No Stopping Gold

by on July 16, 2011 | ETFs Mentioned:

Financial worries at home surrounding the debt-ceiling coupled with a downgrade of Ireland’s credit quality into junk territory overshadowed the start of corporate earnings seasons on Wall Street. Uncertainty and general pessimism pushed investors into the “safer” corner of the market and gold emerged strongest. The yellow precious metal hit record highs on Thursday as August futures prices reached $1,594 an ounce. Strong profits from Citigroup and Google helped equity markets end the week on a positive note, however, equity indexes broadly finished in red territory for the week with the S&P 500 down 2%.

On tap next week are more earnings reports from industry giants and our model ETF portfolios are positioned to regain some lost ground amidst the recent volatility on Wall Street and around the globe.

Actionable ETF Trade Ideas

Earnings season is upon us and unfortunately equity markets remain largely driven by headlines. Our picks from Monday’s Insider were a mixed bag this week. One of our equity positions drifted sideways, while our other trade recommendation did not execute since the fund got off on the wrong track right from the start of trading on Monday morning. Gaining defense exposure with U.S. Treasuries was a winning idea, and this trade rewarded us with a modest gain in just a matter of days. After another down week in the markets we highlight the performance of our three trade ideas below [sign up for a free ETFdb Pro trial to get actionable ETF ideas every week]:

Trade #1 Long TUR: Down 0.6%

This pick drifted sideways since the opening bell on Monday morning until Friday’s close. Developing and emerging equity markets as a whole struggled to regain their footing let alone attempt to stage a comeback, and thus its no surprise that the iShares Turkey fund had an uneventful trading week. The fund remains above our outlined support at $57 a share, however we advise conservative traders to get long only once TUR definitively established support above the $60 level. Our price target remains at $65 a share, however it’s very likely that TUR might see profit taking at earlier levels if equity markets remain volatile and dominated by short-lived rallies.

Last Week’s Actionable ETF Ideas
Ticker Position Performance
TUR

Long

-0.6%
EWK

Long

0%
TLT

Long

1.04%

Trade #2 Long EWK: No Trade

In Monday’s edition we recommended going long EWK in anticipation of a rally overseas. Instead of surging, European equities largely drifted sideways with a downward bias this week following a downgrade of Ireland and continuing financial woes from Italy. While our recommendation for EWK was surely mistimed, our specified support levels were spot on. We recommended that investors close the trade if EWK dipped below $13.40 a share, as the fund would likely sink even lower towards the $13 level. EWK opened at $13.25 on Monday and dipped as low as $12.95 a share on Tuesday. Our technical analysis served us well in protecting us from a loosing trade, which is just as valuable as making winning trades.

Trade #3 Long TLT: Up 1.04%

Our call to long U.S. Treasuries with TLT was very well timed and our price target was quite accurate as well, proving that sometimes defense is the best offense. TLT got off to a great start on Monday and continued to extend gains through Wednesday. TLT peaked at $97.90 a share on Thursday; however the fund hit our initial price target of $97 as early as Tuesday. Investors who took our advice were able to lock in a solid 1.04% gain in just a matter of two days. Were stepping to the sideline for now with this ETF, although some investors may wish to remain long in anticipation of continuing weakness across equity markets coupled with the potential for disappointing corporate earnings.

ETFdb Portfolios

Retirement ETFdb Portfolios

Fixed-income products surprisingly didn’t fare too well this week despite weakness in equity markets, and as a result our Retirement portfolios had dismal returns given their heavy allocations to bonds and treasuries. When looking at year-to-date returns, portfolios with greater allocations to equity holdings remain stronger as a whole, although it’s interesting to note that the 30 Years To Retirement Portfolio is outperforming over half of the Themed ETFdb Portfolios:

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire -0.60% 5.11%
5 Years To Retirement -1.18% 4.54%
Cheapskate -1.21% n/a
Moderate -1.26% 4.89%
10 Years To Retirement -1.49% 4.77%
20 Years To Retirement -1.84% 5.06%
30 Years To Retirement -1.84% 5.14%

Themed Portfolios

Our most defensive portfolios, including Sky Is Falling and Black Swan, were the only ones that finished the week in positive territory as broad-based weakness across all corners of the market took its toll on our equity-heavy portfolios. It’s also worth nothing that from a year-to-date perspective the Black Swan portfolio is leading the way, suggesting that defensive-themed holdings continue to outshine risk-averse strategies. Our RAFI Portfolio took a big hit this week and declined close to 3% as even alternative portfolio weighting-methodologies couldn’t escape the recent volatility in the markets.

