WWW.ZACKS.COM/ETFTRADER Zacks Investment Research, Inc. 10 S. Riverside Plaza, Suite 1600 Chicago, Illinois 60606
Contents Introduction 2 Section 1: The Mental Aspect 3 Section 2: Getting the Most Out of the ETF Trader 4 Section 3: Follow the Leader 5 Section 4: How to Read ETF Alerts 6 Section 5: How to Read ETF Daily Summary 7 Section 6: Virtues of Money Management 8 Section 7: Tying it All Together 9 1
Introduction: Congratulations on getting started with the ETF Trader! Just a few short years ago, the number and variety of ETF s available was severely limited, with many relegated to index funds. Today however, we have the opposite problem, with a wide range of funds targeting almost every possible sector, industry and niche market at our disposal. With the ETF Trader, we distill the nearly paralyzing amount of choices into 10-12 targeted picks with the greatest potential to outperform in the near term. This is done by using a potent combination of time tested factors, including our proprietary Zacks Industry Rank and Zacks ETF Rank, as well as other backtested metrics, and our own personal mastery of the market. You ll also find the ETF Trader to be a great complement to our many other services as well. But whether used as a standalone service, or in conjunction with other Zacks products, it will quickly become an important part of your investment strategy. After all, the best part about ETFs is the wide range of stock groups, industries, and asset classes an investor can get into. This includes equity-based ETFs, bond based ETFs, commodities, currencies, regional based ETFs, Indexes, and anything else where there s an opportunity to make money. ETFs are also a great way to minimize risk commonly associated with individual stocks. Since ETFs are essentially baskets of stocks or investment vehicles, if one holding within an ETF were to suffer a large setback, the risk would be minimized as that one holding would be just one of many. But put that one holding into a portfolio outside of the structure of an ETF, and a large setback can have devastating effects. Of course, this is not a get-rich-quick scheme. And there will be losers amongst our winners. So, prudent money management will be an important aspect of this service. But our mission is to beat the market while experiencing less volatility as compared to a stock-focused investing services. We couldn t be more excited to bring you the ETF Trader, and we are confident that our system will achieve impressive results in the booming Exchange Traded Fund industry and for your portfolio. Before you begin, please be sure to read the rest of this guide. It will help you get the most out of this service. If at any time you have any questions or comments, please feel free to contact us. We want to hear from you. Thanks again. And good trading! Sincerely, Eric Dutram Editor, ETF Trader ETF Strategist Zacks.com 2
Section 1: The Mental Aspect It is important to realize how much investment success is related to what goes on between your ears. There are so many ways to get distracted and to question yourself while trading. You must be in the right frame of mind and have reasonable expectations to achieve success with this or any investment service. So be sure to pay attention to the tips in this section carefully; they will get you headed in the right direction. NOBODY IS 100% PERFECT First of all, there will be losing picks, but if we cut them out early to minimize losses and maximize gains on winners, then we can achieve great results. Hopefully, due to the nature of fund investing, big losses will be significantly curtailed, though there is always the potential for negative performance with any investment. OUR BRAND OF ETF TRADING The ETF Trader uses a system that identifies overlooked ETFs that have the potential to beat the market. The focus of our technique relies on sector rotation; getting into the right sectors and out of the wrong ones in a timely manner. In order to do this, we are going to take a combination of factors into account; the Zacks Industry Rank, Zacks ETF Rank, asset class forecasts, and ETF specific factors as well. This last factor is really important as often times there are several somewhat similar ETFs that occupy a given category. Part of our job will be to figure out which of these will be the best fit for our investment idea, and to also uncover funds that might be flying under the radar that are great selections for our objectives. USE LIMIT ORDERS There might be times that we move into low volume ETFs, so using limit orders will be imperative in order to get a good price. For many ETF types, market makers can easily step in and bring new shares to the market assuming that underlying securities are relatively liquid so don t reach too far from current prices. Even when volume levels are low, there can be plenty of volume lurking in the level 2 quotes, so don t be scared off if you see a small average daily volume level. With that being said, issues can arise in this regard, so it is definitely something to be aware of before getting involved with ETF Trader. DON T CHERRY PICK You should only subscribe to this service if you intend to fully investigate and act upon these opportunities. The best results from this service can be obtained by following every recommendation, with properly proportioned amounts invested in each selection. Picking and choosing among the selections is rarely successful and is a leading cause of dissatisfaction amongst subscribers. 3
Section 2: Getting the Most Out of ETF Trader It is our job to provide you with timely and profitable picks, but there are steps that you can take to ensure your success with ETF Trader. Here are a few things you can do to get the most out of the product. 1. Read this guide carefully This guide is your friend. It has valuable information on how to use the product and succeed with the assistance of ETF Trader. It gives you step-by-step instructions on how to receive alerts and what to do when you receive them. It has important money management tips.. 2. Have a working email address This is necessary to receive trading alerts. Make sure you can access your email in a timely fashion because acting on trades is essential to success. The Daily Summary email will be sent at 8:00 p.m. EST, which summarizes the positions as well as what happened on Wall Street during that trading day. Intra-day trading alerts, while rare, will typically be sent within the first hours of the trading day. Unfortunately, many Internet service providers have software programs that filter out emails you want to receive, like Zacks ETF Trader Daily Summaries. To get optimal delivery of our emails follow this link for quick and easy instructions. 3. Have an online trading account We are not advocating any particular company for this, but ideally lower commissions will help you achieve a higher overall return. You will make several trades a month, and high commissions can really eat into your profit margin, especially if you have limited capital. 4. Access the site To access the site, go to http://www.zacks.com/etftrader and enter your username and password. This will take you to the main page where you can view the portfolio, any pending trades, and the commentary. 4
