There has been a lot of chatter lately—since John Bogle dropped his "investors are getting fleeced in ETFs" bomb two weeks ago—that the average Joe just isn't going to do very well in ETFs because he'll be getting in when he should get out, and vice versa.

Well, let's see how the "average" ETF investor did in the month of June. We don't have numbers on how asset flows changed during the last 30 days yet, although our friends at the National Stock Exchange are sure to get us that soon. But what we do know is the bets investors, as a mass of men and women leading lives of quiet desperation, made at the beginning of the month.

As a refresher, here were the assets of leading ETFs at the end of May (in billions of dollars):

There are a few interesting things on this list. The first is simply the size of the investments outside core U.S. equity holdings. A total of $35 billion is a lot of gold, and the combined $61 billion in EEM/EFA is also a staggering number. So how'd investors fare against the stodgy old S&P 500 in June?

Before we get into that, it's worth pointing out an interesting divergence just inside the S&P 500. For the month of June, SPY was down 63 basis points. Its largest competitor, the iShares IVV, was down only 50 basis points. The reason, one suspects, is that the dividend date for SPY was June 19, and as a matter of policy, SPY holds its dividends in cash and won't pay those dividends out until the end of July. IVV, on the other hand, marked dividends on June 23 and paid them on the June 29, and reinvested them as a matter of policy during the interim period.

And of course, these distinctions pale in comparison to the performance differences experienced by investors in the non-U.S. equity markets.

Investors in U.S. dollar-denominated ETFs based on the MSCI benchmarks got killed in June, a story helped by a greenback that was surprisingly strong (up over half a percent) in June. Investors in EEM, a fund that pulled in over $1 billion in new assets in the prior month, faced a gut-check of an 8% loss before the bounce back last week.

But if we're looking for the real goat in the ETF Top 5, it was the GLD investor. Down over 5%, gold just hasn't been able to find the footing to launch the $1,000+ run so many inflation hawks are calling for. Not to say it will never happen, but over half a billion in new May money got it wrong headed into June.

But let's not pick on gold. Let's look at the hottest of the hot ETFs.

In May, that award didn't go to some 3x leveraged trading vehicle, but to the iShares MSCI Brazil Index Fund (NYSE Arca: EWZ), exploding at the seams with over $1.5 billion in new assets in the month leading up to June 1. How'd all that hot money do?

A bit worse than all the other emerging markets money in the Top 5.

The point of this isn't to poke fun. Year-to-date, EWZ is kicking the pants off the S&P 500 (up over 53%). In fact, every single one of these funds is beating the loyal spider. But it does make the point that timing is everything in investing. Being in EWZ today doesn't necessarily make you the smartest guy in the room, any more than my boring old S&P 500 position, today, makes me a goat.

If you bought into EWZ back in January and you've been along for the ride, now that was quite the call. And for this one-month period, the big money in the S&P was the "winner," if you can call it that. Next month?

If I knew that …

Enough is enough. I’ve had it with California muni bonds.

Despite the relative safety of holding the state’s debt in the form of index funds or ETFs, when a government starts paying for prison services and laundry bills in the form of IOUs …

Don’t get me wrong. It’s not time to panic and completely bail on the state’s bond issues. If you’ve held onto them up to this point, jumping out all the way might not be the best idea. After all, long-term returns of conservatively run, ultralow-cost mutual funds like the Vanguard California Intermediate-Term Tax-Exempt Fund (VCAIX) are stellar.

The story is similar with ETFs. (We took a look at the muni bond ETF field last year in this column).

In California, one of the more popular options is the iShares S&P California Municipal Bond ETF (NYSEArca: CMF). So far this year, it’s up more than 2.4%. And it’s paying a tax-equivalent yield for someone in the upper brackets of around 6.6%. That compares with a slightly negative return on the iShares Barclays Aggregate Bond Fund (NYSEArca: AGG) and taxable yield of about 4.4%.

But in the past three months, while AGG has held its own during a rally in stocks, CMF has faltered. Its total returns are negative for the period, underscoring how quickly conditions have changed. Sentiment has been on a roller coaster this year toward California’s debt situation, which now is around $24 billion. Earlier, investors were relieved by signs that politicians would take advantage of improved market conditions to wiggle out of their fiscal deficit hole. Lately, conditions have turned worse and the legislature seems deadlocked down party lines.

