The ETF/No Load Fund Tracker—Monthly Review—January 31, 2011

A Hot January For Equity ETFs

While 2011 didn’t offer much hope for investors, 2012 got off to an unexpectedly great start with U.S. major market ETFs leading the way, gaining significant traction to move further into bull territory. The S&P 500 gained over 4% for the month to have its best January since 1997 while other indices also performed well.

Nevertheless, the main focus is on developments in Europe, especially as they pertain to Greece.

Negotiations between Greek leaders and bondholders leaders seem to have no end, putting its March bailout payment in jeopardy. By the end of January, a 70 percent haircut was considered although bondholders are pushing for new 30-year bonds with a favorable interest rate, causing further consternation. With the IMF and others also throwing their two cents in on conditions of the potential deal, it’s a messy stew with too many chefs.

Not only is Greece feeling the heat, but Portugal is heading down a dark road. With bond yields tipping over 17% and a debt-to-GDP ratio approaching 120%, Portugal might soon find itself in Greek shoes.

If Portugal can’t restore investor confidence and successfully implement austerity measures, it will have to restructure its debt, causing further strain on Europe’s already limited funding capacity. Although the Eurozone can arguably bail out Greece and Portugal, this is simply out of the question for Spain and Italy, whose combined debt nears $4 trillion.

Although Europe is falling apart, solid upward momentum, especially during the first few trading days of 2012, has prompted me to add some additional equity/sector ETF exposure in addition to bond ETFs. This brings us to an invested level of roughly 90%, depending on portfolio size.

Given Europe’s continued lack of progress in solving the debt crisis, my goal is mimic our ETF Model Portfolio #2 since it is more conservative with a 40% holding in bond ETFs. Treasury Inflation Protected Securities (TIPS) are particularly attractive since they outperformed the S&P 500 during a sluggish 2011. With holdings in Vanguard Total Bond Market ETF (BND) and Vanguard Short-Term Bond ETF (BSV), we have positioned ourselves to absorb any potential negative shocks to our equity ETF allocation possibly due to European uncertainty.

As far as our equity exposure is concerned, we have added some new equity ETF names to take advantage of the upside. Our Domestic TTI remained in bull territory over 4% as the chart below shows:

For instance, we have replaced Vanguard Total Stock Market ETF (VTI) with iShares Dow Jones Select Dividend (DVY), which yields 3.44% and has held up better during market corrections. Some REIT exposure via Vanguard REIT Index ETF (VNQ) has been a good choice for us, as there have been some solid positive jumps. Also, one of our mainstay holdings, Consumer Staples Select Sector SPDR (XLP), has been on an upswing.

Despite positive trends stateside, the international sphere isn’t as inviting for equity exposure. Although the International TTI is now barely in the green, I am hesitant to add international ETF exposure until I see a prolonged upward shift. The International TTI’s position relative to its long-term trend line greatly improved over the course of January, but my current preference is to add a country ETF, a small gold position, or possibly both. While gold took a dive during the second half of 2011, it has rebounded nicely as the uncertainties in Europe have not disappeared.

All in all, Europe remains front and center as the situation appears to be worsening by the day. Futile attempts by incompetent politicians to offer endless band aid approaches are causing me to remain conservative in my investment stance. That includes having my trailing sell stops ready to be executed should the markets dictate that it is in our best interest to do so.

ETF/No Load Fund Tracker Newsletter For Friday, February 3, 2012

ETF/No Load Fund Tracker StatSheet

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THE LINK TO OUR CURRENT ETF/MUTUAL FUND STATSHEET IS:

https://theetfbully.com/2012/02/weekly-statsheet-for-the-etfno-load-fund-tracker-newsletter-updated-through-02022012/

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Market Commentary

Friday, February 3, 2012

BULLS KEEP ROARING FOR DOMESTIC ETFS

Markets continued their upward trajectory, pushing more into bull territory. The S&P 500 jumped 1.46% while the NASDAQ rose 1.61% to hit its highest level since December 2000. The optimism was also shared by European and Asian indices.

More evidence of pendulum behavior in Treasury yields, the 10-year Treasury shot up to 1.95%. Like I’ve said before, although volatility has largely been absent lately, we are in a relatively risky investment environment considering what’s going on in Europe.

In the major news of the day, U.S. unemployment fell to 8.3% in January, the lowest level since February 2009. Nevertheless, there was a decrease in labor force participation, although the Bureau of Labor Statistics says that this is due to population growth among the elderly and young who have lower rates of labor force participation (see page 6 of this). While there’s still a long way to go on the employment front, it’s definitely an encouraging sign.

On the international stage, it looks like Greece might be coming to a close on talks with its creditors. Nonetheless, labor reform is the contentious issue as various parties are putting pressure on Greece to institute wage and pension cuts.

To make things worse, debt inspectors say that Greece may require additional funds on the order of roughly $20 billion just to bring its debt-to GDP ratio down to 120%. As the clock ticks for Greece to obtain approval for a second bailout package, I can only wonder if the Greeks will agree to a new deal, and if so, whether it can get itself back on the financial straight and narrow or end up being debt slaves to the European banks forever.

A sign that economic weakness in the Eurozone persists, December retail sales were down 0.4% in the region despite the fact that it was the holiday season. Markets might be responding positively at the moment, but the real economy continues to suffer.

While our Domestic TTI remains in positive territory by a solid +5.21%, the International TTI finally broke above its trend line by +2.48%. While the International TTI is now positive, I’m not yet comfortable issuing a buy signal for international ETFs, as I want to see a little more stability over the coming few trading days.

The picture is still gloomy internationally and not much better in the U.S. But given recent trends, we have to participate on some of this upside while being prepared for a negative shock by using our trailing stop loss points.

Have a great week.

Ulli…

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READER Q & A FOR THE WEEK

All Reader Q & A’s are listed at our web site!
Check it out at:

http://www.successful-investment.com/q&a.php

A note from reader Don:

Q: Ulli: I am sitting with a nice profit with VEU and VNQ. 8-10% range. With the market widely fluctuating, at what point would one consider taking profits and buying back later?

I hate to see this disappear by having a 7% trailing stop should the market go down. I realize there may not be a perfect answer to this. Thanks for the excellent site.

A: Don: You are right, there is no perfect answer. My preference is to use trailing sell stops as my signal when to take profits or limit losses, whichever case it may be. If you’re happy with your current gains and are worried about giving them back, simply take them.

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