I am retired and take educated guesses on all things financial.

November 29, 2008

November 30, 2008: ETF Stocking Stuffers

A few weeks ago, I wrote a piece listing securities that funds were likely to sell, cleansing their books to avoid criticism of holding such by their investors. So far, my list has shown promise. Now, it is time to look ahead to what ETFs individual investors may want to include as stocking stuffers for 2009.

The following short list allows you to invest in part with government bail out cash on your side, and/or contain securities that have been oversold. In a global recession, ETFs will provide safety in numbers of securities without hosing the investor on costs.

PowerShares Financial Preferred Portfolio (PGF): Trading at $11.68, this ETF has had an annual trading range of $24.81/$11.40. Currently yielding 12.88% with a $400m market cap, PGF declares a monthly dividend and is a beneficiary of U.S. government handouts to stabilize the banking system. I like Uncle Sam as a partner to mitigate downside risk.

IShares iBoxx Investment Grade Corporate Bonds (LQD): Trading at $87.50, this ETF has had an annual trading range of $108.26/$76.05. Currently yielding 6.11% with a $5.9b market cap, LQD declares a monthly dividend and contains high grade corporate bonds that upon review have a much greater chance to significantly appreciate than drop in value.

IShares Dow Jones EPAC Select Dividend Fund (IDV): A bit riskier than the two ETFs above, I like IDV because it contains ex-US large cap value securities that pay dividends. The dividends are likely to be secure, with share prices trending modestly higher from present bargain levels. Trading at a paltry $18.08, this ETF has had an annual trading range of $49.80/$16.44. Sporting a 13.36% yield, IDV had a surge of redemption's over the past six months and now has assets of $37m. Still, it is an effective way to gain modest foreign currency exposure and a nifty total return. Not for those who are storing food, moving to the mountains and taking target practice in anticipation of an imminent world economic collapse.

IShares S$P Preferred Stock Index Fund (PFF): Currently yielding 11.38%, PFF has had an annual trading range of $47.21/$19.00.Heavy into financials, which is not a bad thing as per my comments above, this ETF has a market cap of $812m and declares a monthly dividend. PFF measures the performance of a selected group of preferred stocks listed on the NYSE, AMEX and NASDAQ. While some companies will be cutting dividends during this economic period, preferred stock generally is immune. Add a modest appreciation as confidence in securities is restored, and a 20% total return is not only likely, but probable for PFF.

With government printing presses running white hot to produce billions and trillions of loot to soldify favor with voter constituents and selected corporations, I believe that inflation will begin to rear its head sometime in early to mid-2010. Study Paul Volcker, the re-tread financial guru from the Carter and early Regan years to see the future. The market will begin to price this into account by the summer of 2009. In anticipation, I recommend three funds to anticipate this distinct possibility:

PowerShares Autonomic Growth Fund Global Asset Portfolio (PTO): This mini-ETF with assets of only $8.3m has been hammered from its 52 week high of $16.94 on September 19th. An ETF or ETFs, I like the general blend of the portfolio with major holdings being TJF,PWV,VGK,RWR and PCY. Yielding 2.82%, PTO is poised to do well during an inflationary environment.

Svensk Exportkredit AB (RJI); Let's assume Jimmy Rogers is correct. Commodities will rise with inflation and the needs of the world population. Trading at $6.85 after reaching a high of $15.00 months ago, RJI has the most attractive basket of commodities for investment purposes - i.e., it is not completely dominated by oil and natural gas. No yield, but a lot more upside than downside when inflation presents itself.

IShares TIPS Bond Fund (TIP): The obvious choice for inflation-minded investors and already beginning to rise in cost. Trading at $92.47 with a 52-week range of $112.11/$84.14, TIP has a 8.08% yield with a declared monthly dividend. An $8.0b cap indicates that money is coming and staying in this ETF. With an annual expense rate of only 0.2%, TIP should be strongly considered anytime money comes from government to something in large quantities.

Money can also be made using appropriate ProShares,etc. enhanced short and long ETF portfolios if chosen wisely. Others have written extensively on them and offer considerations that you may wish to act upon.

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