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A Simple Investing Plan For Tumultuous Times

Summary Equity markets have been, and still are, a fantastic source of wealth preservation and generation. This article presents an extremely simple, minimal effort investment plan, based on market ETFs, aimed at simply capturing market returns. The reasoning behind my approach is discussed, as are possible uses, advantages and disadvantages and some investing obstacles that need to be identified, but that can be avoided. Finally, I suggest some ways of moving away from the default plan presented and into additional investing strategies. If you are looking to time the market, buy on a dip, or buy gold, this article is not for you. The future is always uncertain. Price changes are nothing new, they are an inherent part of market behavior. However, price changes tend to stir up a lot of emotion, something that does not always lead to better investing decisions. In this article, I describe an extremely simple and minimal effort investing plan that can be used as a default strategy in tumultuous, bear or bull markets alike. The plan can be used by an investor getting started at managing their private portfolio, an investor not sure what to do with their savings, or an investor simply looking to spend minimal time on managing their savings. It is readily available to anyone, and can be used as a default plan throughout your investing life. As such, it can be used either to fall back on when needed, or as a benchmark to help assess your investment making decisions. The core idea of the plan is to buy an equity market ETF over time by purchasing at regularly spaced intervals. I discuss the reasoning behind such a strategy, possible advantages and disadvantages of such a plan, as well as some ways of developing it further. For many private investors, there should be no need to ever move to anything more complicated. Even so, I present some initial ways to customize it further and add in more elements, depending on the individual investor, and mainly to add interest. Background and Context Buying stock of a profitable company is different than buying other financial products. Stocks have the potential to create returns not derived solely from trading. It’s not a zero-sum game. If the company makes money, this income will hopefully make its way back to the investor through either dividends, or retained earnings leading to higher market price. For these reasons and more, stocks, as an asset class, have backwinds blowing in their favor that other financial contracts do not. For anyone able to save money over time, it is therefore extremely helpful to consider how the attractive qualities of stock ownership can be taken advantage of. Some companies will be more profitable than others. Some companies will either never become profitable to investors, or turn to losses over time. It can be surprisingly difficult and time consuming to sift through the over seventeen hundred public companies available to choose from on the NYSE/NASDAQ alone. Luckily, the advantageous features of equity investing can be easily taken advantage of using a broad equity market ETF. Recent market turmoil does not change any of this. It is part of market behavior, and always has been. It is said that a wise man accepts, while the fool insists. Price changes in the market, both up and down, should be accepted by anyone involved in purchasing stocks. Price fluctuations can be viewed as creating opportunity – we all want to buy low and sell high. There are two basic obstacles towards successfully doing so: (1) Obtaining a sound evaluation which allows to judge when prices are high, or when they are low, and (2) The psychological ability to be a contrarian; to sell when most others are eager to buy, and buy when most others are eager to sell. Both these obstacles require time and effort. At a personal level, they may require specific skills which may differ from one person to the next. Instead of looking to profit more from price fluctuations, another approach is to simply avoid making mistakes that may result from taking the wrong action in a changing environment. This is the minimal effort approach and is the one I will focus on for the duration of this article. The greatest risk is buying in at a very high price. Buying on multiple occasions ensures that even if one purchase is made at a bad (i.e. high) price, other purchases will soften the effect and provide better returns. Of course, this also means that you won’t buy in at an all-time low either. What you will get by buying on multiple occasions over time, is exactly what the plan is intended for – market returns. Market returns are underrated. They don’t produce the same excitement that a tech IPO does, but they are nothing to sneeze at. The table above shows the returns of the S&P 500 market index, including dividends, over the past two decades. Returns that an investor would receive from simply owning the index for ten years are stated as well. These figures refer to the ten years ending December 31st of the year stated in the left most column. Finally, annualized returns for the same ten-year period appear in the right most column. As you can see, over a longer period, returns are rarely negative, with only 2008 and 2009 showing negative ten-year cumulative returns over this period. As long as you are able to save money over time, the plan below does