Why do these numbers matter? For one thing, prosthetic joints from knees to hips should be extremely profitable for manufacturers for decades to come. For another, the iShares Medical Devices Fund (IHI) may be a better way to diversify across implant manufacturers — from Zimmer Holdings to Stryker Corporation to Mako Surgical Corp.

Granted, ”Big Pharma” has been a better performer over the course of the 3-year bull market. This is due primarily to an investor base that shunned the risk of rapid-growth industries. In the last 3 months, however, the technologically-oriented, economically sensitive, medical device segment has picked up a head of steam.

There are a variety of things to like about the iShares Medical Devices Fund (IHI). Beta risk is roughly 10% less than that of the S&P 500. The cost of ownership is a relatively reasonable 0.47%. And many of the orthopedic implant maker’s in the Dow Jones U.S. Select Medical Equipment Index have exceptionally profitable sources of recurring revenue.

Chart-lovers and technical analysts should be relatively impressed as well. There’s been a fairly well-defined support level for the downside at a price point of 54. The current price is above the 200-day moving average. Yet, based upon 52-week highs, IHI still might have plenty of room to run.

Personally, I might wait for a bit more of a pullback before establishing a position. That said, if we see continued evidence of a “so-so” backdrop for stock assets — if there’s additional signs that Europe can “muddle through” and China can expand without sparking inflation –  the iShares Medical Devices Fund (IHI) may certainly make it onto my “wish list.”

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here. 

 wearneed .5 million adultsThree times the number of knee surgeries requiring prosthetics in  

More than 620,000 people a year have knee replacement surgery — twice as many as hip implants. More than 4.5 million adults (4.7% of those 50 and older) have had a total knee replacement. Among that group, the researchers say 1.5 million adults are in their 50s and 60s. The

How should you do it? Rather than sell economically sensitive U.S. stock ETFs in your mix – possibly subjecting yourself to short-term capital gains or potentially “throwing off” your allocation — you might purchase VXZ with a weighting of 5%-10%.

The downside of doing so is fairly straightforward. VXZ is likely to drift lower if the market moves sideways; it’s likely to sell off sharply if the S&P 500 experienced a parabolic rise from current levels.

Examining the downside risks, the likelihood of the S&P 500 going on a rampage after a 26% jump off the October lows seems somewhat remote. (Even bull markets tend to take “breathers.”) What’s more, the CBOE S&P 500 Volatility Index (VIX) is testing lows that haven’t held up for very long during the 3-year bull market period.

Even if the VIX broke to new lows, and the S&P 500 surged through 1400, iPath S&P 500 VIX Mid-Term ETN (VXZ) would probably be confined to a 10% drawdown from current levels. One can even use a stop-limit loss order to make certain of the outcome.

Now let’s look at the flip side of the coin. Stock assets across the board are technically overbought; Greece could still go awry; Syria and Iran are wild cards; market gains have removed some of the pressure for Europe to act quickly to prevent debt contagion; the U.S. economy is still growing at a pace that is far below trend. (Why else do you think that Bernanke is committed to 0% rates until 2014!)

In a pistachio nut shell, a flare-up is well within the realm of possibility… if not the realm of probability. Even a health-restoring pullback can occur with little-to-no provacation. That’s why a volatility note like iPath S&P 500 VIX Mid-Term ETN (VXZ) may act as a buffer if you’re more actively-inclined.

Over the course of the last year, ”VIX” volatility spiked on three occasions: (1) February tsunami-March “Arab Spring”, (2) August U.S. debt ceiling debate/September Eurozone debt fears and (3) November public referendum disaster by the Greek prime minister. From the low to the highs, VXZ gained 19%, 65% and 26% respectively.

Briefly, then, one might anticipate a 20%+ gain in VXZ during a significant spike in volatility. Moreover, it happened on 3 occasions last year alone, suggesting that the phenomenon is hardly infrequent.

While the small weight in the portfolio will not change your returns dramatically, it may certainly reduce total portfolio losses by 1.5% to 2%. That can be attractive when the world appears to be coming apart at the seams.

Again, iPath S&P 500 VIX Mid-Term ETN (VXZ) is best used as a trading tool… not a buy-n-hold-n-forget-it investment. I would consider VXZ at this particular moment because it is the furthest below its 50-day moving average (14%) at any point during the 3-year stock bull. That’s a seriously ”oversold” ETN in a seriously “overbought” market.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.

