He expresses concern over the BP oil spill and the European credit crisis, and it prompts him to look under the hood of an investment he has held in his portfolio. Incredibly he,a financial journalist offering investment advice, had no idea what the holdings were in an etf he owned: My comments in blue
I don't directly own shares in BP or any European financial institutions, and I've been avoiding both while following the depressing news about the environmental disaster in the Gulf and the latest permutations of the European debt crisis, which last week segued to Hungary....
I've been avoiding European bank stocks for another reason: Who knows where the exposure to shaky sovereign debt really lies?
Stewart goes on to state that he owns a european etf
BLDRS Europe 100 ADR Index Fund...—which has dropped recently in line with European markets. I bought it for broad-based exposure to developed Europe, part of what I consider a prudent diversification strategy
incredibly this author of a common sense investment column didnt due the most minimal research on the etf information one could find with two clicks of a mouse
. I'd never really examined the actual securities in the fund, so I decided to see just what was in it.
You can imagine my dismay when I discovered that its biggest holding is a European bank—HSBC Holdings—and its second biggest is BP. Spain's Banco Santander is also in its top 10 holdings, and financial companies make up 21% of the portfolio. So much for my illusion that I owned no BP or European banks.
The best bet for my strategy may well be a Germany ETF. The iShares MSCI Germany Index ETF is filled with big exporters like Siemens (10% of the portfolio), SAP and ThyssenKrupp. It does contain Deutsche Bank (5% of the portfolio) but no energy companies among its top 25 positions.
The simple lesson in this exercise is to look at the portfolios of your mutual funds and ETFs. They do offer diversification—but also some unwanted major holdings.
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