Implementing a Low Cost Investment Strategy Using ETFs. Orange County Chapter of AAII August 20, 2011

Transcription

1 Implementing a Low Cost Investment Strategy Using ETFs Orange County Chapter of AAII August 20, 2011

2 Positive Innovation Greater flexibility Greater versatility and flexibility LIQUIDITY Greater control of tax liability Predictability

3 Cost Comparison ETFs Mutual Funds Large-Cap Stock 0.09% 1.00% Europe Stock 0.40% 1.69% LT Corporate Bonds 0.10% 0.89% EM Stock 0.50% 1.86% Treasury Bonds 0.23% 0.98%

4 ETF Selection What does it ACTUALLY track? Volume Costs Spreads Premium/Discount

5 Asset Allocations Aggressive SubtitleModerate Conservative Large-Cap 45% 30% 20% Small-Cap 20% 10% 5% Foreign 20% 15% 10% Bonds 10% 40% 60% Alternatives 5% 5% 5%

6 Global Outlook The time to buy is when there s blood in the streets, even if the blood is your own. -Baron Rothschild

7 Businesses Aren t Panicing

8 Consumers Fairly Sanguine

9 Wheels of Industry Turning

10 Indicators Still Positive /1/2005 9/1/ /1/2005 1/1/2006 3/1/2006 5/1/2006 7/1/2006 9/1/ /1/2006 1/1/2007 3/1/2007 5/1/2007 7/1/2007 9/1/ /1/2007 1/1/2008 3/1/2008 5/1/2008 7/1/2008 9/1/ /1/2008 1/1/2009 3/1/2009 5/1/2009 7/1/2009 9/1/ /1/2009 1/1/2010 3/1/2010 5/1/2010 7/1/2010 9/1/ /1/2010 1/1/2011 3/1/2011 5/1/2011 7/1/2011 Leading Economic Indicators

11 Credit Headwinds

12 A Few of My Favorite Plays

13 The New C-Note: Or, the Yuan Why Make it if You Can t Spend It? While conspicuous consumption is still a largely Western phenomenon, growing wealth is encouraging some free spending habits in the Eastern world. The Chinese middle class is now larger than the population of the entire US. Consumer spending by the global middle class is currently estimated to be $6.9 trillion annually. By 2020 that number is expected to reach $20 trillion; twice the current total consumption by the United States. While the luxury goods market will always favor imports, the emerging markets consumer is much more likely to purchase locally made goods. Consumer products and services companies in the emerging markets generally command >50% local market share. While the Western world has been forced to deleverage, the emerging market consumer s high savings rate has cushioned consumption.

14 The New C-Note: Or, the Yuan The Young Enjoy High Discretionary Income

15 $25.00 $24.00 $23.00 $22.00 $21.00 $20.00 The New C-Note: Or, the Yuan EG Shares Consumer Titians (NYSE: ECON) 19-Aug Aug-11 5-Aug Jul Jul Jul-11 8-Jul Jun Jun Jun-11 9-Jun-11 2-Jun May May May-11 4-May Apr Apr Apr-11 5-Apr Mar Mar Mar-11 8-Mar-11 1-Mar Feb Feb-11 7-Feb Jan Jan Jan-11 7-Jan Dec Dec Dec-10 9-Dec-10 2-Dec Nov Nov Nov-10 3-Nov Oct Oct Oct-10 6-Oct Sep Sep Sep-10

16 Palladium: The Other White Metal Outstanding catalytic properties Highly resistant to wear and tarnishing Excellent high temperature characteristics Stable electrical properties

17 Chinese Auto Sales

18 Indian Auto Sales

19 ETFS Physical Palladium (NYSE: PALL) $90 $85 $80 Backed by physical palladium Reasonable expenses at 0.60% Physical metal backing means little tracking error $75 $70 $65 $60 $55 $50 $45

20 The Nuclear Option While environmentalists may believe global agreements are too lenient, emissions targets are in reality actually quite ambitious Power generation needs must be addressed There are currently 438 commercial reactors supplying 16% of global electricity US proposes significant support for nuclear power Emerging economies will increasingly rely on nuclear power

21 Market Vectors Nuclear Energy (NYSE: NLR) $28 $27 $26 $25 $24 $23 $22 $21 $20 $19 $18 Source: Bloomberg Largest industry focused ETF with $127.8 million in AUM Yields 4.8% Expense ratio of 0.57% Very liquid unlike many of its peers Portfolio is currently 23 holdings, though can range up to 40 Source: Van Eck Global

22 The Fear Index

23 ipath S&P 500 Short-Term Futures (NYSE: VXX) Greatest volatility since the 1970s Negative correlation with the S&P 500 with zero tracking error One month duration Based on futures do it does experience a negative roll 0.89% expense ratio $50 $45 $40 $35 $30 $25 $20

24 Andean Empire Politically stable, resource rich and fiscally conservative Unlike many other resource economies which went on a spending spree, Chile set aside much of the excess revenue. Already pro-market; President Sebastián Piñera is Center-right, Piñera is one of Chile s richest men and holds a Harvard doctorate in economics. Recently become the first South American country to join the OECD. Deepening trade links with Asia China in particular. Standard of living steadily rising. In 1990, 38.6% of Chileans lived in poverty. Today, that number is just 13.7%.

25 Andean Empire

26 Andean Empire

27 ishares Chile Investable Market (NYSE: ECH) Utilities, 24.6; Industrials, 20.0%; Materials, 18.9% Consumer Staples, 13.2%; Financials, 12.3% Empresas Copec SA, Cencosud SA, Empresa Nacional de Electridad, Enersis SA Expense ratio of 0.61% 1.8% yield $85 $80 $75 $70 $65 $60 $55