A Dead Cat Bounce?

by on June 18, 2011 | ETFs Mentioned:

The last week was an up-and-down stretch for global equity markets, as the intensifying crisis in Greece dominated headlines and investors scrambled to analyze the potential fallout from what seems increasingly likely to be a default on sovereign debt obligations. The jump in equity markets–which snapped a six week losing streak–wasn’t really attributable to good news or positive outlooks on either the domestic or international front. Steep sell-offs in recent weeks led to some attractive valuations, prompting bargain hunters to scoop up risky assets that have been pummeled over the last month or so.

Actionable ETF Trade Ideas

The actionable ETF ideas from Monday’s ETF Insider were based on technical indicators and intended to play out over the next month or so. So far, two of those ideas are off to stellar starts while the third has stumbled out of the gates (potentially creating an even more attractive entry point). After an up and down week, we highlight the performance of these three ideas [sign up for a free ETFdb Pro trial to get actionable ETF ideas every week]:

Trade #1 Short FXF: Up 1.0%

Last Week’s Actionable ETF Ideas
Ticker Position Performance
FXF

Short

+1.0%
JO

Long

-7.3%
THD

Long

+0.01%

Our bet against the Swiss franc was timed perfectly, as the dollar bounced back this week and showed considerable strength against one of the other major safe haven currencies. We still believe that there is room for a further decline here, as FXF has yet to hit the retracement level around $115 per share. The stellar performance of this short position this week creates a good profit taking opportunity, though we believe there are additional opportunities for profit here in coming weeks.

Trade #2 Long JO: Down 7.3%

Coffee futures stumbled out of the gates, and JO endured a week of disappointing performance. We still believe that JO presents an attractive opportunity, and the dip in price over the last several sessions only creates a more attractive entry point. So we’re content to leave this position open for the time being, though JO is approaching the $66.36 level that would trigger a technical re-evaluation.

Trade #3 Long THD: Flat

Thai equity markets performed quite well this week, as predicted. Though THD had several losing sessions during the week, a huge jump in Tuesday trading was more just enough to put this position into positive territory. There is still significant upside potential in this position, as THD remains well below our price target of $70. This position still seems very appealing from a technical perspective over the next several weeks, and we’re letting this bet on Thai equity markets ride.

ETFdb Portfolios

Retirement ETFdb Portfolios

Domestic equity markets managed to reverse a string of recent losses during the past week, which helped many of our long-term all ETF portfolios. But weakness overseas was the culprit over the last several days, as all of these portfolios clustered around breakeven during the last five sessions:

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire 0.09% 3.12%
5 Years To Retirement 0.01% 2.09%
Moderate -0.03% 2.35%
Cheapskate -0.36% n/a
10 Years To Retirement -0.11% 2.17%
30 Years To Retirement -0.16% 1.98%
20 Years To Retirement -0.14% 1.91%

Themed Portfolios

The performances for our themed portfolios during the week were more diverse, as those with more substantial allocations to international stocks, such as the Emerging & Frontier Markets and Ex-U.S., struggled mightily. The Sky Is Falling ETFdb Portfolio led the way over the last week, as the allocation to VIX futures surged as anxiety jumped:

In terms of year-to-date performance, the range also widened a bit; the gap between the best and worst performers is not nearly 700 basis points:

ETFdb Portfolio Weekly Return YTD Return
Sky Is Falling 0.84% 0.14%
Emerging & Frontier Markets -1.04% -2.01%
Ben Graham 50/50 0.17% 4.00%
Black Swan Hyperinflation -1.77% 0.88%
High Yield 0.14% 2.93%
High Tax Bracket -0.52% 2.44%
Actively-Managed 0.00% 2.83%
Asia Centric -0.60% -2.82%
Alpha Seeker 2.0 -0.25% 3.52%
Ex-U.S. -0.99% 0.28%
RAFI -0.14% 0.06%

New ETF Highlights

The past week was one of the busiest of the year so far in terms of new ETF launches, keeping up with the furious pace that has been established in the first several months of 2011. In total, three issuers launched seven new products during the last week, including a suite of hedged equity products and two ETFs focusing on dividends [see the ETF Launch Center for updates on all new ETFs]:

ETF Launches

ETF issuers showed a sense of humor with some of the new additions to the lineup, as a handful of clever tickers debuted over the last week:

IQ US Real Estate Small Cap ETF (ROOF)

  • Launch: June 14
  • ETFdb Category: Real Estate
  • Structure: ETF
  • Expense Ratio: 0.69%

ROOF debuted as the first ETF to offer exposure to small cap REITs, a corner of the real estate market that often receives limited weightings in funds such as VNQ or IYR. This ETF offers both a dividend yield and price-to-book ratio that compare quite favorably to other real estate products, making ROOF a potentially appealing tool for complementing more traditional real estate exposure [see detailed review of ROOF].

