A Master's ETF Recommendations
Thursday, June 4, 2009 | Bob De DeaRating:
I just finished reading (take a big breath, it's a long title) Beat the Market - Win with Proven Stock Selection and Market Timing Tools. I saw it sitting on the shelf at my local library and picked it up, principally because of its author, Gerald Appel.This is the guy who is a legend in technical analysis and the Creator (spoken with reverence and pronounced "KREE-'AY-TORE") of the Moving Average Convergence/Divergence tool, otherwise known as the MACD indicator. So I respect this guy quite a bit. (It also seems to me that Chris has referred to him somewhere along the way in the past couple of years, but memory fails, except to say that I think he might know him.)
Anyway, today I'm going to give you his take on a couple of things. Let's start with some advice from the granddaddy of market analysts (he may be a granddaddy, but that's just an expression; although, come to think of it, he does look a little like Jim Backus).
An ETF Investment Portfolio
Appel models his ETF investment approach after that taken by his management company, Signalert Corporation. He concentrates on six sectors: Utilities, Energy, Real Estate, Finance, Health Care, and Europe. The ETFs (which he mentions; there are others) for these sectors are:
Utilities (XLU), Energy (XLE), Real Estate (ICF) ,
Finance (XLF) , Health Care (XLV) , Europe (IEV or VGK)
Finance (XLF) , Health Care (XLV) , Europe (IEV or VGK)
He does a sector relative strength review every six months (February and August), to rank the six (using ten months' worth of data), then redistributes assets in the following way: 1/3 of investment capital goes to the two top-performing sectors (for a total of 2/3 of your capital), and 1/6 goes to each of the next two sectors in the line-up (to make up the remaining 1/3). The bottom two sectors get nothing.
Pretty simple, eh? But there's more!
He also recommends the following ETFs for a more diversified portfolio:
Emerging Markets (EEM) (less correlated to the U.S. market)
Technology Sector (QQQQ) (this is one of Ethan's favorites, if I'm not mistaken)
Precious Metals (GLD) (as a hedge against inflation)
Small-Caps (IWM) (for the December-January outperformance "pop")
With the same re-balancing schedule, the top three sectors would get 20% each, the next four 10% each (60% / 40%). The bottom three again get zilch.
What I notice with this approach is the broad nature of the recommended sectors, which can be a good thing or a bad thing, depending on the investor. It also doesn't allow for severe market moves that could drastically affect your portfolio. Sector Hunter uses about 46 different subsectors which makes it possible to make plays in different sectors at different times throughout the year, not just every six months. And the system has specific rules for both entering and exiting the trades.
The Market Masters
But I'm not going to argue against Mr. Appel. Instead, I'll let him speak for himself:
Here is the rationale behind this strategy: Investment analysts employ numerous techniques to outperform random selections. Market timing based on chart study represents one technique. The selection of stocks and bonds, based on analyses of corporate and industry fundamentals -- earnings, value of assets, interest rates, and their effects on corporate profitability -- represent another approach to stock selection. Selecting stocks based on past performance is a third approach, one whose merit is supported by research.
Professional market traders know that stocks, mutual funds, ETFs, and market sectors that have led in performance tend to maintain their lead in the immediate periods that follow....
My own experiences have been favorable with "relative strength investing," and I know of many professional money managers who employ similar strategies. I suggest combining relative strength strategies with market timing strategies to secure the best of both worlds.
Professional market traders know that stocks, mutual funds, ETFs, and market sectors that have led in performance tend to maintain their lead in the immediate periods that follow....
My own experiences have been favorable with "relative strength investing," and I know of many professional money managers who employ similar strategies. I suggest combining relative strength strategies with market timing strategies to secure the best of both worlds.
Hmmm. One of the linchpins of Teeka's incredibly successful black box system is assessing relative strength against the equal-weighted S&P 500 via a proprietary algorithm. Another is the way Sector Hunter uses Bullish Percent Indices to provide clear-cut signals for entering a trade. And the ETF Master Trader program can teach even a novice like me how to use other market timing tools (stochastics, anyone?) and a whole host of investment strategies to explore and consider for one's own.
So I think I'll stick with the lessons and approaches learned from our very own Master, Mr. Tiwari, and trust Sector Hunter's impartial recommendations when it comes to my own ETF investing.
Signed in Admiration,
The Big D
(I might, however, have to pick up Investing with Exchange-Traded Funds Made Easy, written by Gerald's son, Marvin Appel, next time I'm at the library. Just out of curiosity and respect for his old man.)
So I think I'll stick with the lessons and approaches learned from our very own Master, Mr. Tiwari, and trust Sector Hunter's impartial recommendations when it comes to my own ETF investing.
Signed in Admiration,
The Big D
(I might, however, have to pick up Investing with Exchange-Traded Funds Made Easy, written by Gerald's son, Marvin Appel, next time I'm at the library. Just out of curiosity and respect for his old man.)
(Please let us know what you think about Bob De Dea's article.)
Rate his article here »
Rate his article here »
Bob De Dea
Guest Contributor
The Tycoon Report