not include selling. This ensures that these losses would have remained on paper only (and the low prices at the time would have provided good buying prices). Buying during periods of very high market valuations (e.g. circa 2000) is not avoided completely by the plan. Instead, buying over multiple periods causes the buying prices to average out. The above purchasing behavior should therefore ensure the investor positive returns. The Basic Plan Buy only one security – the S&P 500 Index ETF. Time purchases using only a calendar. Make new purchases every 6 or 12 months. That’s it. Any broad market ETF will do. The SPDR S&P 500 Trust ETF SPY is the most popular, and I refer to it throughout this article, but there are other equivalent ETFs that should be just as good. If you are starting with a large chunk of money, you could split it up for your first 6 purchases at 6-month intervals. If you are able to save part of your income, simply use whatever you have saved over 6 months to buy more SPY. If you already have a portfolio with many positions, you can convert all or parts of it into SPY every time you make a sale. It should be simple to gradually convert any portfolio into SPY over time, regardless of the starting point. But is now a good time to buy? I discussed possible near future market valuations based on historic data in a previous article . The plan presented here is based on multiple acquisitions made at predetermined intervals. In that light, now is as good, or bad, a time to buy as any. It does not matter in regard to this investing approach. Advantages Of The Plan 1. You will spend virtually no time managing it. You do not need to read any news, any investing advice articles, or listen to any talking heads on TV. You definitely don’t need to know what is going on in the stock market, China, Greece, the Federal Reserve or any other media topic. 2. The costs of this plan are as close to nothing as you can get. The plan calls for 1-2 transactions a year. Using an online brokerage account will reduce costs significantly. In total, costs should not come out to be more than a few dollars for the entire year. These savings alone will add up more than you might expect. 3. Over time, you will outperform most other investment funds. It may sound odd, but it is a rather established result that most managed funds will produce lower returns to an investor than those received from passive market investing. For many managed funds, a key reason is fees. Many other reasons exist as well. For example, many funds diversify into additional asset classes other than stocks. Historically, stocks tend to outperform other asset classes. It should be no surprise, therefore, that a fund with (for example) only 50% equities will attain lesser gains when compared to a broad stock market index. Additionally, there is no reason that the distribution of money management skill should differ from that of any other skill. Skill or ability in any discipline has a long tail distribution (where the average is greater than the median). Most people show weak, or below average ability at any specific skill or discipline, while some show decent ability, and a small subgroup are exceptional. This type of distribution can be observed for throwing a football, dancing, mathematics, and it is true for managing money as well. Some funds will be managed by exceptional money managers, while most won’t. The hiring of money managers, and fund selection in general, if done with the goal of obtaining better returns, shares many similarities with stock selection. One cannot avoid in-depth analysis if interested in making a good choice. Often times, evaluation of money management skill is done based on historical performance. A manager or fund able to produce an easily reviewed exceptional long-term past record will also be able to demand much higher fees. This may again reduce returns to the investor. While the issue of fund selection is still much broader than discussed here, it is not the focus of this article. The plan presented is based on the fact that most funds will provide lesser results while identifying the ones that don’t requires additional effort. Disadvantages Of The Plan 1. It’s boring. This should be a non-issue since we are interested in making money, not having fun, right? Unfortunately, on a day-to-day basis, it can become an issue for some. This plan really is not much fun, and you will need to get your kicks outside of investing if you follow it. On the plus side, if you do follow it, you will be able to have a lot more fun thanks to the time it will free up, and the money down the road. In the meantime, if this is an issue, later in the article I will present some ways to make this plan a little more interesting as well as require more active involvement. 2. You don’t get to beat the market. Everyone wants to “beat the market” (author included). However, doing so requires a lot of time and effort. Also, sometimes overeagerly chasing greater returns can lead to worse performance, not better. It is surprisingly difficult to attain returns that are considerably better. Doing so either requires a considerable effort, or blind luck. The latter is usually short lived. The basic plan presented aims to take advantage of the attractiveness of market returns. Nothing more, and hopefully, nothing less. If it helps, you can think of it this way: You won’t beat the market, but you will do much better than most people. Unfortunately, you may have to wait a few years to get your “I-made-more-money-than-you-in-the-stock-market” moment, or at least wait until the next market correction. 