Conservative Investing

Deutsche Bank Expands Holdings of Two Commodity ETFs

2009-10-13T14:17:00.001-06:00

Here's an update to DBA, an agriculture ETF I recommend (and own).

Deutsche Bank to Expand Holdings of Two Commodity-Linked Exchange Traded Funds (Business Wire) 4:00 PM ET 09/30/2009

Deutsche Bank today announced it will increase the number of commodities tracked by the PowerShares DB Commodity Index Tracking Fund (DBC) and the PowerShares DB Agriculture Fund (DBA). The additional commodities will diversify the funds’ exposures, reduce the funds’ holdings in Chicago Corn and Wheat, and satisfy position limits imposed by the Commodity Futures Trading Commission in those two commodities.

PowerShares DB Commodity Index Fund (DBC)
In addition to the six commodities it currently tracks, DBC will add Brent Crude, Copper Grade A, Natural Gas, RBOB Gasoline, Silver, Soybeans, Sugar, and Zinc.

PowerShares DB Agriculture Fund (DBA)
In addition to the four commodities it currently tracks, DBA will add Cocoa, Coffee, Cotton, Feeder Cattle, Kansas Wheat, Lean Hogs, and Live Cattle.

My favorite agriculture fund is no longer an agriculture fund - damned feds. I still think it may have a place in my portfolio. You can read the press release here.

The Best ETFs

2009-09-30T12:15:00.011-06:00

The 10 Best ETFs by Don Dion of TheStreet.com
You see a lot of these "best" lists on the internet. This one caught my eye because I happen to own several of these funds and I agree with the over-all analysis and diversity of Mr. Dion's picks, although I do use (not always better) alternatives in some investment sectors.

Here are the ETFs I own from Don's list:
LQD - iShares Investment Grade Corporate Bond: A good way to invest in medium-duration, investment-grade corporate bonds.

TIP - iShares Barclays TIPS Bond: A low-cost approach to investing in Treasury Inflation-Protected Securities.

GLD - SPDR Gold Shares: A practical and easy way to own a stake in physical gold.

SPY - SPDR S&P 500: The best broad stock market-tracking fund available.

Comments on the rest of Don's list:
VWO - Vanguard Emerging Markets Stock ETF: I've used EEM in the past, but as Don says, "This fund tracks the same index as the iShares MSCI Emerging Markets Index (EEM), but does so at a lower price." I can't disagree with that. In the unlikely event that I do decided to invest in emerging markets in the future I'll probably use VWO.

KOL - Market Vectors Coal ETF: I like coal, I've been invested in Alpha Natural Resources (ANR) for some time, but I think a broader natural resource fund, like IGE or IYE, is more appropriate for a conservative investor. You can read Don's article on natural resource ETFs here.

KRE - SPDR KBW Regional Banking ETF: Another good choice, smaller regional banks have done much better than their big brothers. I still like the dividends and added security of investing in preferred stocks via PFF for conservative financial sector investing.

PBW - PowerShares WilderHill Clean Energy: From the article, "Green energy has been a popular area for investors looking to capitalize on new trends in energy and conservation [...] government incentives could help to boost green-energy firms in the foreseeable future..." Two things, I'm not a believer and I don't trust the government.

IBB - iShares NASDAQ Biotechnology: Too risky for the conservative investor. I actually prefer Fidelity Select Healthcare (FSPHX). It's invested in enough biotech for me and this is one of those areas where I like to have professional money management.

EPI - WisdomTree India Earnings Fund: I believe that single sector country funds are too risky for conservative investors, and, every time I hear India, I think Pakistan, Kashmir, Afghanistan and nuclear weapons. It's just too creepy for me. If I do decided to venture into emerging markets like India I'll use EEM or the previously mentioned VMO.

In all fairness to Don, my differences lie in the fact that I am, at this point in my life, more conservative than he is. The ten ETFs he's picked are all very good choices for someone younger. Be sure and read his article, it's worthy of the title.

Read More: 10 Best ETFs (Part 1)
Read More: 10 Best ETFs (Part 2)
Related: Natural Resources ETFs
Related: 3 ETF Ideas for the Final Quarter of 2009

Taking Profits

2009-08-27T11:54:00.000-06:00

The nice little stock market rally that started in March is beginning to look a little tired - that, combined with the looming and historically ugly months of September and October, has prompted me to take a little off the table. I have sold PFF (recommended here) for a handy profit and closed half of a rather disappointing long-term position in ANR. I've also tightened up a trailing stop-loss order on the aggressive SSO.

