Tag Archives: power

Financial Markets Have Not Been Handing Out Participation Trophies

In the financial markets, different asset types are always competing for our investing dollars. Moreover, when a particular asset class like U.S. stocks has only a handful of companies holding up a benchmark like the S&P 500, the probability for a revolt by the collective will of all corporate shares rises immensely. This is precisely what transpired in the August-September sell-off. The internal weakness across components of popular benchmarks like the Russell 1000, S&P 500 and NASDAQ 100 should not be ignored. I watch more football than I should. It may have something to do with the ability to see any game or any highlight on DirecTV in real time. Or perhaps there are few parenting responsibilities with my 19-year old daughter attending college 60 miles south of our Orange County home. Or maybe it’s a semi-conscious desire to avoid working out at the nearby LA Fitness. Regardless, I could barely keep my eyes open during Monday night’s contest between the Colts and the Panthers. Tedious? I thought it was a “Snooze Fest.” I found myself cheering more for a Kia car commercial than the yawn producing match-up on the field. In case you missed the advertisement, the camera focuses in on a father who is beaming with pride. His son’s team has just finished an entire season without losing a single game. The dad asks his child to see the trophy and it reads, “Participant.” Disdainfully, he proceeds to remove the flimsy tag and write in the word, “Champs.” Yes, I am one of those old school thinkers who believes that participation is its own reward and that it does not need to be acknowledged. You should get an “A” for performance, not for effort. You should get a raise for what you bring to a conference table beyond your backside. “Showing up” is not deserving of the same pay, the same grades or the same accolades as those who are achieving more. My ideas of morality and social sensibility notwithstanding, there are times when things still get out of whack. Imagine a classroom where two standouts receive “As” and thirty-two others receive “Fs.” Where are the Bs, Cs and Ds? Chances are, a teacher is failing his/her students. Similarly, picture a company with three executives earning tens of millions and three thousand employees earning minimum wage. Where are the highly compensated folks, the relatively well-paid skilled producers and the modestly compensated workers? In this scenario, the extent of the income inequality is likely to end in revolt. In the financial markets, different asset types are always competing for our investing dollars. Moreover, when a particular asset class like U.S. stocks has only a handful of companies holding up a benchmark like the S&P 500, the probability for a revolt by the collective will of all corporate shares rises immensely. This is precisely what transpired in the August-September sell-off. Market participation (a.k.a. “market breadth”) broke down well in advance of the sell-off. Of course, the October rally has seen participation in a bullish uptrend improve dramatically. Nearly 72% of S&P 500 stocks now exhibit bullish uptrends. That’s not far from the 75% participation that existed in the first five months of 2015. On the other hand, equal-weighted ETFs continuing to warn that things are less than hunky-dory. Consider the performance of the Guggenheim S&P 500 Equal Weight ETF (NYSEARCA: RSP ) at different periods in the current U.S. stock bull. Year-to-date, RSP is underperforming the S&P 500 SPDR Trust ETF (NYSEARCA: SPY ). This suggests that market-cap leading components (e.g., Facebook (NASDAQ: FB ), Apple (NASDAQ: AAPL ), Microsoft (NASDAQ: MSFT ), etc.) have been doing the heavy sledding and that, when one weights all of the companies in the S&P 500 evenly, the bull market is less healthy across the entire landscape than many would like to admit. Now gander at the outperformance of RSP over SPY in the three years prior. During the three-year run (2012-2014), strong gains across the participant components of the S&P 500 indicated a broader willingness to take risk than in the present environment. Ironically, the circumstances within the NASDAQ 100 are eerily similar. Take a look at the performance of the First Trust NASDAQ-100 Equal Weight Index ETF (NASDAQ: QQEW ) versus the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) at different periods. Year-to-date, QQEW is underperforming QQQ. Once again, this is evidence of less-than-ideal participation. During the three years prior, however, QQEW kept pace with QQQ. The relative underperformance of equal-weighted ETFs can be observed across numerous sectors as well. Year-to-date since the summertime, the G uggenheim S&P Equal Weight Technology ETF (NYSEARCA: RYT ) is struggling relative to the market-cap weighted Technology Select Sector SPDR ETF (NYSEARCA: XLK ). Less participation (a.k.a. less market breadth) is typically an undesirable omen. Once again, take note of the healthier participation in the previous three years. None of these observations definitively prove that the current rally is doomed in the near-term. On the contrary. As discussed last in last week’s commentary on our current allocation for moderate growth and income clients , we embraced the successful retest of the August lows for SPY and QQQ in late September. We bumped the 50% equity component up to 60%, which is roughly 5% shy of a 65-35 standard. That said, the internal weakness across components of popular benchmarks like the Russell 1000, S&P 500 and NASDAQ 100 should not be ignored. If that weakness intensifies, as it did in in May, June and July of 2015, we would likely raise cash levels as we did in the summertime. What’s more, investors should keep in mind that bond investors are still somewhat skeptical about the sustainability of the stock rally beyond calendar year 2015. The spread between high yield (BBB) and comparable treasuries is still elevated and the spread is still greater than what it was in mid-September. (click to enlarge) For Gary’s latest podcast, click here . Disclosure: 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.

