 investment, you'd save just $9 a year by choosing IShares S&P 500 Index fund over Vanguard 500 Index Fund VFINX. (The latter charges just 0.18% per year for its services, but on small accounts Vanguard also levies an annual fee of $10, which increases the IShares' edge).
The expense advantage of ETFs may also prove to be more mirage than fact for most investors. That's because you must pay commissions to buy and sell ETFs, just as you would for stock transactions. If you plan on making a single, lump-sum investment, then it may pay to choose an ETF. However, even assuming a low commission of $8 per trade, a single lump-sum investment of $10,000 in the iShares S&P 500 Index would need to be held for nearly two years to beat Vanguard 500 Index's costs.
ETFs' low expenses are touted as one of their key benefits, but the fact remains that if, like most of us, you invest regular sums of money, you'll actually end up costing yourself far more with an ETF than you would with many mutual funds. Also, for the same reason, investors who wish to trade frequently would be much better off from a cost perspective with a regular mutual fund than with an ETF.
With a regular mutual fund, investor selling can force managers to sell stocks in order to meet redemptions, which can result in taxable capital-gains distributions being paid to shareholders. In contrast, most trading in ETFs takes place between shareholders, shielding the fund from any need to sell stocks to meet redemptions. Furthermore, redemptions made by large investors are paid in kind, again protecting shareholders from taxable events. All of this should make ETFs more tax-efficient than most mutual funds, and they may therefore hold a special attraction for investors in taxable accounts. Keep in mind, however, that ETFs can and do make capital-gains distributions, as they must still buy and sell stocks to adjust for changes to their underlying benchmarks.
Because they are shielded from investor trading, ETFs shouldn't suffer from having to keep cash on hand to meet redemptions, or from being forced to sell stocks into a declining market for the same purpose.
That said, not all index funds are created equal. Barclays' IShares haven't been around long enough to draw meaningful comparisons with index mutual funds, but Vanguard 500 Index has soundly beaten Barclays' S&P 500 index mutual-fund offering over the years. The IShares S&P 500 offering could fare better--after all, it won't have to cope with cash inflows and outflows. Nevertheless, it tries to exactly replicate the index, while the Vanguard offering uses futures to boost its returns. If it persists, Vanguard's superior performance could easily outstrip the IShares' expense advantage over time.
HOLDRS (HOLding Company Depositary ReceiptS) are securities that represent an investor's ownership in the common stock or ADRs of specified companies in a particular industry, sector or group. HOLDRS allow investors to own a diversified group of stocks in a single investment that is highly transparent, liquid and efficient.
This ownership feature of HOLDRS has important benefits for investors:
Diversification HOLDRS automatically provide you with diversified exposure to an industry, sector or group of stocks in a single investment. If you buy individual names, you would have to buy an equivalent number of different stocks to achieve the same level of diversification.
Personal control With HOLDRS, you can own a group of stocks as one asset, or unbundle them to own each of the underlying stocks. Then, you can trade the stocks individually to meet your tax or investment goals. This feature also facilitates more advanced portfolio strategies without requiring you to monitor each of the individual stocks.
Tax advantages HOLDRS have no hidden capital gains - you owe taxes only on gains that you actually realize. If you wish, HOLDRS allow you to take tax losses in any stocks that decline and to defer gains indefinitely on your best-performing stocks. The buy-and-hold feature of HOLDRS limits taxes that result from portfolio turnover.
Liquidity HOLDRS are exchange-traded and are priced throughout the trading day just like any other stock.
Flexibility HOLDRS can be used as a sector investment, an alternative to index funds, a starting point for long-term stock pickers, or as an inexpensive way to own a basket of stocks.
Lower costs You don't have to pay management fees of any kind. Your only expense comes from transaction costs and from a small annual custody fee taken against cash dividends and distributions, when they are issued. This annual custody fee is eight cents per HOLDR, and will be waived if no dividends or cash distributions are paid on any of the underlying stocks.
Ownership benefits You retain the voting and dividend rights on the underlying stocks. You may elect to receive shareholder disclosure and proxy materials by email rather than traditional, physical mail.
HOLDRS provide investors with an easy, cost-effective way to trade and invest in a group of stocks. In order to gain the same diversified exposure that HOLDRS provide, an investor would have to execute a separate trade in each company represented in a particular HOLDR. Executing so many separate trades in order to gain exposure to a group of individual stocks can be a time-consuming process that may carry significant transaction costs.
Like many other investments, HOLDRS can provide diversified exposure to a particular industry, sector or group. However, with HOLDRS you keep ownership benefits related to the underlying stocks. You retain the right to vote shares, to receive dividends and to sell the stock when you want to. HOLDRS also offer tax benefits. With other diversified investments, you typically pay taxes on gains when a stock is sold (even if the gains are attributable to appreciation that took place before you owned the investment). But with HOLDRS you are not subject to taxes based on someone else's investment decision. Other diversified investments also tend to have higher ongoing expenses (e.g., management fees) than the eight cents per share annual custody fee associated with most HOLDRS. Additionally, most other diversified investments are priced only once a day while HOLDRS trade throughout the course of the day.
When a new HOLDR is developed, an industry, sector or group of securities is identified and the underlying stocks to be included in the HOLDR are then selected for inclusion on the basis of objective criteria such as market capitalization, liquidity, P/E ratio or other measures. Once determined, these stocks may be weighted equally or on a modified market cap basis.