Across those 3 events/time frames, VXZ From the high to the lows on the VXZ movement,

Not surprisingly, many have chosen to wistfully recollect the 90%-plus, since-inception gains for U.S. stocks. Meanwhile, others wisely remind us that substantial corrections of 10% to 20% occurred in each of the 3 years – 2009, 2010, 2011.

Interestingly enough, there have been a number of cat-skinning ways to achieve admirable profits in the period. The Australian dollar via the CurrencyShares Australian Dollar (FXA) picked up 3/4 of the SPDR S&P 500 Trust’s (SPY) upside for roughly 3/5 the beta risk. That’s a pretty good deal for highly correlated assets in the currency “carry trade.”

Of course, the purpose of portfolio diversification isn’t merely to hold investments with disparate amounts of risk. One also endeavors to combine non-correlating assets. In other words, what asset(s) can still move forward in an equity bull that does not have a strong positive relationship with the S&P 500, like the Australian dollar, or a strong negative relationship, like U.S. Treasury bonds?

The most enigmatic possibility out there may be the Japanese yen via the CurrencyShares Yen Trust (FXY). Most regard the yen as a safer haven choice. And yet, over the course of the current bull market, SPY (S&P 500 SPDR Trust) and FXY moved in the same direction 70% of the time; FXY also appreciated by 30% in value.

Perhaps ironically, the relationship over 1 year is such that FXY moved in the opposite direction 70% of the time. Equally baffling, there’s virtually no relationship (non-correlation) over the last 6 months.

Naturally, one can attempt to explain the different periods retroactively. For example, the first leg off the bear market bottom involved asset appreciation alongside the trashing of the U.S. dollar; commodities, foreign equities, small-cap U.S. equities and all foreign currencies thrived. The second leg involved a flight to quality in which large-cap U.S. stocks, the U.S. dollar, U.S. treasuries and the yen were primary beneficiaries.

On 2/2/2012, institutional money rushed out of the CurrencyShares Yen Trust (FXY).  A total of $250M exited the FXY gates on on 13x the normal trading volume. The activity left FXY with roughly 2/3 the net assets under management. Apparently, not everyone is impressed by FXY’s long-term track record as a “diversifier,” or its current status above both the 50-day moving average and the 200-day moving average.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.

In 2012, the skies have been a little brighter for banks, insurers and property developers. The S&P 500 SPDR Trust (SPY) has rallied for nearly 4.8%, but the SPDR Select Sector Financial Fund (XLF) has posted a blistering 9.0%.

Are the super-sized, percentage gains a function of recent earnings reports? Probably not. JP Morgan Chase (JPM) experienced weaker-than-anticipated revenue, Goldman Sachs’ profits plunged 56% and Citigroup badly missed earnings-per-share expectations.

Then, are stock prices of financial corporations simply riding an audacious wave of hope? Perhaps. Bank of America (BAC) did beat ridiculously low estimates with a 4th quarter profit of .15 cents per share. And fears of its survival appear to have dissipated. 

However, the hope for the financial sector may be tied to a different potentiality. Investors may be “banking” on a Mitt Romney presidency.

Obviously, Gingrich isn’t going to make a Romney nomination easy. And even if Mitt manages to win the Republican slot, Obama doesn’t appear likely to fade into obscurity. In fact, the wildly popular prediction site, InTrade.com, currently shows a 56% likelihood that Obama will win re-election.

That said, the U.S. economic recovery is tenuous. Most economists believe Europe will survive its current debt crisis, but struggle to stay out of recession in 2012. High oil prices may also drag on the U.S economy. In brief, a Romney presidency may be a whole lot more probable as the year plays out.

Of course, the stock market is a forward-looking creature. Since it is unlikely that banks will be lending a whole lot more in 2012, and since current regulations are brutalizing the investment giants like Goldman Sachs, it seems that financials are factoring in something (or someone) else.

In truth, I’m not the only one who has been thinking that Mitt may have something to do with it. Analysts at FBR Capital Markets Corp. expect Goldman Sachs (GS) and JPMorgan Chase (JPM) to rocket by mid-summer, as economic realities begin weighing down incumbent politicians. Keep in mind, Romney vows to repeal the 2010 Frank-Dodd regulatory law and that a Romney regulatory team would be far friendlier to big banks.

One might also consider the price action of XLF. When Romney won New Hampshire, XLF vaulted 1.2% the following day. In the two trading days since Gingrich won in South Carolina, XLF has gone nowhere… not necessarily because Gingrich won, but because the Republican nominee may not be known until the summertime.

