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10 ETFs to Buy for 2012


I have written extensively about volatility on this site and spend a great deal of time studying the subject. As usual, the Chicago Board Options Exchange, or CBOE, had many of its excellent staff at the Super Bowl of Indexing, one of whom, Matt Moran, provided valuable insight as part of a panel that I moderated. The CBOE develops and markets volatility products, known in the marketplace as the VIX.

Earlier this summer, I wrote a series of articles that sought out low-volatility investments to combat the market's woes and increasing volatility. Now I have two ETFs that can provide this sort of protection for investors.

First is the PowerShares S&P Low Volatility (SPLV) ETF. This ETF, managed by Invesco, invests in stocks in the Standard & Poor's Low Volatility Index. From its inception earlier this year through Sept. 30, the ETF declined 3.08%, vs. a decline of 16.27% for the Standard & Poor's 500 Index.

>>7 Extreme Stocks to Trade in This Volatile Market

Another interesting yet more complex instrument to combat volatility, avoid bear markets and capture longer-term market trends is the RBS US Large Cap Trendpilot ETN (TRND), exchange-traded notes issued by the Royal Bank of Scotland. This product provides exposure to the S&P 500 Total Return Index, subject to a set of risk-management rules that will move to cash if a negative trend in the index is established.

Simply put, if the index closes below its 200-day simple moving average for five consecutive days, then the portfolio will exit the index and invest in three-month U.S. treasuries. Once the index closes above its 200-day simple moving average for five consecutive days, then the portfolio is reinvested in the target index.

A mid-cap version also exists for this product, the RBS US Mid Cap Trendpilot ETN (TRNM). This is a great way to protect against an emerging bear market, but here is the drawback for this product: During periods of excessive volatility swings, as we have endured since August, the ETN will likely remain in cash because it does not have enough "time" to catch a market upswing. This has indeed been the case for several months now.

Yield Over There

The ever-elusive search for yield continues. The U.S. treasury market is on the one hand well-bid and on the other hand too expensive to really generate any sort of meaningful total return to investors. Of course, there are yield alternatives, such as high-dividend-paying stocks, master limited partnerships and REITs, all of which I have written about, but the search for yield is going global.

>>5 High-Yield Stocks That Could Pop
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TRNM $35.77 0.06%
EUO $23.28 -0.72%
SPLV $40.00 -0.57%
PCY $28.64 0.32%
TUR $45.60 -0.48%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

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