Forex Investment

SCOTTISH philanthropist Sir Tom Hunter yesterday waded into the Edinburgh schools row, saying he was “deeply concerned” over plans to axe two secondaries to which he has given hefty donations.

The millionaire has committed 750,000 to schools in the city, including Wester Hailes Education Centre and Castlebrae Community High in Craigmillar, which are earmarked for closure.

Edinburgh City Council has said it must shut 22 schools to save 9million.

Yesterday Ewan Hunter, chief executive of Sir Tom’s charity, the Hunter Foundation, said: “We have invested in these schools and we continue to do so.

“We are deeply concerned with the proposed closures and early this week had a meeting with the director of education to seek clarification on what the consultation process will look like.

“We want to find out what the impact will be on the children and on the community, and really try to see what is going to happen next so we can engage with that consultation process.”

He confirmed he had discussed the issue with Sir Tom, whom he said was taking a keen interest.

Mr Hunter

pledged that if the schools are forced to close, Sir Tom will ensure deprived areas in Edinburgh will not lose out. He said: “Regardless of what happens, we will be maintaining investment in the communities we are investing in.

“If it turns out the schools close, that may change tack, but 100 per cent the Hunter Foundation will remain investing in these communities.”

Last November, the foundation promised to help fund 20:20 Vision, a three-year project to engage disaffected youngsters.

The Executive agreed to match Sir Tom’s donation towards the scheme at Craigroy-ston High, Castlebrae High and Wester Hailes Education Centre.

The 1.5million project is intended to narrow the gap in achievement between pupils from wealthy and poor families, and is due to last two more years.

Paul Nolan, chairman of Craigmillar Community Council, said losing the money would be a blow. He said: “Castlebrae shares about 500,000 of that money and it has made a tremendous difference to the school. Recent reports from the headteacher have shown improvements in attendance, positive behaviour, a lack of bullying and an increase in the first-year intake.”

The council’s report offers two options for Castlebrae High:

to close it and transfer pupils to Liberton High; or to maintain it as an annexe of Liberton or Portobello High until a replacement is built in three years.

Wester Hailes Education Centre would close with pupils transferring to Forrester High School.

Gillian Tee, director of children and families at Edinburgh City Council, said: “20:20 Vision is a great initiative and we will of course work with the Hunter Foundation to ensure that it is delivered.”

PUPILS across Edinburgh downed pens and walked out of classrooms yesterday in protest against plans to close their schools.

Hundreds of children set up picket lines outside their playgrounds because of a council ban on demonstrations within school grounds.

Youngsters from Craigentinny, Lismore, Bonnington and Drumbrae schools all refused to go to classes until 9:30am.

Children at Bonnington primary waved placards and banners alongside their parents outside the school in Leith.

Chanting “Save our school”, the group were given support by passing motorists and pedestrians.

Lisa Manders, a mother of two girls at Bonnington primary, said that it was the only way to highlight their anger. She said: “It is absolutely shocking that the council wants to close any school in Edinburgh.

“We’ve been told by council officers we can’t protest in the playground because it’s council property and we’re protesting against the council. That’s why we’re out on the street.”

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PARIS (Thomson Financial) - French household consumption of manufactured goods rose 0.7 pct in March, rebounding from a 0.5 pct fall in February, but well ahead of consensus according to figures from the Insee statistics office.

Year-on-year consumption rose 6.3 pct.

The February figure was originally reported down 0.4 pct, Insee said.

Economists polled by AFX News said they expected household consumption to be up 0.2 pct over the month and up 5.6 pct on the year.

tf.TFN-Europe_newsdesk@thomson.com

mrg/hjp

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Copyright AFX News Limited 2007. All rights reserved.

The copying, republication or redistribution of AFX News Content, including by framing or similar means, is expressly prohibited without the prior written consent of AFX News.

Foul weather and a 15-day labour disruption forced Canadian National Railway Co. to warn investors its profit in the first quarter will be lower than last year.

