ETF/No Load Fund Tracker Newsletter For Friday, July 20, 2012
ETF/No Load Fund Tracker StatSheet
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Friday, July 20, 2012
US STOCKS SNAP THREE-DAY WINNING STREAK AS SPAIN MOVES ONTO THE BAILOUT MENU; VIXY LEAPS, EWP CRASHES
Domestic equities snapped its three-day winning streak to close lower Friday on reports of record high 10-year Spanish bond yields along with a mixed bag of corporate earnings numbers, which prompted jittery investors to take refuge in US safe-haven assets.
The Dow Jones Industrial Average (DJIA) tumbled 121 points, off 0.5 percent for the month but up 0.4 percent for the week. The breadth of the market remained negative as 23 of the 30 components within the Dow slumped.
The S&P 500 Index (SPX) lost 14 points, up 0.4 percent over last Friday and less than 0.1 percent higher for July.
Investors devoured safe haven assets pushing yields on Treasury five-year notes to record lows as risk sentiment soured after Spain declared the country’s recession is likely to extend into next year.
As demand spiked, the yield on US 10-year notes dropped near record lows since investors grew restless over rumors Spain’s Valencia region is preparing for central assistance from Madrid.
The 10-year benchmark Treasury yield dropped five basis points to 1.46 percent while 30-year bond yields slipped six basis points to 2.55 percent in late afternoon trading as the news of EU finance ministers approving the first tranche of €30 billion bailout-money for Spain’s struggling lenders had little effect on the markets.
ETFs in the news:
As US markets got a jolt from Europe, market uncertainties returned and haunted investors, souring risk sentiment. The ProShares VIX Short-term Futures ETF (VIXY) was among the day’s top gainers, leaping 5.44 percent on the day.
The so-called fear-tracking CBOE Volatility Index (VIX) jumped 5.31 as risk remained off the table on a choppy trading day.
Other volatility-linked products like the Barclays iPath S&P 500 VIX Short-Term Futures ETN (VXX) also posted solid gains, adding 5.18 percent during the session.
The latest development in Spain was a stark reminder of the difficulties faced by the Iberian nation and sent stock indexes across Europe on a downward spiral. Madrid’s 10-year borrowing costs hit a record 7.28 percent Friday, an unsustainable level that may force the country to seek a full-fledged rescue package soon.
Spain’s stock index IBEX-35 crashed 5.8 percent over news that the country’s Valencia region is getting ready to seek assistance from Madrid. The iShares Spain Index Fund (EWP) emerged among the day’s top percentage losers, plunging 6.76 percent on the day.
Other European funds also got hammered with the iShares MSCI France Index Fund (EWQ) and the iShares MSCI Germany Index Fund (EWG) shedding 2.94 percent and 2.91 percent respectively.
Our Trend Tracking Indexes (TTIs) followed the market trend and ended the week as follows:
Domestic TTI: +2.73% (last week +2.56%)
International TTI: -2.44% (last week -2.73%)
Have a great week.
Disclosure: No holdings
READER Q & A FOR THE WEEK
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A note from reader Chris:
Q: Ulli: I’ve been using your strategy for a few months now, and each time I reach a new milestone, I seem to find another question. Thankfully, you’ve been helpful in answering them.
My question involves the incremental buying. I own an ETF (DVY) which has grown in value by 5%. Now, I do not reinvest the dividends, but when I factor in the dividends, the actual return on my initial investment is around 7%. My question is would you buy again based on share price percentage gain, or the the total return on investment with the dividends included?
Any advice would be greatly appreciated.
A: Chris: You can go either way, because this is not an exact science. In the past, I have based my purchases strictly on appreciation, although I have taken into account large yearend distributions, especially with mutual funds.
Use your comfort level. Alternatively, if you find incremental buying too cumbersome, you may consider any of the Model ETF portfolios, which I publish every Wednesday. For example, I have preferred the use of model #2 this year and have substituted DVY for VTI for many clients with the result that, due to its lesser volatility, we still own it as opposed to the more wildly fluctuating VTI.
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