2012 Contrarian ETF Portfolio

At the beginning of 2011 I featured a Contrarian ETF Portfolio for 2011. The idea is to purchase asset classes that have had multiple down years in a row. The hope is that returns will revert to the mean and the under-performing asset classes will out-perform in the subsequent year, as Mebane Faber lays out in The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets:



“A down year two years in a row increases average returns about 4% but only happens about 10% of the time. Three negative years in a row result in median returns of about 30% a year…Extending the test to other assets classes shows similar results. When the past few years were negative, it is a good time to be in an asset class.”

At the beginning of 2011 there were very few ETFs with three down years in a row.  I noted that at least two of the ETFs on the list, GAZ and UNG, had structural issues related to contango. The third ETF on the list, JJE, was fairly illiquid.  Two other ETFs, DXJ, (Wisdom Tree Japan Total Dividend), and DBU (Wisdom Tree International Utilities) were down two of the past 3 years at the start of 2011.  LSC (ELEMENTS S&P Commodity Trends Indicator ETN) had two down years in a row so I also put it on my 2011 list.


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Thus, the 2011 did not truly capture any ETFs accurately representing an asset class with three down years, with the closest being DXJ and DBU.  I tracked hypothetical returns for a portfolio of DXJ, DBU, LSC, and JJE and excluded GAZ and UNG.  A starting hypothetical portfolio of $10,000 on 1/1/11 would have ended 2011 with a value of $8515, including dividends.  This is a loss of -14.85%, not very good when the S&P 500 via SPY finished the year down -.95% excluding dividends; however, given the international exposure in the portfolio it performed similarly to EFA (iShares MSCI EAFE), which returned -15.49% excluding dividends.







For 2012 there is again a limited number of ETFs to choose from using a contrarian strategy which seeks ETFs with negative annual returns for 2009, 2010, and 2011.  We also see many of the same names as last year:

GAZ ipath UBS Natural Gas Sub Total Return ETN
UNG United States Natural Gas
CHIX Global X China Financials ETF
LSC ELEMENTS S&P Commodity Trends Indicator ETN
JJE ipath UBS Energy Sub Total Return ETN
MNA IQ Merger Arbitrage ETF
DXJ Wisdom Tree Japan Total Dividend
UNL United States 12 Month Natural Gas
DBU Wisdom Tree International Utilities


Two names on the list, CHIX and MNA, have no return data for 2009 and MNA also has very low average volume.  DXJ and DBU both had small positive returns in 2009, but are relatively liquid and better represent asset classes than the other names on the list.  We also find GAZ, UNG, and UNL on the list, which, as already mentioned, have additional risks to consider due to their structure and contango risk.  JJE continues to have low daily volume.

With these considerations in mind, I will track a 2012 hypothetical contrarian portfolio containing the following ETFs:

CHIX Global X China Financials ETF
LSC ELEMENTS S&P Commodity Trends Indicator ETN
DXJ Wisdom Tree Japan Total Dividend
DBU Wisdom Tree International Utilities


Re-balancing is another an easy way to gain exposure to under-performing asset classes. For example, if you have a target of 50% stocks and 50% bonds and stocks have recently underperformed causing your allocation to shift to 45% stocks and 55% bonds, re-balancing to your target weight of 50% stocks would require purchasing the under-performing asset class.





Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Weekend Readings

Below is my reading list for this weekend:

2011 Review and Outlook for 2012 – Cumberland Advisors

2011: The Year 60 Minutes Misled Americans About Municipal Bonds – Janet Tavakoli

Wresting with the Big Picture – Chris Kimble

ECRI Recession Call: Growth Index Virtually Unchanged for Seven Weeks – Doug Short

Standing at the Close of 2011 – Geoff Considine

Copper Weakness is a Warning Sign – Tom McClellan

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

First Trade Ideas for 2012

Happy New Year and thank you for sharing 2011 with me.


I occasionally feature articles, analysis and trade ideas from Chris Vermeulen. He is a trader that I have followed for a couple years and trades indexes, commodities and the dollar and I am a subscriber to his service. His daily pre-market technical analysis videos are interesting, timely and educational.


Chris is doing his one-time New Year’s special offer giving his premium trading & education service away at half price until Dec 31st at midnight. At that price you just cannot go wrong. If you want to review what others are saying about Chris, take a moment to look him up on Investimonials.

Read Chris’ Trade Ideas for 2012 Here: http://www.thetechnicaltraders.com/216-27.html

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

End of Year Review

 I’m always amused at the number of lists, rankings, and reviews people post before the New Year.   Not wanting to be left out, I have posted some of my  most popular articles from 2011 below.

There will be some portfolio additions and changes in the coming days and weeks which I believe will improve the overall content of the site and offer a unique experience not offered on many other sites. Stay tuned for updates in the coming days/weeks.

