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Your First Half ETF Scoreboard

Ladies and gentlemen, halftime is over. I hope you enjoyed your Fourth of July respite, because now it’s time to get back on the field and start playing the second half of 2017 in the markets.

Before we attempt to determine where this market is going for the rest of the year, it’s probably a good idea to look back and see where we’ve been.

That’s certainly the philosophy of one of my favorite Founding Fathers, Patrick Henry, who once famously said, “I know of no way of judging the future but by the past.” I agree with this, both when it comes to life at large… and when it comes to markets.

With that notion in mind, we need to ask ourselves where the big winners were in the first half, and also where the big losers were. Doing so will allow us to take the pulse of this current market… and that’s the first step to determining where this market is likely headed going forward.

A recent piece at MarketWatch, “The 10 best-performing ETFs so far in 2017 — and the 10 biggest losers,” made my research efforts relatively easy, as the piece provided that first-half exchange-traded fund (ETF) scorecard for us.

Per MarketWatch, here are the top 10, non-leveraged ETF gainers through the first half of 2017:

(Source: XTF.com data as of 6/30/17 for all non-leveraged ETFs listed in the United States.)

The data here shows that if you bet against volatility, bet on technology, emerging markets, China, Poland and India, you are doing quite well.

Subscribers to my Successful ETF Investing advisory service are currently enjoying gains in technology and emerging market ETFs. And, in the first half of the year, we banked a 39% win in India via the VanEck Vectors India Small-Cap Index ETF (SCIF).

This is the power of the trend-following strategy at the heart of my service, and it’s worked exceedingly well in the first half.

It also has worked to allow us to avoid the big losers in the first half.

Here’s a list of the ignominious cellar dwellers so far in 2017:

Not surprisingly, a bet in favor of volatility was a big loser. Then there was energy, led by natural gas, which saw its price collapse in the first half.

So, there you have it, a list of the best and worst ETFs so far in 2017.

Next week, we’ll take a look at some key events, along with some key dates, that could shape this market’s character in the second half of 2017… and quite possibly well beyond.

P.S. Are you registered yet for my colleague Mark Skousen’s annual FreedomFest, July 19-22, 2017, at the Paris Resort, Las Vegas? If not, why not? This is the event the Washington Post has called the “greatest libertarian show on earth.”

I’ll be there moderating a debate between two of the most colorful investors in the business, Peter Schiff and Jim Rogers. I’ll also be participating in a panel discussion titled, “Can You Beat the Market?” If you’re at Freedom Fest, be sure to come up to me and introduce yourself. I love the face time with readers.

To sign up, go to www.freedomfest.com, or call 1-855-850-3733, ext 202 and talk to Karen, Jennifer, Heather or Amy. You won’t regret it.

ETF Talk: This Fund Could Aid the Health of More than a Portfolio

The PureFunds ETFx HealthTech ETF (Nasdaq: IMED) stands at an interesting crossroads between the field of medicine itself and the technology used to advance medical knowledge and treatment in new and exciting ways.

This intersection between medicine and technology has been dubbed “HealthTech.” Medicine continuously is driven forward by the application of new technology and data solutions to devices and procedures. “HealthTech” has made things like 3D-printed prosthetics, robot-assisted surgery and telemedicine popular buzzwords in the medical field.

One advantage that HealthTech has over other, more stagnant areas of the market and the medical field is its growth prospects. Obamacare initiatives and biotech, the drug manufacturing arm of the medical field, face an uncertain future under President Trump’s proposed policies, but there is always going to be demand for better and more advanced technology to keep the medical field on the cutting edge. According to Fortune, venture funding into HealthTech jumped 200% over five years (2010-2014) and the industry was valued at $72 trillion in 2015 in the United States alone.

Despite this, HealthTech has been slow to get investor attention, probably because of the tendancy to invest in more traditional medical plays, such as biotech. PureFunds, the manager/sponsor of the popular cybersecurity ETF HACK, saw that there was no ETF assigned to the HealthTech arena and launched IMED just last year for that exact purpose.

Created on August 31, 2016, IMED is tied to the ETFx HealthTech Index and tracks companies around the world that use technology to design and deliver health care solutions. The fund avoids pharmaceutical companies, which are currently on uncertain footing, and instead targets medical infomatics, instruments and devices.

According to Andrew Chanin, CEO of PureFunds, IMED has less than 40% overlap with any other health care ETF currently available. The fund does not pay a dividend at present, has an expense ratio of 0.75% and only about $4.4 million in net assets, partly as a result of being less than a year old. In terms of performance, IMED has done well since its inception and is up close to 24% year to date.