I still like PFF and I'll be adding it back to the portfolio at some point in the future, but a better than 40% profit in four months just begs to be tucked away.

I'm a little over invested in the energy sector and the prospects for coal (ANR) aren't looking good over the near to intermediate term. Coal (black energy) is the antithesis to the currently popular and politically correct green energy.

SSO isn't a typical investment for a conservative investor but I like to use a small portion of the portfolio for trading. I generally switch between SSO and SDS using a 5%-7% trailing stop-loss order. I base the trades on simple technical analysis. More often than not, this portion of the portfolio is in cash.

ANR - Alpha Natural Resources (coal)
PFF - iShares S&P U.S. Preferred Stock Index
SSO - Proshares Ultra S&P 500

Read More: Market Has Likely Topped
Read More: Global Coal Rally Nearing End

Learn Technical Stock Market Analysis

2009-06-07T09:43:00.007-06:00

Almost everything I know about technical stock market analysis I learned from Stan Weinstein's "Secrets For Profiting in Bull and Bear Markets." Although it is a bit dated, it's simple, well written style makes this book a must for every investor's library.

It's a great introduction to technical stock market analysis. I invite you to check it out at Amazon.com where you can read what others have said about this book and preview the table of contents, index, and several pages of the first chapter. Here's what the late, great Louis Rukeyser had to say…

Stan Weinstein is one of the best market technicians operating today. One of the things I admire is his combination of a scholarly approach and the total clarity of his recommendations.

Amazon.com: Secrets For Profiting in Bull and Bear Markets

The Worst That Can Happen

2009-05-16T12:04:00.007-06:00

I'm not a market or economic prognosticator. I tend to invest based on established trends - I don't call market tops or bottoms. I'm willing to give up a little on the ends to maintain a safe and conservative portfolio.

That said, Big Jake at Seeking Alpha has ten very dire predictions for the future - here's three to get you started.

Prediction One: The twenty-five-year equities bubble pops in 2009.
Prediction Two: Public pensions and 401k holders wiped out.
Prediction Three: Millions of retirees will be left virtually penniless.

I'm definitely not as negative as Jake, but I still found this an interesting article and one every conservative investor should read. It could happen. Hell, anything could happen.

Read More: The Worst Case Scenario
Related: Investing in a Depression

The Housing Crisis Blame Game

2009-05-12T12:33:00.004-06:00

From Capitalism Magazine By Thomas Sowell

After virtually every disaster created by Beltway politicians you can hear the sound of feet scurrying for cover in Washington, see fingers pointing in every direction away from Washington, and watch all sorts of scapegoats hauled up before Congressional committees to be denounced on television for the disasters created by members of the committee who are lecturing them.

The word repeated endlessly in these political charades is "deregulation." The idea is that it was a lack of government supervision which allowed "greed" in the private sector to lead the nation into crises that only our Beltway saviors can solve.

What utter rubbish this all is can be found by checking the record of how government regulators were precisely the ones who imposed lower mortgage lending standards - and it was members of Congress (of both parties) and who pushed the regulators, the banks and the mortgage-buying giants Fannie Mae and Freddie Mac into accepting risky mortgages, in the name of "affordable housing" and more home ownership.

Read More: The Housing Crisis Blame Game
Read The Book: The Housing Boom and Bust
Related: Facts on the Financial Crisis
Related: Fannie and Freddie Meltdown

Agriculture ETF

2009-04-14T11:50:00.003-06:00

DBA - PowerShares DB Agriculture Fund

In an effort to more fully diversify my portfolio I've recently taken a full position in DBA. There are several Agricultural ETFs out there but I chose DBA because it's simple. DBA holds only four agriculture commodities through the use of futures contracts.

Since the beginning of this bear market I've been working towards creating what I call a personal hedge fund. My goal is to have 20% of my portfolio in alternative investments and this is another position towards that objective. I'll be writing more on this in the future.

Holdings
Corn 25%
Wheat 25%
Sugar 25%
Soy Beans 25%

Profile
Todays Close: 24.65
Category: Natural Resources
Fund Family: DB Commodity Services, LLC
Net Assets: 1.63B
Fund Inception Date: 5-Jan-07
52wk Range: 21.52 - 42.65
YTD Return: -6.46%
Yield: N/A
Expense Ratio: N/A
Turnover Rate: N/A

Important Update: Deutsche Bank to Expand Holdings of Two Commodity-Linked Exchange Traded Funds

Preferred Stock ETF

2009-04-01T15:42:00.012-06:00

PFF - iShares S&P U.S. Preferred Stock Index

I recommend starting a long term position in PFF. This ETF has performed miserably over the last year or so due to it's high allocation in the financial services sector (see top holdings below). Although I don't believe financials have bottomed, I don't think they will go too much lower from here. PFF currently pays an annualized dividend of about 14% and has an expense ratio of less than .50%.

