March was a month many investors would like to forget. After suffering through the China selloff during the first few days, the major market indices ended the month eking out a modest gain. Nevertheless, TheStreet.com's hypothetical portfolio of exchange-traded funds did pretty well for itself during the month.
For March, the $10,000 momentum portfolio gained 2.55%, outpacing the large-cap domestic benchmarks the
Dow Jones Industrial Average
(0.99%) and the
The real price action continues to be abroad. For the first quarter of this year, the
MSCI EAFE Index Fund
rose 4.15%. This ETF contains stocks from Europe, Australia and Asia and represents the most common benchmark of foreign stocks.
But some active U.S. investors did well too. Those courageous enough to increase their energy positions rode an upward spike in oil prices based on the U.K. sailors being held hostage in Iran. Market concerns about this had driven the
iShares Dow Jones U.S. Energy Select
up from $96 on March 5 to $106 on March 29. The return of the sailors has certainly reduced fears near term and may provide an opportune time to reduce or exit energy positions short term.
After reviewing the current portfolio, there are two suggested changes to this lineup for April.
1. Adding Natural Resource Exposure
iShares Dow Jones U.S. Energy Select
ETF has served us well during the months it represented the oil and energy sector. But now with the recent climb in prices for metals, we are suggesting a swap into
iShares Goldman Sachs Natural Resources Index Fund
. We want to reduce the oil exposure, but not eliminate it.
In addition to the list of usual energy names such as
, the iShares Dow Jones U.S. Energy Select ETF also contains positions in
The 2.8% year-to-date performance of the Dow Jones Energy U.S. Select ETF has lagged the Goldman Sachs Natural Resources ETF's 3.7%, which is likely to continue if non-oil natural resource prices continue to climb. Note that swings in oil prices are likely to affect this ETF as well, but to a lesser degree than within the Dow Jones ETF.
2. Moving Out Of REITs and Into Food and Beverage
The trend portfolio is exactly that -- a portfolio that follows positive price momentum. The market momentum is definitely against the REIT ETFs, especially the mortgages ETF.
In general, real estate investment trust values have become too high. This is the case whether you look at the group's compressed dividend yield differentials against the general equity market or if you just listen to company managements on the quarterly conference calls bemoaning the loss of reinvestment opportunities due to higher prices.
We suggest swapping the
Vanguard Real Estate ETF
PowerShares Dynamic Food and Beverage Portfolio
. This fund invests 80% of its total assets in food and beverage companies, and posted a total return of 4.8% for the quarter vs. 3.6% for the Vanguard Real Estate ETF during the same period.
Leading stocks in this ETF include
and perennial favorite
Finally, in taking a closer look at our list, there was one move we decided not to implement at this point, given the strength of the recovery in Asian markets.
iShares MSCI EAFE Value
has about 25% of its investments in Japan. Investors interested in a more pan-European approach to investing should consider the
iShares MSCI EMU Index Fund
. It contains publicly traded securities from the European Monetary Union markets, as measured by the MSCI EMU Index.
For those not afraid to follow the money, the Japan ETFs should benefit from increased money flows back into the yen as that economy continues to nominally improve. The preferred and most liquid of the 10 Japan ETFs we looked at is
iShares MSCI Japan
As listed companies start to report earnings in the next few weeks, we will get the first glimpses of the pace of business in 2007. Our ETF model portfolio continues to call for a conservative view of additional exposure to most U.S.-only sector-style ETFs.
Rudy Martin is the director of research for TheStreet.com Ratings. In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.
While Martin cannot provide investment advice or recommendations, he appreciates your feedback;
to send him an email.