Timely Opportunities in Two ETFs

04/07/2010 10:44 am EST

Focus: ETFS

Peter Way

Founder and CIO, Peter Way Associates

Peter F. Way, editor of Block Traders' ETF Monitor, warns, however, of yet another ETF whose time is not ripe.

The 2x leveraged emerging markets fund Ultra MSCI Emerging Markets ProShares (NYSE: EET) has been on a tear for most of its under-a-year existence. Its trend-line growth has been around a 70% annual rate.

About half of the time, in 99 separate days, market-maker forecasts like the present have accomplished their sell targets every time. The average gain of 13.6% was achieved in 17 days, for an annual rate of over 500%.

That ever-vigilant (?) guardian of public investors’ interests, the Securities and Exchange Commission, requires that we state that past results are no guarantee of the future. These are not promises, just accounts of what has been going on.

Do the math. This is not cherry-picking one or two lucky guesses. Knowing what the market-makers think about future prices can be beneficial to your wallet. (EET closed Tuesday at $95.90—Editor.)

In comparison to EET, iShares MSCI Brazil Index (NYSE: EWZ) also has picked up renewed enthusiasm from the big fund manager clients of the market-makers. Forecasts and price are rising strongly.

This is a plain-vanilla ETF without leverage but with a nearly four-year track record. Its past performance allows it to reach our minimum hurdle rate for investments of a prospective risk-balanced return of +5% in the next three months.

But the odds of an investment being above cost in that period drop to only 66 out of 100, less than we would insist upon. So no buy is advocated here. (EWZ closed Tuesday at $75.58—Editor.)

Instead, in the industry-focused ETF section, look at iShares Dow Jones U.S. Medical Devices (NYSE: IHI), a fund holding medical device makers. Its past price trend has been 40+% growth.

There have been 52 days with IHI forecasts like the present one. Of those, 44 have reached their targets, and 94% of the 52 (49 of them) were closed out with profits. All 52, including the three losers, averaged a 10% gain, and were held for 45 market days. That equates to a 69% rate of return. (IHI closed Tuesday at $58.68—Editor.)

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