|February ETF Trends Portfolio |
Utilities and international non-emerging markets limit losses during downdraft
|ETF||Ticker||Shares||Price as of 2/6/2007||Beginning Value ($)||Total Return for Period (%)||Ending Value ($)|
|IShares MSCI VLU IDX||EFV||14||73.63||1,030.82||-1.15%||1,018.97|
|IShares MCSI EAFE EX-JAP||EPP||7||129.46||906.22||-1.12%||896.07|
|KBW CAPITAL MARKETS||KCE||15||71.68||1,075.20||-7.31%||996.6|
|IShares S&P GL Telec||IXP||14||65.4||915.6||-1.24%||904.25|
|IShares DJ Energy SC||IYE||10||101.47||1,014.70||-2.82%||986.09|
|IShares MRGSR LGVLIX||JKF||12||85.08||1,020.96||-2.97%||990.64|
|IShares MRGN SM Core||JKJ||11||89.02||979.22||-2.30%||956.7|
|ML Utilities HLDR||UTH||7||132.09||924.63||2.85%||950.94|
|Vanguard Real Estate ETF||VNQ||12||85.48||1,025.76||-4.77%||976.83|
|Vanguard Emerg Mkt ETF||VWO||14||79.04||1,106.56||-4.40%||1,057.87|
|Benchmark total returns:|
|Russell 2000 (IWM)||80.44||-2.00%||78.83|
|Dow Jones 30 (DIA)||126.65||-2.98%||122.66|
|(1) Total Return includes both price appreciation and accrued dividends.|
- Europe is a beneficiary of the flight to quality. With the dollar on the decline again, European large-caps promise to deliver gains that beat the DJIA. Our selection in this area remains the iShares MSCI EAFE Value (EFV) ETF. It sells at 15.8 times earnings vs. 19.3 times for the more popular iShares MSCI EAFE (EFA). The iShares MSCI EAFE Value provides global exposure with a geographic portfolio distribution that is 50% Europe, 25% Japan and 25% other.
- Emerging markets are still core holdings. Investing in Brazil, Russia, India and China means you will see occasional overreactions to news and corrections. Our choice among these is still Vanguard Emerging Markets ETF (VWO), which lost 4.4% during our February holding period and 8.58% last week. Investing in emerging markets is risky, but the current downturn looks to be more of a correction than a new bear market.
- Invest in China indirectly. Our portfolio pick, the iShares MSCI Ex-Japan (EPP) has two-thirds of assets in Australia, 20% in Hong Kong and the rest in Singapore and other Pacific countries. The main sector exposure is primarily banking and real estate, which together account for almost 40% of the portfolio. This ETF also provides a 4.25% yield, for long-term investors looking to add income to their overall portfolios. But note that this distribution comes at year-end, not on a quarterly basis, as is more common with ETFs based on U.S. stock indexes. The iShares MSCI Ex-Japan held up relatively well in February, losing only 1.1%.
|Materials Sector Holding Up Well|
|Click here for larger image.|
- A growing economy needs power. Among the nearly 400 ETFs we monitor, the ML Utilities HLDR posted the second-best total return performance in February, second only to the PowerShares DB Oil Fund (DBO). The potential for more buyouts, as well as frequent dividend payouts, should provide good downside protection to this group.
- A growing economy needs materials. We are switching into SPDR Materials (XLB) and out of KBW Capital Markets ETF (KCE). In addition to a list of brand-name defensive holdings such as DuPont (DD), Dow Chemical (DOW) and Alcoa (AA), the materials ETF sports a dividend yield of 4.2% which should translates into lower market volatility. The beta for XLB is 1.23 vs. a beta of 1.39 for the high-flying KCE.
- Keep your real estate income. Despite the strong run in these REITs, we are holding on to the Vanguard REIT ETF (VNQ), whose largest holding, Simon Property Group (SPG), was featured in
TheStreet.com Ratings: Top Property Stocks. If you have this ETF, keep it. It pays dividends on a quarterly schedule and the March dividend is worth the wait.
- Going more defensive with long-term dividend plays. We are swapping the iShares Morningstar Large Value (JKF) for the PowerShares Dividend Achievers Portfolio (PFM) in an attempt to limit the potential for future losses. This ETF invests in those companies that have increased their annual dividend for more than 10 consecutive fiscal years. The benefit of this is these are usually the last holdings to be sold by long-term investors. Top holdings include Exxon Mobil (XOM), General Electric (GE) and Citigroup (C).
- Keeping the iShares S&P Global Telecom (IXP) worked well during the recent market selloff, and the fund provides good exposure to global telecommunications growth. About two-thirds of holdings are non-U.S. companies, including Vodafone (VOD) and Telefonica (TEF). This ETF also provides a modest 2.4% yield.
- Stick with energy. Our portfolio invests in this sector through the iShares Dow Jones U.S. Energy (IYE).
- Think defense. We're adding the PowerShares Aerospace & Defense (PPA) in place of the iShares Morningstar Small Core (JKJ).