Run For The Hills!

by on August 6, 2011 | ETFs Mentioned:

This past week was one of the worst the markets have seen since the crash in 2008. Lawmakers in Washington came to a consensus regarding the debt-ceiling, voting to raise the limit on our nation’s already towering deficit. Investor sentiment was pessimistic nonetheless and equity markets sold off even after the debt-drama appeared to be over on Tuesday. Global indexes plunged on Thursday as investors violently sold-off securities from every corner of the market, with domestic equity benchmarks dropping over 4% in the session. Uncertainty remains the name of the game as investors are outright worried about the financial health of the euro zone and the United States. Against this apocalyptic backdrop, nearly all model ETF portfolios were deep in the red this week, while our actionable ideas held up surprisingly well.

Actionable ETF Trade Ideas

Our picks from Monday’s Insider were a mixed bag  largely due to the fact that panic-selling and volatility were this week’s themes. Heavy selling pressures across equity markets put our short recommendation in a very favorable position, while our bullish pick overseas turned for the worst. 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 Short IHE: Up 5.5%

IHE opened right around $72 a share on Monday as anticipated. The fund proceeded to slip lower in the days following as weakness across equity markets caught on like the plague. On Wednesday, IHE hit our target of $68 a share perfectly and we covered this short position, leaving us with a solid 5.5% gain in just a few days time. If we had a crystal ball we surely would’ve kept this short-position open, as the markets violently sold-off on Thursday, with IHE dipping below $66 a share and even hitting the $64 level on Friday morning.

Last Week’s Actionable ETF Ideas
Ticker Position Performance
IHE

Short

+5.5%
RSX

Long

-4.9%
BWX

Long

-1.1%

Trade #2 Long RSX: Down 4.9%

Our recommendation to long RSX was without a doubt mistimed. The fund went downhill since the start of the trading week and on Wednesday it managed to close just two pennies below our outlined support at $38 a share. This resulted in a 4.9% loss, which isn’t noteworthy by any means, but still much better than enduring an 11% loss had we kept this position just a day longer. Investors should avoid this fund until the dust settles and it clearly establishes support, hopefully somewhere above $30 a share.

Trade #3 Long BWX: Down 1.1%

This was meant to be our defensive position for the week and we are quite disappointed to say the least. We had anticipated that BWX would rally big time if the bears took charge of Wall Street. The bears certainly did take charge, however, BWX failed to provide much defense as this ETF tanked alongside equities during Thursday’s sell-off. From a fundamental perspective, however, it makes sense that BWX failed to move higher, since actions by the ECB and Bank of Japan sent waves of panic across financial markets, endangering even the “safe” corners of the international treasury bond market.

ETFdb Portfolios

Retirement ETFdb Portfolios

Broad based weakness across equity markets last week fueled several sell-offs, putting our long-term portfolios in a tough spot given their hefty allocations to stocks. Overall, the entire group declined while those with a greater weighting to “safer” fixed-income holdings were most resilient:

ETFdb Portfolio Weekly Return
Ready To Retire -3.02%
5 Years To Retirement
-4.52%
Moderate -5.23%
Cheapskate -5.47%
10 Years To Retirement -5.69%
20 Years To Retirement -7.20%
30 Years To Retirement -7.27%

Themed Portfolios

As expected, the themed ETFdb portfolios with the greatest equity exposure led the way lower, with our RAFI portfolio plunging a whopping 9%. Our ultra-defensive themed “Sky Is Falling” portfolio churned out a gain for the week, demonstrating the importance of staying diversified not only across asset classes but across investment strategies as well.

ETFdb Portfolio Weekly Return
Sky Is Falling 0.85%
Ben Graham 50/50 -3.77%
Black Swan Hyperinflation -4.57%
Equal Weight -5.10%
High Yield -5.18%
High Tax Bracket -5.19%
Ex-Europe -5.22%
Asia Centric -5.32%
Emerging & Frontier Markets -5.59%
Actively Managed -6.19%
Ex-U.S. -6.48%
Alpha-Seeker 2.0 -6.56%
Small Cap -6.60%
RAFI -9.13%

New ETF Highlights

This was a very quiet week in the ETP space only three new funds hit the street. A number of other developments did take place, however, including a developed market bond ETFs proposal by PIMCO, as well as price cuts for a popular energy fund from Teucrium [see the ETF Launch Center for updates on all new ETFs].

ETF Launches

Rydex S&P Mid Cap 400 Equal Weight ETF (EWMD)

Rydex expanded its line-up of equal weight offerings after rolling out EWMD. This new ETF is an unmanaged equal-weighted version of the S&P MidCap 400 Index, which covers just over 7% of the U.S. stock market and measures the performance of the mid-cap segment of the U.S. equity universe.

Rydex S&P Small Cap 600 Equal Weight ETF (EWSM)

Rydex also increased access to the small cap equities space with the release of EWSM. This fund is similar to EWMD in style; individual securities receive equal weights as opposed to being weighted based on market capitalization, except it offers exposure to the S&P SmallCap 600 Index, which covers approximately 3% of the domestic equities universe.

EG Shares Emerging Markets High Income Low Beta ETF (HILO)

This new offering gives investors another option for accessing emerging markets, as the product is designed with the goal of exhibiting low volatility relative to broad-based emerging markets indexes. Investors may also find HILO appealing as the fund employs an alternative weighting methodology; stocks that meet the index construction criteria are weighted based on dividend yield.

Disclosure: No positions at time of writing.