CN said its earnings for the quarter are expected to be five to 10 per cent below the 66 cents per diluted share the company made in the first quarter a year earlier.

“The first quarter of 2007 has been an extremely challenging one for CN,” said E. Hunter Harrison, the company’s president and chief executive officer.

“Severe weather conditions in western Canada in January and February disrupted operations of CN and many of its customers. We then had a 15-day strike by 2,800 members of the United Transportation Union in Canada, followed by another bout of harsh weather, which caused landslides that have interrupted operations of both major railways in British Columbia,” he said in a statement.

Harrisson said the company has a recovery program underway and is still aiming to produce diluted earnings per share growth of 10 per cent-plus for 2007.

Shares of CN were off81 cents at $51.00 in afternoon trading on the TSX.

CN’s warning came a week after rival Canadian Pacific cut its first-quarter revenue outlook because of weather problems and the impact at the Port of Vancouver from the CN strike.

I’m glad to share the job of helping you make sense of investing in exchange-traded funds, a mission made more necessary by the increasing interest and investment in these products. But I get concerned when I spot articles like the one I read over the long weekend.

I came across “http://www.smartmoney.com/etffocus/index.cfm?Story=20070213a” on SmartMoney.com, and I was negatively surprised by it, to put it mildly. While I do agree with the article’s main thrust — “know what you are holding” — I believe the bulk of the piece’s analysis revealed a fundamental lack of understanding of the product and even of the importance of forward-looking analysis. Slippage on Oil ETF

The piece starts with a dissection of the United States Oil Fund (USO) that quickly goes off-point. Pointing out that USO doesn’t own oil stocks and instead tracks West Texas intermediate crude, the author does well to emphasize that if you don’t know what WTIC is, you shouldn’t buy USO. He goes awry when he adds that you probably wouldn’t want to buy it because it’s down 32%.

Remember that USO is meant to track oil, period. If oil goes down, USO will go down; if oil goes up, well, you see where I’m headed. USO listed on the market in April when oil was much higher. USO is down a lot because WTIC is down a lot. Knowing that oil is down from its high is not enough information to make any decision about USO.

The piece would have done better to point out one problem with USO: The fund is badly lagging WTIC because of the oil market’s contango, the cost of rolling to next month’s futures contract when this month’s expires, if next month’s is more expensive, as is often the case.

Considering how big the contango issue has been for USO, you may not want to use it as an oil proxy if and when you believe crude will go higher. Making the decision about buying USO boils down to your opinion about what crude oil will do, whether USO will adequately capture what it will do and whether you even need this kind of exposure in your portfolio — not just its past returns. Get What You Pay For

The article then takes on the Claymore Ocean Tomo Patent ETF (OTP) , which I profiled in December when it first listed. In that column, I posited that OTP could turn out to be a better mousetrap for large-cap growth based on its methodology and holdings. The SmartMoney article’s author advocates knowing what’s under any ETF’s hood, but apparently he didn’t check this one, because he misses what I believe is a pretty obvious point for an ETF, the difference a methodology can make.

The author’s case against OTP is that “most of its portfolio, including firms like General Electric (GE) and 3M (MMM) , can also be found in cheaper funds.” The question is implied: So why not own the cheaper funds?

Well, because despite OTP’s expense, it has delivered as advertised in its very short time on the market. While two months is not enough time to make anyone believe that OTP has thoroughly proven itself, it sure shows that investors who paid a little extra for a superior large-cap growth mousetrap have gotten their money’s worth so far. Smart Indexing

Next I’ve got to counter the article’s point that ETFs that own the same 500 stocks — as in S&P 500-based ETFs — with different methodologies will deviate by only a percentage point or two, so it doesn’t matter which one you choose. Here, Robert Arnott’s fundamental index is mentioned but not his fund, the PowerShares FTSE RAFI US 1000 Portfolio (PRF) , and there is specific mention of the Rydex S&P Equal Weight ETF (RSP) : “In the end, regardless of which ETF you pick, you will own the same companies and get the same relative performance within a percentage point or two of each other.”

