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Comparing Sector ETFs and ETNs


Exchange traded funds (ETFs) are a perfect tool for asset allocation. But be careful -- ETNs are lumped in the same category, but can be very different in terms of holdings, fees, and liquidity.

General Commodity Funds

The contenders are iPath DJ-UBS Commodity ETN (NYSEARCA:DJP), PowerShares DB Commodity (NYSEARCA:DBC), and iShares S&P GSCI (NYSEARCA:GSG):

Winner: PowerShares. It is the best performer of the three this year and sports the most daily volume. Energy is a good place to be going forward.

As an ETN instead of an ETF, owners of the iPath product run the risk of Barclays defaulting but I feel good about Barclays - LIBOR scandal notwithstanding. It is one of the three largest banks in the United Kingdom. Furthermore, it "stole" Lehman Brothers' assets out of bankruptcy for a song and did not require a bailout from the British government during the 2008-2009 financial crisis (unlike many others). Lastly, an ETN does not have any tracking error (other than management fees) because it does not own actual commodities but is simply a contractual agreement to return the index.

China Funds

The contenders are SPDR S&P China (NYSEARCA:GXC), iShares FTSE/Xinhua China 25 (NYSEARCA:FXI), and Guggenheim China All-Cap (NYSEARCA:YAO):

Winner: SPDR. Its trading volume is low, but I like its superior performance, cheap expense ratio, and its lower exposure to financial services.
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