I still wouldn’t recommend investing in Bank ETFs at this time. European debt woes still weigh on banks and the macroeconomic picture remains blurry.

The safer way to get exposure to financial companies is through their preferred shares. Yet even iShares S&P Preferred (PFF) appears overbought with its RSI reading well above 70. If you’re going to make a foray, wait for a pullback.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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.

For instance, in 1999, nearly every investment in the Janus stable held 4 or 5 stars. The primary reason? Janus products demonstrated superior performance on a relative basis in most stock categories over popular time frames (e.g., 1 year, 3 year, etc.).

Did Morningstar adjust for sector risk? Did they analyze individual holdings of funds? Did they re-rate funds when a manager departed? Not really. In fact, when tech-heavy Janus vehicles crashed with the NASDAQ in the 2000-2002 bear, 4-star and 5-star ratings didn’t adjust until after the dot-com disaster. In other words, Janus mutual funds didn’t receive 1-star and 2-star ratings until it was too late for investors.

Yet, to be fair, Morningstar has come a long way in a very brief time. The company improved upon their mutual fund rating system in the 2000s, hired qualified financial analysts to research and rate individual stocks, as well as add ETFs to their assessments. Today, Morningstar can offer fair value estimates on scores of ETFs based upon proprietary valuations of the underlying stock holdings in the ETFs. That’s far more sophisticated than the old Morningstar method of using relative performance data alone.

Form time to time, I check in with the ratings giant. Premium Members are privy to ”ETF QuickRank,” where an investor can sort a variety of ETFs by a valuation rating. Based on an ETF’s current price as well as a proprietary methodology for determining fair value, Morningstar may designate an investment as “overvalued,” “fairly valued” or “undervalued.”

Undervalued designations will have some of the lowest “P/FV” ratios in the database. And for the purpose of this exercise, I wanted to take a look at 3 of the lower P/FVs around:

1. Market Vectors Steel (SLX). Morningstar currently shows an overall, 1-star rating for SLX. It seems a bit ironic to give the lowest possible rating to an ETF with one stroke of the keyboard, then serve up a quick-rank “undervalued” valuation rating with a P/FV of .72. In fact, you won’t find a less expensive price tag than this steel-producer investment in the entire Morningstar quick-rank listing.

There may be a critical reason for why the most undervalued bargain on the board receives the lowest overall rating (1 star) possible. I imagine it is primarily a function of the dramatic underperformance of steel producers in 2011, particularly international steel producers; iron ore prices have been erratic and global demand plummeted. That said, if China is indeed on its way back from the “forgotten,” resources-related investments may bounce back in a big way in 2012. 

2. iShares DJ Oil & Gas Exploration (IEO). Exploration and production of oil and natural gas may be a risky endeavor, but the potential reward for selecting IEO may be worthy of the investment risk. Not only do the folks at Morningstar give IEO an overall rating of 4 stars, but the current price is roughly 20% below the fair value estimate (P/FV =.81).

On the other hand, IEO is highly dependent on the price of oil and natural gas — commodity prices that are prone to extreme fluctuations. Natural gas is so cheap in the U.S., in fact, that many of these corporations are hoping to export their discoveries abroad. The political risk involved with exporting fossil fuel makes it even more difficult to identify IEO’s prospects.

Here, then, it might be best to incorporate favorable fundamental ratings with some technical analysis. Below, we can see that IEO is above its 50-day and 200-day moving average. That said, IEO made a similar move in November that didn’t hold up.

3. iShares DJ Telecom (IYZ). At first glance, I was a bit surprised to see telecom on the undervalued list. After all, Verizon and AT&T constitute 1/3 of the investment returns. And with the stocks of both companies performing so well recently, I would have expected IYZ to receive a less attractive ”fairly valued” rating.

On the other hand, telecom giants are increasing part of the TV/Internet picture. (They’re not just for phone lines anymore.) Moreover, businesses are using networks to move data from point A to point B. And the ever-increasing world of mobile services accounts for a substantial portion of telecom revenue. Plus, IYZ would need to climb 16.5%… just to get back to previous 52-week highs.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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.

On 1/19/2012, institutional advisers used their block accounts to  dump roughly $120 million of iShares Russell Top 200 Growth (IWY) and $80 million of iShares Russell Top 200 Value (IWX). In a single trading session, IWY shed 1/4 of its total net assets under management; similarly, IWX lost more than 1/2 of the assets in its coffers.

Granted, the moves may be more indicative of dissatisfaction with these particular exchange-traded vehicles. After all, similar outflows did not appear in the Russell 1000 Large Growth Fund (IWF) or the iShares Russell 1000 Large Value Fund (IWD).

On the flip side, consider the Relative Strength Index (RSI) for each of four large company ETFs mentioned. For example, in the chart of Russell 1000 Large Growth Fund (IWF) below, RSI hit the “70″ level 3 previous times in 2011 — February, May and July. In all 3 instances, IWF either pulled back significantly or sold off dramatically.

Here in the very first month of 2012, IWF has hit “70″ once more. Wouldn’t some profit-taking traders be tempted to cash in their 6-week gains of 10%+? Keep in mind, the pattern for iShares Russell Top 200 Growth (IWY) is eerily similar to the Russell 1000 Large Growth Fund (IWF); the pattern is also similar between the iShares Russell Top 200 Value (IWX) and iShares Russell 1000 Large Value Fund (IWD).

I’m not suggesting that investors sell every last equity holding. However, I would advise investors to be very cautious on putting new money to work. It makes sense to wait for a bit of a pullback.

Earnings may beat expectations, China may loosen monetary policy, investors may chase returns and European bond auctions may continue to proceed smoothly. Nevertheless, the slightest excuse for investors to lock in some profits may come with the smallest bump in the road. What if the ECB hesitates on cutting short-term rates or if it chooses to forgo quantitative easing? What if the pending Greek default is not “orderly?”

Indeed, some institutional block traders may be deciding to “lock in” their gains now. By way of an additional example, outflows exceeded $72 million today (1/19) on the SPDR MSCI ACWI ex-US Fund (CWI). On the surface, the dollar amount may not sound like much. However, under the hood… the outflow represented 13% of the total assets that CWI had under management.

Obviously, ETF outflows are not the end-all on future trends. Sometimes, one or two big advisers may be making whole-scale changes for rebalancing or for jettisoning less liquid ETFs in their portfolios.

Nevertheless, it makes sense to keep an eye on the RSI trends. In May and November of last year, when SPDR MSCI ACWI ex-US (CWI) hit the “70″ level, it sold off shortly thereafter. CWI is not far from that RSI level right now.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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.

The most common reason cited for P/E contraction in 2011? The Euro Zone debt crisis.

Obviously, sovereign debt concerns have not disappeared in 2012. That said, will its impact be as dramatic over the current 12 months as it was in the prior 12 months? Maybe not.

Let’s consider the possibility that investors are beginning to feel that Europe’s “situation” is already being discounted by the markets. In this scenario, we would likely experience P/E reversals; that is, the S&P 500 and its individual economic sectors could conceivably revert back to the P/Es that existed on 1/1/2011. 

Using the S&P 500 as a guide, current estimates for profit growth in 2012 are for a less robust 10.2% earnings expansion. If the S&P 500 reverts back to its P/E ratio price tag from the start of 2011 — with 10.2% profit growth in 2012, 15% growth in 2011, and 0% price gain in 2011 – one might expect a 25.2% gain for the S&P 500.

Is a 25.2% gain for the S&P 500 reasonable? Perhaps.

If the S&P 500 logs a 25.2% gain in 2012, it will reach 1573 – smack near the October 2007 all-time highs. On the surface, hitting or reaching the October 2007 highs may sound like a big deal. However, the December 2012 P/E would be far lower than the October 2007 P/E… still making stocks much cheaper than they were 5 years earlier. 

Of course, these numbers are for the S&P 500 as a whole. What if we applied the same P/E reversal thinking to the 9 S&P Sector Select SPDR ETFs? What might a respective Sector ETF gain (or lose) by the end of 2012, if we make the same assumptions about reverting to the price-to-earnings ratio of 1/1/2011.

Notice that each of the 20%+ returns come from the economically sensitive cyclical segments — Materials (XLB), Energy (XLE), Technology (XLK), Financials (XLF) and Industrials (XLI). Intuitively, this is not difficult to comprehend. The 2011 leaders came from the defensive segments, like health care, staples and utilities.

It follows that the only realistic shot for P/E reversion to occur in 2012 is for the global economy to find itself in increasingly better shape by the end of the year. If China begins to stimulate its economy through monetary and fiscal easing, if Europe gets beyond the notion of multiple Euro Zone defaults, and if the U.S. can continue to make muddle-through strides in the right direction, we may indeed get the super-sized gains out of the cyclical Sector ETFs.