Go easy, we're still in a bear market that will probably last for most of 2009 if not longer. All I'm suggesting is that you start a small position of about 25% of whatever you consider a full position.

Top 10 Holdings
BAC (Bank of America Corporation) Cap Tr Ii Pfd
Citigroup Cap Viii Pfd
Freeport-Mcmoran Copper & Gold
J P Morgan Chase Cap Xi Pfd
Metlife Pfd
Natl City Cap Tr Ii Pfd
Public Storage Pfd
Schering Plough Cv
Usb Cap Xi Pfd
Wells Fargo Cap Iv Pfd

Profile
Todays Close: 22.92
Category: Large Cap Blend
Fund Family: iShares Trust
Net Assets: 1.02B
Fund Inception Date: 26-Mar-07
52wk Range: 14.10 - 46.10
YTD Return: -23.83%
Yield: 14.27%
Expense Ratio: 0.48%
Turnover Rate: 24%

What is a Preferred Stock?
A preferred stock is a class of ownership in a corporation that has a higher claim on the assets and earnings than a common stock. Preferred stocks generally have a higher dividend that must be paid out before dividends to common stockholders. The best way to think of preferred stock is that it's a financial instrument that has characteristics of both a bond and an equity.

Pros: Priority over common stockholders on earnings and assets in the event of liquidation. Higher, fixed dividend that's paid before common stockholders.

Cons: No voting rights, less potential for share price appreciation.

Investing in a Depression

2009-03-19T17:20:00.007-06:00

What should you invest in during a depression?... Hats!

I stole this joke (and picture) from a comment at Free Republic.

Stock Market Forecast For 2009

2008-10-14T14:40:00.012-06:00

By Jim Jubak - MSN Money

I'm not a big fan of Jim Jubak, I think he's a rotten stock picker; however, I think his latest article at MSN Money hits the nail pretty much on the head. So instead of writing my own fearless stock market forecast for the next 12 months (I'm a little lazy around the edges), here you go...

If you're too lazy to click the link and read the entire article here are the bullet points...

1. In the next month or so, a big stock market rally.
2. The stock market rally fails in early 2009.
3. In the middle of 2009, stock market pessimism deepens.
4. In late 2009 and early 2010, the stock market bottoms.
5. The stock market recovers after 2010.

Thanks Jim. You're a much better writer than I am. I would like to add that I think the recovery may take longer than a couple of years. I can imagine a scenario where we enter a period of sub-par market performance that can last as long as five years.

Shorting Treasury Bonds

2008-06-25T08:01:00.004-06:00

It’s a Fed day and although I do not know what Ben Bernanke is going to say or do, I know what I’m going to do. Buy shares of TBT.

TBT – ProShares UltraShort Lehman 20+ Year Treasury

Read more here - Treasury Bonds: The Short of the Century

Shorting The DOW

2008-06-20T11:51:00.001-06:00

I'm not just going to let the DOG out, I'm going to let the double dog out. I'm buying DXD.

DXD – ProShares UltraShort DOW 30

With the death cross remaining, the Dow tried, but failed to penetrate much above 13,000 and it's 200 day moving average in May and has now dropped below important support at 12,000. This might get ugly.

Kiplinger’s High Yield Investments

2008-06-13T11:05:00.006-06:00

Kiplinger’s July 2008 Issue highlights opportunities to earn high yields on tankers, pipelines and real estate stocks.

Closed-End Income Funds:
First Trust Strategic High Income (FHI) - bank loans, mortgage-related securities and junk bonds. 14.6% yield.
Denali Fund (DNY) - Currently trades at a 9.5% discount to Net Asset Value and is converting from REIT fund to general leveraged fund. 12% yield

Junk Bond Funds - 8% yields:
Metropolitan West High Yield Bond (MWHYX)
Payden High Income (PYHRX)
TCW High Yield Bond I (TGHYX)

Energy Income Trusts:
BP Prudhoe Bay Royalty Trust (BPT) 11% yield
San Juan Basin (SJT) 7.7% yield
Cross Timbers (CRT) 9.9% yield
Enerplus (ERF) 10.5% yield
Harvest Energy (HTE) 14.7% yield

