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ETFReplay.com July Update

Independent research, long/short equity, dividend investing, ETF investing “}); $$(‘#article_top_info .info_content div’)[0].insert({bottom: $(‘mover’)}); } $(‘article_top_info’).addClassName(test_version); } SeekingAlpha.Initializer.onDOMLoad(function(){ setEvents();}); The ETFReplay.com Portfolio holdings have been updated for July 2015. I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility. The portfolio begins with a static basket of 14 ETFs. These 14 ETFs are ranked by 6 month total returns (weighted 40%), 3 month total returns (weighted 30%), and 3 month price volatility (weighted 30%). The top 4 are purchased at the beginning of each month. When a holding drops out of the top 5 ETFs it will be sold and replaced with the next highest ranked ETF. The 14 ETFs are listed below: Symbol Name RWX SPDR Dow Jones International Real Estate ETF PCY PowerShares Emerging Markets Sovereign Debt Portfolio ETF WIP SPDR DB International Government Inflation-Protected Bond ETF EFA iShares MSCI EAFE ETF HYG iShares iBoxx $ High Yield Corporate Bond ETF EEM i Shares MSCI Emerging Markets ETF LQD iShares iBoxx $ Investment Grade Corporate Bond ETF VNQ Vanguard REIT Index ETF TIP iShares TIPS Bond ETF VTI Vanguard Total Stock Market ETF DBC PowerShares DB Commodity Index Tracking ETF GLD SPDR Gold Trust ETF TLT iShares 20+ Year Treasury Bond ETF SHY iShares 1-3 Year Treasury Bond ETF In addition, ETFs must be ranked above the cash-like ETF ((NYSEARCA: SHY )) in order to be included in the portfolio, similar to the absolute momentum strategy I profiled here . This modification could help reduce drawdowns during periods of high volatility and/or negative market conditions (see 2008-2009), but it could also reduce total returns by allocating to cash in lieu of an asset class. The cash filter is in effect this month. SHY is the highest rated ETF in the 6/3/3 system. Therefore, all current holdings will be sold and the proceeds used to purchase SHY. The top 5 ranked ETFs based on the 6/3/3 system as of 6/30/15 are below: 6mo/3mo/3mo SHY iShares 1-3 Year Treasury Bond ETF EFA iShares MSCI EAFE ETF HYG iShares iBoxx $ High Yield Corporate Bond ETF PCY PowerShares Emerging Markets Sovereign Debt Portfolio ETF VTI Vanguard Total Stock Market ETF In 2014 I introduced a pure momentum system, which ranks the same basket of 14 ETFs based solely on 6 month price momentum. There is no cash filter in the pure momentum system, volatility ranking, or requirement to limit turnover – the top 4 ETFs based on price momentum are purchased each month. The portfolio and rankings are posted on the same spreadsheet as the 6/3/3 strategy. The top 4 six month momentum ETFs are below: 6 month Momentum EFA iShares MSCI EAFE ETF EEM i Shares MSCI Emerging Markets ETF RWX SPDR Dow Jones International Real Estate ETF HYG iShares iBoxx $ High Yield Corporate Bond ETF VTI, a holding since September 2014 will be sold for a 5%+ gain and replaced by EEM. TLT, a holding since September 2014 will be sold for a 1%+ gain and replaced by HYG. The updated holdings for each portfolio are below. 6/3/3 strategy: Position Shares Avg Purchase Price Purchase Date Cost Basis Current Value Gain/Loss Excluding Dividends Percentage Gain/Loss Excluding Dividends SHY 149 84.86 5/29/2015 & 6/30/15 $12,644.14 $12,644.14 $0.00 0.00% Pure Momentum strategy: Current Positions Position Shares Purchase Price Purchase Date Cost Basis Current Value Gain/Loss Excluding Dividends Percentage Gain/Loss Excluding Dividends EEM 60 39.62 6/30/2015 $2,377.20 $2,377.20 $0.00 0.00% RWX 64 43.99 4/2/2015 $2,815.36 $2,679.04 -$136.32 -4.84% HYG 27 88.8 6/30/2015 $2,397.60 $2,397.60 $0.00 0.00% EFA 39 66.51 4/30/2015 $2,593.89 $2,476.11 -$117.78 -4.54% Disclosures: None Share this article with a colleague

