As I Bid You a Fond Farewell…

When I first got into the investment business with my father, Dick Fabian, nearly four decades ago, about 95% of mutual funds were high-fee and charged a “load.” The attraction of my family’s newsletter back then was that it served as a sort of “investor guidebook” to navigate the then-relatively-new landscape of low-fee, “no-load” mutual funds.

In the 1980s and 1990s, we saw the tremendous growth of no-load mutual funds. By the turn of the century, no-load funds became the dominant vehicles for individual investors seeking broad, as well as targeted, sector exposure.

Yet in the past decade and a half, exchange-traded funds, or ETFs, have taken over the mantle as the dominant investment vehicles for individual investors.

Why?

Well, the reason is quite simple. They are the most economical, most transparent, easiest and, in my view, best investment vehicles for investors that want exposure to nearly every facet of the equity markets, including broad-based domestic, international and sector-specific equities.

In recent years, the growth of vehicles such as smart-beta ETFs, leveraged ETFs, inverse ETFs and a variety of fixed-income and commodity ETFs has really made these funds the go-to vehicles for just about every investing style and objective.

The top 10 ETFs by assets, as they appear at ETFdb.com.

To me, the ETF revolution, particularly over the past decade, has been one of the best developments to ever come out of Wall Street — so embrace it!

Now, I must tell you that today is a bittersweet, yet exciting day for me, as it marks my official final Weekly ETF Report.

While I am excited about pursuing new ventures with my money management firm, I also am melancholy about not getting to communicate with you, the reader, on a weekly basis.

Beginning next week, that privilege belongs to my friend and long-time associate, Jim Woods.

I’ve worked with Jim on this publication, as well as on the Successful ETF Investing newsletter, for nearly 14 years. He has been my editor for most of that time, and he’s been the wordsmith behind the scenes. Jim will be at the helm from here on, and I must tell you that I could not have left my publications in better or more eminently capable hands.

In addition to being my right-hand man at this publication, Jim also is extremely accomplished in the industry. He has written for numerous publications, including MarketWatch, Traders Reserve and InvestorPlace.

Jim also is an accomplished stock picker. In the five-year period from 2009 to 2014, the independent firm TipRanks ranked Jim the No. 4 blogger in the world (out of more than 9,000). TipRanks calculates that from 2009 to 2014, he made 378 successful recommendations out of 506 total, earning a success rate of 75% and a +16.3% average return per recommendation.

These are the kind of capable hands I’m talking about, hands that I know will take expert care of this service — and frankly, the only hands I would have trusted you with.

So, let me bid you a fond farewell in Shakespearean fashion by saying that while parting is such sweet sorrow, I know that your future as a reader, the future and legacy of my family’s publications and my very own future are as brilliant as a thousand suns.

ETF Talk: How to Invest in Brand New Public Companies with ETFs

While internationally focused exchange-traded funds (ETFs) have been my topic of choice lately, I’m going to shift gears and examine ETFs related to initial public offerings (IPOs), starting with the Renaissance IPO ETF (IPO). For clarity, this fund will always be mentioned by its full name in this article.

As the Renaissance IPO ETF’s name implies, this fund invests in companies that recently have become part of the stock market by offering shares of their stock to the general public. An IPO occurs when the owner or owners of a private company decide to sell shares of their company on the open market, rather than selling directly to a private buyer.

Immediately after a company goes public, its share price is allowed to float freely on the open market. This can result in quick, substantial changes if the market doesn’t agree with the current IPO price. For instance, if the market has received a lot of hype about the company and views the prospects as stronger than the company’s actual current value implies, a quick run-up of the stock can occur. Sometimes though, this adjustment can be overdone and result in a decline, as was the case with the 2013 IPO of Twitter (TWTR).

The Renaissance IPO ETF is a fund that tracks companies with recorded initial public offerings within the previous two years. This can be a time of strong price change for the stocks in question, and is generally considered a period of high risk. The fund quickly adds new American public companies to its portfolio so long as they meet a certain market cap requirement.