A company must have a market capitalization of at least $500 million to be included in the index, and it contained 22 foreign investments as of June 2016. IMED itself holds 48 positions currently and is approximately 75% in health care and 25% in technology. Its top five holdings are: Teladoc, Inc. (TDOC), 3.12%; Medidata Solutions, Inc. (MDSO), 3.00%; CompuGroup Medical SE, 2.78%; athenahealth, Inc. (ATHN), 2.77%; and Veeva Systems, Inc., Class A (VEEV), 2.67%

In short, HealthTech has the potential to be long-term player in the medical and health care field. If the intersection between medicine and technology sounds like an interesting investment strategy, then the PureFunds ETFx HealthTech ETF (Nasdaq: IMED) could be a solid choice.

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.

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ETFs & the Music of the Markets, Part I, II, III

Over the past several weeks, we’ve presented our three-part series on ETFs & the Music of the Markets. Here’s a compilation of all three parts, as many readers have asked me to put them all together in one place. Hey, you asked, and we listened.

Part I (June 7)

What do exchange-traded funds (ETFs), music and the markets have in common? Well, aside from the fact that I happen to love them all, ETFs, music and the markets have a lot in common.

Here’s a little analogy to help illustrate my point.

Remember the 2004 biopic “Ray” starring Jamie Foxx in the lead role as Ray Charles? I suspect you may have seen it, and if you haven’t, I highly recommend it. Foxx won an Academy Award for his portrayal of the great singer, songwriter and pianist, and the film was a no-holds-barred look at Charles’ life.

In preparing for the film, Ray Charles sat down with Jamie Foxx, who also is a classically trained pianist, to play the piano together and exchange musical vibes.

Here’s how Foxx described the encounter in an interview with best-selling author and podcaster Tim Ferriss.

“As we’re playing, I’m on cloud nine. Then he [Ray Charles] moves into some intricate stuff, like Thelonious Monk. I was like, ‘Oh Sh*t, I gotta catch up’ and I hit a wrong note. He stopped because his ears are very sensitive: ‘Now, why the hell would you do that? Why you hit a note like that? That’s the wrong note, man.’ I said, ‘I’m sorry Mr. Charles,’ and he said, ‘Let me tell you something, brother. The notes are right underneath your fingers, baby. You just gotta take the time out to play the right notes. That’s life.’”

Wow, that is life, indeed.

When applied to investing, we also can say that the music of the market also dictates that we “take the time out to play the right notes.”

You see, the proliferation of ETFs over the years also has put the “right notes” underneath our fingers. In fact, today we can literally get portfolio exposure to just about any segment of the market by tapping on the computer keyboard that’s right underneath our fingers.

And while doing this right may be easier said than done, it can and is being done by all sorts of investors, worldwide.

Of course, the key to becoming a good musician, and to knowing the right notes to play, takes a whole lot of deliberate practice, knowledge and cultivated skill. It’s the same way with investing.

Part of our mission here in the Weekly ETF Report is to help you acquire the knowledge and the skill to be able to play the right notes in your portfolio.

In the weeks and months to come, I will be showing you my techniques to help you identify the right notes when it comes to selecting winning ETFs for your portfolio.

Many of these techniques are at the heart of the proven, trend-following investment plan that’s helped investors preserve and grow their capital for over four decades in my Successful ETF Investing advisory service.

Part II (June 14)

One of the beauties of exchange-traded funds (ETFs) is that they allow us to hear the “music of the markets” playing out in real time. This week, we’ll look at that music a bit, especially in light of today’s “dovish hike” by the Federal Reserve.

This is Part II of our series on ETFs and the Music of the Markets, so let me remind you what I wrote in Part I. First, we used the great Ray Charles’ words, as he once said that if you want to make the right music, “You just gotta take the time out to play the right notes…”

Simple enough, right? Only, not so much.

Still, when applied to investing, we can say that the music of the market also dictates that we “take the time out to play the right notes.”

Fortunately, the proliferation of ETFs in recent years has made playing the right notes a lot easier. Today, we can literally get portfolio exposure to just about any segment of the market by tapping on the computer keyboard right underneath our fingers.

Last week, I also told you that part of our mission here in the Weekly ETF Report is to help you acquire the knowledge and the skill to be able to play the right notes in your portfolio.

Well, we just had what may have been the most important Federal Reserve Open Market Committee meeting (FOMC), as today’s Fed decision will likely set the playing field for stocks and bonds going forward.

Before the meeting, the smart money was betting on (i.e. pricing in) what’s called a “dovish hike” by the central bank. This is a situation where the Fed would hike interest rates by 25 basis points, but also make the statement “dovish” enough that it doesn’t cause long-dated Treasury bond yields to rise… and that’s precisely what happened today.