A few weeks ago I wrote a bullish comment over at Bogleheads supporting the view that it was highly unlikely the state would go bankrupt. ETFs like CMF and the SPDR Barclays Capital California Municipal Bond ETF (NYSEArca: CXA) track benchmarks steeped in high-quality bonds that are guaranteed by the state’s general obligation fund. California Treasurer Bill Lockyer has said that only “thermonuclear war” could halt payments of bonds with such backing.

Still, is there anyone out there investing in California munis who hasn’t sold at least part of their positions in the face of the state’s latest bumbling? I never in my wildest dreams imagined that the eighth-largest economy in the world would ever fall into such disarray.

And now, the state is issuing IOUs to even the most common of creditors? Think about that for a bit. I’m Joe Blow and I own a small landscaping service. It’s tough times, but I’ve managed to win a bidding war for a state contract to take care of a bunch of state office sites. I keep my costs lean and even though the price given to the state was very low, there’s a bit of profit to help with cash flow. Now, I’m getting paid with IOUs?

Besides the absurdity of the situation, what’s going on with California smacks at the very basis of sound investing practices. I consider myself an investor. I take pride in the fact that part of the hard-earned money I bring in each month goes into investing in our economy and others around the world. It feels good to invest in good companies and good places where people work hard and try to get ahead.

I’m not a Democrat or a Republican, so don’t think this rant is political in nature. But there’s a fine line between being a prudent investor and remaining true to your basic reasons for putting money into bonds. I’m in the accumulation phase of my investing life, where bonds are around to smooth my family portfolio’s bumps in a supposedly more volatile stock market. Is 2-3% more in tax-protected yields worth staying invested in a state that the Wall Street Journal recently observed has become ungovernable? (And that was in a front-page news story, not an opinion piece.)

So while I’m not bailing out completely from my California muni bond fund, I am trimming aggressively. This is designed to kill two birds with one stone. First, it’ll hopefully diversify my bond portfolio greatly. I’ve been extremely lean on Treasury Inflation Protected Securities, and now seems like a good time to start stocking up as part of a longer-term strategy of devoting part of my allocations to fighting rising prices.

But shifting part of my allocation away from California munis also lets me rest easier at night knowing that in my own way, I’ve made a statement. I’m not a politician, and a vote of the people is still far down the road. Still, through my ownership rights as a bondholder in the state’s crazy bureaucracy, I’m able to take a small stand. Enough is enough.

For me, the expansion of ETFs and index funds into more and more parts of fixed-income markets is turning out to be more of a democratizing investment process than I ever imagined. Holding onto some California munis will let me reap the rewards of whatever convoluted solution results from all of this latest mess (and I’m confident there will be a solution … eventually), and will also keep me invested in my state’s economic future.

But it sure feels good not to be quite so beholden to the whims and fancies of our elected leaders in Sacramento. Who said diversification isn’t working these days?

Investors expect the average price of a home in the U.S. in August 2014 to be virtually identical to where prices are today.

We know that by looking at the new MacroShares Major Metro Housing Up (NYSE: UMM) and MacroShares Major Metro Housing Down (NYSE: DMM) products, which began trading on the New York Stock Exchange this morning. We covered the launch here.

As of 10:02 a.m. EDT this morning, UMM was trading for $20.13 per share and DMM was trading for $30.97 per share. So how does that translate into a flat market over the next five years?

Here’s how the math works:

The new products are designed to provide 300% and -300% of the return of the S&P/Case-Shiller Home Price 10 Index, the leading measure of national home prices. But they are not designed to track those changes on a day-to-day basis; rather, they are designed to track the total performance change from December 31, 2008, through August 31, 2014.

The net asset value of each product was $25 a share based on the December 31, 2008, reading of the index. At that time, the index level was 162.17.

With DMM trading for $30.97 a share, investors are anticipating a $5.97-per-share change in the NAV through August 31, 2014. That translates into a 23.9% increase in the value of DMM.

Remember, though, that the product offers triple leverage; that 23.9% increase in DMM reflects a fall of just 8.0% in the index. Using the 162.17 base, that means investors expect the index to hit 149.2 by August 2014.

