Tag: ETF

Let’s get started by concentrating on the S&P 500 – it is intrinsically an index of the 500 largest companies in America. Indeed, it is more. Contrary to popular misconception, the S&P 500 is not a simple list of the largest 500 companies by market capitalization or by revenues.

Rather, it is 500 of the most widely held U.S.-based common stocks, chosen by the S&P Index Committee for market size, liquidity, and sector representation. “Leading companies in leading industries” is the guiding principal for S&P 500 inclusion. We are starting here to achieve safety and diversity.

If you use the S&P 500 as your investment base you won’t have to worry if the CEO has resigned, the CFO has just been indicted, the stock has missed its forecast or any number of things that make stock prices flagellate unsuspecting investors and traders.

You ask: How can you make money investing on the S&P 500?

Consider its graph, the white, bottom most curve on the chart. As you can see, the S&P 500 goes up and down similar to stocks and hasn’t done so well over the past 3 years.

Wouldn’t we do better with a mutual fund? [Actually, you’re getting warmer.]

According to the Motley Fool, “During the 1990s, the S&P 500 has provided an annualized return of 17.3%, compared with just 13.9% for the average diversified mutual fund.” Over the past 3 years only 10 mutual funds had more than a 12% total return [data through 6/4/2010 from 12,392 funds, Morningstar]. You can see that the S&P 500 has not done well, but you would have actually done worse using mutual funds.

Instead of considering mutual funds I’m going to restrict our consideration to just two ETFs, i.e., SSO and SDS. I said simple; this is simple.

We’re going to invest in SSO when the market is rising and SDS when it’s falling. Both SSO and SDS are based on the S&P 500. They track its traded index, SPX. [You have to trade SPX because the S&P 500 is an index that isn’t traded.] The SPX is among the most traded equities and is also one of the most liquid. As an investment it brings diversification.

SSO and SDS are mirrors of each other. Whenever SSO rises the SDS falls, and vice versa. This allows us to trade in rising and falling markets. Simply, pick the correct ETF.

These ETFs have one other unusual property. They move twice the speed of the SPX; they are leveraged 2 to 1. [Proshares has a number of similarly behaving ETFs. They are called Ultra ETFs.]

You said: This would be a safe investment strategy! These are leveraged! Isn’t it safer to invest in sound American stocks?

Rather than give a large list of recently failed stocks, I decided to find if there were any stocks among the current S&P 500 that I would like to have held over the past 3 years. Only 2 emerged, Family Dollar and Autozone. More than 15% of the S&P 500 had more than a 75% draw-down and an additional 35% had losses over 50% at some time during the 3 years. These statistics do not include companies like Enron and Lehman that are no longer included. If they were included these statistics would be much higher.

I don’t know about you, but I’m not much of a stock picker. I want something truly safe. If you are comfortable with your results trading stocks, don’t bother reading further.

What about investing in utilities?

When I began investing, my Dad told me that utilities were always a safe investment. They paid a good dividend that never went down. Their customer base is locked in. Their rates are determined by the states and these always increase. What could be safer?

During the last 3 years, Duke Energy fell over 40% from a high of 20.66 to a low of 12.39. Over the same period, the index of gas utilities had a high of 33.84 and a low of 20.11. Electric utilities fared worse falling from a high of 40.01 to a low of 20.85. Even utilities don’t look safe anymore.

From my point of view, it’s the story of the turtle and the hare. Stocks behave like the hare. You cannot predict in which direction they are going to run.

These two ETFs, SSO and SDS, in comparison are turtles; admittedly turtles with racing stripes. At this point we do not have anything more than a rough plan for investing in the S&P 500. This is not enough to qualify as an investment strategy.

We shall begin to upgrade this plan into a practical trading strategy. First, we need an unbiased indicator to determine on which ETF we should place our money, SSO or SDS. Any day, the majority of pundits on CNBC will tell you the market is going to rise. But on the same day, many of their pundits will provide reasons why it will fall. So, you cannot rely on them. Also, the Futures, prior to the Open, seem no more reliable for choosing either SSO or SDS.

After many years of trying, I developed a market timer that combines the market movement of the SPX with market sentiment. I call this the SPXTimer. There are many market timers available. I’ll let you be the judge which to choose.

They are invaluable for making a well guided decision about which ETF to select. Mine gives you three choices. When it’s bullish take SSO; bearish SDS and when it’s neutral stay in cash. What could be simpler?

The red curve, third from the top judging from the right hand side of the chart, shows the results of trading SSO and SDS from 9/12/2007 until 5/5/2010 only using the SPXTimer. $10,000 invested on 9/12/2007 grew to $13,737. Most investors and funds didn’t do that well over this difficult period.