Benchmarks May Have Their Uses But Gauging Portfolio Risk Is Not One Of Them

By Nick Kirrage Here on The Value Perspective, we have nothing against market indices in themselves but we do worry about how investors sometimes use them. Say you wanted to measure the relative returns on your investments over a suitably long time period, then please – benchmark away. But if you were planning to use an index as a way of gauging risk on your portfolio, here is why you should think again. People tend to see benchmarks as neutral entities and so, in some way, as an indication of safety – yet they are anything but. The classic example here – as so often – is the tech boom of the late 1990s. As technology stocks rose in value to become an ever greater part of market indices, so any ‘benchmark-aware’ funds had to buy more and more of the sector. As we know, this did not end well. Clearly, buying more tech in early 2000 as a means of reducing your risk relative to a benchmark index was a pretty flawed strategy but this is hardly a one-off example in the world of equities – or indeed in investment as a whole. In the fixed income sector, for example, index-relative global funds end up increasing their exposure to countries with the greatest amount of debt, regardless of the inherent risks. The reason we are revisiting the issue here is because of the recent decision by index provider MSCI not to include ‘A-Shares’ – those traded on China’s mainland stock exchanges of Shanghai and Shenzhen, as distinct from the ‘H-Shares’ traded on the Hong Kong exchange – within its principal global emerging markets benchmark. The last 18 months or so have seen an extraordinary bull run in Chinese equities and, while there have recently been some signs that has started to stall, China – by virtue of those H-Shares – now accounts for roughly 25% of the entire MSCI Global Emerging Markets Index. Had MSCI decided to include China’s A-Shares too, then that weighting would have jumped to around 45%. Presumably it is only a matter of time before MSCI deems all Chinese shares to be part of its emerging markets universe but, to our way of thinking, that is the rather farcical aspect of this debate – after all, regardless of whether MSCI or any other organizations reckons China to be an emerging market, it clearly is one. Where it becomes dangerous – and why we see MSCI’s decision as a near-miss (or perhaps a stay of execution) for benchmark-aware investors – is, the moment A-Shares are included in the index, these people will feel compelled to redirect yet larger quantities of money towards Chinese stocks because they apparently believe it would be a ‘risk’ to be so underweight China relative to their benchmark. But is that not perverse? It is not as if some huge new risk will have been revealed the day China’s weighting moves up from, say, 25% to 45%. Either it was always a risk to hold 25% in China or it was never one. The reality will not have changed, only some of the rules – but those rules can become hugely distorting. After all, if A-Shares had received the nod from MSCI and China now made up almost half the index, benchmark-aware investors would have had to scale back their exposures to other important emerging markets – for example, to 11% in Korea, 5.5% in Brazil and just 5% in India. This may not be quite as stark as our earlier tech boom example but it could have similarly unwanted consequences. Mind you, it could also throw up some similarly inviting possibilities for investors who prefer, as we do here on The Value Perspective, to think about risk in absolute as opposed to relative terms and for whom, in many ways, benchmark indices represent an opportunity more than they do a threat.

