A recent article in the publication Barron's pointed out one of the big success stories in 2010 has been the growth of the ETF market. This market is expected to close out the year around $1 trillion up from $794 billion at year-end 2009.
For quite some time now we at MarketClub have been big fans of ETFs for investors. There are several reasons for this, but one of the great reasons is the easy way it allows investors to diversify their holdings not only across different markets, but also across different countries. We utilize this particular strategy in 2 popular ETF portfolios that we have constructed for MarketClub members.
The first is called the Global Strategy Portfolio (GSP). This portfolio has been designed to take advantage of large moves and provide diversification in global markets. The goal of this portfolio is to provide protection and good returns for investors who wish to use global markets to reduce risk. Learn how to diversify the right way by clicking here.
The second is our Perfect "R" Portfolio. Like the GSP, his portfolio has been designed to take advantage of large moves and provide diversification in four major markets. The goal of this portfolio is to provide protection and good returns for 401(k) and IRA accounts with as little risk as possible. Click here to request the full report on this retirement-changing portfolio.
One of the other really positive aspects of the ETF market is the fact that the cost of handling ETFs can be as low as .18 % with Vanguard and as high as .70% in iShares.
Yet another positive for ETFs is that they allow you to trade in commodities, or I should say ETFs that track commodity prices. The most popular of these commodity prices is the ETF GLD which currently has about $55.8 billion in assets making it the second largest ETF. That of course has helped fuel gold prices as it is now much easier for investors to invest in this precious metal.
One of the reasons that I personally like ETFs is the fact that you can trade them during the day. What that means is that unlike a mutual fund where you have to wait until the end of the day to know your purchase price, an ETF you can buy or sell during the course of the regular trading day. This is a huge advantage over mutual funds. I also predict that in the next 5 to 10 years mutual funds as we know them will probably no longer exist due to the migration to the ETF market that I believe will begin in earnest during the next decade.
So what are the a biggest ETFs out there and what do they trade? I have listed them below in order of size.
THE TOP 10 BIGGEST ETFs by Dollar Amount
* SPDR S&P 500/ Symbol : SPY
* SPDR Gold Trust/Symbol: GLD
* iShares MSCI EmergMkts/Symbol: EEM
* Vanguard Emerging Markets/Symbol: VWO
* iShares MSCIEAFE/Symbol: EFA
* PowerShares QQQ Trust/ Symbol: QQQQ
* iShares S&P 500/ Symbol IVV
* iShares Barclays TIPS Bond/ Symbol: TIP
* Vanguard Total Stock Market/ Symbol: VTI
* iShares iBoxx$ InvtGrade Corp/ Symbol: LQD
Okay we look at the biggest ETF's by dollar amount, now let's take a look at the most traded ETF's.
THE TOP 10 TRADED ETFs by Trading Volume
* SPDR S&P 500/ Symbol: SPY
* iShares Russel 2000/Symbol: IWM
* PowerShares QQQ Trust/ Symbol: QQQQ
* iShares MSCI EmergMkts/Symbol: EEM
* SPDR Gold Trust/Symbol: GLD
* iShares MSCI Brazil Index/ Symbol: EWZ
* Financial Select Sector SPDR /Symbol: XLF
* iShares MSCI EAFE Index/ Symbol: EFA
* iShares FTSE/Xinhua China 25/ Symbol: FXI
* ProShares UltraShort S&P 500/ Symbol: SDS
As I mentioned earlier, another real positive for the ETF markets is the fact they track commodities. It is now possible to take advantage of what we envision to be some huge commodity moves, not only this year but also the future.
Investors can now trade in gold, silver, cotton, natural gas, and other commodity markets without the typical hesitations associated with them.
However, there is one downside to the commodity ETFs and if I didn't bring this up I would be doing investors a big disservice. In the futures/commodities markets there is a phenomenon called contango. What this means is that the futures price is higher than the spot price. Contango forces an ETF to roll its spot contracts into higher-priced futures. This can create a problem for a commodity-based ETF that hurts performance and skews the tracking ability of an ETF.
