Fabian: Up and Down Positions

03/19/2004 12:00 am EST

Focus:

Doug Fabian

Editor, Successful ETF Investing, ETF Trader's Edge, Weekly ETF Report, and ETFU.com

Doug Fabian's VIP Investor is designed specifically for sophisticated, risk-oriented investors. Indeed, his VIP portfolio usually holds just one or two positions. Half is currently in a NASDAQ bear-market play, with half in a healthcare fund.

"We also hold a position in Rydex Dynamic Venture 100 (RYVNX). This is a leveraged, bear fund designed to move two times the inverse performance of the NASDAQ 100. For example, if the NASDAQ 100 falls 5%, this fund rises 10%. During some recent downside trading days, we have seen a very emotionally driven side of the market- not that it ever behaves 100% practically, logically, or predictably. The unknowns, uncertainty, and sheer fear raised by the terrorist attack in Spain, could be the one factor that nudges this already fragile market lower over the short and possibly long-term. The human element is arguably one of the most powerful movers of the market. But you absolutely must ignore human emotions when it comes to making investment decisions. My recommendation for Rydex Dynamic Venture 100 is based strictly on price movement, one that suggests a trend in the making. The NASDAQ was recently down 9.9% from its Jan. 26 high, which may be suggestive of a longer-lasting trend.

"Meanwhile, we are maintaining our position in Rydex Health (RYHIX ) whose investments include pharmaceutical companies, companies involved in the research and development of pharmaceutical products and services, companies involved in the operations of healthcare facilities, and other healthcare related issuers. There's a little bit of everything in this fund- drugs, insurance companies, biotech, manufacturers. Top 10 holdings in Rydex HealthCare: Johnson & Johnson, Pfizer, Amgen, Merck, Eli Lilly, Bristol-Myers, Medtronic, Abbott, UnitedHealth, and Stryker. We would also note that it is a relatively defensive position. The health sector is traditionally viewed as non-cyclical and moves independently of interest rates. Doesn't matter how much home or car loans are going for, people still buy healthcare services, equipment and supplies. Just about every sector outperformed health care in 2003, but it has now begun to show signs of life early in 2004. Its steady short-term momentum is just the kind we look for in potential VIP positions."

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