ETF Expert

Let me get this out of the way… I am NOT calling the next crash. Let the doomsayers from Whitney to Roubini to Farrell ply their trades as perma-bears… that’s not the way that I roll.

Time and again, however, I discuss an investment methodology that is simple to implement and focuses on what you can control. You can control portfolio costs, portfolio yield and the outcome of every individual decision.

On the latter point, you can make certain that each purchase ultimately results in a big gain, small gain or small loss; taking a small loss ensures that you do not suffer a big loss. Indeed, it is the management of this risk that determines investor success… not a single-minded pursuit of reward.

So why am I suggesting that ETF investors consider selling a hallmark fund like Vanguard Total Market (VTI)? After all, hasn’t it tracked the Wilshire 5000 with remarkable precision? And isn’t it still in an uptrend above its 200-Day moving average? Yes… and yes!

However, taking a profit is never a bad thing… especially when you have these 5 reasons for “carlos-slimming-down” on VTI:

1. 13 for 15? Vanguard Total Market (VTI) has ended exactly flat or gained ground on 13 of the last 15 trading sessions. In part of that stretch, it had been 11 for 11. In more than a decade, you won’t find that many consecutive victories.

2. ”All In?”  I believe that I’ve got this fact correct… but if not, I am sure that a reader will correct me. We’re down to 3.6% in money market funds? When’s the last time that the investing public has had all of their money invested in something?

Granted, a great deal of the money market mutual fund dollars have poured into bonds, without much concern for rising interest rate risks. Nevertheless, the limited money market holdings may also be a sign of “complacency.”

3. Complacency 3.0? The CBOE Volatility Index (VIX) hasn’t been this low (17.75) since the last 2 gasps of bull market hope. Specifically, the bear began at the market’s all time top in October 2007 with a VIX at this level. The VIX again touched these lows in May of 2008, as investors erroneously figured that the credit crisis had ended with the Fed-orchestrated buyout of Bear Stearns in March 2008.

 4. Treasury Bond Yields On The Rise. In one of yesterday’s columns, I noted that intermediate and long-term Treasury Bond ETFs had all fallen below 200-Day exponential moving averages. While I believe this is symptomatic of a longer-term trend for U.S. treasury bond depreciation, I’d expect a bit of treasury purchasing at the higher yield levels in the near term. Ergo, stock assets may be sold by some to fund the purchase of treasuries.

5. Better Opportunities in Asia and Latin America. By now, the U.S. stock market out-performance over emerging markets and developed foreign markets in 2010 has been well-documented. I don’t expect it to last.

 If you do decide to sell some VTI, consider the possibilities of Small Cap Brazil (BRF), All Asia excl Japan (AAXJ), Vanguard Emerging Markets (VWO) and Vanguard Total World (VT). Unlike VTI, All of these funds have yet to recover 52-week highs.

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