ETFavorites: March Buy Limits


We have a select list of Exchange Traded Funds (ETFs) that we use for our portfolios. I have screened these funds for their internal fundamentals and holdings, as well as, long-term performance metrics. These are the funds that have done the best over time and are positioned to continue doing well in a changing world. These are great tools for building a tactically diversified portfolio or as bolt on holdings for a stock portfolio.  

Refer to the grids below to see the Exchange Traded Funds – ETFs – that we are considering investing in. In each chart will be the fund name, symbol, buy range and a very brief rational for our bullish interest or general notes. There will generally be stocks in 20 to 30 ETFs in addition to the SPY, QQQ, DIA and SPDR Selects which are the core I build around. We also use a few Closed End Funds – CEFs.

Using Limit Orders

We extensively use “limit” orders to set up buys. This beats sitting around in front of a computer watching green and red numbers that mean little to nothing. The price you set your buy limits at will depend on your risk tolerance, outlook and investment approach. The buy range is based upon fundamental and technical factors which I have made far more conservative due to the decreasing demand for financial assets by baby boomers, which is a massive sea change in the investment world, and that threatens to cause greater volatility.

The buy price ranges are consistent with looking for a blend of margin of safety and investment opportunity. The lower you buy, obviously the greater margin of safety. You need to answer for yourself how much safety you need.

In general, I recommend buying a small starter position near the high-end of the buy range and a bigger position at the bottom of the buy range. By establishing a buy limit near the high-end of the buy range, you can often gain as these holdings are recognized as valuable and don’t generally trade low for long.

The lower-end of the buy range recognizes that markets have become more fragile and more likely to exemplify extreme behavior relative to the past – consider the 1000 point “flash crash” on the Dow on August 24th, 2015. It is okay to only buy the low-ends of the buy range and simply wait for the very bad days and weeks to be a buyer. In fact, I think that is a great strategy for patient investors looking to manage risk. 

I am listing the “Bull Rationale” for these ETFs. You should search out the bear scenarios before investing and consider those.

These ETFs are used for the Global Trends ETF portfolio and Quarter Million Dollar portfolio which are position trading portfolios (most holdings are for a year or more). Swing Trading Opportunities, generally using options on these ETFs, as well as, a wider range of ETFs are primarily technical based, so, those do not appear on this page. To Swing trade, generally with holding periods from a few weeks to a few months, you should have experience or start very small. 

***NOTE***

I use a 2 year rolling quant system to establish these ranges. Many of the ranges are rolling upward right now. I think it is prudent to look for buys near the bottom of the ranges, not the top, given the length of this expansion and what I believe are mounting geopolitical risks. You can do what you want, however, if you choose to buy near the upper end of the ranges, I very strongly suggest smaller incremental purchase sizes. This will result in a more spread out approach to averaging and is a little more work, but I believe is necessary to maintain “margin of safety.”

Changes from last month will be in yellow.

Pale green is in or very near the buy range – remember to scale in as appropriate for your risk level.

See the Research section and Forum for research on various ETFs we are investing in. 

 

