The Bottom Line: TBT could be a profitable contrarian strategy

ETF Industry Overview:
§  802 = # of US ETFs as of 11/30/2009
§  30= # of US ETF managers;  
§  100 = number of ETF liquidated since 2007
§  $739 billion = total ETF industry assets (a record)
§  9.8% = number of fixed-income ETFs (79/802)
§  $100b = asset value of fixed-income ETFs (100/739 = 13.5%)

2009 Hot Investment:  Bond (Fixed Income) ETFs
§  $32 billion:  2009 net inflows to taxable-bond ETFs; most of any ETF asset class
§  AGG:  iShares Barclays Aggregate Bond Fund
§  BND:  Vanguard Total Bond Market ETF

Other 2009 popular ETF categories:
§  Inflation-protected Treasuries
§  gold
§  Other commodities (oil, grain, livestock, etc…)
§  Corporate bonds
§  Emerging markets using Vanguard’s VWO and iShares’ EEM
§  Bearish funds (leveraged and inverse ETFs) ProShares and Direxion

The Benefits of ETFs benefits relative to Mutual Funds:
§  transparency
§  liquidity
§  low costs
§  tax efficiency

ETF Management Landscape by assets:
1.      BlackRock (Barclays Global Investors)
2.      State Street
3.      Vanguard ($90 billion in ETF assets)

Investment Thesis:
Since higher inflation is ancipated, higher interest rates are anticipated which means that bond prices will fall.  A common approach to profiting from falling bond prices is to invest in short bond funds such as TBT. 

The Bottom Line: 
Investing in a short bond ETF (TBT) might be a profitable contrarian strategy. 
§  TBF [20+ year treasury]; $49.83; Mkt cap 209M; Ave Vol = 169k
§  PST [Ultrashort 7-10 year treasury] $52.33; Mkt cap 347M; Ave Vol = 122k
§  TBT [Ultrashort 20+ year treasury]; $48.61; Mkt cap 4.5B; Ave Vol = 4.79M

Source(s): WSJ, Vanguard, Morgan Stanley, State Street, Google.com, Yahoo.com, Proshares.com