4 ETFs Running with the Big Dawgs

08/05/2011 8:30 am EST

Focus: ETFS

Peter Way

Founder and CIO, Peter Way Associates

The way to find out what ETFs are going to make money isn't watching what's happening on the retail desk...it's what's going on at the partners' stations and block traders' desks, say Peter Way of Block Traders' ETF Monitor.

Our professional contribution to the investment business is the debunking of “long-term investorship” as a prudent policy. In this globally competitive day of rapidly advancing technologies and worldwide instant communication, such a policy is really long-term speculation, not investment.

By providing specific price sell targets on selections guided by the self-protecting actions of the best informed players in the game, we offer our readers a means of comparing investment choices according to the factors that are truly meaningful: Return and Risk.

When we say risk, we don’t mean uncertainty. We mean the likelihood (odds) of getting hurt. Not of possibly having pleasant surprises, as occur occasionally and unpredictably with uncertainty.

It is, after all, your capital at risk. So it should be your call as to what chances you want to take with it. We try to make it easier for you to make those decisions between specific commitments.

So much of what is called “research” in this business is really just storytelling about fuzzy notions of what might happen out there in the multi-year future. It is sometimes dressed up with impressive models of possible earnings, perhaps with an analyst’s or quant’s hypothesis of what such earnings might sell for.

When we started out in the game, 50+ years ago, actually interviewing top corporate managers in the days before “corporate guidance” in order to generate our own reasoned notions of future earnings, you could learn things that others did not know. Valuable things.

Information travels much faster these days, and gets integrated into market reactions in ways previously impossible. Miss Information is often found in the company of her pesky brother Dis. It’s hard to keep them apart.

The other problems with the “research” sales staff is that the skin they have in the game may only be how much of yours they can abrade.

We prefer to see how the guys with huge bonus prospects take care of the firm’s own capital on the “prop” desk, and at their partners’ stations, the block desks. What they will spend to keep out of trouble and lock in unconscionable profits tells the true story of what their long, sharp, experience suggests might really happen.

We know how to read their footprints in the market mud. They wouldn’t give up that much of their trade spreads unless they thought that big a hurt might come their way. So they buy insurance to cover real exposures. In both up and down price directions, as needed.

Things that trade actively repeatedly need help in getting orders filled. Pressures of either time or size make for profit opportunities by the market-makers, who get very good at their business. We just piggyback on their developed skills.

The huge buy of aircraft by American Airlines may be part of the improved perceptions by big fund managers for the airline stocks in the Guggenheim Airline ETF (FAA). The buy makes a big news splash when announced, but savvy industry investment research analysts know it is coming, and alert their portfolio managers before the announcement.

So far, cautious buying and continuing operating losses have kept the airline stocks down, but the willingness of the equipment producers to cut prices and put up their ability to finance the buy gives the industry a new, needed dimension. An FAA buy here looks good.

Silver ETFs continue to show big fund accumulation. AGQ, SIVR, and SLV all have further strength, with sell targets 20%, 15%, and 14% higher. Hedging in the silver commodity markets is active, and supports the ETF expectations.

The Teucrium Corn Fund (CORN) has performed nicely, but we only have a few months of experience with hedgers’ anticipations. We need much more market seasoning before making any recommendations.

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