The specific underlying stocks and the respective share amounts represented in each round-lot of 100 HOLDRS are established on a date prior to the HOLDRS initial public offering. Absent a corporate event undertaken by an issuer of an underlying stock, these share amounts will not change. However, because the relative weightings of the stocks are a function of market prices, these weightings will change substantially over time.
A round-lot of 100 HOLDRS is designed initially to represent whole share interests in each of the underlying securities. This is designed to facilitate the issuance and cancellation of HOLDRS. Odd-lots generally would not represent whole share amounts of the underlying companies.
The underlying stocks included in a HOLDR do not change except for changes due to corporate events (such as spin-offs) or reconstitution events (such as mergers and acquisitions). When Spin-Offs and Changes occur, the owner of a HOLDR is treated exactly as if he or she owned the underlying stock directly. Thus, when an issuer spins off a new security, an owner of a HOLDR will receive that security in their brokerage account outside of their HOLDRS investment.
HOLDRS represent an investor's undivided beneficial ownership in the common stock or ADRs of specified companies. Accordingly, owners of HOLDRS have the right to receive all shareholder disclosure materials and proxy materials distributed by the issuers of the underlying securities. The issuers of the underlying securities included in HOLDRS have legal obligations to forward these materials to the beneficial owners of their securities - held through HOLDRS or otherwise. You may elect to receive shareholder disclosure and proxy materials by email rather than traditional, physical mail.
To cancel your HOLDRS, you simply instruct your broker to deliver your HOLDRS to the HOLDRS trustee and pay a cancellation fee of up to $10 per round-lot of 100 HOLDRS to the trustee. The trustee will transmit ownership of the underlying shares to your account. Canceling your HOLDRS is not a taxable event (i.e., you will not recognize any capital gains or losses in the component stocks because you have converted your HOLDRS into the underlying stocks). Once you have canceled your HOLDRS, you can hold or sell the component stocks in any way you like to implement a number of investment strategies.
When you own a HOLDR, you take on the same risks inherent in direct stock ownership. Because the value of your HOLDRS is directly related to the value of the underlying stocks, it is important to remember that you could lose a substantial part of your original investment in the HOLDR if the underlying securities decline in value. You should read the entire prospectus carefully before you purchase HOLDRS, especially the risk factors set forth in the prospectus for the HOLDRS you may purchase. Some of the general risks of HOLDRS include:
Market risk Your investment's value may rise or fall because of broad market movements caused by changes in the economy, the political climate, the capital markets or investor psychology.
Underlying stock risk The stocks in your HOLDRS may increase or decline in value because of events affecting the specific companies that you have invested in.
Sector risk Because your HOLDRS may be concentrated in the stocks of a particular industry, trends in that industry may have a dramatic impact on the value of your HOLDRS.
Trading risk Trading in any HOLDRS may be interrupted if any of its component stocks' trading is halted, even though the other stocks in your HOLDRS continue to trade.
Lack of management Investors in HOLDRS cannot expect to benefit from the involvement of an active portfolio manager who seeks out opportunities and avoids risk in a sector. The underlying stocks in HOLDRS were selected without regard for their value, price performance, volatility or investment merit. They may or may not have been recommended by Merrill Lynch.
Sector changes The composition of a HOLDR doesn't change after issue, except in special cases like corporate mergers, acquisitions or other specified "Reconstitution Events". As a result, stocks selected for those HOLDRS with a sector focus may not remain the largest and most liquid in their industry. They may even leave the industry altogether. If this happens, your HOLDRS may not provide the same targeted exposure to the industry that was initially expected.
HOLDRS offer ownership in a fixed basket of stocks, which keeps the taxes and costs from turnover very low. If you no longer wish to own one of the component stocks, you may cancel your HOLDRS, take ownership of each of the underlying stocks, and sell the appropriate one.
The depositary trust agreement for each HOLDRS Trust, except the Market 2000+ HOLDRS Trust, was amended on November 22, 2000 to revise the rules related to distributions of securities from the HOLDRS Trust. It is anticipated that this amendment will eliminate most of the distributions of securities from the HOLDRS Trust.
In the event that securities are distributed by the issuer of an underlying security or an underlying security is no longer outstanding as a result of merger or other event, any securities received by the HOLDRS Trust in such distribution or exchange will be retained in the HOLDRS Trust, unless (1) the securities received are classified in a Standard & Poor's sector classification that is not then represented in the HOLDRS Trust, or (2) the securities received are not listed on a U.S. national securities exchange or through NASDAQ NMS.
Auto trading is a service provided by us and our auto-trading brokerage partners. This service automatically enters the buy and sell orders, based on our daily alerts, in your brokerage account. We notify our auto-trading partners about any new orders and they enter these orders automatically into your brokerage account.
Any brokers listed as our auto-trading partners will auto trade our ETF signals. If your broker is not in our list and you like to auto trade through that broker, please e-mail us at and we will contact your broker and try to establish an auto-trading partnership with them.
There are no extra charges to auto-trading. You pay the same fees and commissions you pay if you do not auto-trade. The service is offered entirely free to our subscribers by both us and our auto-trading partners.
No! We provide your broker with the orders. They execute the orders in your account. We won't have access to any of the details of your account nor can we execute any trades in your account.
Once you are a Glinser.com subscriber, notify one of our auto-trading partners that you want to auto-trade our ETF signals. Our partner will have you fill out a simple form which gives them permission to trade your account based on the information contained in our daily report. You may cancel this agreement at any time.
