Weekend links: June 26 2010

First up, let me share this hilarious video of Hitler getting upset over the iPhone 4 reception problems. I didn’t get quite a few references in this, but still found it LOL funny.

He’s Upset About the iPhone 4 Antenna from MG Siegler on Vimeo.

On to some other stuff now:

World’s biggest gold coin auctioned for $4.02 million @ Business Week

India OKs market driven fuel prices @ WSJ

Foreign Currency Hedging: Diversify with EverBank CD Accounts @ Digerati Life

Ally Bank: Review of Online Banking Services @ Smarter Wallet

Target Date Retirement Funds @ Cash Money Life

Thinking like an Economist @ Weakonomics

Enjoy your weekend!

2 Year Returns of Existing Gold ETFs

I read that HDFC is coming out with a new gold ETF, so I thought I’d check out how the existing ones are doing, and see what is the difference in returns between the gold ETFs that are already present in the market.

I went to the NSE website, and looked up the closing prices for all 7 existing gold ETFs for the past couple of years.

Here is how they have moved over the past two years.


As you would have probably expected, the prices move quite close together, and you can hardly notice any difference between the ETFs.

Next up, I did a chart of the absolute returns of the gold funds that have been in existence for the entire two year period.

Here is how that looks.


GOLDBEES does the best (and it does quite well in volumes also, as I mentioned in my best gold ETF post), and that is due to the fact that its expenses are lower than the competitors. More competition is always good for the customer, but unless someone comes up with an ETF with expenses lower than GOLDBEES, I can’t imagine them to be the best on this chart.

Petrol prices freed from government controls

The big news today is that the government has freed petrol prices, and raised prices of kerosene, diesel, LPG, and cooking gas prices.

From Reuters:

A panel of ministers increased prices of state-subsidised diesel, kerosene and cooking gas prices, which could help reduce the fiscal deficit from the projected 5.5 percent of 2010/11 GDP and free up revenues for other programmes.

The panel said petrol prices would be market driven, rising 3.50 rupees per litre, while kerosene prices would rise by 3 rupees a litre. While petrol is mainly used by the middle class for cars, kerosene is used by the poor for power.

Diesel prices will rise 2 rupees per litre and will be freed up in the future. Cooking gas prices were raised by 35 rupees a cylinder.

I looked up the Report of the Expert Group on a Viable and Sustainable System of Pricing of Petroleum Products on the Ministry of Petroleum website, and it had a very useful chart on page 11.

This table shows the indicative retail price of Petrol, Diesel, Kerosene and LPG at various levels of International prices at Delhi.


This table is like a guide or approximation to what you can expect at various price levels, so at $100 a barrel – petrol is likely to cost around Rs. 60, and the current international price is about $77 a barrel.

No one likes a price rise, but at least this table will give you a sense of what to expect under different price levels. More importantly, it shows that if the oil price doubles from say $60 to $120 – the petrol price need not double to match it, which is what most people would probably think of when they hear about freeing up petrol prices.

iPhone 4 Reception Problems

The iPhone 4 was launched yesterday, and it seems that there are issues with the reception when the phone is held in a certain manner.

Here is a video that better explains this.

What is really interesting about this is that someone wrote an email to Steve Jobs asking him about the issue, and Jobs responded saying – “Just avoid holding it in that way”.

I found it quite amazing that Steve Jobs replied to that email, and the solution is holding the phone in a different manner!

There is another way of getting rid of the problem and that is by using a $29 rubber bumper, which means that if there is no contact between the hand and the phone – it works fine.

It looks like this problem existed with the earlier versions of the phone as well, and the Nexus one had a similar problem as well.

I came across this when I saw that iPhone 4 was a trending topic on Twitter, and happened to click on it. I was amazed at range and passion of people’s comments about the iPhone 4 in general and this issue in particular.

Motilal Oswal MOSt Shares M50 ETF – An Update

Someone from Motilal Oswal AMC left a comment on my earlier post, in which I complained about insufficient information in the prospectus about the underlying index of the new ETF that Motilal is going to launch.

I think the comment is worth the attention of a full post because it tells me that I was looking at an older draft, and there is in fact a Scheme Information Document (SID) that has more details on the index calculation, and the fee structure is lower as well.

Here is the comment:


We think you are referring to our old prospectus.

We would like to mention that the MOSt 50 Basket would be calculated based on certain parameters and the same is mentioned on Page 11 of the Scheme Information Document (SID). You could read the revised SID at: http://www.mostshares.com/Pages/downloads.aspx

Further, regarding the expense structure, pls refer page 20 of the SID where we have capped the expense structure slab wise:

For first Rs. 1,000 crores – 1.00% p.a.

For next Rs. 2,000 crores – 0.75% p.a.

Over Rs. 3,000 crores – 0.50% p.a.

Thus, the SID contains all the details regarding the MOSt 50 Basket and about the Scheme.

Hope this information is helpful to you.

Motilal Oswal AMC

Since the comment addresses the fee structure well, let me get to the underlying index and what I could gleam from the SID.

The constituents of the MOSt 50 Basket will be Nifty stocks, and a weight will be assigned to each stock based on certain fundamental factors and prevailing price.

The basket is classified into four categories:

Name Number of Constituents Percentage Allocation
Highest Capital Allocation 2 – 5 6% to 8% for each member of this category
Second highest capital allocation 3 – 7 4% to 6% for each member of this category
Third highest capital allocation 9 – 15 2.5% to 4% for each member of this category
Lowest Capital Allocation Remaining constituents Unallocated Capital

So, there will be a few companies that will be more dominant than others based on their higher ranking according to this methodology.

