The Conservative Investor

Shorting Treasury Bonds

2008-06-25T08:01:00.004-06:00

It’s a Fed day and although I do not know what Ben Bernanke is going to say or do, I know what I’m going to do. Buy shares of TBT.

TBT – ProShares UltraShort Lehman 20+ Year Treasury

Read more here - Treasury Bonds: The Short of the Century

Shorting The DOW

2008-06-20T11:51:00.001-06:00

I'm not just going to let the DOG out, I'm going to let the double dog out. I'm buying DXD.

DXD – ProShares UltraShort DOW 30

With the death cross remaining, the Dow tried, but failed to penetrate much above 13,000 and it's 200 day moving average in May and has now dropped below important support at 12,000. This might get ugly.

Kiplinger’s High Yield Investments

2008-06-13T11:05:00.006-06:00

Kiplinger’s July 2008 Issue highlights opportunities to earn high yields on tankers, pipelines and real estate stocks.

Closed-End Income Funds:
First Trust Strategic High Income (FHI) - bank loans, mortgage-related securities and junk bonds. 14.6% yield.
Denali Fund (DNY) - Currently trades at a 9.5% discount to Net Asset Value and is converting from REIT fund to general leveraged fund. 12% yield

Junk Bond Funds - 8% yields:
Metropolitan West High Yield Bond (MWHYX)
Payden High Income (PYHRX)
TCW High Yield Bond I (TGHYX)

Energy Income Trusts:
BP Prudhoe Bay Royalty Trust (BPT) 11% yield
San Juan Basin (SJT) 7.7% yield
Cross Timbers (CRT) 9.9% yield
Enerplus (ERF) 10.5% yield
Harvest Energy (HTE) 14.7% yield

Ocean-Shipping Fleets:
Seaspan (SSW) 7.3% yield
Genco Shipping & Trading (GNK) 5.7% yield

High Yield Property REITS - Focus on Real Estate Investment Trusts that own hospitals, medical office buildings and other health-care facilities:
Codell Spencer (CSA) 7.5% yield
Medical Properties Trust (MPW) 8.4%
First Industrial Realty Trust (FR) 9%

Pipelines:
Enterprise Products Partners (EPD) 6.6% yield
Kinder Morgan Energy (KMP) 6.4% yield
Magellan Midstream Partners (MMP) 7% yield
Plains All American Pipeline (PAA) 7% yield

Emerging-Market Bonds:
Fidelity New Markets Income (FNMIX) 5.6% yield
Pimco Emerging Markets Bond D (PEMDX) 5.6% yield

I'm not prepared to jump on any of these yet. Keep your powder dry.

ETFs vs. Mutual Funds

2008-02-15T13:26:00.004-07:00

I’ve been asked why I still invest in traditional Mutual Funds when ETFs (Exchange Traded Funds) are cheaper and more tax efficient.

First, I don't hold mutual funds in anything other than a tax advantaged 401(k) or an IRA and specifically, in my case, I hold mutual funds as the core position in an IRA.

I am willing to pay expenses (management fees) when I want an actively, professionally managed fund that I plan on holding for a very long time. I have allocated 50% of the total portfolio as core holdings to these mutual funds.

20% - FFFDX - Fidelity Freedom 2030
10% - FIGRX - Fidelity International Discovery
10% - FSPHX - Fidelity Select Healthcare
10% - FSPTX - Fidelity Select Technology

I’ll write more on why I’ve chosen these specific funds later (no, I don’t work for Fidelity Investments and they do not pay me for writing about them, although they should). I keep these core holdings as a foundation, a base from which I work more aggressively to increase my returns. That’s where ETFs come in.

I regularly use ETFs for shorter term trading strategies when I cannot or do not feel comfortable picking individual stocks. Basically, I’m managing these positions by deciding when to buy, how long to hold, and when to sell them. See here for some examples.

I’m still on the sidelines, waiting for the markets to calm.

The Death Cross

2008-01-12T13:43:00.001-07:00

The Holiday Rally that Wasn't - and Worse.

As recently posted, I took a large position in DIA (Dow Jones Industrial Average Index ETF) on 11-26-07. I sold half of that position on 12-14-07 for a 5% gain and the other half on 1-9-08 for a 3% loss. There was no holiday rally, and it gets worse.

The Dow's 50 day moving average has dropped below its 200 day moving average creating what's known among market technicians as the death cross. The Dow has also dropped below support at 13,000. I think we are in the beginnings of a bear market that may last for 6-9 months or longer.

I use 20% of my retirement portfolio for trading; I like to take advantage of inconsistencies and trends in the market. That portion of my portfolio is in cash and it may stay there for a while. I have not let the DOG (Proshares Short DOW 30) out, but I may.

The January Effect

2008-01-08T12:05:00.000-07:00

The January effect proposes that stocks gain in the first five trading days of the year (correct 70% of the time). Average first week of January returns...

Dow: 0.8%
S&P 500: 0.8%
Nasdaq: 1.4%

The January Effect is not to be confused with The January Indicator or Barometer which proposes that as January goes, so goes the market (correct 90% of the time). Average month of January returns are...

Dow: 1.1%
S&P 500: 1.5%
Nasdaq: 3.5%

Compiled from over 100 years of data for the Dow, 75 years for the S&P 500, and 35 years worth of data for the Nasdaq.

