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ETF Basics

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China Small Cap ETF

By Arthur B. Hill - Thu 31-Jan-08 9:39 AM EST

Claymore Securities introduced the Claymore/AlphaShares China Small Cap Index ETF (HAO) this week. The issue is traded on the American Stock Exchange and promises to add just a little bit more volatility than your "garden-variety" Chinese ETF. Small-caps typically have higher betas and, hence, higher volatility than large-caps. This means small-caps decline further in downtrends and advance more in uptrends. It is always a double-edged sword with risk and reward. High reward potential comes with high risk.

The charts above show the China Xinhua 25 ETF (FXI) and the S&P 500 ETF (SPY) with the Average True Range% indicator. This is a measure of volatility. In a nut shell, it is the 10-day Average True Range divided by the close. If the range is 10 and the close is 100, then Average True Range will be 10% (10/100 = .10 or 10%. As a percentage, this indicator can be used to compare ETFs. Notice that the Average True Range% for FXI (>6) is more than double the value for SPY (<3). This means volatility, and risk, is twice as high for FXI.


S&P 500 ETF (SPY) Breadth click here


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