Recapping A Wild Week

by on May 28, 2011 | Updated April 25, 2013 | ETFs Mentioned:

After concerns about Europe dominated trading in the early part of the week, U.S. and international markets staged a comeback in the final sessions of the week, putting most major benchmarks higher but not enough to break through into the green on the week. Though Friday was light on volume ahead of an extended holiday weekend, there was no shortage of significant economic data. Consumer spending disappointed analysts and pending home sales plummeted, but bullish comments from G-8 leaders were enough to outweigh those negative developments.

Commodities continued to shine over the last several sessions, with silver reclaiming big chunks of the ground lost during its extreme sell-off earlier this month and energy commodities once again demonstrated strength thanks to impressive overseas demand.

Recapping Our Actionable ETF Trade Ideas

Last Week’s Actionable ETF Ideas
Ticker Position Performance
XLF

Short

0.5%
IEF

Short

0.0%
JJC

Long

3.5%

In this week’s first installment of ETF Insider, we laid out our three actionable investment ideas for this week. While the short picks in the financial sector and intermediate term Treasuries worked out just fine, the call on a long bet on copper was the highlight of the week, as JJC surged higher by nearly 3.5% on the week [sign up for a free trial of ETFdb Pro to get access to all three weekly installments of ETF Insider, including three actionable ETF ideas every Monday]:

Trade #1 Short XLF: Up 0.5%

As predicted, financials started the week on a down note, posting losses on both Monday and Tuesday amidst ongoing concerns about the health of the U.S. economy and weak economic data. The early-week dip was enough to send XLF down to the target price of $15.45, a 0.5% dip from Monday’s open and a more substantial 1.7% drop from last Friday’s closing price. Those who closed out the short position once that price point was hit should be glad they did; though XLF dipped a bit lower, financials rallied back in the second half of the week as broader markets climbed ahead of the extended weekend.

Trade #2 Short IEF: Flat

Intermediate-term Treasuries started last week by stumbling out of the gates just as predicted; IEF lost about 0.2% in Monday’s session, giving a nice start to the week for a short position in this fund. But the weakness was short lived, as a dollar revival gave this ETF a boost in the middle of the week and IEF surged higher in Thursday’s session. Closing out this short position once the $96 mark was crossed again would have created a very minor profit for investors; those who held on longer saw the Thursday rally put IEF in positive territory for the week.

Trade #3 Long JJC: Up 3.5%

Copper prices headed steadily higher throughout the last week, stringing together an impressive five-session winning streak that left this position up sharply on the week. The jump in prices of this popular industrial metal came as strong demand in China was reported and lingering concerns about inflation continued to add upward pressure to the red metal. Goldman Sachs also issued a positive outlook on the metal this week, advising clients to increase exposure in anticipation of higher prices in coming weeks. While the bullish call on copper was right on, our guidance of re-evaluating this position if JJC hit $54 proved to be a bit too low. Those who closed out this position at that level booked a nice 3.6% gain in a matter of days, but anyone who kept the position open had booked a gain of about 5.8% by the time the closing bell rang on Friday.

ETFdb Portfolios

Retirement ETFdb Portfolios

Most of the long-term model portfolios stumbled in the early part of the week, but rallies in Thursday and Friday trading propelled them to positive territory for the week. Generally, heftier equity allocations translated into bigger gains over the last several days. Year to date, the longer dated ETFdb Portfolios continue to perform well, thanks to strong performances out of equity markets. The group is clustered around the 5% level, with those maintaining higher allocations to equities generally leading the way.

ETFdb Portfolio Weekly Return YTD Return
Moderate 0.56% 5.10%
Cheapskate 0.49% n/a
Ready To Retire 0.46% 4.59%
30 Years To Retirement 0.42% 5.98%
20 Years To Retirement 0.38% 5.83%
10 Years To Retirement 0.37% 5.17%
5 Years To Retirement 0.31% 4.80%

Themed Portfolios

The last week saw a stellar performance from the all-ETF portfolio designed to protect against inflation; exposure to commodity-intensive equities propelled this allocation sharply higher over the past five sessions. Year-to-date, the portfolios maintaining big international allocations continue to struggle, as 2011 has not been kind to emerging markets:

