TAKING STOCK: Exchange-traded funds still useless trash

Dear Mr. Berko:

A broker wants me to sell my 600 shares of General Electric (I have a $3,000 loss) and invest in some exchange-traded funds. One ETF he likes is the MSCI Kokusai, which is very diversified because it invests money in stocks of 22 different companies. The broker believes that using ETFs, he can build a portfolio that will appreciate 8 to 12 percent annually during the coming 10 years. This sounds pretty good.

I've never owned ETFs, and they sound a lot safer than common stocks. Please tell me what you think.

PF, Wilmington, N.C.

Dear PF:

I have never cared for 85 percent of those silly things called exchange-traded funds (some call them "index funds"), such as the S&P/TSX 60 Index, or the FTSE EPRA Plumbing Index, or the iShares Islamic Index, or the iShares FTSE NAREIT Resid Plus Cp Index, or the S&P Aggressive Allocation Index, or the S&P TSX Capped Composite Index, or the iShares STOCC Europe 50 Index, or the iShares Cialis Birth Rate Index.

There are over 900 of these exchange-traded funds (ETFs), many of which are leakage from the LSD-soaked brain stems of Wall Street's lapdog MBAs. A few are good, but most are a bloody waste of time, serving little purpose other than to generate obscene quarterly management fees for the scrofulous profiteers who demand new products for their Wall Street wallets. And among the many guileful examples of this "trash" is your broker's MSCI Kokusai Index (TOK-$39.22).

TOK is an ETF that is required to invest at least 80 percent of its $688 million portfolio in the Morgan Stanley Capital Index, which includes 22 developed nations, excluding Japan. Meanwhile, I'm told by Mr. Taka Mashugi at Nippon Securities that the Japanese word "Kokusai" translates in English to "Round-eyes is fool."

But if you buy this Morgan Stanley ETF, you should be told that TOK's largest investments are American issues such as Exxon, Apple, IBM, Microsoft, Procter & Gamble, AT&T and Johnson & Johnson. How disingenuous can this be? And for the privilege of buying 300 shares of TOK, you will pay your brokester $300 in commissions, plus a sweet management fee every quarter to Morgan Stanley.

Other ETFs that are even more useless than TOK are the CS Global Warming Index Fund (GWO-$7.22) or the Global Mexican Small Cap Index Fund (MEXS $11.12) or the Global Fishing Industry Index Fund (FIXN -$6.34) ... ad nauseam! Steve "The Apple Man" Jobs said that he had no use for market research. We design a product, he said, and then tell the consumer what he wants. And it works. Wall Street is little different, and most investors follow their brokers like lemmings, allowing BlackRock, State Street and others to design ETFs that scoop billions of dollars in annual fees from simple-minded suckers.

I know a few folks who've made big bucks over the past few decades owning Johnson & Johnson, AT&T, Sigma-Adlrich, United Health, Zimmer, Intuitive Surgical or some of the Fidelity, Vanguard and T. Rowe Price mutual funds. But I don't know of a single investor who has made big money with ETFs. There are certainly a hundred or so ETFs with which I have no beef. But Wall Street's usual excesses have fouled this venue with this smelly garbage.

If your broker believes he can build a profitable portfolio of ETFs that "will appreciate 8 to 12 percent annually during the coming 10 years," then go for it. But before you sign on the line, ask him to provide a guarantee on his firm's stationery to that effect, and make sure that he signs it. He should be willing to do it.

Meanwhile, do not sell your 600 shares of General Electric (GE-$17.98). GE recently raised its quarterly dividend from 15 cents to 17 cents and now yields a sweet 4 percent. GE has been in the cellar for several years, but this worldwide, $150 billion-revenue company should be in the portfolio of every growth-and-income investor, no matter his age or stage.

And I'm willing to give you a written "guaranteed maybe" that in the coming 18 months, GE will raise its dividend at least twice - perhaps to 90 cents a share - and that its earnings will be very close to $1.90 a share by 2014.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

© 2011 Creators Syndicate Inc.

Published: Wed, Jan 25, 2012