Unrelated but interesting: The Dow has had positive returns 17 of 25 presidential election years. I'll have more about the Holiday Rally that wasn't later.

Holiday Rally

2007-11-27T07:59:00.000-07:00

I used the proceeds from my Currency ETF trade to take a rather large position in DIA - Diamonds (Dow Jones Industrial Average Index ETF). I also topped off my long term holdings in FSPTX - Fidelity Select Technology Fund, FSPHX - Fidelity Select Health Care Fund, and FIGRX - Fidelity International Discovery Fund.

We've just had a 10% correction and we're heading into the traditional holiday rally season. I think the prospects are good through the first of the year. I don't expect too hold DIA after the first of January.

Currency ETFs

2007-11-26T14:51:00.000-07:00

I sold my currency ETFs, FXE (Euro) and FXY (Yen), today. I believe the bulk of the U.S. dollars decline is over and I want to raise some cash as we go into a historically strong season for the equity markets. When fashion models and rappers pick up on a trend I take it as a sign to get out.

As an investment, currency ETFs have two profiles. First, they hold cash and invest with banks for dividends based on foreign interest rates. Second, and most importantly, is the floating exchange rate as measured in U.S. dollars. The dollars decline has made foreign currencies more valuable; beats sitting in a U.S. money market.

Here's a short list of Currency ETFs, my favorites first…

FXE - CurrencyShares Euro Trust
FXY - CurrencyShares Japanese Yen Trust

and some others…

FXC - CurrencyShares Canadian Dollar Trust
FXA - CurrencyShares Australian Dollar Trust
FXB - CurrencyShares British Pound Trust

Proshares UltraShort Oil & Gas ETF

2007-11-01T12:48:00.000-06:00

With oil hitting over $92 a barrel as I write this I find myself wanting a way to hedge my energy portfolio from the inevitable pull back, without selling off positions that have taken a lot of time to accumulate. Here's a solution...

DUG - Proshares UltraShort Oil & Gas ETF

Remember "Ultra" means that for every 1% loss in the oil and gas index, DUG will gain 2%, and vice-versa. I have not placed a trade yet, but I'm watching and ready. More on Proshares UltraShort ETFs.

Bear Market Trades

2007-06-27T07:02:00.000-06:00

ProShares offers several Exchange Traded Funds that short sell their respective index by a 2:1 ratio.

QID - Proshares UltraShort QQQQ
SDS - Proshares UltraShort S&P 500
DOG - Proshares UltraShort DOW

For every 1% the QQQQ (Nasdaq 100 Trust) loses the QID should gain 2%. I use them as a simple and effective why to hedge my portfolio during extended down drafts and I plan on using them for the next bear market.

I like these funds because they allow me to hold on to the more aggressive positons in my portfolio. I can hedge with one simple buy order instead of selling multiple positions that have often taken quite a bit of time to accumulate. Remember, because of the 2:1 ratio a little goes a long way.

Gold Testing Support

2007-06-21T12:23:00.000-06:00

By John Hughes and Scott Maragioglio

Gold has fallen $50 in the last two months, and the recent push in the rates and the dollar have brought the metal back for a retest of the long-term uptrend line at $639. This would be a natural place to expect a rebound in gold prices and a rally back to overhead resistance line at $685.

A breakout over resistance at $685 would suggest that the bulls are back in control and that the metal wants to resume the primary uptrend. If the dollar breaks the downtrend line and gold breaks the uptrend line, then we would have to say that there has been a real change in this market. It would suggest that traders may need to change their market view, but we expect the status quo to be maintained.

The easiest way for investors to get involved in the gold market is to trade the streetTracks Gold Trust . Buy the GLD at $65 and use a break of the uptrend line at $63.50 as a stop loss.

Look for a rally over the resistance line $68 to confirm that the commodity is seeing a bullish breakout. Gold is presenting a solid technical trade at these levels, and the risk/reward scenario makes this an attractive investment.

Read More...

Sector Rotation ETFs

2007-05-22T07:22:00.000-06:00

Two new exchange traded funds that trade in and out of different economic sectors.

PYH - PowerShares Value Line Industry Rotation
XRO - Claymore/Zachs Sector Rotation

Read More...

Fidelity Strategic Funds

2007-05-15T11:38:00.000-06:00

I have recently invested in a couple of Fidelity's Strategic Funds; but, because of the similarity of their names I'm constantly confusing the strategies and objectives.

FSDIX - Fidelity Strategic Dividend and Income Fund: (Equity Income) 50% common stocks, 15% REITs, 15% convertible securities, and 20% preferred stocks.

FSICX - Fidelity Strategic Income Fund: (Multisector Bond) 40% high yield, 30% U.S. Government and investment-grade, 15% emerging markets, and 15% foreign developed markets.

FSRRX - Fidelity Strategic Real Return Fund: (Allocation) 30% inflation-protected debt securities; 25% floating-rate loans, 25% commodity-linked notes and related investments, and 20% REITs and other real estate related investments.

Technology ETFs

2007-05-09T15:39:00.000-06:00

I have habitually used the Q's (QQQQ - Nasdaq 100 Trust) as a way to trade the technology sector. If technology shares pick up with expected business expenditures this summer these exchange traded funds might be a better way to go.

XLK - Select Sector Technology SPDR
IYW - iShares Dow Jones U.S. Technology
IGM - iShares Goldman Sachs Technology

More Ideas Here...