Top And Flop ETFs Of October

After a rocky Q3, the fourth quarter started off on a decent note, with the first month of the quarter – October – stepping up on gas. The U.S. markets were in green, thanks to a delayed Fed lift-off possibility at the end of September, no more economic shockers from China (the root cause of the Q3 massacre of the global market) and solid tech earnings. U.S. stocks delivered the largest monthly returns in four years. Among the top ETFs, investors saw the S&P 500-based SPY gain about 8.5%, Dow Jones-based DIA advance 8.6% and Nasdaq-based QQQ have a stellar rally and pop about 11.4% in October. While QQQ surged from superb tech earnings, DIA got positive cues from the oil price recovery, though for a shorter period. Though the bullish sentiments eased later in the month on the return of Fed-related worries, moderate corporate earnings and hopes for further policy easing across the globe (especially by the ECB) maintained the upbeat momentum. That being said, below we highlight the best and worst ETF performers of October (returns are mentioned as per xtf.com ). Global X MSCI Argentina ETF (NYSEARCA: ARGT ) – Up 25.1% Argentina stocks were a surprise winner in October on election euphoria. The election on October 25 did not however succeed in bringing out a victor and led to a runoff. In fact, Conservative opposition’s pro-business candidate Mauricio Macri’s unexpected strength in the poll box set the stage for a second round on November 22 . Hopes of a pro-growth leader and the ongoing election-related spending fueled Argentina’s stocks and the related ETF. KraneShares CSI China Internet ETF (NASDAQ: KWEB ) – Up 20.7% Overall, the Chinese stocks are back with a bang after the horrendous sell-off in the August-September period, on compelling valuation and the government accommodative policies. Of the whole set, the Chinese Internet stocks deserve a special mention as these are soaring on solid earnings. Be it Alibaba Group (NYSE: BABA ) or Baidu (NASDAQ: BIDU ), most stocks witnessed jump in its share prices post earnings release and helped KWEB gain over 20% in the month. Several other China-based ETFs including Guggenheim China Technology ETF (NYSEARCA: CQQQ ), PowerShares Golden Dragon China Portfolio (NYSEARCA: PGJ ), and KraneShares CSI China Five Year Plan ETF (NYSEARCA: KFYP ) returned over 19% in the month. Global X Copper Miners ETF (NYSEARCA: COPX ) – Up 19.0% Copper prices held up well in October on the possibility of an easing supply glut, fresh Chinese rate cuts as well as Beijing’s pro-growth reforms. Announcements by Freeport-McMoRan (NYSE: FCX ) and Glencore ( OTCPK:GLNCY ), the second and third largest copper producing companies worldwide, for considerable output cuts, boosted the price of the red metal. Moreover, China matters the most for this metal as the country is the world’s biggest consumer of this industrial metal, making up roughly 40% of global copper demand. All these tailwinds lifted the copper mining stocks and ETFs in October. Notably, mining ETFs generally trade as a leveraged play on the underlying metal and thus see a higher jump. C-Tracks on Citi Volatility Index ETN (NYSEARCA: CVOL ) – Down 45.2% Volatility products lost the most in October, as these tend to underperform when markets are rising or fear levels over the future are low, both of which were the flavors of October, though the trends began to alter at end the month. The Fed-induced bounce was behind the volatility crash in October. As such, CVOL linked to the Citi Volatility Index Total Return, plunged about 45% last month. iPath Dow Jones-UBS Natural Gas ETN (NYSEARCA: GAZ ) – Down 25.8% Natural gas prices fell through the floor in October on higher inventory and the buzz that this winter might be milder than the prior two. El Niño, a warm-water phenomenon that blows off the Pacific coast of South America, is likely to be stronger and keep the Northern Hemisphere relatively warmer. As almost 50% of Americans use natural gas for heating purposes, these fundamentals dented the pricing of the commodity. As a result, the product shed about 25.8%. iShares Currency Hedged MSCI ACWI ETF (NYSEARCA: HACW ) – Down 8.3% Since the U.S. dollar dipped early in October, the currency-hedging technique fell out of investor favor. As a result, this ETF lost about 8% in the month. However, investors should note that with the Fed rate hike talks on the table again, and China, Euro zone and Japan mulling over further policy easing, the flair for currency hedging is brightening up. Original Post

Ivy Portfolio November Update

The Ivy Portfolio spreadsheets track the 10-month moving average signals for two portfolios listed in Mebane Faber’s book ” The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets “. Faber discusses 5-, 10-, and 20-security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks both the 5- and 10-ETF Portfolios listed in Faber’s book. When a security is trading below its 10-month simple moving average, the position is listed as “Cash”. When the security is trading above its 10-month simple moving average, the positions is listed as “Invested”. The spreadsheet’s signals update once daily (typically in the late evening), using dividend/split adjusted closing price from Yahoo Finance. The 10-month simple moving average is based on the most recent 10 months, including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10-month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data, you will see differences in the percent an ETF is above/below the 10-month SMA. This could also potentially impact whether an ETF is above or below its 10-month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on October 30th’s adjusted closing prices are below. This month, the Vanguard Total Bond Market ETF (NYSEARCA: BND ), the Vanguard Total Stock Market ETF (NYSEARCA: VTI ) and the Vanguard REIT Index ETF (NYSEARCA: VNQ ) are above their respective moving averages, and the balance of the ETFs, the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ), the Vanguard Small Cap ETF (NYSEARCA: VB ), the SPDR DJ International Real Estate ETF (NYSEARCA: RWX ), the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ), the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ), the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ) and the iShares TIPS Bond ETF (NYSEARCA: TIP ) , are below their respective 10-month moving averages. The spreadsheet also provides quarterly, half-year, and yearly return data, courtesy of Finviz . The return data is useful for those interested in overlaying a momentum strategy with the 10-month SMA strategy: (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10-month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission-free, as each broker limits the selection of commission-free ETFs, and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply, depending on each broker. Below are the 10-month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosure: None.