Inside My Portfolio: What I Hold And Why

Summary I’ll take readers through a look at my personal portfolio. My biggest individual company weights are still Freeport-McMoRan and Dynex Capital. I’m feeling better about the allocation to DX than to FCX right now, but still holding both. My biggest new investment in June was in equity REIT ETFs. I expect that to be the same for July. Over the next year I also plan to add to my international holdings in SCHF and may buy another mREIT. I expect to sell Renesola to harvest a tax loss this year and will sell FCX (timing uncertain). The other holdings are long term allocations. It’s useful for readers to have a solid disclosure about the investing choices of the analysts they follow. Seeing the choices the analyst has personally made and what plans the analyst has for their future investing choices provides other investors the opportunity to better understand the mindset of the analyst and determine how they feel about the quality of the analyst’s research. Holdings My holdings are: Vanguard Total Stock Market ETF (NYSEARCA: VTI ), Fidelity Spartan Total Market Index Fund Fidelity Advantage Class (MUTF: FSTVX ) Fidelity Spartan Real Estate Index Fund Fidelity Advantage Class (MUTF: FSRVX ) Schwab U.S. REIT ETF (NYSEARCA: SCHH ) Vanguard REIT Index ETF (NYSEARCA: VNQ ) Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ) Schwab International Equity ETF (NYSEARCA: SCHF ) Freeport-McMoRan (NYSE: FCX ) Dynex Capital (NYSE: DX ) Renesola (NYSE: SOL ) The categories To avoid getting too much correlation between my assets and ending up with too much risk in my portfolio, I group my investments into categories. As an American, I’m heavily invested in domestic equities and I classify all foreign investments as international. I make one distinction in international markets and that is between international REITs and other international companies. (click to enlarge) Individual Companies / ETFs / Mutual Funds The next chart breaks down the allocations by the actual ticker. Give some feedback in the comment section about the presentation used here. I’d like to know what works and what doesn’t work. I aim to provide readers with a look at my personal holdings once per month. (click to enlarge) Manual Changes While I’m using automatic investments for FSTVX and FSRVX to keep dollar cost averaging into the holdings, I’m also making manual purchases each month. After seeing some substantial weakness in the REIT ETFs, I decided to pump up my allocation on domestic equity REITs. The position in domestic equity REITs provided me with a return around negative 5.5% for the month but my allocation is up from buying more shares. I have access to a fairly solid selection of tax advantaged accounts, so I’m able to buy into these equity REITs without worrying about higher taxes on income from REITs. VTI / FSTVX Both investments offer exposure to the whole U.S. market while having very low expense ratios. I’m using automatic purchases for the Fidelity mutual fund so it will be increasing as a percentage of the holdings. VNQ / FSRVX / SCHH This was my major investment for the month. I suspect that during July it may be my largest investment area again. I might add a small amount to SCHF as well. Adding some mREITs I feel the mREIT market is attractive right now precisely because it appears unattractive. By the time the market clearly turns, many of the major bargains in this sector may be gone. However, I decided it was more important to add funds to my equity REIT holdings because I am concerned about the potential for inflation that could increase rates and hurt the mREITs more than I would expect it to hurt the equity REITs. Since mREITs are one of my major areas of coverage, here is a quick look at my view on several of the companies. In my opinion Dynex Capital, CYS Investments (NYSE: CYS ), American Capital Agency Corp (NASDAQ: AGNC ), and Bimini Capital Management (OTCQB: BMNM ) are attractive investments in the space, though investors consider Bimini should be doing some major due diligence. In my opinion Orchid Island Capital (NYSE: ORC ) and Javelin Mortgage Investment (NYSE: JMI ) are not offering adequate expected returns for the level of risk. Some investors will suggest that ORC and BMNM are the same; I staunchly disagree despite the very strong connection between the two. It is a complex argument and would derail the article, but readers should know I took the stance after significant research. Lack of Bonds I have nothing against bonds, but I don’t care for weak yields or high credit risk. The situation becomes further complicated by quality bond ETFs being much harder to find than quality ETFs for whole market equity or REITs. With the weak yields on bonds currently, I’m just not inclined to spend much time searching for the diamond in the rough. FCX I did quite a bit of research before initiating a position. However, I believed commodity futures pricing would lead stock pricing by at least a few hours. While that has often been the case, I saw FCX move before the futures frequently which gave me no compelling options for timing an exit. I’ve seen the upcoming spin off of oil assets and need to publish some coverage in that regard. All in all, I dislike the mining sector and don’t see the light at the end of the tunnel but I do see the potential for some strength with the change in the capital structure. If that comes to pass, I may take it as an exit opportunity. SOL This is a tax loss holding. That is all. It is also a reminder to never get too cocky, a lesson we should all remember. Thank goodness I bought this in a taxable account so I can at least get some benefit from the terrible investment. Conclusion Most of my portfolio, over 90%, represents holdings I am planning to keep for the long term. I would love to say I learned my lesson on Renesola and will not repeat the mistake, but I expect that I will at some point make another bad call on a penny stock and watch the money evaporate. It is a risk of being willing to invest in the tiny companies, and I that is a risk I expect to take many times in the future. The core of my portfolio will be low fee ETFs to index the market and the individual holdings will often be relatively small companies where I believe there is insufficient coverage for the market to price them correctly in the short term. The equity REIT allocations may seem a bit high, but I view international REITs as being primarily international investments because they have a stronger correlation with other international funds than with domestic equity REITs. My domestic equity REIT allocation may seem a bit high also, but I intend to push it higher as I shove money into my various tax advantaged accounts for the year. Disclosure: I am/we are long VTI, FSTVX, FSRVX, SCHH, VNQ, VNQI, SCHF, FCX, DX, SOL. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: Information in this article represents the opinion of the analyst. All statements are represented as opinions, rather than facts, and should not be construed as advice to buy or sell a security. Ratings of “outperform” and “underperform” reflect the analyst’s estimation of a divergence between the market value for a security and the price that would be appropriate given the potential for risks and returns relative to other securities. The analyst does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision. Information is regularly obtained from Yahoo Finance, Google Finance, and SEC Database. If Yahoo, Google, or the SEC database contained faulty or old information it could be incorporated into my analysis.