As we have entered November, 2011 has turned into yet another year where "buy and hold" of the major market indices hasn't really worked. The 4 major U.S. stock index ETFs are mixed on the year:
Year-to-Date (YTD) performance:
- S&P 500 Index (SPY) = (-1.57%)
- Nasdaq 100 (QQQ) = +4.21%
- Dow Jones Industrial Average (DIA) = +2.65%
- Russell 2000 (IWM) = (-7.93%)
With the holiday shopping season upon us and the end of the year looming, let's take a look at what very liquid (over 1 million average daily volume) are at the top of the YTD performance table. Only 7 names show up as being up over 10% for 2011, see the table below:
ETF Performance Table
It's an interesting group of names … no "growth" plays at all and no real stock sectors, barring the "safety" group Utilities (XLU). Basically it breaks down into Government Bonds, Volatility, Gold, and Utilities.
Certainly a point that I feel should be taken from this is that it is important for long-term investors to have a portion of different assets such as Bonds, Gold/Commodities, and Utilities among their portfolio at all times. Diversification among different assets other than growth stocks/major indices is shown to be useful in times like we've seen over the past year. We also would advise to diversify with Options as well, due to their multiple uses in terms of leverage, volatility, income, and time decay.
Volatility itself (VXX is based on the CBOE Volatility Index (VIX) futures) is the one gainer on this list that doesn't show a steady performance for Week, Month, Quarter, YTD, and Year. It's been more volatile, literally … so this wouldn't necessarily be a core long-term holding in my view. But it certainly is a decent way to hedge against market risk, as the VIX normally spikes quickly when the market falters and often volatility rises faster in the short-term than prices drop.
3 heavily traded Government Bond ETFs have done well this year — 20 Year Treasuries (TLT), 7/10 Year Treasuries (IEF), and Inflation Indexed Bonds (TIP). These ETFs also have decent yields (depending on your perspective), as you can see in the data above. Also keep in mind that the world of bond/fixed income investments is a vast one and there is a wide variety of yields/risk available. And many investors have felt "cash is king" in recent years, and Treasury Bills/Notes/Bonds are still (for the time being) considered about as safe as a money market.
You can see that GLD has been in a very steady uptrend since 2009 (actually bottoming in late-2008). It's more than doubled in this time frame, so some may wonder how much upside is left. However, keep in mind that on an inflation-adjusted basis Gold is still well below the levels of the early-1980s. And the chart has shown a very steady uptrend (don't fight the trend as we often say) — Weekly Percent R has remained above mid-levels throughout this entire time frame. And pullbacks have been contained by the 20 and 40 week Exponential Moving Averages, see the chart below.
GLD Weekly Chart
Looking at the Utilities ETF from a longer-term basis below, it also has been in a somewhat steady uptrend since 2009 — however the scope of the gains is much less. This group has never been known for growth (although certainly some individual companies may differ at times) — it is a classic "value" play of lower growth, steady revenues, and decent dividends. Also note that different from GLD, XLU is actually retracing the losses it gave up in the 2008 market crash. At this point it's only recovered about 50% of the losses (50% is often a key retracement level and is a Fibonacci number, so keep an eye around those levels).
XLU Weekly Chart
Bottom Line: As mentioned above, I maintain that Gold (and/or a basket of other commodities), Bonds (whether Government, Muni or Corporate), and Value Stocks (like utilities) are an important part for a portion of most investor's total asset portfolio. The data for this year shows the benefit of diversifying into these groups versus just tracking the major stock indices.