At the beginning of November, we assembled a hypothetical $10,000 portfolio consisting of 10 exchange-traded funds we selected from a field of almost 200 that we track. Our portfolio had a nice start out of the gate; however, December slowed our momentum a little.
The trend portfolio declined 0.49% for the last month of the year, falling behind the S&P 500's gain of 0.79% during the same period. Overweighting energy-related issues has clearly worked against the ETF trend portfolio. Last month, we replaced the gold ETF (GLD) position with a higher sensitivity to energy and natural resources in anticipation of cold weather. Since then, Brent crude oil prices dropped 15% from a high of $65 to $55 over the last month because of a worldwide warming trend this winter. No doubt they can recover somewhat -- if the weather gets colder.
The recent drop in energy prices had a negative impact on iShares MSCI Canada (EWC), which was down 4.77%, and also on iShares Dow Jones U.S. Energy Sector Index Fund (IYE), which fell a more dramatic 7.78%.
In addition to the energy malaise, the Vanguard REIT (VNQ) ETF also slid 5.07% on news of falling home prices and fewer mortgage applications. Fortunately, this decline was partially cushioned by the December dividend distribution, which brought the net return to a 3.19% loss for the month.Things were not all bad for the portfolio last month. iShares S&P Global Telecom (IXP) did well on news of the completion of the Bell South acquisition by AT&T (T). The ETF was up 2.27% from the beginning of December, and total return with year-end dividends was 4.73%. Another positive contributor to the portfolio was iShares S&P Global Financials (IXG), which was up 2.05% since the beginning of December and generated a 3.45% total return, including year-end dividends. To qualify for this trend portfolio, the selected ETF had to have an overall score in the top 30% of funds, considering total return to shareholders and low price volatility -- the core factors in our ratings model. We chose investment styles that our fund model says are working, based on the number of high ratings in the group and recent total return performance trends. To limit the selections further, the timeliness of each security is considered. As the following chart shows, global telecommunications, global financials and value stocks were the three leading ETF positions with positive contributions during the most recent monthly period. The laggards included energy and REIT ETFs.
|The Long ETF Portfolio's Performance in December
Telecom, financials and foreign stocks were the biggest winners
|ETF||Ticker||Units||Amt ($)||Price 1/5/2007||Total Return||Gain/Loss (%)|
|ISHARES S&P GL TELEC||IXP||16||988.16||63.16||1,034.94||4.73%|
|ISHARES GLOBAL FIN||IXG||11||958.76||88.95||991.8||3.45%|
|ISHARES MSCI VLU IDX||EFV||14||984.07||71.12||1,012.31||2.87%|
|VANGRD EMRG MKT ETF||VWO||13||977.86||74.9||990.89||1.33%|
|ISHARES MRGSR LGVLIX||JKF||12||985.08||82.43||995.93||1.10%|
|ISHARES MRGN SM CORE||JKJ||12||1,032.00||85.05||1,022.43||-0.93%|
|ML UTILITIE HLDR1240||UTH||7||918.47||129.82||909.94||-0.93%|
|VANGRD REAL ESTATE ETF||VNQ||13||1,037.92||75.79||1,004.84||-3.19%|
|ISHARES MCSI CANADA||EWC||39||1,005.03||24.27||957.12||-4.77%|
|ISHARE DJ ENRGY SC||IYE||10||1,052.10||96.79||970.3||-7.78%|