The Fed did hike rates 25 basis points, and bond yields did fall. In fact, the benchmark 10-year Treasury yield fell sharply, down below 2.14%.

This is important, because it’s a problem for stocks long term. The reason why is that this market’s record-high rise has been fueled by the “reflation trade.” That means the market is expecting faster economic growth, and more inflation. Yet a stronger economy is not being reflected in bond yields, which should be rising.

Also, the Fed admitted today that inflation is running below its 2% target rate. Yet the Fed still felt it could hike rates, and also begin the process of “normalizing” its balance sheet. “Normalizing” the balance sheet is Fed speak for “reducing Treasury holdings.” The Fed did announce its plans to do just that, even issuing an addendum to the FOMC statement outlining just how it would normalize that balance sheet.

The bottom line here is that the Fed did pretty much as expected with its “dovish hike.” And we know that because stocks did rise, albeit slightly, with the Dow Jones Industrial Average hit an all-time closing high, which can be seen here in the chart of the SPDR Dow Jones Industrial Average ETF (DIA).

Now that the Fed is out of the way, so to speak, it will be interesting to see how other market sectors react in the days ahead.

Sectors such as the aforementioned Treasury bonds, gold, and various interest-rate sensitive sectors such as utilities, financials, defensive stocks and REITs will be the key segments to watch in the weeks to come.

In Part III of our series, we’ll take a look at what’s happened in the wake of the Fed decision, and we’ll do so by listening to the music in the ETFs that play these various sector notes.

So, stay “tuned” (pun intended).

Part III (June 21)

I love music, and I love exchange-traded funds (ETFs). Both allow us to hear the “music of the markets” playing out in real time. In our third and final installment of our series, ETFs & the Music of the Markets, we look at the tune being played in two sectors leading the market rally… semiconductor ETFs and large-cap Internet ETFs.

Since the election, one of the key drivers of this market rally has been momentum. In the market version of Newton’s first law of motion, a market in motion to the upside tends to stay in motion… that is, until the market leadership falters.

Given this market law of motion, it behooves us to listen to the music of the markets by listening to the action in top-performing market sector ETFs. Two of the best performers over the past eight months are semiconductor stocks and large-cap Internet stocks.

The ETFs pegged to these respective spaces are the iShares PHLX Semiconductor (SOXX) and the First Trust Dow Jones Internet ETF (FDN).

A big part of my job as your Weekly ETF Report and Successful ETF Investing editor is to look at sector trading every single day, because every significant market rally is driven by a few leadership sectors capturing the bulk of the “smart money.”

Yet when these leadership sectors falter, that usually implies an impending loss of momentum… and a potentially sharp pullback in the wider markets.

Since late 2016, semiconductors have been the biggest leadership sector in the markets. They rallied big during the fourth quarter 2016, and they are up big so far in 2017 (SOXX up 19.8%).

And while other sector leadership shifted from late-2016 and early 2017 (small caps to utilities and consumer staples), semiconductors have continued to ring out the bullish notes.

As for large-cap internet stocks, it’s no surprise that nearly half of the 2017 S&P 500 rally can be attributed to just a few stocks: AAPL, AMZN, MSFT, FB and GOOGL. And, it’s not a coincidence that those stocks are heavily weighted in the super-cap Internet ETF FDN.

Interestingly, the sell-off in both SOXX and FDN on Friday, June 9, was the first real sign that these two market leaders were capable of hitting a wrong note.

Since then, both have resumed their upward trajectory, and both mostly recovered from that tough, one-day sell-off. (Note, the selling in these sectors ramped up again on Tuesday, June 27. But the following, Wednesday, June 28, both sectors have come back strong). Yet it’s important to listen and watch the action in these two key sector ETFs, as another serious breakdown will imply a loss of momentum.

For now, the uptrends in SOXX and FDN remain intact, but I’ll be listening carefully for notes indicating the bullish song is over.

If and when I hear it, you’ll be the first to hear it from me!

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On Avoiding Investor Overconfidence

One of the biggest mistakes investors make, especially during bull markets hitting all-time highs, is to become overconfident.

This mistake has many pitfalls, including thinking you’re smarter than the markets, and failing to see that a decision you’ve made might not be correct.

Avoiding this negative influence on your investing results is the subject of an article in U.S. News & World Report titled, “The Dangers of Being an Overconfident Investor.”

I point this article out not just because it’s a very good read, and has very helpful hints on avoiding overconfidence. It does. I point the article out because I am quoted extensively in it, offering up my thoughts on getting past the all-too-human tendency to allow yourself to be overconfident.

If you’ve ever experienced a market loss due to overconfidence, or if you just want to avoid ever doing so, this article is a must.

 

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