Whenever markets pull back, as they did yesterday, I look at my data base to see which no load funds/ETFs go against the grain by staying even or actually going up.

In the name of diversification, I always like to own positions that are following an uptrend strongly, yet have the ability to resist sell offs. Sure, it’s what every investor is looking for. It worked for us yesterday, as most of the super stars of the recent past gave back some gains, but our position in XBI (Healthcare) actually gained a strong 1.73%.

I have noticed a reoccurrence of this over past few months, as the S&P; 500 pulled back, XBI advanced. Take a look at the chart:

Just about after the August sell off, a “disconnect” between the S&P; 500 and XBI occurred, which was just about the time we entered this position. While no one knows if this will continue, it has worked well for my clients’ holdings over the past couple of months.

This is not a recommendation for you to follow suit and jump in, but merely a suggestion for you to do your own research to see if this ETF makes sense to you.

With Monday’s great up move to start the final quarter of 2007, I have updated the ETF Master list with yesterday’s closing prices to give you more recent data to work with. You can download the file at:

http://www.successful-investment.com/SSTables/ETFMaster100207.pdf

Despite the modest pullback yesterday, the uptrend remains intact with our domestic Trend Tracking Index (TTI) now having advanced to +6.46% above its long-term trend line while the international TTI jumped to +5.10%.

Morningstar re-launched its Stewardship Grades for Mutual Funds a few days ago designed to reward the industry’s best stewardship practices. So far, it has shown Clipper funds (CFIMX) to be a standard bearer for corporate governance.

OK, I am all for improvements in this area, but I don’t select a fund just based on these new criteria. Take a look at CFIMX, which has net assets of over $3 billion. Year-to-date (as of 8/31/07) it has a negative return of -1.09% according to Yahoo Finance.

Hmm, let’s assume for a moment that the average investor has $50k invested in this fund. That means, with over $3 billion in assets, there are about 60,000 investors who are exposed to a fund with A1 corporate ethics, whose portfolios have gone down in value.

Comparing this fund with the S&P; 500, and one of our current holdings, WLGYX, and you can clearly see that this is, to say it politely, not a fund you want to own. Take a look at the chart:




To be clear, out of 117 Large Blend funds in my data base, this one ranks in the bottom 5. The top ones show a YTD return of around +19%.

My point is simply that it is noble to support causes you believe in. However, it is important to distinguish between being engaged in worthwhile endeavors and making decisions which may jeopardize your portfolio growth along with your future retirement.

Motley Fool featured an article titled “Beat the Eggheads at Goldman Sachs,” which shed some light on how the quantitative approach to investing works. It’s entertaining reading especially once you realize that top pros in the business were getting slaughtered in August.

Yes, August was a difficult month with the markets pulling back, but the main reason things went so bad for the quant folks is the use of extreme leverage to enhance returns/losses. Sure, you may have used enhanced ETFs (up to 200%) yourself, but I am willing to bet that you only had a portion of your portfolio exposed and that you watched your position very carefully by having an exit point in place.

As the article states, some of the “quants” used 6 times leverage on 100% of the portfolio, apparently with no stop losses, so even small market fluctuations had a huge impact on gains and losses alike. If you want to find out how not to invest, this article is for you.

With my upcoming annual trip to Germany (Oct. 7 – Oct. 21), some readers have asked how I manage my business affairs when abroad. Thanks to the advances in technology and communications, especially over the past 7 years or so, I am able to conduct business from any location as long as I have internet access.

My first step to freeing myself from being tied down to one office and becoming mobile was the addition of a high speed duplex scanner, which I invested in a few years ago. As a result, my office became 100% paperless, which allowed me to travel and have instant access to any and all client documents and files.

My laptop computer represents an exact duplicate of my desk top, so that placing buy/sell trades and producing the weekly StatSheet can be done effectively even from a dial-up connection. New account applications arriving at my office during my absence are being faxed to me for review.

With the 9-hour time difference, my responses to e-mails will be a little slower and a day late as will be the posts to my blog. During that 2-week period, I discourage phone calls and prefer e-mail communications.

Having done this trip for over 30 years, my biggest fear recently has always been a potential failure of my laptop. I have addressed that problem by signing up with gotomypc, which allows me to access and work on my office computer from any PC anywhere.

In a way, planning for my yearly trip is not unlike investing. You figure out what your goals are, select your investments and provide for contingencies in case the market goes against you.

The picture above shows some of the special plugs, converters and cables that will be my companion so that I can function in a world of different electrical standards.

Recently, a reader mentioned that he was using my M-Index to pick bottom of the barrel ETFs, namely real estate related beaten down indexes. My personal preference is to buy ETFs that are on the way up and not trying to catch the proverbial knife.

Especially, real estate appears to be the next super bubble, which may take many years to unwind. Case in point is the Chicago Mercantile Exchange’s (CME) extension of the futures market on the S&P; Case-Shiller Home Price Indexes from one to five years. Now, futures investors can make bets on where home prices will be as far out as 2011. Matthew Hougan of Index Universe featured the gloom and doom tables along with their estimated percentage change in real estate prices on the most recent futures sale on the CME:

Matthew makes 2 important points:

1. Read that chart carefully. Over the next 12 months, traders expect prices to fall in each of these cities by 5-13%. By November 2009, prices will be down more than 10 percent in every city save Chicago. By November 2010, prices will be down 20% in Miami and San Francisco, and 15%+ in San Diego, Las Vegas and Washington, D.C. It gets worse in 2011.

2. As a point of emphasis, remember that these are priced in actual dollars and do not take into account inflation. Factor in 3% annual inflation and the real value of these homes falls a further 11.5% by 2011, putting prices in Miami and San Francisco down 37% and 36% respectively on a real-dollar basis. Who said house prices never fall…

Of course, there is no guarantee that this will actually happen to the exact degree, because traders are notorious for being wrong. However, my feeling is that there is certainly some validity to this down trend given what happened with the dot com bubble, which took years to unwind.