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Hate the Sell-Off? Raise Your Total Yield And Reduce Your International Exposure

16 May 2012 at 3:32 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

How bad is the current correction? It depends upon the assets you currently hold.

Here are the top 8 ETF positions for moderate risk clients at my Registered Investment Adviser, Pacific Park Financial, Inc.:

Moderate Portfolio: Percentages Below Respective Highs  
            Approx %
Vanguard High Dividend Yield (VYM)     -4.0%
iShares High Yield Corporate Bond (HYG)     -2.5%
iShares S&P Growth Allocation (AOR)     -3.4%
Vanguard Total U.S. Stock Market (VTI)     -6.4%
iShares Barclays Intermediate Credit (CIU)     -0.2%
PowerShares S&P Low Volatility (SPLV)     -1.5%
JP Morgan Alerian MLP (AMJ)       -7.2%
PowerShares Emerging Market Debt (PCY)     -1.8%
Average Drawdown         -3.4%


There are several items worth noting above. First, the only international ETF holding is a dollar-hedged bond fund, PowerShares Emerging Market Sovereign Debt (PCY). Stop-limit loss orders and trend identification have been critical in minimizing exposure to emerging markets that clients had previously owned.

Second, risk is measured on the downside.¬†It follows that limiting¬†loss to roughly one-half of the S&P 500’s drawdown¬†is a venerable result.

Third, the total yield of the above-described portfolio is roughly 2x the 10-year yield at approximately 3.6%. In general, moderate investors benefit immensely from pursuing an aggregate yield that is 100 basis points (1%) greater than a prominent stock benchmark like the S&P 500. (Note: The popular index currently yields about 2%.)

Looking ahead, one should expect a phenomenal buying opportunity. It will not happen until¬†Germany blinks or until¬†the European Central Bank (ECB)¬†takes a bold step toward stabilizing the region’s finances. But it will¬†occur. Low deficit European countries could become attractive at that time, making¬†exchange-traded vehicles like Germany (EWG), Austria (EWO) and Sweden (EWD)¬†rapid risers.

For now, though, targeted asset allocation calls for assets with wide spreads over comparable treasuries. That is the premise for allocating to investment grade corporate bonds via iShares Intermediate Credit (CIU), dividend stocks via Vanguard High Dividend Yield (VYM) and dollar-hedged emerging market bonds via PowerShares Emerging Market Debt (PCY).

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Disclosure Statement: ETF Expert is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier 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.

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