Is 41% out of SPDR Select Materials (XLB) realistic? It has already claimed 9% out of the 2012 gates, better than the other segments.  Ironically enough, XLB registered 43% in 2009.

On the other hand, the P/E ratio hardly represents an exact science. For example, utilities may be slightly overvalued, but we have entered a period where yield may be every bit as important to he investor as capital appreciation. A slow-growth sector doesn’t necessarily have to fall -14.6% because its multiple is a bit higher than the historical average; rather, the earnings yield of 6.85% and dividend yield of 3.85% may be the perfect risk-reward scenario for conservative investors who want more from money markets or paltry treasury yields.

Keep in mind, I am not recommending that one make a whole-scale shift out of defensive equities and into cyclical sectors like Energy (XLE) or Technology (XLB). In fact, I have plenty of income-oriented positions from diversified high yield to MLPs to dividend producers; indeed, I still expect faith-shattering volatility in the 1st half of 2012. By the same token, it’s important to point out that P/E reversion is a distinct possibility and that… if it happens… higher-beta, riskier sectors may thrive.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.

Privately, many economists decry that systematic wealth redistribution is incapable of creating jobs — issues of fairness notwithstanding. In the same vein, conservatives wonder why the White House can be credited with 2.7 million positions filled. Shouldn’t the media discuss the 4.3 million lost during the current Administration’s tenure? That’s a net loss of 1.6 million jobs.

(Note: Approximately 4.3 million more jobs were lost under President Bush, for a total loss of 8.6 million. The Great Recession was rather unkind.)

In truth, investors need to be able to put aside the “spin,” as well as political affiliation (or non-affiliation). How can people do that? They can focus on a more robust indication of employment health in the ”labor force participation rate.”

The labor force participation rate takes into account those individuals who are employed as well as those who are unemployed, but who would like to be working. In contrast, the popular unemployment rate ignores those who have given up looking for work and/or who do not collect unemployment compensation. In “normal times,” the participation rate may approximate 67%.

So, for example, November and December’s employment gains were considered remarkable, as the unemployment rate dropped from 9.1% in October to 8.7% in November to 8.5% in December. However, the 278,000 jobs gained in November did not take into account 315,000 Americans who stopped looking for work or who stopped receiving compensation. Not surprisingly, the labor force participation rate remained at 64%.

Taken a step further, the participation rate remained unchanged at 64% in December 2011 as well, even though the unemployment rate had hit 2 1/2 year lows at 8.5%. More telling, the participation rate in January, 2011 was 64.3%… actually a bit healthier than in December, 2011.

The reality of the U.S. employment picture is that it may be a very long time before the people who long for a “daily grind” get the opportunity again. Without a better participation rate, the U.S. economy and other developed world economies will see undesirably slow economic progress.

If there’s good news for investors, it’s the fact that leaner, meaner multi-national corporations can still be quite profitable, selling their products and services in emerging nations. For that reason, companies that are growing their dividends in Vanguard Dividend Appreciation (VIG) remain a “buy” for portfolios requiring a bit more equity exposure. (Note: Pay attention to the 200-day trendline.)

Of course, the “muddle-through” scenario for the U.S. (and other developed world economies) still has an uncomfortable itch or two. Italian 10-year yields are still north of 7% and the euro-dollar is testing 52-week lows.  The CurrencyShares Euro Trust (FXE) is “unbearably” far from its 50-day moving average, and yes… pun intended.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.

Unfortunately, Mr. Miller put a bit too much faith in the books of financial institutions in 2007 and 2008. The former legend never quite recovered from the subprime-inspired collapse. 

Warren Buffett looked at value investing in his own way. The “Oracle of Omaha” often chose securities where there is/was an identifiable difference between a current price and an appraisal of future worth. Yet, when one accounts for the reinvesting of dividends, the S&P 500 SPDR Trust (SPY) performed about as well as Buffett’s Berkshire Hathaway (BRK/A). (Note: The S&P 500 chart below doesn’t account for reinvested dividends.)

Granted, 5 years is not the investing time frame that either Miller or Buffett may have in mind. Nevertheless, the results are still worth noting; that is, one may have done equally well (or better) by holding the S&P 500 SPDR Trust (SPY).

