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Show B-8 The Park Record Wednesday, January 17, 2001 Talking Shop An alternative to mutual funds by Bill Mullen RECORD GUEST WRITER In 1993. Nick Most, then head of product development at the American Stock Exchange (AMEX). created the first Exchange-traded Fund (ETF). It was a tracking of the Standard & Poor's 5(X) Index and was referred to as Spiders or a SPDR fund. Your first thought may be that ETFs are the same as a mutual lund-index fund. Not true. Similar to. but different. There are now more than X0 ETFs. with Barclays Global Investors being the leader with more than 50. These ETFs. invest in the index of different segments of the markets. mar-kets. As stated above the Spider SIX) S&P 500 fund, ticker SPY. tracks the S&P 500. But unlike a mutual fund such as the Vanguard 500 Index Fund. ETFs do not own the underlying stocks that make up the S&P 500. Further, although the Vanguard 5fK) Index Fund is touted for its low expense ratio - IS basis points - the SPY spider fund has an expense ratio of 17 basis points. According to an article in the November 2000 issue of Bank Investment Marketing, the expense ratio of Barclays iShares S&P 500 is only 9 basis points. One hundred basis points is equal to one percent. Another difference between ETFs and mutual funds is that the whereas mutual funds are sold and redeemed by the mutual fund company com-pany itself. In other words, ETFs are traded like stocks. You call your broker, tell her you want to buy 100 SPY, and the trade is made. In a matter of seconds sec-onds you know the price you paid or if you sold, the price you received. With a mutual fund, settlements are made at the end of the trading day. You will know the next day as to the settlement amounts. A final difference is that ETFs can be shorted, optioned and margined mar-gined and mutual funds cannot. Therefore, the sophisticated investor has a whole new arena in which to operate. What ETFs are available? Whereas the first ETF mirrored the S&P 500, other spiders are available and track other indexes; e.g., MDY tracks the S&P Mid-cap Index, XLK tracks the S&P 500 Technology Companies, XLF the S&P 500 Financial Companies. Further, aside from spiders, we have Diamonds, DIA tracks the Dow Jones Industrials, Cubes, OQQ tracks the NASDAQ 100, WEBS, EWJ tracks the Morgan Stanley Capital International Index (MCSI) Japan Index, EWQ the the Barclay iShares like the IWM which tracks the Russell 2000. As ETFs are expanding like Topsy, you can or will soon be able to find an ETF that will track almost any index or market segment. seg-ment. When should you use ETFs? Exchange-traded Funds should be considered as just another investment arrow in your quiver. As an example, you may believe in the next few years that small-cap value stocks will outperform large-value large-value cap stocks. Then some monies invested in the iShares Russell 2000 would make sense. I have a model I use to determine deter-mine the diversification of a portfolio. portfo-lio. Using the Morningstar 3x3 matrix which divides funds into one of nine categories, on the equity side, I look to have about 70 percent per-cent of the portfolio invested in large-cap funds (stocks) and 30 percent in small-cap funds (stocks). In addition. I want about 50 percent per-cent in value funds (stocks) and 50 percent in growth funds (stocks). Since there are now ETFs that fit into almost all the nine slots, a diversified portfolio could be constructed con-structed using just ETFs. Would I suggest a portfolio with only ETFs? NO! I look for mutual funds that have good track records and which have managers who have tenure. 1 like to review how the fund and manager did in down years. Prior to the year 2000. that meant looking look-ing at 1990 and 1994. When I find these funds, I tend to stay with them unless something major changes such as a manager change. The one area where it is more difficult to find good funds is in the small-cap arena. That's because as they move out of the small-cap area and this can happen very quickly. And let's face reality. It is easier to follow General Electric than it is to discover the next General Electric. Therefore, it may make more sense to use ETFs in addition to or in place of small-cap funds. The other area for use of ETFs might be for international and or foreign funds. International funds tend to have high expense ratios-ETFs ratios-ETFs do not. As we start the new year, it is a good time to review your portfolio. By the time you read this you may have received some of your year-end statements. More than likely you will not be as happy as you probably were in the previous four years. Consider