Friday, October 26, 2007

Know Your Components of ETFs

I really enjoy David Letterman and am not much of a Jay Leno fan. Maybe it is an East Coast / West Coast thing. Or maybe it’s because I was a real Johnny Carson fan and Letterman is cut from Carson’s mold. One of my favorite bits on Letterman is “Know Your Cuts of Beef.” In than spirit I have my own version today – Know Your Components of ETFs.

This comes out of a conversation with an old friend who from time to time will closely follow my recommendations. He asked me yesterday where I thought Google (GOOG) was going. I said I have a target of $750- $850. This is based on both a top down and bottom up analysis which I performed with my research team. My friend said that he owned the Internet HOLDRs (HHH), an ETF comprised of internet stocks. To his surprise, I informed him that GOOG was not represented in the HHH. I explained that HHH was mostly comprised of Ebay (EBAY), (AMZN), Yahoo (YHOO) and Time Warner (TWX). HHH was introduced and launched many years before GOOG came to market and is a fixed portfolio. Since he thought he had GOOG exposure but had none; he wanted to keep exposure to EBAY and YHOO; and, wanted to cut back on exposure to TWX, AMZN and the other residual stocks in the HHH comprising about 15% of the portfolio he immediately sold some (but not all) of his HHH and used the proceeds to buy GOOG.

The lesson - Know Your Components of ETFs.

At the time of this Blog entry Scott Rothbort, his family and or clients of LakeView Asset Management, LLC were long shares of GOOG --- although positions can change at any time.

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