3. There are ways to get outsized returns. This plan ignores them completely. Equity markets provide a wide selection of choices. Between the NYSE and NASDAQ alone, there are more than seventeen hundred issues to choose from. These markets include all the largest public companies, including such monsters as Apple (NASDAQ: AAPL ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ). In the broader universe of financial contracts to choose from, there are all kinds of financial papers just waiting to be traded for outsized gains. I describe some possible ways of dealing with this disadvantage further on in the article, by allocating part of your portfolio to other investments. 4. It seems so extreme. Just one security? It’s actually extensive diversification over the best asset class. Probably a lot more diversified than most portfolios. The single security represents 500 companies (actually 502 at last count ). Diversification is a whole topic onto itself. The addition of treasury bonds to the plan, as well as incorporating other investment strategies is discussed below. Incorporating Treasury Bonds Into The Portfolio Incorporating treasury bonds can be done to address either of the following two goals: (1) Additional diversification into another asset class. (2) Allowing more activity while still maintaining good automatic decision making. Over the short term, bond prices tend to move in the opposite direction of stock prices. If stocks drop (or rise) significantly in price in a short period, the owner of an all-stock portfolio may feel that some kind of response is required of them. As stated before, I do not believe this to be the case. However, if such an itch needs to be scratched, a good option for doing so is rebalancing the portfolio between equity and bonds. If either of the above issues is a concern, incorporate the following two steps into the plan: Hold no more than 25% of the portfolio in Treasury Inflation Protected Securities (TIPS). Rebalance the portfolio if it skews more than 10% off the 25/75 division. TIPS are a fantastic security. They are US treasury bonds where both the principle and coupon are pegged to inflation. I have a strong preference for TIPS bought either at auction, or below (inflation adjusted) par value on the secondary market. If so bought and held to maturity, they will ensure a profit (although possibly a small one) and act as perhaps the best inflation hedge attainable. Unfortunately, at the time of writing, government-backed bonds are very expensive and do not offer much. TIPS, even if bought at auction, are sold with very low coupons. For this reason only, they were not included in the most basic plan. However, incorporating TIPS bought at, or below, par value for a 25% stake of the portfolio should still offer many advantages as discussed. Also, since this plan takes a very long-term approach, there is no reason that bond markets will not return to lower prices in the future. In this case, incorporating TIPS into the portfolio will be very advantageous. I do not recommend buying any other type of government bond, and I recommend against buying any kind of bond ETF. The reasons for this are perhaps the subject of another article. Going Past Market Returns Add the following steps if you want to incorporate or experiment with more investing strategies: Allocate 10% of the portfolio for doing whatever you want. At the end of the year, examine your results, and reallocate the portfolio based on your conclusions. If you want to make huge gains in a short period of time, go for it. Keep most of your money in SPY. Use only a small amount of your portfolio for other adventures. Over time, once a year, re-evaluate the performance of your “adventurous” portion of the portfolio and compare it to the results achieved by the remainder of the portfolio following this basic plan. If you are happy with your results, divert more money into direct active management. Perhaps adding 10% or 20% more. The important point is to do so incrementally, and at predetermined times. If you are able to make great investment decisions, and have the time and will to do so, the basic plan will be of no further use to you. Exiting it gradually will allow a learning period, and hopefully prevent jumping ahead too soon. I do not know of any discipline worth pursuing that does not require years to develop an ability for, and yet more years to master. Investing is no exception to this. The simple plan presented here allows to enjoy gains while still learning. It also acts as a fall back plan if better results cannot be achieved. Self evaluation is very personal and not at all simple. However, doing so is extremely beneficial and it too can be developed over time. The Extended Plan Summarized Allocate 10% of the portfolio for doing whatever you want. Of the remaining portion, h old 7 5% in SPY and 25% in TIPS Use additional received funds from savings, dividends, or interest to buy more SPY and TIPS using only a calendar to time purchases every 6 or 12 months. Rebalance the portfolio if it skews more than 10% off the 25/75 division. Reevaluate on a predetermined 12-month basis. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (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.