I think you will agree, these results are not very good in terms of what you would hope to achieve. Look at the yellow oval in the middle the graph. During that interval of time, the investment fell from a high of $14,469 down to $11,158. That’s a big hit. We would like to sleep well at night; that fall would make sleep very difficult.

Sometimes these ETFs do not move in sync with the market timer. A little patience is required before charging into the market. I added a mild momentum constraint to the strategy to ensure the entry is in sync with the timer. The ETF’s momentum, not necessarily the price, is required to be rising over 2 days. [A service bureau provides me with this information.] Sometimes this constrains delays entry for several days.

The blue curve provides the results of adding this constraint. Here, based solely on the S&P 500, my market timer and an entry constraint, the $10,000 investment grew smoothly to 16,525. That’s over 20% per year! There were pull backs, but you could sleep soundly.

I was still concerned with giving back profits. After each big run-up in profit, it seemed there was a comparably big pull back. Many investment managers recommend adding to a position as it is rising in value.

I decided to try subtracting from the position size as the profit rises. If timed properly, this might reduce the amount of profit given back. Plus, it would reduce the risk while adding some of the profit to the bank. To do this, I decided to incorporate the following Money Management with the two strategies that were in place.

Say you started with $10,000. The idea is to keep the money at risk between $9,000 and $11,000 [+/- 10% of the initial investment].

Whenever your equity grows over $11,000 sell enough shares to withdraw $1,000. This should reduce your money at risk to under $11,000. The next time it appreciates over $11,000, do it again.

If, on the other hand, the investment falls below $9,000 add $1,000 worth to the ETF investment.

The results are remarkable. This investment, the yellow, top-most curve, grew to $17,780. That’s close to 30% annually; not bad for a turtle! The chart doesn’t show this statistic, but 75% of these trades were winners.

I repeated this test on three more broad based indexes: the Nasdaq 100, S&P Mid-Cap 400 and the Russell 2000 changing only the two ETFs. Each did better. The statistics of these investments, starting on 9/12/2007 with $10,000 and ending on 5/5/2010, are shown in the table below. All data is based on back-testing, not actual trades.

The basic plan: buy one of these ETFs when bullish and the inverse ETF when bearish, or stay out of the market in cash, is as simple as it can get. The SPXTimer brings order and safety to the investment because you know whether to buy the bullish ETF or the bearish ETF. The entry condition, combined with this money management strategy, will improve your investment results beyond what you might hope to achieve with stocks or mutual funds – with much less risk. Now isn’t that what you wanted all along?

Footnote
You may be wondering about the choice of dates; particularly since on 5/6/2010 the Dow fell over 1000 points in less than a half hour. Many of these ETFs were first introduced in 2006 and 2007. As a result, data was not collected for the SPXTimer prior to mid 2007. The start date corresponded to the first change to a bullish signal. On 5/5/2010 the timer signaled a close for all bullish positions. Prices in the table reflect the Open of 5/6/2010.

At Berrscott, Elliott & Associates we are dedicated to give our clients access to the latest variety of financial services and products available on the market. Berrscott, Elliott & Associates knows the right strategy, the right investment and the right product. Whether its advice, investments or financial planning Berrscott, Elliott & Associates are here to answer all your questions and assist your financial needs.

A choice Investment Approach For Offshore Investments – Offshore investing can take many forms. Alternative investment vehicles often include a component of offshore investments, such as offshore real estate, or offshore farm land and agricultural production, or even offshore gold and silver storage.

Berrscott, Elliott & Associates: Advantages of Offshore Investments as Alternative Investment Vehicles. Almost anyone now can move funds into the more exciting and profitable world of offshore investments. Knowledge of how to enjoy the advantages of offshore investing is much more expensive and rare than with standard home country investing however.

Moving funds out of your country of origin has largely been a winning trade for the past decade when calculated with currency fluctuations. China, Brazil, and India have all offered higher returns during bulls markets then the U.S. stock indexes over the past decade for instance. While these markets can be played with ETF’s, there are several key shares that must be purchased using offshore investing houses.

Key advantages of offshore investing within an alternative investment framework includes: Higher potential returns than the domestic market, much broader range of stocks to choose from, often better pricing than domestic ETF’s, early availability of smaller capitalized issues, protection against single market dependence in real estate, stocks, weather effects, political effects, and currency devaluations.

