10 ETFs Moving into Buy Range

10/21/2011 7:30 am EST

Focus: ETFS

Peter Way

Founder and CIO, Peter Way Associates

These funds should continue to improve as the markets continue to recover from the disaster that was September, writes Peter Way of Block Traders’ ETF Monitor.

Leveraged ETFs
There has been no subtle shift towards opportunity in leveraged long ETFs, when compared with our last letter. Back then, we saw only four out of 30-plus candidates as buyable.

Our practice requires risk-balanced return prospects that are multiplied by the leverages present, in order to be considered for a buy recommendation. Now, three of those are slightly short of that hurdle. Only DRN, an ETF investing in REITs, meets the test.

Shudder again, as you may have a fortnight ago about actually putting money into that persistently troubled sector. But the time to buy is when they’re on sale.

So, maybe the market turn is not convincingly upon us yet. Still, at least much of the “bottomless pit” uncertainty should be dissipated.

Broad ETFs
When looking at the broader-oriented ETFs, those tracking market indexes or the sector measures, there is no enthusiasm yet for a big rally. Nothing in either set meets our buy recommendation criteria.

To find opportunity we must probe those ETFs that are more narrowly focused, at the commodity, industry, or geographic level.

The best-priced of this set is IBB, a holder of stocks in the Nasdaq Biotech index. Its current forecast gives it about four times as much upside as downside exposure. In over four years, it has had this favorable an appraisal less than 2% of the time.

When that has been the case, end-of-day market quotes for IBB in the following three months have been higher than at the time of forecast 87% of the time, or seven out of every eight market days. Those gains averaged 7.8%, compared to the few drawdown days, which averaged -2.7%, a ratio of better than 3 to 1.

The combination of high odds and favorable payoffs rank IBB as better than 98% of all 2,100 stocks and ETFs in our covered population.

Other industry-oriented ETFs that meet our 5% prior risk-balanced return in three months are CU, NLR, FDN, and FBT. CU holds stocks of worldwide copper miners, NLR has nuclear-energy stock holdings, FDN tracks the DJ Internet index, and FBT tracks a different biotech index than IBB.

Commodity ETFs
The 5 ETFs qualifying buys in commodity-based ETFs are all precious metals-related. Three deal mainly in gold, and the other two in silver.

IAU holds physical gold, against which ETF shares are issued. When priced as it is now, in relation to forecast prices, subsequent quotes were at a profit compared to the time of forecast 84% of the days of the following three months. Gains averaged 7%, while drawdowns of only -2% were minimal, ranking IAU as better than 98% of alternatives.

SGOL is another physical gold holder in Switzerland. Its drawdowns have been even more miniscule, only -1%, against similar 7% gains, coming nine out of every ten market days.

DGL uses gold futures to track price changes in the metal. Its performance in periods of prior forecasts like the present has been at a 8% level, but with -4% drawdowns and a frequency slightly better than three out of four days. Still, due to present market concerns, it ranks better than 95% of all stocks and ETFs on our risk-reward performance scale.

Similarly, DBS tracks the price changes in silver by using futures. A more volatile experience, silver’s price can be more severely impacted by smaller capital commitments, and DBS has registered average gains of 18% from forecast proportions like those at present. Along with the gains have been drawdowns averaging -13%. Despite the negatives, the annual gain rate at 95% is enough to earn it a rank better than 95% of other possible present choices. Wild and wooly, the excitement quotient here is quite high.

SLV tracks silver price changes by means of securities rather than physically holding the metal, but has done it effectively at present forecast balances. Gains historically have averaged 12% in three months about 2/3 of the time, with drawdowns of -8% on average.

Subscribe to Block Traders’ ETF Monitor here…

Related Reading:

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on ETFS

Keyword Image
Safe Money's Defensive Moves
12/05/2018 5:00 am EST

This stock market is flailing around like a fish out of water, with whipsaws increasing every week, ...