Equity CEFs: Your Best Market Moves In Closed-End Funds

Summary Equity CEFs have seen a definitive widening of their discounts over the summer despite half the funds I follow outperforming the S&P 500 at the NAV level. Nonetheless, it’s easy to see which funds are working when the markets turn back up and which ones continue to lag behind. The question is – do you stick with what’s worked in the past or should you consider the more heavily discounted CEFs in underperforming sectors that might be turning around? At this point in the market correction, the question that most investors are grappling with, if they want to stay invested in the markets, is whether to stick with the stocks that have worked in the past or do you play a rotation into stocks which have been weak this year and are already in their own bear market? In the world of equity CEFs, the same could be said. There are funds that are seeing great support and seem to bounce back immediately when the markets turn up. And then there are funds that are in a deep freeze and with little to no interest even when the markets turn around. However, based on my research which takes into account market price valuations (discounts and premiums) as well as historic one-year, three-year and five-year NAV performances, not all of the top-performing CEFs present good values now and some of the bottom-performing CEFs offer much better risk/reward despite their poor NAV and market price performances. In my portfolio, it’s best to have exposure to both because despite the urge to go back to what has worked all year, there are signs that a rotation is afoot. Of course, we may be in for a more difficult period all the way around and if that’s the case, then cash is your best alternative. Top-Performing CEFs To Buy And Sell The first step in this analysis is to take a look at the top-performing funds at the NAV level and see which funds may present an opportunity and which funds may be getting ahead of themselves. So here are the top 35 or so equity CEFs out of roughly 100 I follow, sorted by their year-to-date total return NAV performance through September 3, 2015. Funds in green (all of them) have outperformed the S&P 500, as represented by the SPDR S&P 500 Trust (NYSEARCA: SPY ) . YTD, SPY is down -3.9%, including dividends. (click to enlarge) As has been the case most of the year, the healthcare-related equity CEFs are way out in front with the Tekla funds, (NYSE: HQL ) and (NYSE: HQH ), leading the way. However, one top five performing fund that I have been recommending for the past couple years, The Gabelli Healthcare & WellnessRX fund (NYSE: GRX ) , $10.35 market price, 12.06 NAV, -14.2% discount, 5.0% current market yield , has dropped to its widest discount since initiating a regular $0.10/share quarterly distribution back in June of 2012. (click to enlarge) Since initiating the distribution, GRX has raised its distribution twice to $0.12/share in 2014 and then to $0.13/share in 2015 (5.0% annualized) all the while distributing significant capital gains each year as well. And yet none of this seems to help GRX’s market price despite a NAV that has outperformed the Nasdaq-100 since 2012. That’s right, GRX’s NAV has outperformed the NASDAQ-100 index, 93.6% to 91.3% since December 31, 2011. And if investors would only stop and think that this fund also has been yielding over 10% each year going back to 2012, if you included all distributions and capital gains, then maybe they would treat GRX with a little more respect than a -14.2% discount, one of the widest of all CEFs. As it is, you can pick up one of the best-performing CEFs at the NAV level and receive a windfall 5% current market yield (windfall means you get a higher market yield than the fund is paying on its NAV). And, in case you think GRX is only about healthcare and thus may be too sector-specific, the wellness and nutrition part of the fund’s investment strategy means that half its equity portfolio is actually in consumer staple names, mostly foods. This is why I picked GRX as a must-own fund because you can take a relatively large position in it knowing that you have diversification beyond just biotech, healthcare providers, healthcare equipment and other healthcare services. Oh, and a final note on GRX. Five months ago in early April I wrote this article, The Insanity Of CEF Investors , in which I said that it wouldn’t be long before GRX’s NAV would overtake the PIMCO Global Stocks Plus & Income fund’s (NYSE: PGP ) NAV, despite the fact that PGP traded at a market price over twice that of GRX at the time (PGP has since dropped from $22.83 to a current $16.77). Note: See above for PGP’s position in the table. And how has that prediction turned out? Today, GRX’s NAV is $12.06 while PGP’s NAV is $11.74 and I don’t think GRX will ever look back. So I ask you, does nobody get this? Does nobody understand that a fund’s distribution comes from its NAV and, if the NAV is eroding, then an outsized distribution becomes a heavier and heavier ball and chain, further eroding the