Daily Basic Materials Bull 3x Shares (MATL)

  • Launch: June 15
  • ETFdb Category: Leveraged Equities
  • Structure: Leveraged ETF
  • Expense Ratio: 0.95%

This ETF offers 3x daily leveraged exposure to the U.S. materials industry, further beefing up Direxion’s already robust lineup of 3x products. MATL features a daily reset of exposure [see complete review of SDIV].

Daily Basic Materials Bear 3x Shares (MATS)

  • Launch: June 15
  • ETFdb Category: Leveraged Equities
  • Structure: Leveraged ETF
  • Expense Ratio: 0.95%

This ETF offers -3x daily leveraged exposure to the U.S. materials industry.

Daily Healthcare Bull 3x Shares (CURE)

  • Launch: June 15
  • ETFdb Category: Leveraged Equities
  • Structure: Leveraged ETF
  • Expense Ratio: 0.95%

This ETF offers 3x daily leveraged exposure to the U.S. health care industry, seeking to amplify a sub-set of the Russell 1000 Index.

Daily Health Care Bear 3x Shares (SICK)

  • Launch: June 15
  • ETFdb Category: Leveraged Equities
  • Structure: Leveraged ETF
  • Expense Ratio: 0.95%

This ETF is the bear counterpart to CURE, offering -3x daily leveraged exposure to the U.S. health care industry.

Daily Total Market Bear 1x Shares (TOTS)

This inverse ETF is designed to deliver daily results that correspond to the inverse (-100%) of the broad-based MSCI US Broad Market Index. That index, which is replicated by the ultra-popular VTI, represents more than 99% of the total market capitalization of all of the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market. As such, TOTS may be useful for those looking to bet against equity market performance, and can potentially be useful as part of a hedging strategy.

RAFI Pure Style ETFs

PowerShares converted several of its U.S. equity ETFs this week, switching the underlying benchmarks from Dynamic Intellidexes to RAFI-weighted indexes. The result was a suite of nine product covering value, growth, and blend styles across the three major market capitalization levels:

Value Core Growth
Large Fundamental Pure Large Value Portfolio (PXLV) Fundamental Pure Large Core Portfolio (PXLC) Fundamental Pure Large Growth Portfolio (PXLG)
Mid Fundamental Pure Mid Value Portfolio (PXMV) Fundamental Pure Mid Core Portfolio (PXMC) Fundamental Pure Mid Growth Portfolio (PXMG)
Small Fundamental Pure Small Value Portfolio (PXSV) Fundamental Pure Small Core Portfolio (PXSC) Fundamental Pure Small Growth Portfolio (PXSG)

ETRACS Natural Gas Futures Contango ETN (GASZ)

  • Launch: June 16
  • ETFdb Category: Oil & Gas
  • Structure: ETN
  • Expense Ratio: 0.85%

This new addition to the UBS suite of alternatives ETNs offers unique exposure to natural gas futures. The underlying index essentially consists of a short position in a sub-index comprised of short-term futures coupled with a long position in an index comprised of longer-dated contracts. That combination offers the potential to capitalize on structural inefficiencies in the natural gas futures market (i.e., the consistent contango that has been the source of poor returns in product such as UNG). This ETN should exhibit relatively low volatility (a result of the market neutral exposure) while allowing investors to participate in natural gas exposure over the long run [see complete analysis of GASZ].

ETRACS Oil Futures Contango ETN (OILZ)

  • Launch: June 16
  • ETFdb Category: Oil & Gas
  • Structure: ETN
  • Expense Ratio: 0.85%

This ETN takes a similar approach to the oil futures market as GASZ, maintaining long exposure to longer-dated contracts and short exposure to an index comprised of futures contracts that are approaching expiration. OILZ should also exhibit relatively low volatility, though it should be noted that the long position in this ETN (150%) exceeds the short position (-100%).

0-5 Year High Yield Corporate Bond Index (HYS)

  • Launch: June 17
  • ETFdb Category: High Yield Bonds
  • Structure: ETF
  • Expense Ratio: 0.55%

This junk bond ETF offers exposure to the short end of the maturity spectrum, holding debt rated below investment grade with less than five years to maturity. That makes HYS more targeted than many of the existing junk bond ETFs, which cast a wide net in terms of maturity exposure (the Guggenheim BulletShares products offer more precise exposure to high yield debt markets).

Floating Rate Note Fund (FLOT)

  • Launch: June 17
  • ETFdb Category: Corporate Bonds
  • Structure: ETF
  • Expense Ratio: 0.20%

This ETF offers exposure to floating rate debt, a corner of the bond market that has become increasingly popular as concerns about interest rate hikes have intensified. FLOT’s component securities feature coupon payments that reset based on changes in reference interest rates such as LIBOR, resulting in an extremely low effective duration (i.e., minimal interest rate risk). FLOT will compete most closely with FLTR, a generally similar product launched earlier this year by Van Eck [see complete analysis of FLOT].

Disclosure: No positions at time of writing.