Bernanke Speaks, Markets Yawn

by on August 27, 2011

With a Friday release of the latest thoughts from Ben Bernanke looming, investor sentiment shifted back and forth throughout the course of the week. When the Fed Chairman’s thoughts were finally released Friday morning, investors were generally indifferent; stocks alternated between gains and losses in the week’s Friday session before closing strong into the final bell.

One of the biggest stories of the week was a dramatic pullback in gold prices, as investors furiously took profits in the wake of a months-long run-up in precious metals prices fueled by uncertainty over the outlook for the global economy and downward pressure on the U.S. dollar. After slumping by more than 8% on Tuesday and Wednesday, gold regained some of its strength in the final two sessions of the week. The metal finished Friday trading down only about 2% from last week’s close.

Actionable ETF Trade Ideas

Last Week’s Actionable ETF Ideas
Ticker Position Performance







Our ideas from the Monday edition of ETF Insider struggled early in the week, and endured significant volatility throughout. Our call on Thailand proved to be a bit mistimed, though the impressive performance on Friday–THD surged nearly 4% in the week’s final session–was somewhat validating of our investment thesis [sign up for a free trial of ETFdb Pro to get actionable ETF ideas every Monday, as well as access to more than 20 all-ETF model portfolios].

Trade #1 Long THD: Down 3.2%

We highlighted Thailand as one of the few bright spots in the global economy, as the developing Asian economy has largely sidestepped the issued that have plagued both advanced and emerging markets in recent weeks. THD managed to tread water for the first few days of the week, but this ETF was battered on Thursday as equity ETFs around the globe sunk. THD staged a furious rally in Friday trading to reward those who kept their faith in this market, but the strong finish was not enough to make up for Thursday’s freefall.

Thai stocks remain appealing given the relatively sound fundamentals of the economy; we continue to like this ETF as an option for investors looking to get creative with equity allocations.

Trade #2 Short JNK: Up 0.7%

Our bearish call on junk bonds paid dividends this week, as investors fled high yield debt amidst concerns about the U.S. economy and intensifying worries about a potential default. Though credit spreads have widened a bit, we don’t yet see junk bonds as a buy at current levels. The reward for the risk investors must take on is not significant enough to increase allocations to this asset class, and there’s reason to believe that a short position may continue to deliver value into next week.

Trade #3 Long TLT: Down 1.8%

The performance of this ETF during the week was somewhat puzzling; investors sold off equities in droves prior to Friday’s rally, but Treasuries did not receive the benefit we expected from this trend. The strengthening correlations between this fund and equity markets are evidence that we are once again entering a liquidity-driven environment. While the yield on TLT remains relatively low–it’s challenging to find a decent yield in the Treasury market–this asset has become attractive as a safe haven after the recent sell-0ff. With rate hikes far off on the horizon, a position in TLT looks increasingly attractive at the current price point.

ETFdb Portfolios

Retirement ETFdb Portfolios

This week saw some impressive rebounds in many of our retirement-themed portfolios, as rallies in U.S. and international equity markets pushed more risk-heavy portfolios into the lead. Many, however, still remain in negative territory on the year; the rally of the last few days was not enough to cover up the damage done by broad sell-offs earlier in August.

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire 1.26% 1.87%
5 Years To Retirement 2.49% -1.75%
Moderate 1.95% -2.09%
Cheapskate 2.15% n/a
10 Years To Retirement 2.74% -3.05%
20 Years To Retirement 3.25% -4.87%
30 Years To Retirement 3.24% -4.96%
Aggressive 3.11% -6.66%

Themed Portfolios

Performances among our themed ETFdb Portfolios were all over the board during the last week, with some jumping by nearly 4%. All of the portfolios were in positive territory over the last week, though many remain deep in the red in terms of year-to-date performance.

ETFdb Portfolio Weekly Return YTD Return
Sky Is Falling 0.28% 5.65%
Black Swan Hyperinflation 2.08% 4.55%
Ben Graham 50/50 0.80% 0.73%
High Yield 2.20% -0.81%
Ex-Europe 1.88% -3.19%
Equal Weight 0.56% n/a
Asia Centric 1.02% -6.24%
Emerging & Frontier Markets 1.03% -7.17%
Ex-U.S 1.60% -5.85%
High Tax Bracket 2.68% -2.49%
Actively Managed 3.06% -3.36%
Alpha-Seeker 2.0 3.23% -3.16%
Small Cap 1.94% n/a
RAFI 3.83% -12.13%

New ETF Highlights

The last week was slow on the product development front, as the summer slowdown in the ETF industry continued. With no new ETFs debuting over the last week, we highlight this week one of the more interesting filings pushed across the SEC’s desk in the past few days [see the ETF Launch Center for updates on all new ETFs].

ETF Filing: European Currency High Yield Bond ETF

Van Eck, the issuer behind a number of the recently-launched international bond ETFs, laid the groundwork this week for what would be another first-to-market product. This proposed fund would seek to replicate in index comprised of debt rated below investment grade that is denominated in British pounds or euros. While there are a number of products in the High Yield Bonds ETFdb Category, the existing lineup focuses exclusively on debt of U.S. issuers. This proposed filing would essentially be a European version of funds like HYG or LQD, giving investors looking for attractive current yields an option that also includes some dollar diversification. Given the uncertainty hanging over European markets, this ETF could deliver some extremely attractive distribution yields–along with a hefty amount of risk.

The international bond space seems poised for expansion in coming months, as a number of issuers have begun developing products focusing on this often overlooked but increasingly important asset class. International diversification on the fixed income side of the portfolio is a concept that has historically not gained much traction with U.S. investors. But with interest rates in the U.S. expected to remain at record lows for the foreseeable future, many are beginning to look overseas for alternative sources of current returns. This ETF, if ultimately launched, would be yet another option in that area.

Van Eck already offers multiple ETFs focusing on international debt markets, including BONO (Latin America) and EMLC (broad emerging markets).

According to the SEC filing, this ETF would charge an expense ratio of 0.40%.

Disclosure: No positions at time of writing.