ETF/No Load Fund Tracker Newsletter For Friday, August 31, 2012

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Market Commentary

Friday, August 31, 2012


US stocks rallied Friday to cap a disappointingly low volume August with more gains following the US Fed Chairman Ben Bernanke’s speech at Jackson Hole where the US central bankers hinted at more accommodative measures if elevated unemployment levels didn’t come down.

The Dow Jones Industrial Average (DJIA) added 0.7 percent on the day while the S&P 500 Index (SPX) rose 7 points, adding two percent for the month and capping its third straight monthly gain.

Treasuries advanced, pushing 10-year yields to the lowest level in almost four-weeks while 30-year Treasury yields fell to its lowest level since August 7 after Bernanke said US labor market stagnation was a “grave concern” and further bonds purchases by the Federal Reserve remained an option.

While the Fed did not make any definite promises, ex-Fed governor Robert Heller provided a translated version in this video (hat tip to ZeroHedge for this link):

The US dollar sank to its lowest level in more than three months on the last trading day of August after the Fed Chairman said “nontraditional policies” can’t be ruled out if the situation warrants, while addressing economists and central bankers at the Kansas City Fed’s annual symposium at Jackson Hole.

The dollar index, a gauge of the greenback’s strength against six of its global rivals, fell to 81.242, the least since May 21. Down 0.5 percent for the week, the index shaved 1.7 percent on the month.

Meanwhile, European stocks rallied after surging banking stocks pushed indexes into the green territory after US Fed dropped broad hints of another round of asset purchases to boost growth, without giving any time frame.

European economic data calendar was relatively light Friday. The annual consumer price index, a barometer of inflation, accelerated to 2.6 percent in August from 2.4 percent in July while unemployment rate hit an all-time high of 11.3 percent in July.

Spanish stocks emerged as the biggest percentage gainers after media reports suggested ECB board member Benoit Coeure has confirmed that the central bank is working on a way to intervene in the bond markets, particularly in the short maturity segment. The IBEX 35 index jumped 3.1 percent, capping a 10 percent gain for August. Lets’ wait and see if these ideas can be successfully run by the paymaster in charge, namely Germany.

Buoyed by banks, the German DAX 30 index rose 1.1 percent, up 2.9 percent for the month. The French CAC 40 index added 1 percent Friday, marking a 3.7 percent gain for the month. The British FTSE 100 index however bucked the day’s trend as oil firms declined, losing 0.1 percent on the day. On the month, the index added 1.4 percent.

In the ETF space, gold and silver linked funds exploded after Bernanke’s speech. Mining funds outperformed the broad market with the Van Eck Market Vectors Junior Gold Miners ETF (GDXJ) vaulting an incredible 5.45 percent while the Van Eck Market Vectors TR Gold Miners ETF (GDX) surged 4.17 percent. Other precious metal funds like the iShares Silver Trust (SLV) and the Global X Silver Miners ETF (SIL) also made impressive gains, adding 4.59 percent and 5.30 percent, respectively on the day.

Our Domestic Trend Tracking Index (TTI) improved while the international one slipped but remained on the bullish side of the trend line.

Here’s how we ended the month:

Domestic TTI: +3.06% (last week +2.95%)

International TTI: +0.99% (last week +1.69%)

Have a great week.


Disclosure: No holdings



All Reader Q & A’s are listed at our web site!
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A note from reader Frank:

Q: Ulli: Just a question. What is your impression of the Low Volatility ETF’s introduced last year? They are having a marvelous run-up as I can see. SPLV & EEMV have made large jumps this yr alone. I looked and did not find the 6 new funds in your tables but that is possibly my fault for looking too fast.

A: Frank: Yes, the use of low volatility ETFs can be extremely valuable in that you can avoid the sell stop triggers occasionally. I especially like SPLV, which has done better than its index, and I will add it to the data base, since it now features sufficient volume.

Personally, in my advisor practice, I have preferred lower volatility products this year. For example, while my preference has been model portfolio #2, I had substituted DVY for VTI for many clients with the result that we never got stopped out and therefore have handled the usual market fluctuations much better.

Actually, when you chart the S&P, DVY and SPLV, you will see that the less volatile of the 3 have outperformed the index. While I don’t own SPLV at this time, I may very well make it a part of some of the model portfolios in the future.



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