The history of Arnott’s fund and RSP vs. the S&P 500 speaks for itself. Anything could happen with returns in the future, but up to this point, methodology has mattered.

Since inception, PRF has beaten the S&P 500 by roughly 6%. In that same time period, RSP has beaten the S&P 500-tracking SPDRs (SPY) by 3%.

It’s too early to know whether PRF can keep up this outperformance. But it is worth noting that since RSP’s inception in 2003, it’s up a total of 90%, compared with not quite 60% for the S&P 500. This dispersion is clearly attributable to RSP’s much smaller market cap, and there will be periods when SPY leads, but the notion put forth in the article that which broad index fund you invest in doesn’t matter is completely upside down.

Not Kooky, Complex

The SmartMoney article brings it home with a general condemnation of narrow-based ETFs, saying these new and original ETFs can be so hard to understand, it’s almost not worth the effort to decide whether to buy (and that you should wait to judge them on past performance, which I’ll get to in a minute). It even says that many unnecessarily slice and dice the market into segments not worth investing in, and uses a pejorative tone (the aforementioned desperation of ETF companies) that implies these instruments are gimmicks.

This conclusion reveals a lack of understanding. The Claymore/Sabrient Stealth ETF (STH) gets singled out as an example of all of the above faults. But a quick peek under its hood shows STH has a secondary effect (as do most of the “gimmick” funds) that is far from far-fetched.

This ETF is another way for investors to gain small-cap exposure (more specifically, small-cap growth). Since its debut last fall, it has slightly outperformed the iShares Russell 2000 Fund (IWM) and the iShares Russell 2000 Growth Fund (IWO) . It has been out only a few months, and the lead is slight, but again, this fund has started out doing exactly what it claimed it would.

For investors who are looking for an edge, the extra research is always worth it. I strongly disagree with what seems to be the blanket indictment of these new and original ETFs. Looking Forward

The SmartMoney author is right: “What you think you see might not always be what you get with an ETF,” so “know what you are holding.” But I take serious issue with his conclusion from this: a preference for “ETFs based on the well-established indexes at families like Standard & Poor’s, Russell and Wilshire” because they “have decades of performance track records so it’s easy to see how they’ll perform in any market condition.”

He also characterizes some of the great innovations in ETFs, which allow investors the flexibility to capture a market segment without the higher risk associated with owning all those individual stocks, as something that desperate “ETF firms … have resorted to, designing new products around exotic and unproven indexes.” That’s true for some products, but as always, investors who do their homework will know which products are worth their capital and which are tantamount to desperate ploys.

Buying an index fund, regardless of what type of index it’s based on, has to be a forward-looking process. And even “exotic and unproven” indices can go up. Investors are better off sticking with the better half of this article’s advice and making sure the ETFs they choose fit the bets they want to make.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider Claymore Ocean Tomo Patent and Claymore/Sabrient Stealth ETF to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

(Updating to add breakdown)

LONDON (AFX) - Euro zone manufacturing sector activity picked up very slightly in February, sources said of a key survey.

The purchasing managers index (PMI) for the euro zone manufacturing sector edged up to 55.6 in February from 55.5 in January, they said.

Analysts polled by AFX News had predicted a slightly bigger rise to 55.8.

A reading above 50 means that the sector is expanding.

A more detailed look at the survey showed that the prices components dipped but remained very strong, while output and orders components picked up.

The sub-index measuring input prices dropped to 64.2 from 66.5, while output prices fell to 57.5 from a series high of 58.4 in January.

Meanwhile, the index measuring employment dropped to 52.9 from 53.2.

New orders rose to 56.8 from 56.5, output picked up to 58.0 from 57.0 and new export orders increased to 56.2 from 55.3.

jessica.mortimer@thomson.com

jkm/slm/jkm/slm

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