ETFdb Portfolio Weekly Return YTD Return
Black Swan Hyperinflation 2.03% 4.74%
RAFI 0.53% 4.54%
High Tax Bracket 0.53% 5.49%
Ex-U.S. 0.38% 3.18%
Actively-Managed 0.32% 6.53%
Asia Centric 0.32% -0.78%
Emerging & Frontier Markets 0.29% -0.50%
Alpha Seeker 2.0 0.27% 7.66%
Sky Is Falling 0.25% 0.45%
High Yield 0.22% 5.70%
Ben Graham 50/50 0.11% 5.82%

New ETF Highlights

The past several days saw a flurry of activity on the product development front, highlighted by the Friday debut of ten factor ETFs from relative newcomer Russell (the firm best known as an index provider debuted a number of ETFs last week as well). Along the way were multiple firsts for the ETF industry, including new funds focusing on Canadian preferred stock, fertilizer companies, and new ETNs offering leveraged dollar exposure.

ETF Launches

PowerShares DB 3x Long Dollar Futures ETN (UUPT) and PowerShares DB 3x Short Dollar Futures ETN (UDNT)

ThisĀ  pair of products from PowerShares and Deutsche offers a way for investors to achieve leveraged exposure to the U.S. dollar relative to a basket of six developed market currencies (the euro accounts for about half of the underlying index, with the yen, pound, Canadian dollar, Swiss franc, and Swedish krona making up the remainder). These ETNs employ a monthly reset of leverage, meaning that the daily monitoring and rebalancing may not be quite as critical [read detailed review of UUPT and UDNT].

Global X Canada Preferred ETF (CNPF)

  • Launch: May 25
  • ETFdb Category: Preferred Stock
  • Structure: ETF
  • Expense Ratio: 0.58%

This ETF is another first for the industry, offering exposure to preferred stocks of Canadian issuers (a handful of existing products focus on preferred securities of U.S. companies). Preferred stock is a unique asset class, exhibiting characteristics of both equities and fixed income; it carries no voting rights, but often offers meaningful distribution yields, and as such can be a useful source of current return. Because many Canadian financial institutions held up relatively well through the recent downturn, these issuers may feature less credit risk than their U.S. counterparts [read detailed review of CNPF].

Direxion Daily Russia Bull 3x Shares (RUSL) and Daily Russia Bear 3x Shares (RUSS)

These ETFs seeks to deliver daily results that correspond to an amplified daily return on the DAXglobal Russia+ Index, the same benchmark replicated by the popular Market Vectors Russia ETF (RSX has more than $3 billion in AUM). These funds reset on a daily basis, adding leverage to an asset class that is already quite volatile [see the ETF fact sheets].

Direxion Daily Agribusiness Bull 3x Shares (COWL) and Daily Agribusiness Bear 3x Shares (COWS)

  • Launch: May 25
  • ETFdb Category: Leveraged Equities
  • Structure: ETF
  • Expense Ratio: 0.95%

These ETFs are 3x daily leveraged options linked to the DAXglobal Agribusiness Index, the benchmark underlying the popular Market Vectors Agribusiness ETF (MOO has more than $4.5 billion in assets). As such, COWL and COWS can be useful tools for those looking to make a short-term bet on the performance of the agribusiness sector [see ETF fact sheet].

UBS E-TRACS 2x Leveraged Long Wells Fargo Business Development Company ETN (BDCL)

  • Launch: May 25
  • ETFdb Category: Leveraged Equities
  • Structure: ETN
  • Expense Ratio: 0.85%

UBS followed up the April debut of the first BDC ETN with the launch of a product that seeks to achieve monthly results that correspond to 200% of the same benchmark, the Wells Fargo Business Development Company Index. In order to qualify as BDCs–and thereby receive certain favorable tax treatments–entities must pay out substantially all of their earnings. As such, this asset class may be appealing to those seeking to generate current income; the leveraged yield for BDCL is in excess of 11% currently. Of course, this return comes with significant risk; BDCs were slammed during the last recession, and can exhibit significant volatility [see full review of BDCL].