Offshore money management can steer towards main line investing in big projects or companies, or more towards alternatives to the main companies, much like domestic investing. While the risk can be greater with alternative investments, the rewards can be significantly higher and come much faster with a systematic approach to evaluating alternative investing ideas within an offshore portfolio.

Six ideas for moving funds offshore and potentially enjoying high alternative investment returns: offshore direct company investment, offshore private placements, offshore currency investment (FOREX), offshore fund investment, offshore gold and silver storage, offshore investment account denominated in a local currency, such as USA Dollar, Australian Dollar, Singapore Dollar, or GBP Pound.

Instead of only being dependent on major stock indexes, the above investments offer security against single market dynamics. Not only is there potential for higher returns, but potential for avoiding massive loses if all of your investments are based on one market and are susceptible to political, economic or natural disasters.

About Berrscott, Elliott & Associates – Berrscott, Elliott & Associates is an Investment Management Firm focused on small and mid cap value equities. We manage $1 billion and specialize in valued stocks-since the firm’s founding in 1995.
Our Investment Team adds value through our own detailed fundamental research, discounted cash flow-based valuation analysis and Portfolio Management tailored to balance risk and return.

Tips About Investing In Brazil (If you’re afraid of Stocks)

Beginners of the investment world often have several questions:

How, when and where to invest? What is the best investment? It is worth investing in the brazilian stock market? Is it risky? How much can I earn? How much can I lose?

To help these investors, I write this article with two great investment tips for beginners.

Conservative Tip

If you want to start investing but is afraid of the brazilian Bovespa, do not worry. You can still find profitable investments in Brazil that will satisfy you.

Where?

In treasury brazilian bonds!

The most popular investment is the Tesouro Direto, created by the Brazilian Treasury. These bonds have very high yields (11% – 13%) while at the same time maintain a very low risk.

However, there are several options of Brazilian Bonds, so what to choose?

I like the LTN’s and NTN-B’s.

With an LTN, the investor knows EXACTLY how much he will receive and on what day. If you buy a bond that generates 12% a year, you can rest assured that you will earn 12% per annum until the bond reach its maturity, or be repurchased by the Tesouro, that you will get your original investment plus the profits of the year in which its capital remained applied.

The NTN-B’s keep up with the inflation. That is, if some catastrophe happens in the country and inflation reaches epic levels, those bonds will keep your money 100% secure. The income of NTN-B’s tend to be slightly smaller than those of LTN’s, but this is the price the investor pays for having a large margin of security against inflation.

How much can I earn?

With the LTN’s, around 10-12% per year not counting inflation and with the NTN-B’s, 5-6% above inflation.

How much can I lose?

The Treasury keeps its money very safe. The investor’s capital is very secure. You will only lose something if Brazil goes bankrupt. Considering that this is very far from happening, we can conclude that it is totally safe to invest in Tesouro Direto.

How to invest?

To start your investments in Tesouro Direto, contact your stockbroker or talk to a broker whom you trust.

“Risky” Tip

For those who want higher yields than government bonds but still do not want to invest in the stock market, there is the brazilian ETFs.

What are ETFs?

They are stock funds that trade like common stocks on the stock exchange. While a typical investor buys securities from a company like Petrobras using the Home broker system, an investor’s purchases ETF shares of a fund in the same way, also using the Home Broker. Nice, easy and online.

The advantages of ETFs are many. Firstly, if the investor does not know exactly where to invest, the ETFs provide diversification. This is because an ETF is nothing more than a portion of a fund that manages many different assets at the same time.

Moreover, many of these funds track indexes of Brazilian stocks. So if you invest in an ETF, you’re basically diversifying your investments while maintaining a high profitability and also invests in several Brazilian companies at the same time. You will be investing almost in Brazil. And man… brazilian stocks are skyrocketing!

But in which ETF should I invest?

In Brazil, the best and most recommended are index funds and the BlackRock fund PIBB11. Personally, I like the Blackrock funds. If I have to choose only one, I would pick the SMAL11. This fund follows an index of small caps in the Brazilian stock exchange, Bovespa.

Why choose a fund small businesses? Just because small companies have greater growth potential. There are other options of course, but start researching these funds mentioned is a great idea.

When I win?

You can make up more than 100% per annum (no, I’m not jocking, check Yahoo quotes and see for yourself). However, as an ETF fund is still part of the variable income, it is difficult to say exactly. You may get 100% or 50% or 30% or 150% or nothing or lose your pants. There’s nothing certain in the stock market!

How much can I lose?

Chances are you will lose some money in the short term. But since you are investing in several Brazilian companies at the same time, just keep your money invested while waiting for high profits in the future, unless Brazil explodes. But don’t worry, that is really very far from happening.