NAV? It’s just amazing that investors don’t get this and they continue to buy funds (not just PGP) at premium valuations that are seeing continuous NAV erosion over the years. Time To Rebalance The Eaton Vance Option Income Funds By far the best performing option income funds this year at the NAV and market price levels have been from Eaton Vance. This has actually been going on for the last couple years and for those readers who took my advice beginning in 2011 and loaded up on these funds when they were at up to -16% discount, it has been a great ride. Looking back at the table above, five out of the top 20 funds are from Eaton Vance and their market price performances have, for the most part, been even better. However, their popularity has gotten so widespread that one fund, the Eaton Vance Tax-Managed Buy/Write fund (NYSE: ETB ) , $15.98 market price, $15.24 NAV, 4.9% premium, 8.1% current market yield , has moved solidly into an overvaluation position based on its premium market price of 4.9%. A premium market price wouldn’t necessarily trigger a sell recommendation, but compared to most of the other Eaton Vance option income funds, ETB has a lagging NAV as well as one of the lowest yields of all the Eaton Vance funds. In other words, it would make a lot more sense to swap out of ETB at a 4.9% premium and into a couple other Eaton Vance’s option income funds at much lower valuations, higher yields and better NAV performances. The ones I would recommend are the Eaton Vance Tax-Managed Diversified Equity Income fund (NYSE: ETY ) , $10.87 market price, $11.61 NAV, -6.4% discount, 9.3% current market yield, or the Eaton Vance Enhanced Equity Income fund II (NYSE: EOS ) , $13.12 market price, $13.99 NAV, -6.2% discount, 8.0% current market yield . I would also consider (NYSE: ETV ) and (NYSE: ETW ) as swap-into candidates, but they also trade at narrower discounts. The Eaton Vance option income funds get a lot of buy interest when the markets rebound, primarily because they all own many of the same high-flying technology names that institutions like to pile into when the markets turn up. Names like Apple (NASDAQ: AAPL ) , Amazon (NASDAQ: AMZN ) , Facebook (NASDAQ: FB ) , Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) and Priceline (NASDAQ: PCLN ) are among many of the Eaton Vance option fund’s top holdings. However, if these Nasdaq generals fall out of favor, then you can expect that the more richly valued Eaton Vance option income funds will probably see their discounts widen as well, especially when you consider that most other equity CEFs have fallen to double digit discounts in this market environment. Other Equity CEFs With Strong Buy Interest The Eaton Vance option income funds aren’t the only funds I’ve noticed that get a lot of buy interest when the markets turn up. One fund that shows up in the top 20 list above is the BlackRock Enhanced Capital And Income fund (NYSE: CII ) , $13.86 market price, $14.89 NAV, -6.9% discount, 8.7% current market yield . This is quite a change for CII, a fund you couldn’t give away when it was cutting its distribution not that long ago. And finally, one global fund, the Voya Global Advantage And Premium Opportunity fund (NYSE: IGA ) , $11.07 market price, $11.88 NAV, -6.8% discount, 10.1% current market yield , also appears to catch a bid when the markets firm. I would keep my eye on all of these funds when the inevitable bounce occurs after a market sell-off. CEFs Which Could Benefit In a Rotation Though the trend has been to buy the historically strong stocks and funds when the markets turn up, I’ve noticed that there seems to be less conviction each time that occurs now. At the same time, some of the down and out stocks/funds that used to be in free fall seem to be holding up better on each downturn. If that’s the case, then it may be time to include some of the more severe laggards in equity CEFs as the selling pressure abates. Most of these are in the commodity sectors, particularly energy and energy MLPs, but they also represent a number of utility funds as well. The following list of equity CEFs represents the bottom 35 or so funds that have seen their NAVs lag the most this year. All of these funds show red NAV total return performances, that is they lag the SPY’s -3.9% total return. (click to enlarge) The one fund that jumps out at me that has historically been one of the best performing CEFs over the years is the Cohen & Steers Infrastructure fund (NYSE: UTF ) , $19.20 market price, $23.15 NAV, -17.1% discount, 8.3% current market yield . At an unbelievable -17.1% discount, UTF is a great fund that has gotten caught up in the downdraft of the global utility and infrastructure stock sectors despite showing superb NAV total return performance on a longer three-year and five-year term basis. Surprisingly, UTF is one of the more volatile funds despite its large market cap (for a CEF) at almost $2.8 billion, $2 billion of which is in net assets. Just to show you where a -17.1% discount ranks, that would put UTF in the bottom 