Global X Fertilizers/Potash ETF (SOIL)

Another first to the ETF industry, SOIL offers a way for investors to invest in companies responsible for the production of fertilizers. Ongoing urbanization in emerging markets combined with skyrocketing prices for agricultural commodities have put the products supplied by these companies in high demand, and as such SOIL represents another opportunity to play a longer-term trend. SOIL focuses on an earlier stage of the production curve than funds like PBJ and EATX, offering exposure to firms with a greater sensitivity to commodity prices and farming activity–particularly in emerging markets [see full writeup of SOIL].

PowerShares Convertible Securities Portfolio (CVRT)

  • Launch: May 26
  • ETFdb Category: Convertible Bonds
  • Structure: ETF
  • Expense Ratio: 0.35%

This new ETF offers exposure to convertible bonds, a hybrid asset class that exhibits characteristics of both stocks and bonds. Convertible bonds generally offer less substantial dividend yields than traditional securities of comparable duration and quality, but allow investors to maintain some upside equity potential. CVRT will compete most closely with an existing State Street Fund; CWB debuted about two years ago, and has about $900 million in AUM [see complete review of CVRT].

Russell 1000 Low Beta ETF (LBTA)

  • Launch: May 27
  • ETFdb Category: Large Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.49%

This new fund offers factor-based exposure to a sub-set of the Russell 1000, using a quant-based screening methodology to identify index components that maintain low forecast beta. Russell also rolled out a small cap version that focuses on Russell 2000 components, SLBT.

Russell 1000 High Beta ETF (HBTA)

  • Launch: May 27
  • ETFdb Category: Large Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.49%

This product completes the large cap beta-based factor ETFs, offering exposure to Russell 1000 components that are predicted to show higher beta, or sensitivity to overall markets. PowerShares recently debuted an S&P 500 High Beta ETF (SPHB).

Russell 1000 Low Volatility ETF (LVOL)

  • Launch: May 27
  • ETFdb Category: Large Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.49%

This new fund offers factor-based exposure to a sub-set of the Russell 1000 that has exhibited low volatility over the last 60 trading days.

Russell 1000 High Volatility ETF (HVOL)

  • Launch: May 27
  • ETFdb Category: Large Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.49%

This fund focuses on those Russell 1000 components that have exhibited greater volatility over the last 60 trading days, seeking to replicate the Russell-Axioma U.S. Large Cap High Volatility Index.

Russell 1000 High Momentum ETF (HMTM)

  • Launch: May 27
  • ETFdb Category: Large Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.49%

This ETF offers a low maintenance way to access stocks exhibiting high momentum factors; the underlying index utilizes medium-term momentum, focusing on the stocks that have the highest cumulative return over the last 250 trading days excluding the last 20 days.

Russell 2000 Low Beta ETF (SLBT)

  • Launch: May 27
  • ETFdb Category: Small Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.69%

This ETF is the small cap counterpart to LBTA, offering exposure to smaller U.S. companies that maintain low forecast beta.

Russell 2000 High Beta ETF (SHBT)

  • Launch: May 27
  • ETFdb Category: Small Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.69%

This ETF focuses on Russell 2000 stocks that maintain high forecast beta, and as such are expected to exhibit greater sensitivity to movements in the broader market (meaning SHBT may be useful for those expecting a market rally).

Russell 2000 Low Volatility ETF (SLVY)

  • Launch: May 27
  • ETFdb Category: Small Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.69%

This ETF focuses on Russell 2000 stocks that have demonstrated relatively low variability in total returns over the last 60 trading days.

Russell 2000 High Volatility ETF (SHVY)

  • Launch: May 27
  • ETFdb Category: Small Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.69%

Opposite to SLVY, this ETF focuses on Russell 2000 stocks that have demonstrated relatively high variability in total returns over the last 60 trading days.

Russell 2000 High Momentum ETF (SHMO)

  • Launch: May 27
  • ETFdb Category: Small Cap Blend Equities
  • Structure: ETF
  • Expense Ratio: 0.69%

This ETF is the small cap counterpart to HMTM, focusing on small cap stocks that have exhibited the highest cumulative returns over the last 250 days (excluding the last 20 trading days).

Disclosure: No positions at time of writing.