ETF Expert

So many ETFs are less than a percentage point from 2009 highs. Yet, some of the most trade-able ETFs are also the most unloved.

I scoured the year-to-date data with only a few criteria in mind: (1) Negative YTD percentages, (2) Frequently mentioned by the hold-n-hope media and (3) Average volume exceeding 100,000 daily shares. Some of the losers may surprise you… but probably not!

Some of the results are deceptive due to a calendar year assessment; others merely point out the craziness of the tsunami-like credit crisis effect in 2008.

For instance, treasuries aren’t supposed to move a whole heck of a lot when the world is humming along. You may want your 5% yield, and you may say, “Thank you very much kind, sir. I’ll be on my way.”

Yet if a monstrous credit crisis comes along and pushes the 30-year to a 2.75% yield, a bondholder is going to make a mint. Conversely, if you’re caught with a sub 3% U.S. treasury as it is heading back towards a 5% yield, you sure as heck can see the erosion of 20% in that long bond position. This is akin to what happened to a popular portfolio mainstay, TLT.

Utilities, on the other hand, are suffering a different fate; that is, they haven’t been seen as risky enough. Investors have poured into tech, energy, materials and even the dreaded consumer discretionary segment, passing up stodgy old utilities.

Of course, that may not take into account a bear-to-mini-bull perspective over the last 2 years. Rather than a near-sighted, year-to-date view, one can see than utilities weathered the storm better than the market at large… still providing a much-needed income stream for income investors.

There’s little surprise for the regional bankers in the KBW Index. The government’s approach to helping the “too-big-to-fail” banks has given the leg up to B of A, Citigroup and Wells, while knocking the regionals down the totem. With 90 banks closed on the year so far, most of them regional players, the KBW Regional Bank Fund (KRE) has managed to lose money over 1-week, 1-month, 3-month and YTD.

The iShares Select Dividend Fund (DVY) may be the most disturbing… and not because the poor performance is surprising. The deep value, heavy-on-the-financials fund has been out of vogue for 3 years. And growth has been far more attractive to stock investors. It is disturbing because it remains a top core holding for every magazine and virtually every money manager in the hope-n-hold universe.

Now… I don’t have anything against DVY at all. It shined for me in 2003, 2004, 2005… even parts of 2006. But once a fund is failing to live up to expectations, or hits a stop-loss, or has a ”systemic” flaw, it’s time to sell.

Ditto for alt energy’s darling, “Solar Energy.” Even with the proposed government subsidies, and all of the venture capital, far too few of these companies are turning a profit. At best, you’ve got a dot-com hopeful. At worst, you’re going to lag traditional energy.

So until there’s a little more real love for the “solar” promise, potential investors need to stop kidding themselves. That 70% loss of principal that you see will require a 230%+ return to get back to the starting gate.

If you’d like to learn more about ETF investing… then tune into ”In the Money With Gary Gordon.” You can listen to the show “LIVE”, via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log (”blog”) that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc.web site.

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