20 equity CEFs with the widest discounts, joining most of the emerging market and emerging market debt CEFs. That is a ridiculous discount for a fund with a track record as strong as UTF’s. Since 2012, UTF’s NAV is up a very impressive 58.5% even including this year’s -7.1% drop. So don’t confuse a utility and infrastructure CEF like UTF as being boring. Leverage can turbo charge UTF’s portfolio of global utility stocks and the fund can see strong NAV and market price performance as much on the way up as on the way down. In fact, UTF raised its distribution from $0.37/share to $0.40/share earlier this year after a great 2013 and 2014, and combined with that extreme discount you can get a windfall 8.3% current market yield on a fund that only has to support a 6.9% NAV yield. Now that is attractive. When I see the crap CEFs that can trade at premium valuations that have historically destroyed their NAVs, you just wonder what someone is thinking when they sell UTF at a -17%-plus discount. Of course, that’s just it…most don’t know that they’re selling a fund around $19 that has a liquidation value of around $23. A Utility and Energy MLP CEF On Its Knees Another equity CEF that doesn’t make a lot of sense to me despite having a very weak NAV performance so far this year is the Duff & Phelps Global Utility Income fund (NYSE: DPG ) , $16.05 market price, $19.01 NAV, -15.6% discount, 8.7% current market yield . The reason why it doesn’t make a lot of sense is that a similar CEF from Duff & Phelps , the DNP Select Income fund (NYSE: DNP ) , can trade at over a 15% market price premium, despite having a lot of overlap with DPG in its utility holdings. The major difference between the two funds is that DPG has a larger exposure to energy MLPs (33% vs 14% for DNP) while DNP includes about 15% of its portfolio in fixed income corporate bonds of utility companies. DPG also is more global than DNP but why this would account for over a 30% valuation difference between the two funds is a head scratcher. I first wrote about DPG two years ago in September of 2013 in this article, Terrific Opportunity In A Duff & Phelps Utility Fund . At the time, DPG was trading at a -13.3% discount ($18.22 market price, $21.01 NAV) while DNP was trading at a 10.9% premium, so the valuation difference has just widened since then. Certainly, DNP has the longer track record and perhaps has a less volatile NAV than DPG due primarily to its corporate bond exposure, but there is no question that DPG’s portfolio managers use the same research and analysis as DNP’s portfolio managers when they select utility stocks for their fund’s portfolios. So if you owned DNP at a premium valuation and you knew you are not even getting close to the market yield at 8.1% that the fund has to support at a 9.3% NAV yield, wouldn’t it make sense to go into the other fund and get a higher windfall 8.7% market yield when DPG only has to support a 7.4% NAV yield? I would. Obviously, both funds have seen serious NAV depreciation this year but it’s certainly going to be a lot easier for a fund to support a 7.4% NAV yield than a 9.3% NAV yield. And though DPG’s NAV is down -17.5% on a total return basis YTD and a sobering -20.5% on a pure NAV depreciation basis, i.e. not including distributions, the fund’s NAV is still roughly where it came public back in 2011 at $19.07 even after paying $5.60 in total distributions. In other words, there is little danger of DPG cutting its distribution anytime soon unless the global utility sector goes into a deeper bear market than it’s already in. DPG goes ex-dividend on September 11th at a $0.35/share. Both funds use leverage in their high yielding utility, telecommunications, energy MLP and corporate bond portfolios. The one sector I would keep an eye on is the energy MLP sector. After the collapse energy MLP’s have suffered this year, if there is any indication that sector is firming up, which arguably we are seeing already, then I believe that will be your sign that it is safe to go into DPG. At a -15.6% discount, DPG’s market price has priced in far worse than a bear market already. Conclusion Do you stick with what’s worked in the past or do you try and bottom fish? I believe you should be looking at both if you want to up your equity CEF exposure (and income) in the markets right now. So to summarize, here are the funds that have been working this year and should bounce when the markets rebound: GRX – Gabelli Healthcare & WellnessRX fund ETY – Eaton Vance Tax-Managed Diversified Equity Income fund EOS – Eaton Vance Enhanced Equity Income fund II CII – BlackRock Enhanced Capital And Income fund IGA – Voya Global Advantage And Premium Opportunity fund Note: I would be swapping ou t of ETB. And here are the funds I believe present the best risk/reward based on a rotation to underperforming sectors: UTF – Cohen & Steers Infrastructure fund DPG – Duff & Phelps Global Utility Income fund Disclosure: I am/we are long GRX, ETY, EOS, CII, IGA, UTF, DPG. (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.