Section 3: Follow the Leader With ETF Trader, it is better not to pick and choose among the recommendations. It is recommended that you follow each and every one of the picks to achieve overall success. The process to receive our trades is very simple, yet we feel it is so important that we are going to spell it out for you. Here are the four steps. Here are the four steps: Receive the email with the daily summary or intra-day signal Read the email to determine appropriate action Place trades through your broker with the appropriate % allotted Follow the emails to determine when to sell Subscribers who realize the highest returns follow all of the recommendations, and those who do the worst try and cherry pick which buy signals to act on and which to pass on. Follow the signals and you ll maximize your opportunity for success. ACT PROMPTLY = MOST SUCCESS And if you don t beat the market, you can take advantage of our 100% Money Back Guarantee. SPEAKING OF THE GUARANTEE... We feel that if we are not able to live up to our word and help you beat the market then we shouldn t be deemed worthy enough to take your money. So in addition to the 90-day, no hassle guarantee, there is a 100% Money Back Performance Guarantee. There are a few conditions that have to be met first, but the bottom line is that we have to perform. Click here for details. 5
Section 4: How to Read ETF Trader Alerts This strategy will often have a trading alert during the trading day. When a Buy Alert or Sell Alert is sent out, you should receive the alert within the first hours of the trading day detailing what ETF is being added or sold and the rationale behind the move. It is important that you act as soon as you can. Here is an example: Signal = The type of alert. It will be a green ball for a buy alert or a red ball for a sell. Fund Name = The name of the ETF that is being added to or sold from the ETF Trader portfolio. Symbol = Ticker symbol of ETF being added to or deleted from the portfolio. Date Added = The date on which the ETF was added to the portfolio. Mkt Val % = The percentage of your allotted portfolio to allocate to this position Long/Short = Denotes whether the ETF is to be purchased or sold short ETF Trader Portfolio Commentary = As part of the alert, Eric will explain his rationale for the addition. You will learn his reasoning for adding or selling the ETF and the current price at which the ETF is trading. Intraday alerts use the average of the price at the time of the alert and the closing price that day. Recommendations that use stops or limits will use that price for performance figures. 6
Section 5: How to Read the ETF Trader Daily Summary The Daily Summary provides a wide array of details for ETF Trader each trading day. This summary may have new signals as well as the current open portfolio with daily commentary. The % allocation for each ETF is also shown. This is valuable information as it conveys what our game plan is, why we are in each fund, when to get out and why, as well as any relevant news. This is emailed to you at 8:00 p.m. EST. In regards to the price added for the portfolio, Zacks uses the average of the price at the open and the closing price on the day the ETF is deleted. 7
Section 6: Virtues of Money Management Money management can be the difference between realizing large gains and going broke, even if the winning percentage is the same. How can this be? The key point is that winning investors know to ride their winners and cut their losses quickly, and stick with a plan that has proven to work in the past. Here are a few rules that you can follow to further improve your returns: First of all, don t dump your entire portfolio into these ETF Trader picks. Only allocate that portion of your capital that can be comfortably devoted to speculation. This portfolio will typically hold 8-14 positions. You should be able to sleep soundly and act rationally if you are only trading with your speculative money. Keep in mind that reinvesting profits and the power of compounding are your friends in this portfolio. EVER-PRESENT CLICHÉ RINGS TRUE It has been said millions of times before, but it is so important it needs to be said again: Don t put all your eggs in one basket. Even if you are the most brilliant investor in the world, there is no way of knowing for sure that an investment will go in the right direction. There will be losing trades. The key is staying in the game and building your equity over time in a systematic way. This can only be done when diversification is put to use. Not that we have to remind you, but the main point is that your capital was earned through years and years of hard work. Capital conservation sounds boring, but without it, you are fighting a losing battle. We don t want to see the money you have put your blood, sweat, and tears into evaporate due to lack of discipline. 8
Section 7: Tying it All Together It is our goal at Zacks to enhance your investing results via the ETF Trader service. This booklet touches upon the details of the service and provides several useful tips to realize the vast potential that ETFs hold. We feel it is our job to let you know that we are here to help you get the most out of ETF Trader. Again, let s go over some of the important points made in this booklet. Zacks Industry Rank + Zacks ETF Rank + Proper Fund Picks = Powerful Combo Follow Every Single Trade Small Gains Add Up To Big Results Not Every Trade Will Be A Winner Timeliness Is Of The Essence Money Management Matters Greatly Have A Working Email Address We Are Here To Help The last point is important as we have free customer support that should be taken advantage of. Any additional questions that you may have can be answered by just picking up the phone and giving us a call or emailing us: 1.888.775.8348 (outside the US, 1.312.265.9309) ETFtrader@zacks.com 9