That's interesting, because Standard & Poor’s just released the April 2009 data for the S&P/Case-Shiller Home Price Indices. Overall, the data showed a continued but moderating decline in national home prices. But from our perspective, the most interesting piece of information was the April 2009 reading of the S&P/Case-Shiller Home Price 10 Index: 150.34.

In other words, based on the early trading in UMM and DMM, investors expect home prices in August 2014 to be almost exactly where they were in April 2009. To put a needle on it, they expect prices to fall 0.76%.

That’s not to say home prices will be flat in the interim. The S&P report shows that homes lost value in April at an astonishing 18% year-over-year clip. That’s not going to arrest itself overnight. Most likely, investors expect home prices will dip further before staging a recovery as we approach the 2014 deadline.

I personally wonder if that’s not a little too sanguine. As I’ve said before, when bubbles burst, they tend to overreact on the downside just as they overinflated on the upside. I don’t think we’ve seen that in home prices yet. And with the prospect for higher interest rates, it could be a while before we see housing recover.

Then again, a reading of 149.2 puts national home prices back where they were in June 2003. If that’s where we are in August 2014, it will mean 10 years of flat home prices for the U.S. Adjust even for nominal inflation, and “real” home prices will be down significantly.

This week, Congress is taking up a relatively simple set of changes to how 401(k) plans work. And yet again, the Investment Company Institute picks the wrong side of the fight—the side of active management.

Back in 1999, I stood in front of an ICI meeting arguing for increases in portfolio disclosure requirements. At the time, it was hard to imagine the 10-year boom we've seen in ETF assets, and the increasing willingness of alpha-seeking managers to make daily disclosures of their portfolios. I was called naïve and foolish, and perhaps I was.

Yesterday, the Committee on Education & Labor kicked a bill (full text) for consideration down to Congress that feels awfully similar—it would require a boatload more disclosure of what really goes on inside 401(k) plans, and mandate the inclusion of at least one passively managed option for participants. (The bill's full name is the Fair Disclosure and Pension Security Act of 2009.)

Here's what the ICI said in their entirely rational press release, which is what the mainstream press will pick up:

"The bill fails to define clearly the vital disclosures investors need, while layering on unnecessary and potentially inaccurate information that will only confuse employers and workers. The proposed legislation also sets a dangerous precedent by giving Congress the job of selecting investment options for plans."

But let's get into the meat. What did the ICI really object to? Well, in their letter to the committee, they had two big issues. The first was that there was TOO MUCH disclosure required:

"… accountants, valuation service providers, printers, and custodians who have no direct relationship with a plan could suddenly be subjected to detailed fee disclosure as a result of having provided services to investments used in a 401(k) plan. Disclosure focusing on those relationships, rather than the aggregate costs of an investment option, will needlessly complicate the information received by plan sponsors and participants, and create needless additional costs ultimately borne by 401(k) plans."

Oh yes, by all means. Please protect me from all this detailed information, ICI. After all, I don't really need to know how much "mere" service providers like custodians are making off my 401(k) plan. Is it "needlessly complicated" when my car mechanic breaks out parts from labor, so I can see where he's gouging me?

The Real (Raw) Deal

What they're really objecting to is the devil’s handshake that big active mutual fund shops have made with mid-sized 401(k) sponsors for decades: We'll give you your 401(k) services for "free" and we'll just pay for it out of all the little basis point fees nobody ever looks at in the underlying funds’ expense ratios.

The second objection was about this draconian sounding “giving Congress the job of selecting investment options" bit.

Surely that has to be terrible right? Lord knows I don't want to hand my retirement over to a bunch of politicians. But here's what the ICI really said to the committee:

“H.R. 2989 sets a dangerous precedent by effectively requiring plans to include an indexed investment option meeting specific requirements. It is inappropriate for the government to pick investment options for private 401(k) plans."

The Devil's In The Details

Note here actually that the ICI has a point, and it's one I don't disagree with in principle as a voting libertarian. But the problem actually isn't just the idea of the government saying "thou shalt index"—I don't really have a problem with that. The problem with the bill is the peculiar language they use to define what kind of index fund a plan sponsor needs to offer if it wants to take advantage of safe harbor provisions. The definition from the bill:

"102: (a) '(6) ‘(A) which is a passively managed investment with a portfolio of securities that is designed to be representative of the United States investable equity market (including representation of small, mid, and large cap stocks) or the United States investment grade bond market (including Treasury, agency, non-agency, and corporate issues), or a combination thereof …"

Now I totally see how they ended up with this, as it's clearly designed not to favor one particular index. But the irony (as the ICI correctly points out) is that the one index fund most plans already offer—the S&P 500—fails the test. Good news for total market funds I suppose, but still curious.

