Face it… you’ve probably been waiting for a more siginificant¬†equity pullback. And you’ve been wondering¬†why market participants haven’t taken more profits or waited for larger dips to put new money to work.
In some ways, it may or may not be as simple¬†as¬†this: Short-sellers have yet to throw in the towel. It is true that investors betting that stocks will fall nearly caved¬†on Friday, January 14. (Review my¬†feature on the¬†efficacy of the CBOE Put/Call Ratio.)¬†However, until the uber-pessimists finally fold up their tents,¬†we’re unlikely to see a¬†4-5% sell-off… let alone a more powerful¬†correction.
What are the¬†implications? You can patiently hold a portion¬†in cash, waiting to acquire Stock ETFs that have been on your “Wish List.”¬† Or you can ignore the¬†ups, downs and arounds by pursuing¬†one¬†or more¬†Sector ETFs that¬†are providing portfolios with remarkable consistency.
Consistency is neither¬†a financial¬†word, nor¬†a statistical term.¬†That said,¬†for my purposes, consistent Sector ETFs are those that meet these¬†3 criteria:
A. Demonstrates gains over 5 days, 1 month,¬†3 months and 6 months.
B. Resides¬†in the top half of relative strength percentile rank, but not the top quartile. (This is consistency, not red hot momentum!)
C. Owns a current “Risk Grade” that is¬†the same or less than an appropriate benchmark.
My screen picked up as many as 6 exchange-traded funds, though an industry may have been represented multiple times. Here, then, are the 3 that I have deemed as most consistent:
1. iShares Global Telecom (IXP). Rumors that eventually became fact gave global telecom a boost. Specifically, Verizon’s ability to offer an iPhone and Vodaphone’s ownership of a large percentage of towers that Verizon uses helped this ETF in the latter part of 2010. It has earned 15% on a rolling 6-month basis with less risk than the iShares Global 100 (IOO). (Read more about Global Telecom investing advantages here.)
2. PowerShares Aerospace and Defense (PPA). In a recent column,¬†I downgraded the defense/aerospace sector’s prospects from outperform to market perform. And the SPADE Defense Index creators were up in arms over my commentary… even though I’d written countless positive reviews over the past six years. (Read more about my reasons for deeming PPA’s prospects as¬†”average.”) Regardless, PPA has outperformed the Nasdaq 100 ex Tech (QTEC) over the last month and PPA has a¬†lower P/E multiple than QTEC.
3. Rydex Equal Weight Health Care (RYH). ¬†Equal weight health care has positive gains in all the requisite time frames, a lower “risk grade” than the S&P 500. RYH also has a respectable¬†19% over the previous 6 months. What’s more, there are few that would call the sector “overvalued.” If investors can get over health care legislative uncertainty, RYH may be a peaceful means to a consistent financial outcome.
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFseasier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.