Latest news, trends and ideas for investing with exchange traded funds | ETF Commentary

How do you make money with exchange traded funds in a range bound market?

That’s the question raised by the WSJ’s Ben Levisohn in the column Strategies for a Sideways Market.

Levisohn reports that shorting the Direxion Large Cap Bull 3x (BGU) and Large Cap Bear 3x (BGZ) ETFs would have returned $1,100 on a $10,000 investment year to date.

Another idea for making money when the trend isn’t clear?  Selling covered calls.

A way to play covered calls with ETFs is the PowerShares NASDAQ-100 BuyWrite Portfolio (PQBW). The ETF normally invests at least 80% of its total assets in common stocks of the 100 companies included in the NASDAQ-100® Index and then writes call options on those stocks.

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The WSJ recently profiled Colorado Springs financial adviser Allan Roth to get his view on how to construct a diversified, tax efficient and low cost portfolio with exchange traded funds.

The ETFs in Mr. Roth’s streamlined portfolio include:

Vanguard Total Stock Market ETF (VTI)

Vanguard FTSE All-World ex-US ETF (VEU)

Vanguard Total Bond Market ETF (BND)

iShares Barclays TIPS Bond Fund (TIP)

Vanguard Short-Term Bond ETF (BSV)

Vanguard REIT ETF (VNQ)

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Kiplinger’s Laura Cohn recently wrote about the rising popularity of Bond ETFs and shared a diversified portfolio of five of her favorite exchange traded funds.

The portfolio includes:

25% iShares Barclays 1-3 Year Credit Bond (CSJ)

25% SPDR Barclays Capital International Treasury Bond (BWX)

20% iShares iBoxx $ High-Yield Corporate Bond (HYG)

15% iShares Barclays 1-3 Year Treasury Bond (SHY)

15% iShares Barclays TIPS (TIP)

According to Cohn, high income investors should scale the allocation to HYG back to 10% and add:

10% iShares S&P National AMT-Free Municipal Bond Fund (MUB)

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A model portfolio for Sand Hill Advisors uses both mutual funds and ETFs to allocate across asset classes and geographies.

As the investment firm braces for higher interest rates by paring back on fixed-income exposure, the managers retain 4% of the portfolio in the iShares Barclays TIPS Bond Fund (TIP).  For mid-cap exposure, the firm allocates 5% of the portfolio to the iShares S&P MidCap 400 ETF (IJH).

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As the popularity of exchange traded funds continues to grow, more advisors are offering model ETF portfolios as a service.

Forbes‘ Richard Ferri takes a look at this trend in his recent article The Next Big Thing: Model ETF Portfolios.  Ferri offers his own “Core Four” portfolio solution that includes an all-Vanguard line-up:

Total Stock Market ETF  (VTI )
FTSE All-World ex-US ETF  (VEU )
REIT ETF  (VNQ)
Total Bond Market ETF (BND)

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Kiplinger’s Jeffrey Kosnett recently published a primer on investing with Exchange Traded Funds and included a list of 10 ETFs that you need to know.

The funds making Kosnett’s 10 “to know” list include:

SPDR S&P 500 (SPY)

SPDR Gold Shares (GLD)

SPDR Barclays Capital High Yield Bond ETF (JNK)

iShares S&P-Citigroup International Treasury Bond Fund (IGOV)

PowerShares QQQQ (QQQQ)

S&P Global Utilities Sector Index Fund (JXI)

iBoxx $ Investment Grade Corporate Bond Fund (LQD)

Dow Jones Select Dividend Index Fund (DVY)

SPDR DJ Global Titans (DGT)

Vanguard REIT ETF (VNQ)

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Investment adviser Steven Goldberg provides his picks for the top exchange traded funds for 2010 on Kiplinger.com.

Goldberg belives that the market will reward shares of the biggest and strongest companies this year and, within that category, the faster growers among them.

Goldberg’s ETF portfolio for 2010 includes:

55% Vanguard Total Stock Market ETF (VTI)

10% Vanguard Mega Cap 300 Growth ETF (MGK)

20% Vanguard Europe Pacific ETF (VEA)

10% Vanguard Emerging Markets Stock ETF (VWO)

5% Vanguard REIT Index ETF (VNQ)

For more diversification, Goldberg recommends adding bonds with funds such as:

SPDR Barclays Aggregate Bond (LAG)

iShares S&P National AMT-Free Municipal Bond (MUB)

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In the column ETF Portfolios for Every Purpose, Kiplinger’s Jeffrey Kosnett recently outlined a series of all ETF portfolios with the idea that you can pursue any goal with nothing more than exchange-traded funds.

Kosnett’s all ETF Growth and Income portfolio includes these funds:

• 20% iShares iBoxx $ Inv Grade Corp (LQD)
• 20% iShares DJ Select Dividend (DVY)
• 10% iShares S&P/Citi Intl Treas Bond (IGOV)
• 10% iShares iBoxx $ High Yld Corp (HYG)
• 10% SPDR S&P Intl Dividend (DWX)
• 10% Utilities Select Sector SPDR (XLU)
• 10% Vanguard Dividend Appreciation (VIG)
• 10% Vanguard REIT (VNQ)

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Kiplinger’s Jeffrey Kosnett has put together several model portfolios with the idea that you can pursue any goal with nothing more than exchange traded funds.

Kosnett’s equity-only portfolio is designed for investors who have a healthy tolerance for risk and are investing for long-term growth. The portfolio includes 90% equity ETFs and 10% commodity ETFs:

• 40% iShares Russell 3000 (IWV)
• 20% Vanguard FTSE All-World ex-US ETF (VEU)
• 10% PowerShares DB Commodity Index Tracking Fund (DBC)
• 10% Vanguard FTSE All-Wld ex-US Sm Cp (VSS)
• 10% Vanguard REIT ETF (VNQ)
• 10% WisdomTree SmallCap Earnings Fund (EES)

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In the article How to Build a Portfolio Wisely and Safely, the WSJ’s Jeff Opdyke presents three approaches to building a portfolio in a time of great uncertainty.

For investors looking to protect portfolios against inflation, Opdyke recommends treasury inflation-protected securities or TIPS since their principal adjusts upward along with inflation.

Altough Opdyke mentions Vanguard’s TIPS fund, the SPDR Barclays Capital TIPS ETF (IPE) is a better deal for investors. For more on inflation investing, see the TIPS Fixed Income ETF Directory.

For optimistic investors, Opdyke suggests the Vanguard Total International Stock Index Fund. The ETF equivalent is the Vanguard FTSE All-World ex-US ETF (VEU).

In case the “Goldilocks” outlook turns out be wrong, taking out insurance in the form of cash, long-term treasurys and a commodity ETF such as the DB Commodity Index Tracking Fund (DBC) is not a bad idea.

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