Ocean-Shipping Fleets:
Seaspan (SSW) 7.3% yield
Genco Shipping & Trading (GNK) 5.7% yield

High Yield Property REITS - Focus on Real Estate Investment Trusts that own hospitals, medical office buildings and other health-care facilities:
Codell Spencer (CSA) 7.5% yield
Medical Properties Trust (MPW) 8.4%
First Industrial Realty Trust (FR) 9%

Pipelines:
Enterprise Products Partners (EPD) 6.6% yield
Kinder Morgan Energy (KMP) 6.4% yield
Magellan Midstream Partners (MMP) 7% yield
Plains All American Pipeline (PAA) 7% yield

Emerging-Market Bonds:
Fidelity New Markets Income (FNMIX) 5.6% yield
Pimco Emerging Markets Bond D (PEMDX) 5.6% yield

I'm not prepared to jump on any of these yet. Keep your powder dry.

ETFs vs. Mutual Funds

2008-02-15T13:26:00.004-07:00

I’ve been asked why I still invest in traditional Mutual Funds when ETFs (Exchange Traded Funds) are cheaper and more tax efficient.

First, I don't hold mutual funds in anything other than a tax advantaged 401(k) or an IRA and specifically, in my case, I hold mutual funds as the core position in an IRA.

I am willing to pay expenses (management fees) when I want an actively, professionally managed fund that I plan on holding for a very long time. I have allocated 50% of the total portfolio as core holdings to these mutual funds.

20% - FFFDX - Fidelity Freedom 2030
10% - FIGRX - Fidelity International Discovery
10% - FSPHX - Fidelity Select Healthcare
10% - FSPTX - Fidelity Select Technology

I’ll write more on why I’ve chosen these specific funds later (no, I don’t work for Fidelity Investments and they do not pay me for writing about them, although they should). I keep these core holdings as a foundation, a base from which I work more aggressively to increase my returns. That’s where ETFs come in.

I regularly use ETFs for shorter term trading strategies when I cannot or do not feel comfortable picking individual stocks. Basically, I’m managing these positions by deciding when to buy, how long to hold, and when to sell them. See here for some examples.

I’m still on the sidelines, waiting for the markets to calm.

The Death Cross

2008-01-12T13:43:00.001-07:00

The Holiday Rally that Wasn't - and Worse.

As recently posted, I took a large position in DIA (Dow Jones Industrial Average Index ETF) on 11-26-07. I sold half of that position on 12-14-07 for a 5% gain and the other half on 1-9-08 for a 3% loss. There was no holiday rally, and it gets worse.

The Dow's 50 day moving average has dropped below its 200 day moving average creating what's known among market technicians as the death cross. The Dow has also dropped below support at 13,000. I think we are in the beginnings of a bear market that may last for 6-9 months or longer.

I use 20% of my retirement portfolio for trading; I like to take advantage of inconsistencies and trends in the market. That portion of my portfolio is in cash and it may stay there for a while. I have not let the DOG (Proshares Short DOW 30) out, but I may.

The January Effect

2008-01-08T12:05:00.000-07:00

The January effect proposes that stocks gain in the first five trading days of the year (correct 70% of the time). Average first week of January returns...

Dow: 0.8%
S&P 500: 0.8%
Nasdaq: 1.4%

The January Effect is not to be confused with The January Indicator or Barometer which proposes that as January goes, so goes the market (correct 90% of the time). Average month of January returns are...

Dow: 1.1%
S&P 500: 1.5%
Nasdaq: 3.5%

Compiled from over 100 years of data for the Dow, 75 years for the S&P 500, and 35 years worth of data for the Nasdaq.

Unrelated but interesting: The Dow has had positive returns 17 of 25 presidential election years. I'll have more about the Holiday Rally that wasn't later.

Holiday Rally

2007-11-27T07:59:00.000-07:00

I used the proceeds from my Currency ETF trade to take a rather large position in DIA - Diamonds (Dow Jones Industrial Average Index ETF). I also topped off my long term holdings in FSPTX - Fidelity Select Technology Fund, FSPHX - Fidelity Select Health Care Fund, and FIGRX - Fidelity International Discovery Fund.

We've just had a 10% correction and we're heading into the traditional holiday rally season. I think the prospects are good through the first of the year. I don't expect too hold DIA after the first of January.

Currency ETFs

2007-11-26T14:51:00.000-07:00

I sold my currency ETFs, FXE (Euro) and FXY (Yen), today. I believe the bulk of the U.S. dollars decline is over and I want to raise some cash as we go into a historically strong season for the equity markets. When fashion models and rappers pick up on a trend I take it as a sign to get out.

