Lately, dealing with the specter of potentially rising interest rates has been a frequent question. In “Three ETFs For Rising Interest Rates,” several possibilities are discussed:

We’ve been enjoying historically low interest rates for the last decade … even more so in the last two years. You know the party is going to end at some point. And I’m beginning to suspect the end will come sooner rather than later.

Another thing to consider is the “Daily” part of the name. Leverage in TMV and similar ETFs is reset every day. Over time, this means the leverage factor on your shares could be much more than 300 percent — or much less.

These are certainly 3 alternatives on how to profit in a rising interest rate environment. The last two are clearly designed for aggressive investors only using these ETFs on a short-term trading basis and not as a long-term holding.

These are only some of the possibilities when interest rates are starting to move higher. As trend followers, we have some other options, but they are not apparent at this point.

For example, I could imagine that some currencies (like the dollar) or other asset classes would make a move as well. It’s not that difficult to track if you use my weekly StatSheet as a guide and focus on the %M/A column in the ETF Master List.

The %M/A column shows how far above or below a fund/ETF is currently positioned relative to its own long term trend line (39 week SMA). What you want to look for is an ETF that is currently in negative territory and moving up.

Once the price breaks through its trend line to the upside, which is identified by a positive %M/A number, it indicates a trend change and you could consider taking a position subject to our trailing stop loss rules.

While every investor wants to know in advance what to buy when interest rates head higher, this is not always possible. Let the trends be your guide in filtering out the daily market noise and wait until a clear signal has emerged before taking action.

Disclosure: I have no holdings in the ETFS discussed

Two of the most well known emerging market ETFs are EEM and VWO. If you chart them side by side, they appear almost identical, but are they?

Actually, there are tracking differences more closely described in “Vanguard Sector Funds Get Facelift:”

At the close of February, Vanguard altered the benchmarks on its family of index-backed sector exchange-traded funds and mutual funds.

The 3-months chart above shows a slight edge in favor of VWO, although I can’t be sure that this is due to the above mentioned tracking changes.

Tracking underlying indexes is a complex process, and adding a layer of IRS requirements certainly does not make things easier. Whether over the long term the performance will be affected to such a degree that VWO turns out to be a much better choice than EEM still remains to be seen.

Looking at my data base, I find that that VWO indeed shows slightly better momentum numbers than EEM:

VWO:

M-Index: -1
DD%: -6.8%
MaxDD%: -13.90

EEM:

M-Index: -2
DD%: -7.66%
MaxDD%: -14.78%

The bottom line is that both are good funds to be used with our trend tracking rules, with VWO being a little less volatile.

Disclosure: We currently have positions in one of the funds mentioned above.

Since I’ll be traveling most of this weekend, I won’t be able to post this Sunday. Regular posting will resume on Monday when I return to the office.

MarketWatch had this to say in “Wealth creators vs. wealth destroyers:”

To learn that your mutual-fund firm’s lineup posted negative returns over a decade is one thing; to realize that almost $60 billion of investors’ wealth was wiped out is another matter entirely.

“Results were really influenced by what happened at the start of the decade, when investors rushed to tech and growth and then they crashed,” said Sonya Morris, editorial director at Morningstar.

I continue to be amazed that, even with the benefit of hindsight, the blame is being put on mutual fund companies and not where it really belongs. While I am not a friend of some of the companies mentioned in this article, fund firms are simply following the rules their charter, which dictates that they are to be invested in their area of expertise (large growth, mid-cap, etc.) at all times, so that the public has the opportunity to buy and sell their funds.

In other words, all offered equity funds will always be long in the market, no matter what. While this works well during bullish periods, it will turn into disaster whenever a bear market strikes, especially if it happens twice in a decade. Sure, depending on their stated objectives, some equity funds lost less than others, but they still lost.

Given this known set up, mutual funds are not the wealth destroyer as they were made out to be in this story. The real culprit and destroyer of wealth was the investment approach, if you can call it that, of mindless buying and holding.

All of the above mentioned funds did well in the past decade during times of bullishness. It’s a matter of fact, I owned many of them but only as long as they were trending upwards.

The bottom line is that it’s not always the investment that should be blamed for poor performance; it’s what you do with it that matters.

The lesson learned from the past decade should be that the blame lies with the investment approach and not necessarily with the investment as I pointed out in “Saving A “Good” Mutual Fund From A Bad Ride.”

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

A better than expected unemployment report pushed the major indexes higher with the S&P; 500 gaining 3% for the week.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +4.91% keeping the current buy signal intact. The effective date was June 3, 2009.



The international index has now broken above its long-term trend line by +5.67%. A Buy signal was triggered effective May 11, 2009. We are holding our positions subject to a trailing stop loss.



[Click on charts to enlarge]

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

In an almost identical performance from the prior trading day, the early rally attempt on Wednesday was rebuffed, and the major indexes ended up essentially unchanged.

For the time being, it seems that selling sets in when the S&P; 500 moves to its resistance level in the 1,125 area. Even decent economic news could not prevent the slide.

Maybe it’s the calm before the storm on Friday when the Labor Department issues its nonfarm payroll report. Economists predict a loss of 75,000 jobs in February in part due to the winter storms.

If this number comes in much better, we might see another attempt to break through the S&P;’s resistance level. If it comes in much worse, we could see more acceleration to the downside. Again, there is no reason to make quick, irrational decisions; let the market come to you and execute your sell stops if/when necessary.