Goverment ETFs

Average returns in this Category	3 months return	6 months return	12 months return	YTD return

Goverment	2.58%	10.79%	3.25%	8.55%

Ticker SPY	Name	3 months return	6 months return	12 months return	YTD return

EGF	BlackRock Enhanced Government Fund, Inc. (EGF)	1.65%	7.23%	4.37%	3.86%

AGZ	iShares Barclays Agency Fund (AGZ)	2.04%	1.2%		0.44%

WIA	Western Asset/Claymore Inflation Linked Securities & Income Fund (WIA)	3.82%	11.15%	3.82%	10.74%

WIW	Western Asset/Claymore Inflation-Linked Opportunities & Income Fund (WIW)	2.28%	13.99%	1.57%	11.06%


	About Goverment ETFs
Government ETFs Overview and forecast Government securities are the great lumbering monsters of the financial markets. They're not glamorous, they're not exciting, and they're where a lot of the world's money goes when it doesn't want to be excited or worried to death. Other than gold, government securities are considered to be one of the safest of safe havens in difficult times. Government ETFs are actually quite good traders, for that reason. These securities play by their own rules, and they spike and dive in places where other securities don't. Interestingly, they've produced quite large ranges of prices recently, even if their general bandwidths are pretty obvious. Our charts show quite modest net returns over the standard periods, but they don't do justice to the interim price moves. Even these comparatively serene funds did experience major price moves during the September 2008 period. The models for the Government ETFs vary a lot. Some are based on percentage holding in government securities, with a lesser percentage for other securities. Others work on a non US dollar inflation hedge strategy. Models tend to be conservative, and that's what appeals to investors. Traders, however, have been obviously at work, with credible volumes apparent post crash, and quite good margins. Short term (6 months) Securities based ETFs don't trade in the same way as the better known models of stock spreads. Government securities, like corporate securities, are range based traders, and margins vary from the definitely worthwhile to the definitely dull and thin. Traders need to work on longer time frames in securities, as distinct from stocks. The average, and it's a very rough average, for significant returns on margins is about 3 months. Government securities are also generally stable in their bandwidths, so the margins to volumes ratio can be irritating, over extended times. Few traders want to spend three months making 10 cents a unit, unless that translates into real money by volumes. As with most traded securities, the Government ETFs perform best from their bottom ranges. The general movement of these ETFs is upwards, but slowly. Medium term (2 years) Because of the crash, the natural evolution of ETFs has been slowed down, and the government securities market currently only has four listed ETFs, all of which are parts of wider ETF management groups. That situation will change as the other big ETF funds create their own models in this field. This is a very popular investment field for big investors, and government securities are big business, too big to ignore. Bringing more money into this relatively small pool will also enhance investor and trader interest. The ETFs are a way for retail investment in this market, which wasn't previously available to anybody but pro traders, and the previous highly liquid global market was opening up a lot of new investment approaches. The trading angle cuts both ways for the Government ETFs. There's a built in negative side to government securities. Traders can boost prices enormously, but this particular sector isn't always on the boil, and soft spots in prices are common. In the normal markets, traders are likely to operate across bands which are hyperactive. The Government ETFs do have moments of peak activity, but they're not constant. The medium term is also somewhat blurred by the large volumes of US government securities being issued under the Obama administration. They could be good news, if the market picks them up, but a glut of paper on the market means the funds will have to be selective. Long term (5 years) It's likely that in five years the Government ETFs will have picked up in value and volumes, as the global recovery picks up and capital moves back into these relatively quiet investment areas. China, for example, during the boom, picked up a trillion dollars worth of US government securities, and the Japanese are also serial buyers of US government securities. Interest rates, and the difference between local and US bond rates, could create a differential which would be very good business for the Government ETFs. The inverse effect is also possible. US Federal Reserve interest rates are on record lows, almost giveaway levels. That situation isn't permanent. Bond values are based on returns and prices relative to yields. Government securities operate on yields based on decimal points of returns. Nobody needs a calculator to figure out what's worth more than what. The government securities market isn't always a great competitor with other investment options. Government ETFs need to work on active management of returns, and that's definitely not a given factor in the long term. Most of the Government ETFs have allowances for more high returns in other markets, and it would be misleading to suggest that they don't face obvious challenges in that regard. The long term may have good upsides for traders, but again the best investor option is to incorporate Government ETFs as part of a wider spread. Qualifiers to projections Government ETFs will evolve into highly diverse mixes, even if they're still working with the same class of investment. For investment purposes, this is a strictly performance based class of ETFs. Government securities are the epitome of the meaning of the phrase Money makes money. Volumes matter, when you're dealing with three or four decimal points and trying to produce good returns. The probability is the Government ETFs of the future will be stretching and reworking their paradigm, vigorously. Because this is a quite different market to other securities, investors have to take the pragmatic approach and work on their own requirements as the yardstick, rather than vague concepts of coverage. Government ETFs can and do make money, but they're an acquired taste in terms of returns. They would suit the conservative investor, or the expert trader, as investments, but they'd also have to fit the concept of spreads and in many cases client preferences. They're the sort of investment which does meet some needs, but doesn't meet all needs.

Last Updated on: 2010-01-14 02:03:40

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