spending more time in 2001 on reviewing your investments than you will in planning your vacation. Sit down with a Certified Financial Planner practitioner and determine whether you are on track to meet your goals. Ask if the addition of Exchange-traded Funds should be added to your portfolio. Bill Mullen is a Certified Financial Planner and a resident of Park City. He is a registered representative repre-sentative and offers securities through Walnut Street Securities, Inc. Member NASD, SIPC Securities activities are supervised from a WSS Branch office at 2180 S 1300 E, Suite 420, Salt Lake City. He holds an MBA in Finance and is a member of the Institute of Certified Financial Planners (1CFP) and is President of the Utah Society of the lCFP Questions may be addressed to htm at Hill Mullen; do tne Park Record, P.O. Box 3688; Park City, ETFs are traded on the AMEX. MCSI France Index and of course the winners in these funds grow, UT 84060. Comdex gets dose of reality, so does the electorate Continued from B-7 external floppy drive. So much for the "This is all you'll ever need" implications of iMac advertising. The G3, in its standard desktop minitower, came with a floppy disk drive, and a CD-ROM, etc. Expansion is easy: lots of space. Now we have the Cube. Cute, just slightly larger than the diameter diame-ter of a CD-ROM (which it has). Guess what? To expand the Cube means external drives... with more gray boxes and cables. Kinda messcs-p the dean,- fresh lookr doesn't it? Oh. Apple, just when I think you're going to hang around a while longer and keep Microsoft honest with a little decent competition, competi-tion, you go off down some side road... From pregnant chad to pregnant Who can forget election boards across Florida, attempting to divine voter intent from pregnant chads? Try as we might, the image just won't go away. Now a couple of companies want to do away with paper-based balloting for bozos, and make us do it electronically. Unisys (NYSE: UIS), a maker -ot mainframe computers, announced Thursday that it is teaming up with Microsoft Corp. and Dell Computer Corp. to create a technology-based system that could replace what many call antiquated anti-quated ballot-counting machines now scattered across the country. Unisys will act as an integrator of the various technologies that will be used to create the voting system. Dell (NASDAQ: DELL) will supply the computers, touchscreen touch-screen monitors, and keyboards, while Microsoft (NASDAQ: MSFT) will create the software to operate the system. This coalition is just one, of the more recent efforts announced. It wHl faee a slew of players frem start-ups that focus solely on voting vot-ing systems to other tech giants such as IBM - that are also salivat ing at the opportunity to replace the much-maligned systems now in use. From what we saw in November and December, the punch card-based system we currently cur-rently use in many voting booths obviously doesn't work. Maybe it's time our voting process joined the electronic world. Given the neck-and-neck nature of the vote count and the 36-day election night we all endured, the only overwhelming mandate George W. Bush has that 1 eaB-see-is.- Nvet-let ihat happen again!" 30 yr Jumbo 15 yr Fix 31 ARM 7.750 6.750 7.375 First Union Home Equity Corp. Second Mortgages Line of Credit Prime1 15 yr Fix 11.850 First Security Bank 30yrFix 7.125 15 yr Fix 6.625 30 yr Jumbo 7.875 Frontier Bank 30 yr Fixed 6.875 51 ARM 7.000 15 yr Fixed 6.375 Mountain Express Mortgage 30 yr Fix 7.000 31 ARM 6.625 MTA ARM 3.950 30 yr Fix 15 yr Fix 51 ARM 7.000 6.500 7.000 Park City Bank, a division of DB&T 30yrFix 7.125 0 5 15yrFix 6.750 0 5 30 yr. Jumbo 7.750 0 5 U.S. Bank of Utah 30yrFix 7.125 0 ' 5 15yrFix 6.625 0 5 1 yr ARM 6.500 0 10 26 T-Bill Utah Housing Finance Agency 30 yr FHAVA 6.580 2 3-5 30 yr FHAVA 6.880 0 3-5 Washington Federal Savings 30yrFix 6.950 0 5 30 yr Jumbo 7.125 0 5 15yrFix 6.875 0 10 16 T-Bill The Utah Mortgage Pulse includes up-to-date information on home loan rates changed by Salt Lake City area lenders. The information was accurate on Friday, Jan. 12, but is subject to change without notice. Closing points: One point equals 1 percent of the loan amount. Most lenders also require private mortgage insurance with down payments of less than 20 per cent. Also, most lenders charge loan processing fees up to $300, credit and appraisal fees up to $400, origination fees of 1 percent, along with other closing Index: T-Bill Yield onv-lyrT-BiCOFI s Cost of Funds Index, MTA 12-Month Treasury Average Index, Libor London InterBank Offered Rate Source: Mountain Express Mortgage (435) 647-3700. 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