 Fund Symbol Buy Range Notes
 iShares MSCI All Country Asia ex-Japan AAXJ 47-56 About evenely split between emerging and developed Asia which is where a lot of growth will be the next decade. 
 Market Vectors Africa AFK 15-18 Fast growing due to youth, prior underdevelopment and resources. Very volatile.
 Market Vectors Biotech BBH 94-104 Top performing large cap biotech fund, 27 holdings, concentrated
 Central Fund of Canada CEF 10.50-11.80 2/3 gold bullion, 1/3 silver bullion, useful if we get another QE
 WisdomTree SmallCap Dividend DES 58-76 Smallcap dividend payors which indicates health, rebalanced for value. Should do well during a Trump Presidency and with stronger dollar. 
 SPDR Dow Jones Industrial Average DIA 158-186 Dow Jones Industrial Average
 Global X SuperDividend U.S.  DIV 17-22 High dividends across various equities, inlcuding MLPs and REITs. 
 WisdomTree MidCap Dividend DON 74-92 Midcap dividend payors which indicates health, rebalanced for value. Should do well during a Trump Presidency and with stronger dollar. 
 iShares MSCI Australia EWA 17-20 Will benefit from oil/commodity rebound and proximity to China.
 iShares MSCI Canada EWC 19-23 Will benefit from oil/commodity rebound and proximity to U.S.
 iShares MSCI Mexico EWW 43-49 Will benefit from youth, tourism, proximity to U.S. however will be volatile
 First Trust ISE-Revere Natural Gas FCG 19-24 Index is reconstituted towards stronger survivors in the field. Look to enter before summer cooling season.
 Market Vectors Gold Miners ETF GDX 17-20 If central banks print more to stimulate, becomes very attractive. Due for a pullback. Miners > physical gold now that many miners have restructured and survived.
 SPDR Gold Shares GLD 95-118 100% gold bullion, useful if we get another QE
 iShares Nasdaq Biotechnology IBB241-270 All-cap biotech though weighted large cap, 2nd best performing, 190 holdings
 iShares India  INDA 24-30 Young, developing infrastructure, tech savvy and fast growing though likely for a slowdown short-term. We want to build a long-term position in India. Modi’s reforms are going well as could be expected. We’ll want to use key levels to buy. 
 iShares Russell 2000 IWM 94-111 Russell 2000 SMID cap
 SPDR Barclays High Yield Bond JNK 32-35 Good source of income after major corrections
 PowerShares Agribusiness MOO 42-47 Food which is a derivative play on water
 PowerShares HY Equity Dividend Achievers PEY 13-16 Strong dividend paying companies which has been a historically strong strategy
 PowerShares Buyback Achievers PKW 40-48 About the only thing holding stocks up have been buybacks
 PowerShares FTSE RAFI US 1000 PRF 77-87 Strong dividend and fundamental weighted alternative to S&P 500 Index
 PowerShares Russell MidCap Pure Value ETF PXMV 23-30 Heavy financials, energy, real estate, utilities and industirals. Will do well in growing economy with rising rates (if that’s what we get). Compares well to DON. 
 PowerShares QQQ QQQ 94-118 Nasdaq 100, very good somewhat diversified performer, easy to write options on
 Guggenheim S&P 500 Pure Value RPV 43-54 Low cost value approach with strong dividends and very good history
 SPDR S&P 500 SPY 186-210 S&P 500 Index, large cap benchmark
 Guggenheim Solar TAN 14-18 High growth sector with government support becoming more competitive every month with conventional energy. Appears to be bottoming.
 iShares 1-3 Year Treasury Bond SHY 83-85 Short-term parking place.
 ProShares Short VIX Short-Term Futures SVXY 30-60 Deteriorates in our favor. Worth buying off of big volatility spikes. Leveraged, so don’t trade.
 iShares 20+ Yr Treasury Bond TLT  112-120
 Where the money will go on a flight to safety.
 DB U.S. Dollar Index Bullish UUP 23-24 Setting up for reversal higher on global volatility and significant rally, however, carries long-term risk. Bond alternative.
 Van Eck Vietnam VNM 12-15 Strong demographics and a leading frontier economy. A lot of room to grow. Proximity to China. Maybe next South Korea in a generation. Coming off a large correction.
 Vanguard FTSE Pacific  VPL  50-58 Developed Asia region with significant Japan exposure.
 iPath S&P VIX Short-term Futures VXX 13-14 Volatility likely to pick up summer 2017. Approaching our buy target range. 
 SPDR Select Materials XLB 37-45 Far off. Overpriced.
 SPDR Select Energy XLE 54-63 Setting up for rally after retrace. 
 SPDR Select Financial XLF 17-21 Rising risk. Rally was way overdone. Caution.
 SPDR Select Industrial XLI 47-57 Flat due to slow growth and rising wages. Trump trade very overdone.
 SPDR Select Technology XLK 35-45 Where the innovation and new profits are. Would love to get in the 30s. Think about tech free cash flow, they can make more money without adding much investment to their business due to scalability.  
 SPDR Select Consumer Staples XLP 45-51 Flat to slighly rising due to slow growth but rising wages. Will improve due to Millennial household formation.
 SPDR Select Utilities XLU 41-45 Strong short-term, however, long-term risks, I really don’t like utilities due to all the capex. Starting to get equiv dividends in tech.
 SPDR Select Health Care  XLV 53-62 Long-term growth opportunity, but beware of politicians with axes, i.e. Trump. I much prefer biotech.
 SPDR Select Consumer Discretionary  XLY 66-82 Near top of current cycle, buy on pullbacks. Leading brands usually lead recoveries.
    
    
    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 *I generally use * I use the SPDR Select Sector funds due to the extra liquidity and option liquidity, however, the Vanguard and iShares equivalents are virtually identical and can be used in the SPDR’s place if your brokerage offers lower trading commissions on those.