This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

3 'Tweaks' to Fortify Your ETF Portfolio

NEW YORK ( ETF Expert) -- Extraordinary rallies off bear market bottoms are typical. Bullish run-ups in March 2003 and March 2009 registered enviable unrealized gains of 35% and 65% respectively; each advance experienced little resistance for roughly nine to 10 months.

Powerful moves off minor corrections are less typical, if not downright suspicious. Since mid-November, investors in the S&P 500 SPDR Trust (SPY) have witnessed a soothing 22% ride to all-time highs.

In the last quarter century, you could probably count the number of times on your hand when U.S. stocks traveled a similar vertical trajectory for more than a half year without a significant hitch or pullback.

Regardless of whether current valuations are reasonable, there are plenty of reasons to doubt the slope of the movement. For example, equities have outshined comparable bonds by nearly 7% over the last four weeks -- a feat that is particularly flashy for the previous two years. Similarly, several high-yield bond (a.k.a. "junk") indices show a modest 2.6% in additional yield over comparable Treasury-bond funds; the spread is more reasonable when it is greater than 3% (300 basis points).

It follows that sensible ETF enthusiasts might consider "tweaking" their holdings. Here are three moves that would lower portfolio risk, yet maintain a desirable level of reward for that risk:

1. Lower the Average Maturity of Your High-Yield Bond ETF. Both iShares High Yield Corporate (HYG) as well as SPDR High Yield Bond (JNK) have been terrific in the modern era of quantitative easing; both of these vehicles hold corporate bonds with average maturities in the sweet spot of the Federal Reserve's bond-buying program (i.e., seven years).

On the other hand, the Fed is beginning to hedge its public statements such that ... perhaps the central bank will begin to taper the money printing and subsequent bond purchasing. Although I don't believe that this will actually be the case in 2013, it is certainly possible. And if the Fed does begin to taper, one should expect intermediate- and longer-term Treasury yields to rise, pressuring comparable high-yield corporate bonds.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.75 -1.10%
FB $117.53 0.69%
GOOG $693.00 0.29%
TSLA $240.75 -2.80%
YHOO $36.61 0.06%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs