Exchange Traded Funds offer a useful way to gain exposure to different markets, but far from being a quick fix, they require just as much (or more) of a time investment in research if they are to be traded profitably. Here, we have brought together seven recent articles that we think are highly relevant to the current state of the ETF market, and that every potential ETF investor should read before making a move.
Is the buy-and-hold strategy effective?
This article, published on fund management specialists Hussman Funds’ blog, takes a look at the pros and cons of a buy-and-hold strategy in the current market. While it concedes that, over the long term, buy and hold strategies can work very well, a lot depends on the timing and the choice of stocks.
Crucially, these strategies tend to become their most popular when markets are reaching their peak, but investing when stocks are high leaves you a lot more exposed to market crashes. By the same token, investors often get rid of long-held stocks when they are performing badly, which often means trading them at a loss.
Of course, this strategy depends on choosing the right stocks, but its success also depends on being disciplined enough to hold on to them even when prices are going through the floor. So while it can be effective to use this strategy, the article puts forward the case that a more actively managed investment portfolio with a discipline of cutting losses short while letting profits run offers greater potential returns, even if it means a lot more work.
Gold’s downtrend could be tested soon
Ever since 2011, gold prices have been on a downward trajectory, as the global economy slowly comes out of recession and fears about other stores of value have subsided slightly. However, according to this article, there are signs that the bear run on gold could be coming to an end. While Thrasher stops short of proclaiming that another bull run could be on the way, he does make a strong case for the likelihood of a partial recovery in terms of the gold price, backed up by some encouraging recent data.
An interview with CME’s Blu Putnam – US oil & gas boom driving the recovery
This is a video interview, hosted by StockTwits’ Phil Pearlman, with the CME Group’s chief economist, Blu Putnam, all about the oil and gas production boom in the US. Putnam sees the boom, which has been largely driven by controversial extraction techniques such as fracking and deep-sea drilling, as being a key driver in the economic recovery in the US and elsewhere. Furthermore, he sees rising prices as being demand-related, indicating that the recovery itself could be fuelling demand for oil and gas, and that we are therefore seeing the beginnings of a wider trend towards.
The economic crisis of 2007-8 and the ensuing recession have extracted a heavy toll on the construction industry. However, there are signs that the construction sector could be set to rebound strongly. In recent times, lumber futures have proven to be a surprisingly reliable leading indicator for demand from the construction industry, and these have been on an upward trajectory over the last couple of months. Also, the most recent homebuilders survey, which reflects the prevailing sentiment among homebuilders, is at its highest level since 2006. Together, these indicate that home starts are on the up – and the US economy with them.
Under the hood of highly-specialized “niche” ETFs
ETFs provide a way to gain exposure to upwards trends in specific sectors and sub-sectors, but they are not a substitute for doing deep research into the stocks that comprise them. This article takes a look at what these ‘niche’ ETFs are typically comprised of, with some surprising results. For example, many sector-specific ETFs actually contain large holdings in just one or two mega-cap stocks, so the same considerations that you might have when purchasing those stocks should apply. Similarly, commodity-specific ETFs might contain stocks that will not necessarily rise when demand for that commodity does, even though it might seem like they should. So, while they can be useful, it is foolish to invest in them unless you fully understand what they comprise.
How to value speculative companies
(The Aleph Blog)
Speculative companies, which might be worthless in a few years or worth a lot of money, are about the riskiest thing you can invest in. They are, however, also the type of company that you can make a lot of money from if you call it right. So while you might have lost your shirt investing in Yahoo shares at the height of the dot com boom, you would have made a mint if you invested in Google in 2004. Here, investment professional David Merkel lays down some ground rules for investing in speculative companies to help you to assess their probability of success as accurately as possible.
Conflicts and political upheaval tend to be bad news for the value of a currency, so it is no surprise to see that most of the countries that have seen the biggest falls in their currency value – and therefore the highest inflation levels – fall into one of these categories. This article takes a look at six countries that are staring down the barrel of hyperinflation, and looks at the causes and likely effects. It also brings in an example from history – the Indonesian Rupiah – to add some context to the current economic woes of countries such as Syria and Venezuela.