I’ve called 2010 the “year of volatility” for stocks, as we’ve been witness to some huge price swings in the market during the past dozen months. This year, however, the market also could be called the “year of the ETF.” According to market-tracking firm Strategic Insight, assets in U.S.-based ETFs are rising at a pace that likely will eclipse the $1 trillion mark sometime in the first quarter of 2011.
Already through November, U.S. ETF assets reached a record $940.5 billion, according to Strategic Insight. That number is staggering. It shows that ETFs, indeed, have become the go-to investment vehicle in the industry for not just individual investors, but also increasingly for professional managers seeking the same low-cost, transparent properties offered by ETFs.
Of course, not all ETFs are created equal. In 2010, it’s been a year of extremes for various sectors. There have been some huge, winning ETFs, and some almost equally big losers. Let’s take a look here at a table of the 10 best ETFs of the year (data as of 12/14/10).
As you can see, leveraged silver and gold funds, along with Internet and small-cap funds, topped the winner’s list in 2010. The question now is whether the big gains in precious metals, Internet stocks and small-cap equities will continue in 2011.
Now, let’s look at the 10 worst-performing ETFs of the year.
As you can see, this 2010 “hall of shame” is populated by funds betting against the surge in metals and small caps. There also are some big losers who bet against real estate, as well as the emerging markets of China and Latin America.
So, will last year’s winners be next year’s losers, and vice versa? I don’t think things will be that clear cut; however, I do think that the ETFs that led the market higher this year will not be the same ones that lead the market higher in 2011.
The trick going forward is to find those ETFs that will lead the charge higher in 2011. This is easier said than done, I grant you, but ultimately, accomplishing this task should be every investor’s goal in the coming year.
China is in the news again, but this time, the country is in the news for something that its economic gurus didn’t do -- they didn’t raise interest rates.
Most China watchers thought that the Beijing regime would move interest rates higher after a consumer price report that showed a 5.1% increase in November to mark the highest number the nation has seen in 28 months. Perhaps even more troubling than the overall consumer price inflation figure was the 11.7% spike in food prices during the month.
Despite this pernicious inflation data, The People’s Bank of China (PBOC) opted only to raise the reserve requirement ratio (the percentage of deposits a bank must set aside) for the country’s biggest banks by 50 basis points.
I suppose that Chinese officials didn’t raise interest rates because they feared that higher rates would cause hordes of capital to flow into the Chinese market, and that likely would put more inflationary pressure on Chinese consumers. I also think that China doesn’t want to take a chance on slowing down its economic growth, and a rate hike may indeed do just that.
If we look at the chart above of the iShares FTSE/Xinhua China 25 (FXI), we see that this benchmark Chinese index has come way off of its recent highs. In fact, FXI now has fallen below its 50-day moving average, and appears on its way down to the 200-day moving average. So, at least in the market’s eye, China looks to be an area to avoid here.
I think that the major takeaway for Alert readers is that the biggest emerging market nation out there is going to face some tough choices ahead. Policymakers can’t afford to see more inflation, but they also don’t want to stymie economic growth.
Where will this end? Nobody knows yet, but one thing we do know is that 2011 could be a crucial year for the Chinese economy. We are liable to finally see those rate hikes everyone’s been expecting, and that could put the brakes on many of the emerging markets of Asia.
One of the best ways to turn a handsome profit through U.S. stocks during the past year has been through an exchange-traded fund (ETF) that invests in the Russell 2000. The iShares Russell 2000 Index Fund (IWM) has risen an impressive 22.15% this year through December 14, 2010. That powerful gain reflects the tendency for smaller public companies, also known as small-cap stocks, to outperform bigger and better-known corporations.
The upward trajectory of IWM indicates to me that the fund is likely to keep climbing. Although there’s always a chance of a pullback, signs that the U.S. economy is improving are making me take a closer look at IWM as an opportunity to seize upon any short-term retreat in stock prices.
IWM seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the small capitalization sector of the U.S. equity market as represented by the Russell 2000 Index. The capitalization-weighted index tracks the approximately 2,000 smallest companies in the Russell 3000 Index.
Past performance never is a guarantee of future returns, but small-cap stocks certainly have been on the ascent and outperforming the corporate behemoths that compose the Dow Jones Industrials, as well as the large companies that form the S&P 500 index. As the chart below shows, IWM has been soaring.
Another reason why I like IWM is that I have invested profitably in it in the past. I recommended the fund to subscribers of my Successful Investing newsletter between June 1, 2009, and October 28, 2009, and that position produced a profit of 10.58%. Anytime an investor can produce a double-digit percentage gain in less than five months, he or she has done something special. For me, the satisfaction comes from helping my subscribers. I especially appreciate the kind notes of thanks that I sometimes receive for helping them to achieve their financial goals. It is at times such as the holiday season that I reflect on our past successes and look for ways to expand upon them in the coming year. IWM could be one such opportunity.
For advice about which ETFs to buy and to sell, I urge you to sign up for my ETF Trader service by clicking here. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to contact me if you have one. To send me a question, simply click here. You may just see your question answered in a future ETF Talk.
Hello and happy holidays!
Now that we’ve entered the final month of what has been a very volatile, and extremely eventful, year in the financial markets, I thought it would be an appropriate time to start thinking about the best way to get ready for what I suspect will be both a challenging and a rewarding year ahead in the equity markets. But rather than give you a predictive outlook on what’s likely to happen in 2011, I want to take a step back and look at perhaps the biggest lesson investors should have learned this year.
You see, so many market participants got caught up in the wild ride that was the stock market in 2010. They chased performance after the big gains already were made, and they sold right after stocks already had tanked. This is what I call being reactive to the market, and it most definitely is not the rational way to manage your serious money.
In speaking with literally thousands of investors this year, I’ve come away with the sense that many have become needlessly frustrated with the performance of their stock and bond portfolios. Certainly, I understand this frustration, as it’s been a tough year of riding this market’s choppy waves.
So, to provide you with a little sense of calm this holiday season, I want to offer you what I think is one of the best holiday presents that you can give yourself -- a complimentary second opinion on your investment portfolio.
As the year winds down, right now is an excellent time to have a professional take a second look at your holdings. The team here at Fabian Wealth Strategies will provide you with a complimentary portfolio review that includes a comprehensive assessment of your investment goals, along with a full analysis of all the securities in your portfolio.
Contact us today for a brief introduction, and we’ll schedule you for your complimentary portfolio review. This offer is available for households with $250,000 or more in their investment portfolios. You can call our offices direct at 800/391-1118, or you can register online at www.fabianwealth.com.
Here’s to a very happy, healthy and wealthy holiday season.
President, Fabian Wealth Strategies
NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.
“Whosoever is delighted in solitude is either a wild beast or a god.”
The holiday season is time for friends and family, and the importance of this cannot be understated. You see, humans are social animals, and we need that sense of love and companionship in our lives in order to thrive. As Aristotle said, solitude is for wild beasts and gods -- and not for humankind.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars or anything else. Click here to ask Doug.
P.S. I encourage you to watch my recent webinar where I was a guest speaker with another publishing company, Profits Run, to discuss how to invest your money following the Nov. 2 midterm Congressional election. To listen, please click here.
P.P.S. Don’t miss out on The World MoneyShow Orlando, February 9-12, 2011, at The Gaylord Palms Resort. This event will be your one-stop resource for the education, research and advice that you need to make smart investment decisions in 2011 and beyond. Join me there and hear leading experts reveal where they see growth opportunities in stocks, bonds, ETFs, commodities and options. Click on this link to The World MoneyShow Orlando to register or call 800/970-4355. Be sure to provide priority code 020753.