1. Moving The Markets
Wall Street closed in the red on Wednesday as traders responded to slightly more hawkish-than-expected minutes from the Federal Reserve. Many members of the Federal Reserve’s policy-setting committee said they could see the central bank trimming its $85-billion-a-month bond-buying program at ‘one of its next few meetings,’ minutes from the October meeting indicate.
In global news, the euro fell sharply on a report saying the European Central Bank was considering a negative deposit rate. Germany’s high current account surplus, which the United States has blamed for hindering the global economy, shrunk in the third quarter, the Finance Ministry said in its monthly report on Thursday. The long-running surplus (of over 6%) has drawn criticism from Washington that Germany is relying too heavily on exports and that Berlin should focus more on boosting domestic demand to put growth on a sounder footing.
Although ETFs have been performing well overall this year, one segment that is doing quite well is that of the actively managed ETFs. Though actively managed ETFs account for a tiny fraction of the $1.5 trillion plus U.S. ETF market, these are slowly gaining popularity with 15 new product launches so far this year. This corner of the ETF market is still in the initial stage of development and often overlooked by investors due to its lower liquidity and higher costs compared with passive funds.
There are a total of 65 unleveraged active ETFs in the space with total AUM of nearly $15 billion. While these funds may not be the popular or liquid (not a good thing in my mind), these could be interesting picks for those investors considering a more active approach and seeking to target the growing aspects of the ETF industry with innovative strategies. Keep in mind, howver, that an actively managed ETF will not protect you in a bear market scenario. Only a move out of the market and to the sidelines will help limit the downside risk.
Let’s review our ETFs in the spotlight:
2. ETFs in the Spotlight
In case you missed the announcement and description of this section, you can read it here again.
It features 10 broadly diversified ETFs from my HighVolume list as posted every Monday. Furthermore, they are screened for the lowest MaxDD% number meaning they have been showing better resistance to temporary sell offs than all others over the past year.
In other words, all of them never triggered their 7.5% sell stop level during this time period, which included a variety of severe market pullbacks but no move into outright bear market territory.
Here are the 10 candidates:
All of them are in “buy” mode meaning their prices are above their respective long term trend lines by the percentage indicated (%M/A).
Now let’s look at the MaxDD% column and review the ETF with the lowest drawdown as an example. As you can see, that would be XLY with the lowest MaxDD% number of -5.73%, which occurred on 11/15/2012.
The recent sell off in the month of June did not affect XLY at all as its “worst” MaxDD% of -5.73% still stands since the November 2012 sell off.
A quick glance at the last column showing the date of occurrences confirms that five of these ETFs had their worst drawdown in November 2012, while the other five were affected by the June 2013 swoon, however, none of them dipped below their -7.5% sell stop.
Year to date, here’s how the above candidates have fared so far:
All ETFs have come off their highs with the market slippage of the past couple of days, but they remain solidly bullish.
3. Domestic Trend Tracking Indexes (TTIs)
Our Trend Tracking Indexes (TTIs) continued to slip and closed the day as follows:
Domestic TTI: +4.13% (previous +4.40%)
International TTI: +6.95% (previous +7.50%)
Disclosure: I am obliged to inform you that I, as well as advisory clients of mine, own some of these listed ETFs. Furthermore, they do not represent a specific investment recommendation for you, they merely show which ETFs from the universe I track are falling within the guidelines specified.
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