Bears Still In Charge

by on August 20, 2011 | ETFs Mentioned:

The Wall Street roller coaster doesn’t seem to be running out of fuel as stocks endured yet another wild week. Investors remain very fearful of an impending “double dip”, while the deteriorating financial health of the Euro zone is putting additional downward pressure on global equity markets. Uncertainty continues to pave the way higher for gold and the precious hit new all-time highs on Friday, charging to $1,881 an ounce as equities slid lower throughout the trading session. We advised investors to be cautious of a dead cat bounce in Monday’s Insider, which turned out to be sound advice seeing as how equity indexes failed to establish support above last weeks highs, and instead fell lower in the final days of trading accompanied by high volume. Against this uncertain backdrop, nearly all of our model portfolios remain in deep-red territory, while our conservative approach has yet again saved us from loosing our sanity during another wild week on Wall Street.

Actionable ETF Trade Ideas

Our picks from Monday’s Insider didn’t fare too well this time around thanks to another bumpy week on Wall Street. Our short equity recommendation turned out for the best as equities managed to broadly decline lower the last two trading days. We highlight the performance of our three trade ideas below [sign up for a free ETFdb Pro trial to get more actionable ETF ideas every week]:

Trade #1 Long FXA: -0.3%

FXA was positioned quite nicely prior to Monday’s opening bell, and the fund opened higher as expected. Although it failed to hit our price target of $107 this week, FXA still remains on an upward path and we anticipate more upside to follow, so long as shares can keep afloat above the significant 200-day moving average. FXA could see some fundamental headwinds next week if gold prices take a breather, since the Aussie dollar bears quite a strong correlation with the yellow metal.

Last Week’s Actionable ETF Ideas
Ticker Position Performance
FXA

Long

-0.3%
DBO

Long

-3.9%
RWR

Short


+3.7%

Trade #2 Long DBO: -3.9%

Our recommendation to long DBO was mistimed with week. Crude oil remains beaten down and futures prices are quite volatile, tanking below $80 a barrel on Friday, considering that they were trading above $85 earlier in the week. We still like DBO going forward, assuming it can hold support above $24 a share, and our price target of $28 a share remains unchanged, although it may take a bit longer than expected.

Trade #3 Short RWR: +3.7%

This was meant to be our defensive position for the week and our prediction was spot on. We advised investors to wait and observe RWR as it approached its 200-day moving average, suggesting that a short position was recommended if the fund failed to close above its long-term benchmark. RWR failed to break above its 200-day moving average on Wednesday, and as predicted, the fund tanked lower on Thursday and Friday. If support fails to hold above $57.50 next week, then its safe to say that RWR will likely dip back down to $55 a share or even lower. 

ETFdb Portfolios

Retirement ETFdb Portfolios

This was a nasty week for stocks as investors are still reluctant to jump back into equity markets, even at the currently low levels, suggesting that perhaps additional downside is more probable than a rebound rally. All of our retirement portfolios were in the red this week as selling pressures hit both equities and fixed-income holdings. Our “Ready To Retire” portfolio, which features the heaviest allocation to bonds and treasuries, is the only one still in positive territory from a year-to-date perspective:

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire -1.25% 0.82%
5 Years To Retirement -2.98% -3.92%
Moderate -3.11% -3.72%
Cheapskate -3.41% n/a
10 Years To Retirement -3.83% -5.45%
20 Years To Retirement -4.68% -7.74%
30 Years To Retirement -4.78% -7.81%

Themed Portfolios

Last weeks wild volatility proved to be far more favorable to our model portfolios when compared to this weeks inactivity coupled with selling-pressures in the final days of the trading week. Our “Sky Is Falling” portfolio managed to post a robust gain while domestic equity indexes sank into negative territory, and it also remains the leader in performance from a year-to-date perspective. The RAFI portfolio continues to lag behind and remains to be by far the worst performer year-to-date.

ETFdb Portfolio Weekly Return YTD Return
Sky Is Falling 4.73% 5.55%
Black Swan Hyperinflation 0.73% 2.79%
Ben Graham 50/50 -1.67% 0.15%
High Yield -1.91% -2.72%
Ex-Europe -2.57% -4.80%
Equal Weight -2.77% n/a
Asia Centric -3.26% -7.12%
Emerging & Frontier Markets -3.31% -8.02%
Ex-U.S -3.77% -7.24%
High Tax Bracket -3.81% -4.89%
Actively Managed -4.06% -6.04%
Alpha-Seeker 2.0 -4.25% -6.08%
Small Cap -4.34% n/a
RAFI -7.67% -15.38%

New ETF Highlights

Product development activity was a bit slow this week for the ETF industry, although a few new funds did launch, including an appealing emerging markets small cap fund [see the ETF Launch Center for updates on all new ETFs].

ETF Launches

Van Eck Mortgage REIT Income ETF (MORT)

  • Launch: August 17th
  • ETFdb Category: Real Estate
  • Structure: ETF
  • Expense Ratio: 0.40%

Van Eck expanded its product lineup with this new ETF which invests in about 25 different companies that generate at least half of their revenues from mortgage REITs. This segment of the REIT market focuses primarily on buying and servicing commercial or residential mortgage loans, and has become a popular option for investors seeking out attractive distribution yields.

iShares MSCI Emerging Markets Small Cap Index Fund (EEMS)

iShares, the market leader in the U.S. ETF industry, rolled out a complement to its ultra-popular MSCI Emerging Markets Index Fund (EEM) on Thursday. The underlying index of EEMS consists of approximately 675 stocks from 21 different emerging market economies. The largest country allocations go to Taiwan (20%) and South Korea (17%), with Chinese companies listed in Hong Kong, India, South Africa, Brazil, Malaysia, and Indonesia also receiving significant weightings.

iShares S&P Target Date 2050 Index Fund ETF (TZY)

This new offering is intended to offer one-stop exposure to strategies appropriate for investors with a specific target retirement date. TZY is an ETF of ETFs, meanings its underlying holdings consist of other exchange-traded funds.

iShares S&P Target Date 2045 Index Fund ETF (TZW)

TZW differs from the shorter-dated TZY by allocating more to “riskier” assets, such as international equities, while funds with a very near retirement target date like TZD are heavier in fixed income. Both TZY and TZW shift allocation over time, moving more assets into securities with lower volatility as the target retirement date approaches and the appetite for risk presumably declines.

Disclosure: No positions at time of writing.