Perhaps even more interesting, burred in the bill is this little gem requiring a plan to disclose for every investment option:

"'111: '(b) '(2) '(B) ‘(v) whether the investment option is actively managed or passively managed in relation to an index and the difference between active management and passive management …"

In other words, if you put a large-cap growth fund in there along side your Vanguard S&P 500 fund, you're going to have to point out that they are different animals, and, shockingly, how.

That's my kind of disclosure.

Shining A Brighter Light

But here's the thing—I think it's fairly clear why we have the ICI on one side of this bill, and someone like Mercer Bullard from Fund Democracy on the other. (Mercer's 40+ page letter of support for the bill is some of the best advocacy I've read on the subject.)

Taken as a whole, the bill, imperfect or not, shines a very bright spotlight on the fee-burial that's taken place in the 401(k) industry for far too long.

While most large enterprises have made wise choices and provide substantial disclosure to employees, many midsize businesses simply signed up with a single fund provider because it was easy and "free."

Add to that, the legislation would provide additional coal into the firebox of the indexing freight train, and I believe that's an unadulterated good. It's not perfect—legislation never is—but the ICI's got their head in the sand on this one.

P.S.: The Bill does have other provisions as well, but they seem less controversial—primarily making it a no-no to have "independent investment advisors" in a 401(k) plan who get compensated differentially based on which investments a given employee chooses under the umbrella of a plan.

Nobody seems to be objecting to strenuously too those provisions.

Is the booming popularity of an exchange-traded fund altering pricing for the entire natural gas market?

That’s the possible takeaway from a new Citigroup research report. It points to a huge jump in assets by the United States Natural Gas ETF (NYSE Arca: UNG). The firm now estimates that UNG accounts for “roughly one-quarter to one-third of NYMEX and ICE open interest natural gas contracts.”

Pretty heady stuff. And it’s not a new concern. In researching my recent IndexUniverse.com feature, “A Tale Of Two Funds,” I came across several warnings that UNG’s bulging coffers could create real demand problems for natural gas as a whole.

Give the group at Citi credit. They’ve put together perhaps the hardest numbers yet to verify this possible phenomenon. Specifically, they note that oversupply in the industry hasn’t impacted front-month contracts. (Those are the types of futures contracts that UNG invests new money into, at least initially, before rolling over expired contracts to the next month’s contracts.)

So why are natural gas prices on the front-end holding up so well? “The answer in our opinion is that investors, in focusing on long-term fundamentals that could be materially better than the near term, might be investing in UNG – which props up the front month,” the Citi team of analysts wrote. “We suspect institutional investors may be using UNG as a vehicle to gain direct exposure to natural gas prices, without the hassle of rolling forward contract positions at the end of each month.”

The implications to individual investors, of course, could be rather ominous. If big players are simply seeing UNG as a quick-and-easy solution to taking advantage of short-term pricing fluctuations as a trading tool, then small-time investors could get buried if they’re not careful.

But a more likely scenario is that institutions are making a deep value bet. It’s highly likely they’re indeed viewing UNG as an easier way to tap into natural gas as a commodities play. Still, that’s not necessarily a bad development. It’s actually probably pretty smart on the part of big-time investment houses, both in terms of time and cost savings.

For their part, the Citi analysts don’t try to come up with any conclusions about institutions’ motivations. It does note, however, that “these investors may be holding onto UNG as a way of eventually tracking to the higher prices reflected in the back end of the natural gas curve in spite of roll drag.”

The views of John Hyland, the manager of UNG, are expressed in the research piece. He points out that UNG hasn’t always shown tight correlations to prices of front-month contracts. In fact, Hyland argues that might be happening right now. But he didn’t totally dismiss charges that increased buying of UNG shares might be incrementally propping up natural gas prices, according to the report.

In any case, as the Citi team points out, more than $3 billion has flowed recently into front-month natural gas deals. “Moreover, UNG has steadily comprised a greater proportion of NYMEX open front month and front month +1 contracts,” the report stated.