Here's My ETF Strategy For This Bull Market

By CJ Brott

One of my favorite investment products is the exchange traded fund (ETF). I have been using ETFs since 1995, but I still find many managers who do not believe in the tactical use of these vehicles.

I tend to use specific ETFs when I believe there is an easy-to-understand reason to own that index. It is also important that there is a mispricing that represents a potential chance for gain as the pricing inefficiency is corrected. This month I would like to review three ETFs, I currently own.

Powershares QQQ Trust (QQQ)

Over the last few months, I have liquidated specific technology stocks and my holdings in the SPDR Technology Fund (XLK). I sold the stocks to eliminate concentration risk and raise cash for the QQQ purchase.

I also sold the XLK as we awaited Apple's (AAPL) bottoming process. I believe strongly in the technology sector as being somewhat bargain priced, rich in cash and able to raise dividends and buy back stock. I believe QQQ is a way for me to gain exposure to a broad exposure to these stocks and still own a relative bargain.

iShares Core Midcap (IJH)

Since 2000 I have preferred to use the S&P 400 mid-cap index over the S&P 500 as our core market holding. I continue to believe we are in a secular bull market and not concerned with the higher volatility of the S&P 400 ETF.

WisdomTree European Small Cap Dividend Fund (DFE)

In 2009, I began to believe the European banks had not come clean on their financial woes. At that time I decided Europe would solve its economic problems 2-3 years behind the progress being made here in the US. I decided to use the DFE for several reasons.

First I wanted a fund whose holdings earned the majority of their revenue in Europe. aSmaller companies accomplish this goal. Secondly I did not want to invest in any single country. Though I have no hard evidence to support this, I believe that DFE is the only ETF that fulfills this goal.

Lastly I wanted to use WisdomTree's product as this is a somewhat income oriented account and WisdomTree's models seek out those companies with growing dividend streams. (Dividends reflect past performance and there is no guarantee they will continue to be paid.)

I believe this mix of funds accomplishes my ETF goals. Using a tactical GARP based approach to round out portfolio holdings, add diversification and yet still focus investments into areas that meet our macro view of the foreseeable future.

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