Look Out Below

by on July 9, 2011 | ETFs Mentioned:

Equity markets started the week on a quiet note as investors were reluctant to jump back into the markets following the long holiday weekend. Moody’s downgrade of Portugal sent waves of selling across European equity markets, and gold jumped higher amidst all the uncertainty. The hot yellow metal was easily this week’s star-performer as it managed to start the trading week higher by about $30, and the precious metal was able to holds it’s gains and even add on more in the days following, closing around $1,544 an ounce for the week. Crude oil futures also rallied higher to just under $100 a barrel, but volatility remains extremely high in the energy market and gains quickly evaporated on Friday as futures prices dropped back to the $96.50 level.

Friday’s disappointing employment report sent investors running to the safe havens and domestic equity indexes gave up much of the weeks gains in the final trading session of the week. Our model ETF portfolios have managed to hold their ground fairly well, even amidst all of the uncertainty still plaguing financial markets across the globe.

Actionable ETF Trade Ideas

Despite light trading volumes, our picks from Monday’s Insider were able to hold their ground versus the nearly-flat S&P 500. Our call to go long real-estate was easily the most profitable recommendation for the week, while our bearish outlook for the Swiss Franc proved to be incorrect. Our international pick didn’t fare too well either given the broad-based weakness across equity markets overseas during the week. After another shaky 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 ADRD: Down 0.9%

This pick got off to a rocky start since trading resumed on Tuesday, and proceeded to slip sightly lower in the following days. ADRD still remains above its 200-day moving average and therefore our bullish view on the fund remains largely unchanged. We still feel that investors are largely risk-averse and therefore, ADRD still has potential to climb higher over the coming weeks as money flows into “safer” corners of the market. Investors who are still waiting to jump into this position should consider waiting as the fund may retrace down to $21.50 a share before resuming its journey upwards.

Last Week’s Actionable ETF Ideas
Ticker Position Performance







Trade #2 Long FRI: Up 2.6%

Our recommendation to long real-estate through FRI turned out to be spot-on, as the position tacked on sizeable gains since opening on Tuesday morning. While equities were struggling to make much headway early in the week, FRI charged upwards past $16.50 a share and ended the week higher by 2.6%, even after Friday’s sell-off. The fund is currently just pennies away from it’s previous high of $16.69 a share, and we feel it is prudent to take profits at current levels. It’s quite possible that FRI will continue higher next week and attempt to climb past the $17 mark, but we are quite satisfied with our 2.6% gain and taking profits at current levels is advisable especially with ongoing market conditions.

Trade #3 Short FXF: Down 1.5%

We recommended shorting the Swiss Franc through FXF in anticipation of a U.S. dollar rally and/or continued weakness in the equity market. This recommendation was spot-on fundamentally, but mistimed technically, since the U.S. dollar index was able to inch higher, but the Swiss Franc proved resilient and was one of the few currency’s that beat out the dollar for the week. Our short position endured a loss of 1.5%, and we recommend waiting on the sidelines before jumping back into FXF since the fund is currently floating in between significant support and resistance levels.

ETFdb Portfolios

Retirement ETFdb Portfolios

After a mixed week in the markets, our retirement portfolios were able to lock-in weekly gains, and broadly outperform domestic equity indexes. Friday’s sell-off took it’s toll on equities and likewise our longer-term portfolios fared quite well given their greater allocations to fixed income components. When considering year-to-date returns, it’s evident that portfolios with larger equity allocations are still leading the way higher:

ETFdb Portfolio Weekly Return YTD Return
Ready To Retire 0.68% 5.77%
Moderate 0.59% 6.25%
5 Years To Retirement 0.55% 5.82%
20 Years To Retirement 0.46% 7.04%
30 Years To Retirement 0.44% 7.12%
10 Years To Retirement 0.39% 6.37%
Cheapskate 0.36% n/a

Themed Portfolios

Our defensive-themed portfolio were without a doubt the strongest performers this week as equity markets remained volatile and range-bound for the most part. The Black Swan portfolio gained over 2% this week alone, while our ex-U.S. portfolio was the weakest performer for the week. When considering year-to-date performance, the Alpha-Seeker 2.0 portfolio continues to lead the way with an impressive gain of 8.5%, largely thanks to the funds tendency to have uncorrelated returns with equity indexes.

Portfolios that are heavy in international exposure took a hit into negative territory this week as domestic equities fared better than their counterparts overseas:


ETFdb Portfolio Weekly Return YTD Return
Black Swan Hyperinflation 2.29% 5.19%
Sky Is Falling 0.98% 0.60%
Alpha-Seeker 2.0 0.58% 8.52%
Ben Graham 50/50 0.52% 6.85%
Actively-Managed 0.48% 7.76%
Ex-Europe 0.42% 4.37%
High Yield 0.39% 6.67%
High Tax Bracket 0.33% 6.30%
RAFI -0.20% 5.30%
Asia Centric -0.30% 0.50%
Emerging & Frontier Markets -0.31% 1.19%
Ex-U.S. -0.73% 3.70%

New ETF Highlights

For the second consecutive week, product development activity was on the slow side; only one new ETF hit the market during the holiday-shortened week. But the new Cloud Computing fund from First Trust was a summer blockbuster; trading volumes in initial sessions were huge, and the fund’s asset base has begun to grow quickly [see the ETF Launch Center for updates on all new ETFs]:

ETF Launches

First Trust ISE Cloud Computing Index Fund (SKYY)

SKYY has apparently tapped into a huge void in the market; the massive trading volumes indicate that investors are anxious to access what many believe will be the next big thing in the tech sector. SKYY is an interesting product, investing in about 40 stocks with operations in the cloud computing space. While some of the components are pure play cloud computing firms, others focus only a portion of their operations on this corner of the technology space; index constituents are classified as either 1) pure play cloud computing firms, 2) non-pure play cloud computing companies, or 3) technology conglomerate cloud computing companies.

As such, the underlying portfolio is a mix of small, early stage companies and established tech giants such as Microsoft and Apple. The unique index methodology is a compelling way to establish exposure to what is expected to be a major driver of growth going forward; only time will tell how well the methodology employed translates into correlation with the growth of cloud computing [see full write-up on SKYY].

Disclosure: No positions at time of writing.