I’ve been focusing on sector exchange-traded funds over the past few weeks, and have almost exhausted the sectors where I would consider dropping money into ETFs.
However, the breadth of ETFs is so great at this point that I would be remiss not to pull aside a few interesting plays to supplement any long-term portfolio you are developing. They are all radically different from each other, and offer different strategies for the long-term investor who is more conservative than aggressive.
Follow the Buybacks
The PowerShares Buyback Achievers Fund ETF (NYSEArca: PKW) is just what its name leads you to believe. The ETF is intensely focused on companies that are buying back shares.
Now, I’ve often been skeptical of buybacks, because management tends to engage in this tactic when they have lost imagination about how to find more value in the organic business. However, some companies buy back stock for the right reasons – to return capital to shareholders.
This ETF focuses on companies that reduced their share count by 5% or more over the most recent 12 months. About two-thirds of these companies are large caps, but it shocked me that 24% or so are mid-cap companies, which I thought avoided buybacks.
It has also outperformed the S&P 500 since it launched in 2007, almost doubling against the S&P’s 78% gain. It is also up fourfold since the 2009 lows, whereas the S&P has returned 249%.
Some may say that going international isn’t conservative, but because international stocks have actually lagged domestic ones, they are safer than they appear. Also, financial stocks abroad have been given the cold shoulder, what with the weak economy and the Greek debt drama.
Focus on Europe
The iShares MSCI Europe Financials Sector Index Fund (NASDAQ: EUFN) invests in Europe’s largest financial institutions. With its 114 holdings, it is exceedingly diverse, yields 3.29%, and that yield helps finance the 0.48% expense ratio.
Look, the Greek debt crisis is going to resolve itself one way or another. This too shall pass. Meanwhile, the European Central Bank completed the Asset Quality Review, and determined that banks are on firm footing. That means they will be lending more and generating more income.
Finally, if you’ve ever wondered just how well spinoffs do, then look at the Claymore Beacon Spin-Off ETF (NYSEArca: CSD).
Here we get an ETF that is all about said spinoffs. But it only tackles companies with market caps under $10 billion that have been spun off within the past 30 months.
Also, the ETF is very specific about what qualifies as a spinoff, reserving the designation for “a spin-off distribution of stock of a subsidiary company by its parent company to parent company shareholders, or equity ‘carve-outs,’ or ‘partial initial public offerings’ in which a parent company sells a percentage of the equity of a subsidiary to public shareholders.”
So, just how strong has this approach been? Well, it launched at the end of 2006, and has returned 110% since then versus the S&P 500’s 78%. Yes, that includes the financial crisis, folks. Indeed, over the past five years, it generated a total return of 147% versus the S&P’s 115%.
Tesla, Apple and Google are creating this
When people think of Tesla, what immediately comes to mind is the world’s first electric car. It’s an astounding achievement. But what few people realize is that Tesla’s next technological wonder could easily put it to shame. Morgan Stanley says this breakthrough could save the American economy $1.3 trillion each year. And Tesla’s not the only one racing to get it out the door. Apple and Google are working on their own versions too. Get the whole story right here.