So far, the ETFs that are tied to worldwide market indexes have gone through a rough patch. According to Lipper data, 36 funds out of a total of 745 have managed positive one-year return, reports Andrea D. Murphy and John J. Ray for Forbes. All but four of those were focused on short-selling.
ETF investors still have hope for the day when this turmoil settles. When markets rebound-which they eventually will-these low-cost, tax-efficient and easy-to-trade investments will rise in step along with their underlying market indexes.
Using the price-to-book (pb) metric as a guide, Forbes looked for beaten-down ETFs that appear to be good value propositions (besides real estate and financials, which still need time). Price-to-book compares the market’s valuation of a company to the value of the company as indicated on its financial statements.
Here is a sample:
- WisdomTree Japan Small Cap Dividend Fund (DFJ): down 24% year-to-date; 1.2 price-to-book ratio
- PowerShares High Yield Equity Dividend Achievers Portfolio (PEY): down 40.9% year-to-date; 1.3 price-to-book
- iShares MSCI Japan Small Cap Index Fund (SCJ): down 28.4% year-to-date; 1.4 price-to-book
Our own strategy for getting back in will be using the 50-day moving average as our guide in the short-term.
Most funds are far below the 200-day moving average, meaning it would be a long wait before a signal to buy is reached. We haven’t been so far below the long-term trend lines in decades. As a result, we have a short-term plan for getting back into the markets if the rebound is real:
- When a fund crosses above its 50-day moving average, put 25% of the value of your portfolio.
- When the fund goes up 5%, put another 25% in.
By the time this happens, the 200-day moving average should be well within sight, and things should begin operating in line with our normal buy parameters once again.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.