Another issue for investors is the use of leverage ETFs. In fact, it was such an issue that the Financial Industry Regulatory Authority (FINRA) indicated, "that inverse and leveraged ETFs that were reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.” This statement came out last year and is reflected in the volume of two very popular day trading ETFs. These ETF Direxion 3x funds trade massive amounts of shares everyday and are favored by the day trading crowd as they offer good liquidity. The first ETF, symbol FAS, is a bullish fund that trades around 45 million shares a day. The other leveraged ETF by Direxion 3x is symbol FAZ and trades around 54 million shares a day. Both of these funds have been very tough on investors who go into a buy and hold mode. These ETFs are for trading. Just look what a buy and hold strategy would have gotten you in these two ETFs. FAS is down 4% while the FAZ is down 99% since early 2009. The moral of the story is be very careful when trading leveraged ETFs.
THE TOP 10 NOTABLE ETF's
These 10 notable ETF's spread you all over the financial map, everything from municipal bonds to master limited partnerships to commodities.
* iShares Silver Trust /Symbol: SLV - Biggest Silver ETF
* SPDR S&P Dividend/ Symbol: SDY - Buys S&P Dividends
* SPDR Barclays Capital High Yield Bond/Symbol: JNK- Investin Junk Bonds
* iShares S&P National AMT-Fre Muni/Symbol: MUB - Buys Municipal Bonds
* iPath S&P VIX S/TFutures/ Symbol: VXX-Trades on depressed VIX index
* Alerian MLP/ Symbol: AMLP - Buys master limited -partnerships
* US Natural Gas Fund/ Symbol : UNG - Natural Gas Markets
* ProShares Ultra Short 20+yr Treasury/Symbol TBT-Play on higher rates
* Vanguard European/ Symbol: VGK - Buys European stock, yields 4%
* PowerShares DB Commodity/ Symbol: DBC - Broad commodity exposure
HERE'S HOW WE TRADE ETFs
The major "Trade Triangle" to watch in trading this portfolio is the monthly "Trade Triangle" as this triangle determines the trend and initial positions. We use the weekly "Trade Triangles" for timing purposes. Let me give you an example, if the last monthly "Trade Triangle" is GREEN this indicates that the major trend is up for that ETF. You would then use the initial GREEN monthly "Trade Triangle" as an entry point and use the weekly RED "Trade Triangle" as an exit point. You would only reenter a long position if and when a GREEN weekly "Trade Triangle" kicked in. You would then use a weekly RED "Trade Triangle" as an exit point. Providing that a monthly GREEN "Trade Triangle" is in place the trend is positive for the ETF. The reverse is true if a RED monthly "Trade Triangle" shows that the trend is down. You would then use the weekly RED "Trade Triangle" for entering short positions and the GREEN weekly Trade Triangle exiting the market.
Here are two MarketClub ETF portfolio's we track: (Global Strategy Portfolio) (Perfect "R" Portfolio)
Well that pretty much wraps up the ETF market and a special thanks go to BARRONS for providing research for this article. One thing's for sure ETF's are an important investment tool and one which will grow in importance in the years to come.
If you're not yet looking at ETF's with MarketClub you really should take the time to learn how you can make money in the ETF market using MarketClub's "Trade Triangle" technology.
Every success in the future with your new found ETF knowledge.
All the best,
Adam Hewison
President of INO.com and cofounder of MarketClub
Hello Adam,
Your title caught my attention, however, I was expecting more insight on the emerging markets and the potential ETF's to look at across the globe. For example, we have seen the growth the last few years in the global markets with BRIC, what do you project to be the next big markets? Appreciate your feedback.
"The Principle Trader"
Tomas,
Thank you for your feedback. We do have a portfolio for BRIC which has done very well, it also includes the Australian ETF EWA.
All the best,
Adam
I couldn't agree more! I've asked Adam to address this via questions during his webinars and he has yet to say a word about it. It is a very real problem that has caused investors to lose a lot of money when using Commodity ETFs. Yet nothing but silence, I guess it conflicts with his marketing of Market Club. For the record, I like the Market Club concept but would like Adam to address the issues facing ETF investors, i.e. pre-rolling, etc. Every financial instrument has upsides (like Adam listed) and down sides.
Adam,
Kudos to you and your staff for setting up the MarketClub Portfolio Tracker section! I was one of the members a few months back trying to find the Perfect R Portfolio material, remember the suggested trading rules, and quickly find the current recommendations. I just looked over the section and it's all there.