Over the last 12 months, the Renaissance IPO ETF has gained 19%, about even with the S&P 500’s return over the same time period. The expense ratio for owning this fund is 0.60% and the dividend yield is 0.40% (subject to change as its holdings rotate). The fund has $12.4 million in assets under management. This means that it is below my minimum threshold for investment, but its strategy is one worth bringing to your attention.

The majority of this fund’s holdings are mid-cap stocks at present. But because its holdings last for two years each, this could change. The fund also has a disproportionately high weighting in technology, but this makes sense because technology is a constantly changing and expanding field that is conducive to new businesses which may choose to do an IPO.

The top five holdings for this fund are First Datacorp (FDC), 9.26%; Transunion (TRU), 7.85%; Shopify Inc. (SHOP), 5.47%; Summit Materials Inc. (SUM), 4.29%; and Univar Inc. (UNVR), 4.17%.

IPOs are an interesting segment of the market, and the Renaissance IPO ETF (IPO) provides an intriguing way to invest in that segment.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

‘Trump On’ or ‘Trump Off’?
By Jim Woods
Editor, Successful ETF Investing

If you’ve been watching markets on a daily basis as I have for the past 20-plus years, you know that there are various periods in the market that trade with certain specific characteristics.

In the 1990s, it was “buy the dip” in Internet stocks. After the financial crisis, and for most of 2009 through Election Day 2016, the markets traded on what was known as “risk on” or “risk off.”

For most of the past seven years, getting the market right meant knowing when to go risk on (moving into stocks) and knowing when to be risk off (moving out of stocks and into bonds, gold and cash).

Now, the markets quickly have transitioned from risk on/risk off to “Trump on/Trump off.”

This is an observation first pointed out to me by my friend and uber-smart colleague Tom Essaye of The Sevens Report, and it’s one that I very much concur with.

In essence, the Trump-on trade means money is moving into stocks (especially cyclicals), accompanied by appreciation of the U.S. dollar. The Trump-on move also means money flowing out of bonds and out of gold.

It is largely the reverse with “Trump off.” That means stocks fall, the dollar declines and bonds and gold trade higher. Here’s how Tom explained it to me:

“If past is prologue, and markets are still enormous pools of central-bank-supplied money sloshing from one strategy (risk on or Trump on) to another (risk off or Trump off), then the key to getting this market right, especially in the beginning of 2017, will be knowing whether the policy efforts from Washington and economic data is positive or negative.”

Bingo! Hey, I told you he was uber smart.

With Trump now officially in the Oval Office, getting the market right in 2017 — and knowing which sectors of the market to embrace — will be largely a matter of knowing about the nitty-gritty political developments influencing the Trump/Republican agenda.

Issues such as regulatory reform, fiscal stimulus and Obamacare repeal and replace all are important market movers, particularly in the first 200 days. Yet by far the biggest market-moving policy is corporate tax reform. And, the reason why is simple.

If corporate tax reform can get passed, and if the corporate tax rate can go down to 20%, then that will be a huge windfall for corporate bottom lines. And, that would easily send stocks on a Trump-on rocket ride to all-time highs.
So, pay close attention to politics, as that will determine the Trump-on/Trump-off trade in 2017 and likely well beyond.

If you’d like to find out exactly how we’re taking advantage of the Trump-on/Trump-off trade in markets this year, then I invite you to check out my Successful ETF Investing advisory service, today.

Waves of Wisdom

“The breaking of a wave cannot explain the whole sea.”

— Vladimir Nabokov

The brilliant, and controversial, novelist also was a fount of literary wisdom. Here, the author of “Lolita” reminds us that just because we know and observe one phenomenon, that doesn’t mean we know the big picture. Keep this in mind whenever you think you know the whole story about an investment you’ve made… or about any of the choices you make in life. — Jim Woods

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Click here to ask Jim.

In case you missed it, I encourage you to read my e-letter from last week about the ‘Trump-on’ trade and what it means for investors.