ETFdb Portfolio Weekly Return YTD Return
Sky Is Falling 1.51% 1.49%
Black Swan Hyperinflation 1.30% 6.52%
Ben Graham 50/50 -0.90% 5.86%
Ex-Europe -0.97% 3.34%
Equal Weight -1.00% n/a
Asia Centric -1.09% -0.57%
High Tax Bracket -1.17% 5.04%
High Yield -1.49% 5.06%
Emerging & Frontier Markets -1.66% -0.46%
Ex-U.S. -1.74% 1.91%
Actively Managed -1.95% 5.63%
Alpha-Seeker 2.0 -2.06% 6.26%
RAFI -2.96% 2.19%

New ETF Highlights

After a slow start in July, product development activity picked up this week as a handful of new funds hit the street. Newcomer Precidian entered the industry with the first of its kind ETF tracking the Nikkei 225  Index,  expanding the investment horizon for those seeking access to Japanese equities [see the ETF Launch Center for updates on all new ETFs]:

ETF Launches

iPath U.S. Treasury 5-Year Bull (DFVL)

  • Launch: July 12
  • ETFdb Category: Government Bonds
  • Structure: ETN
  • Expense Ratio: 0.75%

DFVL is a new offering into the intermediate-term exposure within iPath’s lineup of U.S. Treasury funds. This long 5-Year Treasury ETN is unique in that the underlying holdings of the related index are not U.S. Treasuries but futures contracts. That has the potential to deliver a risk/return profile that differs somewhat from a traditional ETF that invests directly in Treasuries.

iPath U.S. Treasury 5-Year Bear (DFVS)

  • Launch: July 12
  • ETFdb Category: Inverse Bonds
  • Structure: ETN
  • Expense Ratio: 0.75%

DFVS is the inverse offering to DFVL. Investors should note that the underlying holdings of both DFVL and DFVS are actually 5-year U.S. Treasury futures contracts, as opposed to actual Treasury holdings.

Van Eck Market Vectors CEF Muni Income Fund (XMPT)

  • Launch: July 13
  • ETFdb Category: National Munis
  • Structure: ETF
  • Expense Ratio: 1.43%

The release of the Market Vectors CEF Municipal Income ETF  this week was well timed, giving investors a new option for accessing a corner of the U.S. bond market that has been the subject of heated debate in recent weeks. XMPT contains elements of both active and passive management, resulting in a hefty expense fee. In essence, the product seeks to passively replicate an index comprised of actively-managed CEFs.

Precidian MAXIS Nikkei 225 Index Fund (NKY)

  • Launch: July 13
  • ETFdb Category: Japan Equities
  • Structure: ETF
  • Expense Ratio: 0.50%

IndexIQ Emerging Markets Mid Cap Fund (EMER)

IndexIQ launched their 15th offering in the space of mid-cap equity exposure, and EMER is yet another tool to fine portfolios that are lacking proper exposure to emerging economies. The fund has a broad portfolio of close to 350 securities and is most heavily weighted towards firms in Taiwan (22.8%), South Korea (13%), and South Africa (11.7%), although 20 countries in total are represented in the fund.

WisdomTree Real Return Fund (RRF)

  • Launch: July 14
  • ETFdb Category: Hedge Fund
  • Structure: ETF
  • Expense Ratio: 0.60%

RRF is a new actively-managed ETF that takes a unique approach to delivering total returns that outpace the rate of inflation, going beyond many of the more simplistic strategies that may have limited effectiveness when rising prices put a dent in portfolio values. Most importantly, unlike most ETFs in the Inflation Protected Bonds ETFdb Category, RRF won’t invest exclusively in U.S. TIPS; the bond portion of the portfolio is split between the U.S., developed markets, and debt of emerging market issuers as well.

Charles Schwab U.S. Aggregate Bond ETF (SCHZ)

  • Launch: July 14
  • ETFdb Category: Total Bond Market
  • Structure: ETF
  • Expense Ratio: 0.10%

SCHZ is the fourth ETF seeking to replicate that bond index, joining products from the three largest ETF issuers. The new ETF will also be the cheapest of the group with an expense ratio of just 0.10%. That makes SCHZ the cheapest bond ETF available to U.S. investors, undercutting BNG by a single basis point. Also, like all Schwab ETFs, SCHZ will be eligible for commission free trading within Schwab accounts, making it an attractively cheap offering.

ProShares Hedge Fund Replication ETF (HDG)

  • Launch: July 15
  • ETFdb Category: Hedge Fund
  • Structure: ETF
  • Expense Ratio: 0.95%

The new ETF is designed to maintain a high correlation to the HFRI Weighted Composite Index, an equal-weighted composite of more than 2,000 hedge funds. HDG will employ a proprietary model to establish weighted long or short exposure to six factors. Additionally, the fund will rebalance monthly, at which point a systematic regression analysis will determine which weighting for the factors would have produced the strongest correlation with the HFRI benchmark over the previous 24 month period.

Disclosure: No positions at time of writing.