Strategic Asia Investment Approach: Market Vectors India Small-Cap Index ETF

Summary Investing in the Market Vectors India Small-Cap Index ETF is one of the most strategic means for investors to profit from India’s economic growth. The earnings of the fund’s top 10 holdings have increased substantially since 2012, yet this has not been reflected in the fund’s price. India’s macroeconomic outlook is extremely impressive, with a projected annual GDP growth of 7.5% for 2016. Consumption in India is rising substantially. This trend is relevant for the entire population, regardless of socioeconomic status. India’s economy is an excellent option for investment in Asia. Having spent a year there collectively studying and volunteering, I was able to witness firsthand the substantial economic growth in the country. India has the world’s largest youth population , a favorable demographic position given China’s again population. This strength in numbers is also edified by population that I would characterize as highly ambitious, and a key driver of the country’s future economic growth. I have determined that investing in the Market Vectors India Small-Cap Index ETF (NYSEARCA: SCIF ) is one of the most strategic means for investors to profit from India’s economic growth. This outlook stems from the collective benefits of low valuation and excellent financial performance. India is an economic gold mine, and the only challenge I foresee is discerning between a good ETF and an excellent ETF. SCIF data by YCharts. The majority of the fund’s top ten holdings have consistently increase their earnings since 2012, yet this has not been reflected in the fund’s price. Moreover, recent financial performance of the fund’s top holdings clearly displays that a reconciliation of the fund’s price is befitting. This fund is certainly undervalued. Valuation: Small-Cap Approach is Most Strategic The fund’s current valuation is extremely low when compared to the iShares MSCI India ETF (BATS: INDA ), thus verifying that the small cap approach is a more strategic means to gain exposure to India. This is verified not only by its valuation, but also an examination of the earnings of the fund’s holdings. The fund’s price has increased substantially since 2014, yet the valuation is still incredibly low. Top 10 Holdings Some highlights of the fund’s holdings, affirming the prestige and upside potential of this fund include the following: Consistent Financial Performance : 7 out of 10 of the fund’s top holdings were able to consistently increase in net income and net revenue since 2012. High Growth : The average increase in net revenue and net income, excluding NCC Ltd., was 33.3% and 44.6% respectively. Low Valuation : The average P/E for the fund’s top holdings, based on the valuation of the India listings, is 25. This displays that the fund’s has upside potential based on the reconciliation of its P/E. The higher valuation of other ETFs in India further verifies this. India’s Macroeconomic Outlook: A Bullish Sentiment is Befitting Annual GDP Growth : India’s annual GDP growth recently expanded to 7% during the 2nd quarter of 2015, and is projected to increase to 7.5% by the 2nd quarter of 2016. Marketing to the Bottom of the Pyramid : During my time in India, I lived in rural areas where houses did not have running water, and only had electricity for two hours every day. Consumption is still king in India, as these same households also had internet, cell phones, and TVs. This demographic, coupled with the affluent population of India, proves that the trends of consumption are relevant to the entire population. Consumption Growth : Consumption has clearly been on the rise in India since 2012, and Trading Economics has made the following projections regarding consumption growth during the next twelve months. Consumer Spending will increase by 6.7% Disposable personal income will increase by 20.2% Inflation will remain near 3.8% (click to enlarge) Source: Trading Economics . Small-Cap Approach : This approach seems to be the most strategic means to gain exposure to India’s economic growth, as I have witnessed the strength of SMEs in India, and particularly the benefits of microfinance. The financials and valuation previously presented further display the advantage of this approach. Exports : Exports are projected to increase by 12.4% during the next twelve months. Conclusion I recommend the Market Vectors India Small-Cap Index ETF as a strategic means for investors to gain exposure to India’s economic growth. I will be focusing on the EGShares India Small-Cap ETF (NYSEARCA: SCIN ) in another article, to determine the relative effectiveness of this fund as an appropriate vehicle to gain exposure to India. Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in SCIF over the next 72 hours. (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.