2 ETF Portfolios to Start 2011

Creating a Commission Free ETF Portfolio – The TD Ameritrade Portfolio

Testing Decision Moose Asset Allocation Strategies

From Seeking Alpha – 11 High Yield Stocks to Consider Now

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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The 2011 Financial Storm: Where Do We Go From Here?
Election Day Comes to Ontario 2011
2011 Stock Picks Contest – Q3 Update
Read more on Lingui Development at Wikinvest
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Investment Articles

Below are some investment articles I am reading this week:

Dividend-Paying Stocks - James Bianco via The Big Picture

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Are We Witnessing a Dividend Bubble? Prieur du Plessis

Break Up the Banks –  Simon Johnson

What Investors Are Hoping to Find Under Their Trees – Barry Ritholtz

Your Three Investing Opponents (pdf) – John Mauldin

Are Traders Really Just Driven by the Sun? Tom McClellan

Burton Malkiel: Buy Munis, Foreign Bonds, and Dividend Stocks

Do-It-Yourself Equity-Indexed Annuities – Geoff Considine

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Exclusive offer for CM.com readers: Global Sun Oven Package
“Investment Postcards Daily” – subscribe now!
Introducing the “Investment Postcards Daily” newspaper
Read more on Investment, Sun, How To Invest at Wikinvest
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Holiday Report on Next Week, Oil

Chris Vermeulen just did a report on a holiday short squeeze, analysis on gold, silver, equities, the dollar and a trade idea on oil.  The full free article is available here.

Merry Christmas!

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Happy Holidays!

Merry Christmas and Happy Holidays to everyone! I have been spending some time this week on brainstorming site improvements.  Writing/blogging may be sparse for the next week or so, but I hope to start 2012 with some improvements and new ideas.

If you have any suggestions/comments please feel free to shoot me a line.

-Scott

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Black Friday: The Hype, the carnage but why?
Happy Thanksgiving to my American readers
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Gold and Silver on the Verge of a Big Move: Vermeulen

Gold and silver could be on the verge of a big move according to Chris Vermeulen of The Gold and Oil Guy.  His rationale on gold is (chart available in full article) “at this point it is holding a key support level. If we see the dollar breakdown below its green support trendline then I expect gold to have a firm bounce to the $1675 – $1700.”

The full article is available here.

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Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

More on this topic (What's this?) Read more on Gold, Silver at Wikinvest
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

Mid-Week Readings

Below are some articles I’m reading this week and as always I think there are some timely pieces on the list, including the top stock-market strategy of the past 50 years.

If you are interested in receiving free daily video updates on a variety of markets, Adam Hewison of MarketClub provides daily insight on gold, equities, commodities and bonds. Simply click the link below:

Downward Spiral – Mohamed El-Erian

The Systemic Risk Revealed by MF Global’s Collapse – Barry Ritholtz

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Does the Trend Matter? Kay Conheady

Psy Cycle (Updated) – The Big Picture

Gold in Perspective – Paul Brodsky

Striking Portfolio Balance with Gold Stocks – Frank Holmes via Investment Postcards from Cape Town

The Top Stock-Market Strategy of the Past 50 Years – James O-Shaughnessy and Patrick O’Shaughnessy

Catastrophic Success (pdf) – John Mauldin

Meredith Redux – One Year Later – Cumberland Advisors

Richard Bernstein’s Picks for 2012 – via Investment Postcards from Cape Town

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

More on this topic (What's this?)
Has The Gold Price Drop Run Its Course?
Gold Divergences Are Everywhere
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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com

5 Small Cap Value Stocks With Earnings Power

Each month I search for small cap stocks priced reasonably based on price to earnings growth (PEG) and that have a recent history of positive earnings surprises. I use  stockscreen123 as the tool for this particular screen.    The basic premise of the list is that stocks with a history of earnings surprises have the strong probability of positive earnings surprises in the future.  If the stocks are already trading at favorable valuations, then continued earnings surprises could mean that the stocks below are undervalued, perhaps significantly.


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Last month’s list under-performed, returning an average of 1% versus 3.05% for SPY over the same period.  The list tends to be high beta and could be more volatile than the overall market.  However, it is not a comprehensive portfolio but rather a starting point for further research and an attempt to uncover some “hidden” gems.  



This month we only have five stocks on the list and three of them are repeats from previous months.  The two new additions are The Andersons, Inc (ANDE) and Triangle Capital Corp (TCAP).



ANDE  engages in the grain, ethanol, plant nutrient, railcar leasing and repair, turf products production, and general merchandise retailing businesses. It operates in six segments: Grain, Ethanol, Rail, Plant Nutrient, Turf & Specialty, and Retail.  The company trades at a forward P/E of 9.43 and a long-term PEG of .73.  ANDE has grown earnings 67.35% this year and also recently upped its quarterly dividend to $.15/share.  


The stock is trading at an important resistance level at $44/share is an important price to watch either as a resistance or potential breakout level (chart courtesy of Finviz):


 Below is a backtest of this screen from March 2003 to present, with a 4 week rebalance, a maximum of 10 stocks in any one period, and a maximum of 10% of capital allocated to any one position (in situations when less than 10 stocks qualify). As an aside, stockscreen123 recently announced backtests include dividends, so dividends are now including in historical return calculations:









Below is the full list of stocks meeting the criteria for this month:



Ticker Name Rank MktCap Proj PE CurFY PEGLT
ANDE The Andersons, Inc. 99.52 786.25 8.73 0.73
GHM Graham Corporation 94.22 210.17 17.22 0.57
LAD Lithia Motors, Inc. 93.76 563.14 12.02 0.48
SUSS Susser Holdings Corporation 91.3 439.47 8.61 0.66
TCAP Triangle Capital Corporation 87.61 411.14 8.98 0.9

Disclaimer: No current positions in stocks mentioned. Please note that Scott’s Investments and its author is not a financial adviser. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of Scott’s Investments.

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Disclaimer: Stock Loon LLC, Scott's Investments and its author is not a financial adviser. Stock Loon LLC, Scott's Investments and its author does not offer recommendations or personal investment advice to any specific person for any particular purpose. Please consult your own investment adviser and do your own due diligence before making any investment decisions. Please read the full disclaimer at the bottom of www.scottsinvestments.com