Growth and Income ETFs

09/05/2013 9:00 am EST

Focus: STRATEGIES

Marvin Appel

President, Signalert Asset Management LLC

Based on our relative strength and volatility rankings of ETFs, we are adding two new positions to our growth and income portfolio—one focused on buybacks, and one focused on the gaming sector, reports Marvin Appel, editor of Systems & Forecasts.

Buyback Achievers ETF (PKW)

The stocks in this ETF are those that have repurchased at least 5% of their shares in the 12 months preceding the reconstitution of the index every January. 200 stocks currently qualify. (They are weighted by market capitalization.)

The theory underlying the strategy is that companies that aggressively buy back their own shares, either view them as undervalued, or are earning abundant extra profits.

PKW steadily outperformed the S&P 500 Index (by 2.9% per year, since inception in 2006), but has experienced the same maximum drawdown as the S&P 500 (55%).

The biggest difference in sector exposure is that PKW has 27% of its portfolio in consumer discretionary stocks, versus 12% in the S&P 500 Index.

Market Vectors Global Gaming (BJK)

This sector ETF has been more volatile than the S&P 500 during its history. However, it has actually been more stable in August, holding its ground even as the S&P 500 has slipped.

The selection is based first and foremost on relative strength, but secondarily on the non-correlation between moves in BJK and in the S&P 500.

There is significant exposure to Chinese gamblers in this ETF: Two of its top ten holdings are listed in Hong Kong, and the US-listed companies (Las Vegas Sands, MGM Resorts International) have a big presence there.

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