Debt Doomsday Approaches

by on July 30, 2011 | ETFs Mentioned:

This past week was filled with more of the same for investors; abundant volatility across equities coupled with feelings of uncertainty regarding the financial well-being of the United States. Lawmakers in Washington are keeping investors on the edge of their seat (putting the pressure on equities) as the debt-ceiling deadline approaches, and several rating agencies sparked some panic-selling in the markets after warning the government that the U.S. may stand to loose its highly-prized AAA credit rating. Lastly, a worse-than-expected GDP report on Friday pushed domestic equities downhill, although many stocks did manage to climb higher throughout the day and recover some lost ground. Against this gloomy backdrop, nearly all of the model ETF portfolios were in red territory for the week, and the actionable ETF ideas delivered less than ideal returns.

Actionable ETF Trade Ideas

Our picks from Monday’s Insider were not nearly as profitable as last week’s recommendations. The trades this week were fairly directionless with a downward bias given the escalated level of uncertainty surrounding debt-ceiling negotiations. 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 KIE: No Trade

KIE opened below $40 a share on Monday morning, which immediately voided our “long” recommendation since we suggested that investors exit the trade if shares dipped below the $40 level. This ETF visibly struggled to gain much ground during the week and Wednesday’s sell-off proved to be quite detrimental to this product in particular, as shares tanked over 2.5%. We recommend staying on the sidelines with this trade until KIE definitively establishes support above the $40 level.

Last Week’s Actionable ETF Ideas
Ticker Position Performance







Trade #2 Long WOOD: Down 2.5%

Our recommendation to long WOOD was certainly mistimed this week. Although our technical analysis may still prove to be correct over the coming weeks, there is no doubt that fundamental headlines took charge this week and pressured equities broadly lower. We recommended exiting this trade if shares slipped below the $42 mark, which happened on Thursday near the close of the session. Investors should stay away from WOOD until it establishes support above $42 next week for two or more consecutive days.

Trade #3 Short FXE: Down  0.1%

Currency ETFs are some of the most volatile products available and we were not terribly surprised that this recommendation didn’t go according to plan. FXE opened way higher than anticipated on Tuesday, immediately putting our position in red territory. However, as equity markets wobbled, the U.S. dollar picked up some steam and FXE tanked lower both in Wednesday and Thursday trading. This ETF, however, bounced higher on Friday after a lower-than-expected GDP report pressured the greenback lower. Debt-ceiling drama will likely remain the “big story” this week and we recommend holding off on FXE. However, for risk-adverse traders, our support level remains at $145  and our price target of $140 a share remains unchanged.

ETFdb Portfolios

Retirement ETFdb Portfolios

Last week was generally disappointing for equities across the globe, putting our longer-term portfolios in a very tough spot given their smaller allocations to “safer” fixed-income holdings. Overall, the entire collection still remains on pace for a relatively strong 2011:

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire -0.92% 5.06%
Moderate -1.67% 4.54%
Cheapskate -1.94% n/a
5 Years To Retirement -2.09% 3.51%
10 Years To Retirement -2.17% 4.00%
30 Years To Retirement -2.59% 4.24%
20 Years To Retirement -2.59% 4.13%

Themed Portfolios

The themed ETFdb Portfolios with the greatest equity exposure led the way lower last week. Despite the awful performance across developed and emerging market equities, all of our model portfolios remain in positive territory for the year, with the defensive-themed Black Swan Hyperinflation Portfolio leading the pack.

ETFdb Portfolio Weekly Return YTD Return
Sky Is Falling 0.80% 1.63%
Emerging & Frontier Markets -0.44% 0.35%
Asia Centric -0.51% 0.91%
Ben Graham 50/50 -0.57% 6.03%
Ex-U.S. -1.25% 2.65%
Equal Weight -1.54% n/a
Black Swan Hyperinflation -1.64% 6.45%
Ex-Europe -1.80% 2.85%
High Yield -2.00% 4.24%
Small Cap -2.43% n/a
High Tax Bracket -2.48% 3.99%
Alpha-Seeker 2.0 -2.76% 5.05%
Actively Managed -2.78% 4.22%
RAFI -3.57% 0.86%

New ETF Highlights

This was a very quiet week on the product development front with no new ETF launches. A handful of ETF proposals did hit the street, however, including an interesting Global X filing for a social media ETF as well as two unique equity-funds from WisdomTree [see the ETF Launch Center for updates on all new ETFs].

Disclosure: No positions at time of writing.