Here are the factors that are used to decide the weights of the individual stocks:

1. Shareholder funds: Money raised by shareholders plus retained earnings till date.

2. Return on Equity: ROE is calculated as: Profit after tax / Average common stakeholder equity. ROE measures how well the shareholder’s equity is performing.

3. Plow Back Ratio: This is calculated as: Retained Earnings / Profit After Tax, and shows you how much earnings has been kept back with the company for its future use.

4. Stock Price: The closing price of the stock on the day of rebalancing is considered.

This index is also going to be a Total Return Capture index, which means that the index will not only consider price movements but also take into account the dividend paid out by the companies and their impact if it were re-invested.

I must say that theoretically this sounds a lot more interesting than what I found it at the first go reading the other document. Whether this works in practice will only be seen when the fund has been on the market for a few years.

And great job by Motilal Oswal for responding so quickly and pointing me to the right data source.


Documents of Motilal Oswal MOSt M50 ETF

Motilal Oswal MOSt Shares M50 ETF

Update: Motilal Oswal left a comment on this post pointing to more recent documentation about the ETF, which contains more information about the underlying index. Here is the updated post with that information.

By now at least a few of you must have heard about this new ETF that is based on some sort of a fundamentally enhanced Index based on the S&P CNX Nifty Index.

I read about it yesterday, and then went through the prospectus to figure out what a “fundamentally enhanced index” means. But I didn’t find any answer there, and feel that the fund has done a very bad job of explaining how its index will behave.

In fact just reading through their description, it is not possible to figure out how the index will be constituted, how has it behaved in the past, and how exactly is it fundamentally enhanced?

Here is what I did find about the index:

K. ABOUT MOSt 50 Index
1. Objective
MOSt 50 Index is a fundamentally enhanced index based on S&P CNX Nifty Index
MOSt 50 Index is designed such that it has the following characteristics:
1.1. Weights are assigned to all 50 constituents of Nifty.
1.2. Weights assigned to constituents are based on third party data and explicitly
defined rules.
1.3. Weights assigned to constituents are dependent on their fundamental performance
and their prices with higher weights being assigned to constituents which have
demonstrated superior financial performance and have reasonable valuation.
1.4. While designing MOSt 50 Index, care has been taken by AMC to ensure that:

1.4.1. Index beta (β), a measure of the correlation of the index returns with
market returns, is close to 1. Market Returns are defined as returns from an
investment made in Nifty.
1.4.2. Index Jensen’s alpha (α), a measure of returns in excess of market returns,
should be reasonably high.
1.4.3. Index’s Sharpe ratio, a measure of returns provided for the risk taken,
should be high.
1.4.4. Index turnover should be reasonable.

Reading through the description tells you that all 50 Nifty companies will be there in the index, but not in the same weights as they are present in the Nifty. There are some explicitly defined rules that will decide what the weights are, but those rules are not present in the prospectus.

The fund is expected to incur 1.50% of its assets as expenses, and if you compare it to Nifty Index Mutual Funds and ETFs, you can get them at the same or lower expenses. In fact, the Kotak Nifty ETF has got expenses of just 0.5%.

I think SEBI should ask these guys to explain how the underlying index will work, so that people get an idea on how the constituents are selected, and how it would change with time.

Would you rather live in Canada?

I was surprised to see this graphic in the Globe and Mail, which surveyed people in various countries and asked them if they’d like to move to Canada.  Specifically, they were asked to agree or  disagree with the following statement:

‘If I had a choice to live in Canada or stay in my current country, I would move to Canada’.

Here are the results.


These numbers look very high to me no matter which country I look at; more than half of all Brits want to move to  Canada? And more than three fourths of China? But, in general, it looks like a lot of people do look at Canada very favorably.

I thought I’d compare this data to Ethnic Origin numbers from Wikipedia, and here is what I found:


Mexico doesn’t figure at all, but a lot of other countries have good representation in Canada, and probably that is what prompts people from all over the world to want to go there. If you already have someone you know living in a foreign country, it becomes that much easier to think that you yourself can move, and have a good life there.

Rupee to get its own symbol

The Indian Rupee will have a symbol soon, and it will be one of the options shown below.


Per NDTV The symbol is the Hindi letter Ra with two lines.  I love the idea that the Rupee is going to have a symbol, and personally I like number 4 the most in this lot. NDTV had a voting feature and I saw that number 4 was in fact the most popular among their users as well. The symbol is expected to be finalized  on Thursday, and all new notes will bear the symbol.

Which one do you like the most?

France’s loss is Buffet’s gain

Interesting piece in Business Week about Berkshire  insuring other companies against a France victory.

From BW:

Warren Buffett won his bet against France in the World Cup when the 1998 champion was eliminated by South Africa.

France fell 2-1 to the host nation today, after drawing Uruguay and dropping 2-0 to Mexico. Berkshire Hathaway Inc. had sold insurance requiring the Omaha-based company to pay a client if France won the tournament, Buffett told CNBC in March.

“I think we’re going to lose 30 million bucks or something like that” if France wins, Buffett, Berkshire’s 79-year-old chief executive officer, said at the time.

The article goes on to state that Carrefour SA, Europe’s biggest retailer had a promotion going in which customers buying flat- screen televisions would have been reimbursed if France won the tournament. The article does not say that this is the deal that Buffet has insured, just uses this as an illustration.

Buffet said that they would have lost some $30 million had France won, but there is no mention of how much they earned from this bet.