Sector ETFs

Last week at that ETF conference I was made aware of someone who is working a new type of sector ETF. I won’t say any more than that to preserve what I was told in confidence (really I was given almost no info on this). I also had a chance to talk to a couple of the guys from PowerShares who told me that the Nasdaq BuyWrite ETF had been delayed (I did not know this). Only the S&P 500 BuyWrite ETF listed and so far it has very little in the way of assets. I think buywrite is a great tool to include in a diversified portfolio, maybe they need to do more to get the word out about the fund? In one of the sessions last week I asked the panelists how they use ETFs to manage volatility and they all said they don’t do that. Either I asked the question poorly or they really don’t manage volatility (I suspect the former). A similar question came my way on a panel I sat on. I used the example of having owned several individual stocks for my energy sector allocation but that I worked in the WisdomTree Energy ETF (DKA) into the mix as a way to reduce volatility as the theme got longer in the tooth. The idea of going from stocks, to ETFs and back to stocks as a means to manage through a complete stock market cycle makes a lot of sense to me. This gets to the point of the post which is buywrite sector ETFs–for some of the sectors anyway. Buywrite is just...

Sector ETFs

Last week at that ETF conference I was made aware of someone who is working a new type of sector ETF. I won’t say any more than that to preserve what I was told in confidence (really I was given almost no info on this). I also had a chance to talk to a couple of the guys from PowerShares who told me that the Nasdaq BuyWrite ETF had been delayed (I did not know this). Only the S&P 500 BuyWrite ETF listed and so far it has very little in the way of assets. I think buywrite is a great tool to include in a diversified portfolio, maybe they need to do more to get the word out about the fund? In one of the sessions last week I asked the panelists how they use ETFs to manage volatility and they all said they don’t do that. Either I asked the question poorly or they really don’t manage volatility (I suspect the former). A similar question came my way on a panel I sat on. I used the example of having owned several individual stocks for my energy sector allocation but that I worked in the WisdomTree Energy ETF (DKA) into the mix as a way to reduce volatility as the theme got longer in the tooth. The idea of going from stocks, to ETFs and back to stocks as a means to manage through a complete stock market cycle makes a lot of sense to me. This gets to the point of the post which is buywrite sector ETFs–for some of the sectors anyway. Buywrite is just...

Sunday Morning Coffee

A reader asked for my opinion about what sectors and countries to buy when the market eventually starts a new bullish phase. OK so this has two parts to it in terms of how I try to frame the answer. Long time readers may recall my saying that I try to combine what I know about market history with an assessment of current events to try to make a forward looking analysis. An assessment of current events with an eye toward reequitizing becomes difficult because it may not make sense to reequitize for a year and a lot can change between now and then. Starting from the top down it makes sense in a new bull market to reduce the average cap size of the portfolio (I made the portfolio larger and larger cap-wise as the bull aged) because small cap usually leads off the bottom. In making the portfolio smaller you are increasing the volatility which again makes sense to do as obviously the prevailing direction of a bull market is up. All of this probably reduces the yield a little bit but in a year where the market goes up 25%, squeezing out an extra 50 beeps in yield should not be the priority. In terms of sector the first thing that comes to mind to overweight is industrials. Globally speaking money must flow into infrastructure so I believe industrial stocks that benefit from this capital flow stand to do well. Financials would be another area that usually does well emerging from a bear. Problems at Citi are not new. After a the famous near death blow...

Sunday Morning Coffee

A reader asked for my opinion about what sectors and countries to buy when the market eventually starts a new bullish phase. OK so this has two parts to it in terms of how I try to frame the answer. Long time readers may recall my saying that I try to combine what I know about market history with an assessment of current events to try to make a forward looking analysis. An assessment of current events with an eye toward reequitizing becomes difficult because it may not make sense to reequitize for a year and a lot can change between now and then. Starting from the top down it makes sense in a new bull market to reduce the average cap size of the portfolio (I made the portfolio larger and larger cap-wise as the bull aged) because small cap usually leads off the bottom. In making the portfolio smaller you are increasing the volatility which again makes sense to do as obviously the prevailing direction of a bull market is up. All of this probably reduces the yield a little bit but in a year where the market goes up 25%, squeezing out an extra 50 beeps in yield should not be the priority. In terms of sector the first thing that comes to mind to overweight is industrials. Globally speaking money must flow into infrastructure so I believe industrial stocks that benefit from this capital flow stand to do well. Financials would be another area that usually does well emerging from a bear. Problems at Citi are not new. After a the famous near death blow...