Even though ETFs represent “only” indexes for just about every conceivable investment orientation does not mean that they don’t have any muscle to propel your portfolio higher. A quick look at my dbase containing over 1,200 no load funds and some 500 ETFs shows that the 2 top performers (based on my M-Index ranking) are ETFs, namely FXI and PGJ.
Disclosure: While we hold small positions in FXI, we have none in PGJ.
It’s not secret that FXI has been the top performer last year; however, its tremendous volatility has kept many investors from taking the plunge. How can you participate in that powerhouse investment without taking too much risk?
For some of my more aggressive clients, I have taken a 10% position. During the recent market roller coaster, FXI lost 6% on some days and gained 5% on others. On balance, the week we purchased it turned out OK with a 5.25% gain.
Here is a plan you can follow if you are aggressive and attracted to the long term prospects of China via an investment in FXI. Ease into the market via a 5% position and, if it goes your way, add another 5%. The crucial part is to have an exit strategy in case this investment goes against you. I recommend a 10% trailing sell stop on your positions.
What’s the risk? If you invested 10% into FXI and got stopped out with a 10% loss, the total effect on your portfolio would be a negative 1%. If, however, FXI moves higher, as in the above example, and gives you an immediate 5% gain, you will have cut your risk in half.
If your risk tolerance is above average, this may very well add some desirable firepower to your portfolio.