How to invest?

As with Tesouro Direto, I advise that you contact your stock broker.

Good luck with the brazilian stock market!

If you are looking for new investment opportunities, uranium mutual funds may be the best place to put your money. Most of the new age energy mutual funds have a number of stocks into sectors such as oil, gas, nuclear energy, uranium and so on.

The good investment potential in this sector has led to further upsurge in the demand for this sectoral funds and mutual funds industry is also bringing out new funds and investment opportunities. Today, uranium mutual funds are one of the preferred investment avenues for investors who like to participate in the growth of the nuclear energy sector.

The growing demand for energy from most of the world economies including the emerging market economies has led to a dream performance of many of the nuclear energy companies dealing in uranium and other forms of energy. This has also led to launch of new exchange traded funds and sector specific funds dealing in uranium stocks.

Nuclear energy ETF fund is gaining prominence day by day due to the extreme popularity of uranium funds amongst investors of all hues such as individuals, hedge funds and other private players. The uranium mutual funds industry is growing by leaps and bounds and a number of new funds offerings are being planned for the benefit of investors.

Sprott energy fund is one such mutual fund which aims to achieve capital growth and long term wealth creation for its investors. The energy sector fund has its investments in energy and related resources stocks including uranium. Like all sector specific funds, these funds may have short term volatility.

But nothing to worry about. If you are a medium and long term player, the uranium mutual funds may give you better than the market returns. Nuclear energy is the new buzz word the world over and if you do not have uranium mutual funds in your portfolio, you are missing action to a great extent.

Again, dont focus all your efforts here; it is always best to be able to do your own investing and spot opportunities on your own. If you do plan to invest in Uranium mutual funds and have a fund manager watch over your cash for you, make sure it is just a portion of your overall portfolio. Taking the time to educate yourself financially may seem like a chore at first, but it will be well worth the effort down the road.

Dollar cost averaging is a dead-simple investment technique that may help young investors achieve long-term gains with less risk. Within an hour you can have this stock market investment strategy set up and working for you.

Long-term gains using a dollar cost averaging plan.

Dollar cost averaging allows young investors to purchase stock investments consistently over a longer period of time. This stock market strategy works especially well with broad-based market index investments like the mutual funds and ETF’s that mirror the return of the S&P 500. This powerful and simple investment plan will help lower risk and you have the potential for higher returns.

For young investors looking for consistent gains over time, establishing a dollar cost averaging plan could be a perfect solution. Young investors are able to purchase more shares when the stock market experiences short-term corrections. That way when the index turns around and starts heading up in value young investors are able to profit more because they own more shares.

When the market is rising young investors are able to capitalize on the market trend because they are following a consistent investment plan. As they purchase more and more shares in a bull market that money is going to work for them right away.

Dollar cost averaging spreads the prices that you purchase stock market investments (cost basis) over a longer period. Investors are protected from stock market corrections and benefit from long-term gains in the market.

Steps to creating an effective dollar cost averaging plan.

For young investors creating a successful dollar cost averaging plan is simple. There are two basic steps that will get your money working for you:

1. Decide on the exact amount of money you will invest each and every month. The key to a successful dollar cost averaging plan is consistency. You can increase your investment over time but avoid investing different amounts each month.

2. Set up the exact times you invest. If you decide to invest once per month do so on the same day. For instance, the fifth of every month invest $150. It gets even easier when you put your dollar cost averaging plan on auto pilot. Set this up one time and your investments are made automatically for you each and every month. All you have to do is check your statements to see how your investments are doing.

Improve your dollar cost averaging plan through diversification.

Diversification is a simple spreading out the risk of owning a stock investment by owning many different stocks in a variety of sectors. Instead of owning one individual stock, which is very risky for the inexperienced, you may choose to own a group of stocks. This will reduce the risk of owning any single investment. The investment of choice for many young and beginning investors is broad based indexes.

An example of a broad based market index is the S&P 500. By investing in the S&P 500 index you own a piece of every stock that makes up the S&P 500. Stocks like American Express, Google, Ford, Nordstrom, Home Depot, Staples and Yahoo are a few of the stocks that make up that index. That way you’re protected in case one of the stocks in the S&P 500 drops 70% of its value, you’re only invested 1/500th, and you won’t experience too much loss from that. In comparison, if you just owned that stock by itself you would have lost 70% immediately.

For young investors, keeping your investments diversified and using a dollar cost averaging investing technique – you have effectively reduced risk and are in an excellent position to achieve long-term profits.