Exchange Traded Funds

ETF InvestingManaged ETF portfolios are all the rage among money managers. The problem for individual investors is that the fees layer up quickly. A financial advisor might charge about 1% to recommend money managers to clients. The money managers often charge another 1%. The combined 2% in "service" fees is a HUGE barrier to overcome. Most people can manage an ETF portfolio very efficiently without having to overcome the layers of fees within the financial industry.

The Fundamental Trends Global Trends ETF portfolio is designed to be a slowly traded strategy that takes advantage of the big trends in the global economy. By managing risk with periodic trades out of downtrending asset classes and into uptrending asset classes we can greatly reduce our risk and increase reward. The combination of low expenses at Fundamental Trends, understanding the big trends in the global economy and stepping out of the way of falling markets is a winning combination. 

I screen ETFs based upon several key criteria: expenses, valuation, internal holdings, methodology of the index an ETF is tracking and long-term growth outlook. In this way I am considering both the top down and bottom up prospects for an ETF. Very few do either side of this analysis, rather others simply buy hot sectors and asset classes only to get burned in short order. By comparing the internal workings of ETFs we can pick out the best ones in the expanding universe of funds.

ETF strategies are ideal for both smaller beginning investors and those managing a larger asset allocation.

Brexit is creating a significant decline in markets. I don't know if it will be enough to spur much buying from us. Remember, there was an irrational rally this week. What we have to determine is if today's sell-off is a one day event or the start of a summer correction. Much of the carnage is overseas, so we'll look there a bit. Scan the limit order lists. I have an article on MarketWatch this morning. The rough draft is in the article section of the forum.

What we should do is focus on those ETFs and stocks that are most attractive long-term and start to scale in with small positions and set limit orders for lower prices as well. Here are the priority ETFs and stocks that are at or near buy prices: 

First Trust Natural Gas ETF - FCG: Buy at $22.50 for 6% of portfolios. I am likely to buy part of that position even if we don't see $22.50. So, it might take a few small purchases to get to 6%. If we do get the "big" correction, we can make it a larger position then.

Powershares QQQ ETF - QQQ: Buy at $89 for 8% of portfolio although I might add a little prior to that and increase the position 12% if it actually hits $89.

Guggenheim Solar ETF - TAN: Buy at $18 for another 3-4% of portfolio. - OR - buy First Solar (FSLR) at $42 for 2% and SunPower (SPWR) at $13 for 2% as those are the strongest of the sector. You could do both, but if you do, stick with the limit orders. 

I've held off on international for the most part, however, I like this:

WisdomTree Europe Hedged Equity - HEDJ: This fund will win as Euro sinks and stimulus is added to support markets. Wait for the whites of their eyes. Buy to 6% with a limit of $42 (this said $46 before, I fat fingered it somehow) which is pretty strong 5-year support. You can buy the first 2% a little higher. It's opening around $48. 

Be slow handed, buy in multiple lots. It's okay to buy a 1/3 or 1/4 part of the full position a little above the limit prices. 








No changes from May

Refer to the grids below to see the Exchange Traded Funds - ETFs - that we are considering investing in. In each chart will be the fund name, symbol, buy range and a very brief rational for our bullish interest or general notes. There will generally be stocks in 20 to 30 ETFs in addition to the SPY, QQQ, DIA and SPDR Selects which are the core I build around. We also use a few Closed End Funds - CEFs.

In general, caution is the name of the game. As we've been discussing, risk is rising across the globe even as America appears to be an island unto itself.

So, while I believe markets will get weaker over the summer and autumn, that doesn't mean there can't be an irrational rally higher, but if there is, it is something to sell into and to short.

The Global Trends ETF portfolio is a tactical portfolio that will generally hold some core positions representing 25-50% of the portfolio most of the time. It is is not a long-only portfolio, rather it is mostly long, most of the time. We only invest in market declines in extreme circumstances using non-levered inverse ETFs. You can certainly overlay some of the option swing trades if you are experienced enough to do so.

The Central Fund of Canada is an Alberta based Canadian company that passively holds gold and silver bullion which are both priced worldwide in U.S. dollars.

Currently it is invested about 2/3 in gold and 1/3 in silver. All reserves are stored in a secure and audited location. 

Please read the piece "Interpretive Dance with Janet Yellen" which I will have up later this afternoon for my full thoughts.

In short, while we do have one or two more deflationary events coming, I am even more confident than ever that massive monetary response will be the answer. Yellen today completely killed the idea of an April rate hike (which doesn't mean it won't happen, just that nobody would be prepared, which might be the goal). 

I am setting a limit order for 4% of Global Trends and Punch Card Stocks at $11.85 GTC.


NOTE: Executed April 1st, 2016