When it comes to “value,” there’s something else worth noting. Specifically, Value ETFs are currently demonstrating far superior momentum than Growth ETFs. While it isn’t always clear what constitutes “value,” let alone what may distinguish it from “growth,” the relative strength percentile rankings are telling.

Relative percentile rankings for ETFs represent the entire universe. For instance, on 10/12/2011, iShares Morningstar Mid Cap Growth (JKH) registered 71.2. This means that JKH had greater relative strength than 71.2% of the 1300 ETFs in existence.

It’s fairly easy to see that… over the last 3 months… iShares Morningstar Mid Cap Growth (JKH) has been running out of steam. As recently as 1/9/2012, JKH logged a mere 50.8, falling from the top 2/3 back to the middle of the pack. In contrast, iShares Morningstar MidCap Value (JKI) went from the middle of the pack (49.6) in October to the top 2/3; mid-sized “value” corporations have been gaining momentum.

In fact, across the entire spectrum, Value ETFs have been gaining in momentum — large-cap, mid-cap or small-cap. Small Cap Value (JKL) has made the largest leap forward in relative strength.

In contrast, Growth ETFs have been sagging — large, medium and small. Mid-Cap Growth (JKH) has been the least potent investment in the “style box.”

For those that believe in momentum and/or relative strength, one should take note of the definitive shift towards value-oriented ETFs. You may choose to overweight “value” in your portfolio.

For those who are merely curious… the trend is likely to represent the investment community’s increased affection for dividends and perceived safety. Regardless of what companies may actually be in these “Value ETFs,” utilities, health care and consumer staples may be well-represented. These non-cyclical segments may produce slightly higher dividend yields and they may be less affected by economic changes than techonlogy or materials.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.

At the same time, investors are always searching for investments that they may hold forever. (And if that’s not possible… 5 years instead of 5 months!)

The latest example of the trend is the increasing popularity of Dividend ETFs. At one time, the iShares DJ Dividend Fund was the most coveted vehicle in its class. Why? Advisers could pick it up for clients or recommend it to them with the so-called long-term in mind.

The problem? Financial stocks used to account for the lion’s share of corporations in the DJ Select Dividend Index. Rather than serve as a “no-brainer,” it served as a colossal headache for lazy advisers who don’t check under the hood or who don’t adjust their portfolios.

Dividend-payers were supposed to be safer. Dividend-producers were supposed to be less volatile. Yet, over the last 5 years, DVY has been more volatile and less successful than the S&P 500 SPDR Trust (SPY).

Of course, things have already changed in the dividend arena. Financial companies only account for 10% of the DJ Select Dividend Index that DVY tracks today; it accounted for upwards of 25% in 2007. Meanwhile, WisdomTree Top 100 Dividend Fund changed its make-up entirely, banishing financial companies altogether and recasting itself as the WisdomTree Dividend Ex-Financials Fund (DTN).

In theory, I like the improvements in DTN and DVY. In practice, it makes more sense to recognize when funds like DTN and DVY are stuggling in your portfolio, and selling them. Whether you used stop-limit loss orders or trend analysis to minimize risk, or whether you simply recognized that banks were the toxic element, selling DVY or DTN in 2007 or 2008 was sensible.

Looked at another way, selling in 2007 or 2008 opened the door to new dividend investing opportunities in future years. Some of my top holdings today include PowerShares Low Volatility (SPLV) and iShares High Dividend Equity (HDV). The former is an accidental high yielder by way of slow-moving staples and utilities, while the latter offers greater exposure to health care, telecom and consumer stocks.

Of course, there will always be efforts to construct the perfect, “don’t-have-to-touch-it” portfolio. For those folks, I recommend a different approach to dividend success. Specifically, Vanguard Dividend Appreciation (VIG) tracks the Dividend Achievers Index — a collection of companies with a steady record of growing dividends year over year. In essence, you’re forgoing the companies with higher annual yields and pursuing the corporations that raise the cash payouts consistently.

Does a “dividend appreciation” or “dividend growth” approach work? Over the last 5 years, Vanguard Dividend Appreciation (VIG) didn’t have to change its strategy or its name; it beat the S&P 500 SPDR Trust (SPY) as well as the Dividend ETF competition. If you’re going to be a holder-n-hoper… and I hope that you won’t… VIG may just be the premier dividend choice.

You can listen to the ETF Expert Radio Show “LIVE”, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert is a web log (”blog”) 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. You may review additional ETF Expert disclosure details here.