In reference to the Euro and the FXE ETF in the Perfect R Portfolio, I noted a video you did in the summer about the EUO being an ETF to consider for someone who wants to short the Euro in an IRA. I would not be surprised if problems resurface with the European countries -if so, would the EUO be the ETF you would recommend?
REd44,
If the appropriate Trade Triangles are in place, yes. Other wise stick to the Perfect "R" portfolio as it will make money for you.
Thanks,
Adam
One concern I have regarding the article is that it does not differentiate between ETF's and ETN's. ie. VXX is an ETN, which is a very different animal than an ETF. An ETN is a backed by the issuer with a PROMISE to pay. If the issuer has financial problems, good luck. In fact, my broker won't sell ETN's only ETF's.
Phil,
Good point.
Thanks for your input and bringing that very important difference to the blog.
Adam
I think Adam has put the main pros and cons on the table. I do not see absolutely any reason for one to trade or even invest in mutual funds anymore since the arrival of ETF. Of course one must be very carefull with ETF's based on futures as opposed to stocks or indices but since there are many ETF's to choose from one should be OK. Adam, the only reason I've not yet signed up for the TT tech is that right now I'm subscribing a longer term investing community service and should not overspend in relation to my porfolio size. Best to you all.
Having analyzed the MC system, I'd say it can work because it takes human nature into account which includes the humans programing the computers) -- it looks at various time spans explicitly. If someone manipulates this or that to make it go up or down, does it really matter why it did, if you're long going up and short going down? You may only get the middle 80% or so of a move (manipulated or not) but -- that's fine by me, if I reliably get that, I make plenty of money!
You still have to do your homework some -- you have to decide what to put into the list of things you're going to trade, apply some judgment. This just helps, it's not fully automatic. If you know a company is having long term issues (good or bad) and the trade triangles don't make sense due to that, don't trade that one. The tools are here to find things to trade that do work well with this system.
I have a lot more to say (maybe too much) here.
Hopefully the chapters on manipulation will help the readers. There's more to come, but the basic point is, motion is money if you're on the right side of it.
Let's use a dumb example -- two surfers. One's your basic California surfer dude who spends his days surfing, getting a "feel" for how the little ripple patterns and wave patterns work, right down to the point of doing it well without thinking about it. Another is a hydrologist who knows hydrodynamics, wave propagation, and the fact that there was an earthquake on the other side of the ocean that should produce a big wave right...about...now.
Which do you think is going to get to the beach without sand in the wrong orifices? You can over-think this, or get caught up in long term economic analyses that will likely come true someday -- but that's not how you win in this game -- how many of those pundits are rich from playing their own projections?
In other fields, how often do you see "psychic wins lottery for the second time"? Same issues.
My forums are read-only for non scientists, and I'm not looking to steal page hits from there. I just started writing about this game as a side issue there, and it's kind of off-topic for that board. But also, too much to post here, so go take a peek and see what you think.
I re-joined MC because while I do well enough without it, it saves me a ton of time I'd otherwise have to spend in the "Trading Turret" every day. The service is well worth what it costs if you pay attention and do your part.
Hi Adam
It’s interesting and not surprising that you are trading ETF using the weekly signals, as this is the methodology employed for equities in general. However, if one wants to be very active in the market, what would be the results be if one was to use weekly for trend & trade the signals generated using daily? Take this a stage further, can one use daily trade triangle for trend and take signals from an hourly charts? I wonder what the results would be then?
Excellent article. Many thanks.
Sean
Sean,
Thanks for your feedback.
We have not spent any time researching those particular time periods. Using shorter time frames brings into play the Jack be nimble, Jack be quick challenge which can always be tricky if you are not disciplined.
All the best,
Adam
With all the manipulations , how can any system really work ?
Before efts you had no way to measure volume, only price. with volume you can track accumulate and selling into rally. You can apply real TA. It was a major advancement for me.
I note that increasing number of companies are planning to sell exchange-traded funds (ETFs) in US, Asia, Europe and Canada. Additionally information on domestic and international investments in ETFs is also needed to support this issue.Can any one explain fully how to apply the ETF sytem in global market?