As an investment, currency ETFs have two profiles. First, they hold cash and invest with banks for dividends based on foreign interest rates. Second, and most importantly, is the floating exchange rate as measured in U.S. dollars. The dollars decline has made foreign currencies more valuable; beats sitting in a U.S. money market.

Here's a short list of Currency ETFs, my favorites first…

FXE - CurrencyShares Euro Trust
FXY - CurrencyShares Japanese Yen Trust

and some others…

FXC - CurrencyShares Canadian Dollar Trust
FXA - CurrencyShares Australian Dollar Trust
FXB - CurrencyShares British Pound Trust

Proshares UltraShort Oil & Gas ETF

2007-11-01T12:48:00.000-06:00

With oil hitting over $92 a barrel as I write this I find myself wanting a way to hedge my energy portfolio from the inevitable pull back, without selling off positions that have taken a lot of time to accumulate. Here's a solution...

DUG - Proshares UltraShort Oil & Gas ETF

Remember "Ultra" means that for every 1% loss in the oil and gas index, DUG will gain 2%, and vice-versa. I have not placed a trade yet, but I'm watching and ready. More on Proshares UltraShort ETFs.

Bear Market Trades

2007-06-27T07:02:00.000-06:00

ProShares offers several Exchange Traded Funds that short sell their respective index by a 2:1 ratio.

QID - Proshares UltraShort QQQQ
SDS - Proshares UltraShort S&P 500
DOG - Proshares UltraShort DOW

For every 1% the QQQQ (Nasdaq 100 Trust) loses the QID should gain 2%. I use them as a simple and effective why to hedge my portfolio during extended down drafts and I plan on using them for the next bear market.

I like these funds because they allow me to hold on to the more aggressive positons in my portfolio. I can hedge with one simple buy order instead of selling multiple positions that have often taken quite a bit of time to accumulate. Remember, because of the 2:1 ratio a little goes a long way.

Gold Testing Support

2007-06-21T12:23:00.000-06:00

By John Hughes and Scott Maragioglio

Gold has fallen $50 in the last two months, and the recent push in the rates and the dollar have brought the metal back for a retest of the long-term uptrend line at $639. This would be a natural place to expect a rebound in gold prices and a rally back to overhead resistance line at $685.

A breakout over resistance at $685 would suggest that the bulls are back in control and that the metal wants to resume the primary uptrend. If the dollar breaks the downtrend line and gold breaks the uptrend line, then we would have to say that there has been a real change in this market. It would suggest that traders may need to change their market view, but we expect the status quo to be maintained.

The easiest way for investors to get involved in the gold market is to trade the streetTracks Gold Trust . Buy the GLD at $65 and use a break of the uptrend line at $63.50 as a stop loss.

Look for a rally over the resistance line $68 to confirm that the commodity is seeing a bullish breakout. Gold is presenting a solid technical trade at these levels, and the risk/reward scenario makes this an attractive investment.

Read More...

Sector Rotation ETFs

2007-05-22T07:22:00.000-06:00

Two new exchange traded funds that trade in and out of different economic sectors.

PYH - PowerShares Value Line Industry Rotation
XRO - Claymore/Zachs Sector Rotation

Read More...

Fidelity Strategic Funds

2007-05-15T11:38:00.000-06:00

I have recently invested in a couple of Fidelity's Strategic Funds; but, because of the similarity of their names I'm constantly confusing the strategies and objectives.

FSDIX - Fidelity Strategic Dividend and Income Fund: (Equity Income) 50% common stocks, 15% REITs, 15% convertible securities, and 20% preferred stocks.

FSICX - Fidelity Strategic Income Fund: (Multisector Bond) 40% high yield, 30% U.S. Government and investment-grade, 15% emerging markets, and 15% foreign developed markets.

FSRRX - Fidelity Strategic Real Return Fund: (Allocation) 30% inflation-protected debt securities; 25% floating-rate loans, 25% commodity-linked notes and related investments, and 20% REITs and other real estate related investments.

Technology ETFs

2007-05-09T15:39:00.000-06:00

I have habitually used the Q's (QQQQ - Nasdaq 100 Trust) as a way to trade the technology sector. If technology shares pick up with expected business expenditures this summer these exchange traded funds might be a better way to go.

XLK - Select Sector Technology SPDR
IYW - iShares Dow Jones U.S. Technology
IGM - iShares Goldman Sachs Technology

More Ideas Here...