With all the Sells that I’ve published this month, some people may get the idea that I am bragging about making money in the stock market. The reason it could come across that way is that in the last month I’ve published 8 Sells and only 5 Buys. I never sell at a loss, so those were all, in-fact, profitable trades. So, why am I doing all this? Why even bother publishing any Buys or Sells?
As most portfolio managers know, building a broadly diversified portfolio has one key building block. Low or negatively correlated assets. Ideally, if each of these building blocks has low correlation to the others, one or more will be falling in value while the others are going up in value. This ideal scenario lends itself to arbitrage opportunities and the ability to buy assets when the market has placed them ‘on-sale’. With that said, have you considered diversifying a portion of your portfolio into the Utilities sector? If you want low correlated assets in your portfolio, I would suggest considering the Utilities sector. The utilities sector has maintained a very low correlation to the U.S. Stock Market over the last 19 years, at just 0.39. I wrote more in depth about this low correlation phenomena right here: Which Equity Asset Class has the Lowest Correlation to the U.S. Stock Market?
Utilities Sector Correlation to U.S. Markets January 1999 – December 2017
Source: Portfolio Visualizer
Happy New Year folks. As with any system, whether building investment portfolios or building houses, there is always a need to make improvements and tweaks in the processes along the way. During 2017 I removed 3 ETFs from the list and added 3 more. Here are the changes that were made during 2017:
When building a diversified portfolio of equities, one of the most important considerations is the correlation coefficient of the individual components in the portfolio. It just wouldn’t make sense to build a portfolio with several different assets that always go up and down simultaneously. If all the components of the portfolio are moving in tandem, there will be few opportunities to take advantage of the arbitrage benefits of re-balancing. And, if all the components of your portfolio are walking in lockstep with each other, why bother with diversifying into multiple funds, why not just buy a Total Stock Market fund or a Total World Equity index fund and leave all these re-balancing shenanigans alone?
There are several well-known equity asset classes that portfolio managers use to try and take advantage of diversification and low correlation. You probably have a few of these assets on your mind now, or at least in your portfolio. Which one do you think has the least correlation to the U.S. Stock Market?
- Is it Emerging Markets?
- Is it REITs (Real Estate Investment Trusts)?
- Is it Consumer Staples?
- Is it International Value Stocks?
- Is it Small Cap Stocks?
- Is it Large Cap Value Stocks?
- Or, could it possible be the frequently neglected Utilities Sector?
- Since inception this Swedish ETF has outperformed the EAFE index, the FTSE Europe index and the S&P 500 index
- This Swedish ETF holds 30 of some of the best run companies in the world
- This Swedish ETF can potentially add European exposure to your portfolio without eroding returns
When is it a good time to invest? This is a question that almost all investors face at some point. The fortunate investor will quickly realize that the best time to invest was a long time ago, and the second best time to invest is today. So, they mindfully begin planting the seeds today believing they will reap the growth of those seeds many years into the future.
Mesmerising chart inserted here. Please ponder the question, “When should I invest?”
Recently, TD Ameritrade has nearly tripled the number of ETFs that it will allow customers to trade commission-free. On the surface this sounds great. But, in the process of attempting to expand their customer base they have neglected to consider the needs and desires of many of their existing customers. I have not yet formed a strong opinion on TD Ameritrade’s decision but I have gathered numerous articles about this move and the tone ranges from praise to utter disgust. Here are the articles currently available:
Are you an aggressive growth investor? If so, you may want to consider investing in a U.S. Small Cap Growth ETF. Small cap growth equities are generally considered one of the most aggressive equity asset classes available. But, with over 1900 ETFs available, how do you find one with a great long-term track record. Fortunately, there are only 9 US Small Cap Growth ETFs listed at etfdb.com and only 7 of them are 10 years old or older. Long-term performance is the #1 thing I look at when selecting an asset to invest in. Here is the list of ETFs I’ll be comparing:
A few months ago Mr. David Moadel interviewed me and gave me the opportunity to explain in detail my methodology to investing. If you’d like to know what this Deep Value ETF investing is all about, please enjoy David’s interview right here:
Have you considered adding any single country ETFs to your portfolio? If so, I would like to bring your attention to an ETF that has had great long-term performance but recently experienced a nice market dip due to some geopolitical rhetoric from both sides of the Pacific.