Doug: I have to agree with you as ETF's are very much like a mutual fund. Only difference is they're tradeable during the market hours. Liked your glass of water analogy b/c like a mutual fund, there's always going to be under-performers in the portfolio.
Hence I like the 'pure' ETF's of GLD, SLV, PALL etc. where one is buying strictly the underlying equity or commodity.
Just my 5cents worth of inport.
Adam,
Thank you for the ETF article; it was helpful to me, as a new (1 yr. experienced) trader/investor. I am seriously considering subscribing on an annual basis in December. I would like you to tell me if the "Trade Triangles" could be used wisely and profitably to trade ETF options on your GSP and PRP and on other ETFs that don't have the contango effect. I was already aware of the contango effect in USO and, also, the reset effect drawback on some others. I have been trading options because I like the leverage;I have learned to respect the time decay effect!
I have read and watched just about everything at MarketClub you and your staff have notified me about thru emails for several months. I appreciate your intention to help traders/investors thru education,free and/or paid. I'm a retired 25- year independent trucker who is attempting to remain self-reliant/self-sufficient as a trader/investor.
I know it would be a welcome pleasure to meet you someday at a conference.
Peace,
Michae
P.S. Do you ever have any discounts offered toward the annual subscription rate?
Michael,
Thank you for your feedback.
Our annual subscription is actually discounted almost $150 Michael, so you certainly would be getting good value for your money.
I do however wish to point out that we do not track or trade options. Nor do we hold ourselves out to be experts on options. We do have some very powerful and easy-to-use tools to track the markets and give signals when we believe the markets are going higher or when they're going lower.
I hope this helps you make an informed decision about joining MarketClub.
All the best,
Adam
Another PONZI if you ask me.
ETF are nothing but another junk paper issued by the PONZI masters like Chase, i.e. SLV.
Thank you Adam for a "clear & precise" way of using Trade Triangles to trade ETFs.
Now, I am wondering about that system. Is there a way to identify market tops (or bottoms)? I'm not looking for "laser" precision but some sort of way to pinpoint top-bottom. Could Trade Triangles be used for that, or do we have to rely on other indicators, like MACD?
Thanks for your insight on this.
Peter
Peter,
MarketClub's Trade Triangles will do the job for you.
All the Best,
Adam
Some of you may want to read a Bloomberg article titled "ETFs Imperil Investors When Contango Conspires with Pre Rolling" It explains why some ETFs will do exactly the opposite of what you expect. Especially in certain commodity markets. In 2009 the U.S. Oil Fund was down 7.4% while light sweet crude was up 7.4%. Can we really trust Wall Street to do the right thing and protect the little guy when they can hide behind the complexity of futures trading and the vagaries of ETF management? This is the potentila dark side of ETF's explained. ETFs are not as pure a play as some may propose.
Hi there one and all
Would Alan like to share his opinion about the current situation regarding the charts. I have noticed that we have completed 'Head and Shoulders' patterns on the Dow and the FTSE. Do you think there is institutional selling under way , as there is a lot of negative influence in the market and Global events at the moment.
Also 'Bollinger Bands' are opening up and the two indices are now trading below their current daily 50 ma's, which is turning to the downside.
The Dow has lost about 4% in just over three weeks, and the FTSE 6%.
Is this the beginning of a major downturn?
Many thanks
Aldo
There is at least one negative to the ETF boom. Since the underlying entity (if they're honest) has to buy and sell the stocks in the ETF when there is net volume into or out of one, they "tie" all those stocks together -- you can no longer necessarily get the gains you used to get by trading only the "best of class" stock in a sector, as if it's in an ETF, it's going to swing with all the rest. The result is it's harder to truly diversify in some ways. It might be ok for the ETF trader, but maybe not so good for the rest of us (or the market as a whole). Think flash-crashes and things like that where they spread the pain to people other than the EFT holders themselves.
That said, GLD is a nice way to trade gold for mid term holdings, and so forth. I just have an uneasy feeling on the ETF's effect on the market, and price discovery on individual stocks they hold when an ETF covers a whole sector, they "smear out" the good and the bad.
The old proverb is if you have one half full glass of clean water, and one half full of mud, and you mix them -- what do you get? Want to drink that?