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CIO at a privately held financial services firm in Florida. Passionate about the stock market and business trends, writes for SeekingAlpha and MotleyFool. MBA from University of Florida, Warrington School of Business. Twitter updates: @hitjo
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  • Protect Your Portfolio With This Defensive ETF

    S&P 500 Since April 1stAfter registering one of the best first quarter gains in the past many years, the S&P 500 and other major indices paused a bit as we entered into April.

    Suddenly, investors started becoming wary about disappointing economic indicators like the U.S. ISM or Chinese PMI numbers. After the S&P 500 index touched its all-time highs above 1565, a relatively thinned trading volume suggests that the Wall Street is now more concerned about a pullback than it was in February.

    In recent years, Treasury Bonds ETFs have done well during market corrections, especially following the April year-to-date highs or before the "Sell In May" plunges. iShares Barclays 20+ Year Treasury Bond ETF (NYSEARCA:TLT) is one such ETF.

    iShares Barclays 20+ Year Treasury Bond ETF

    TLT 5 day

    The Barclays U.S. 20+ Year Treasury Bond Index measures the performance of the U.S. Treasury bonds with remaining maturity of 20 plus years. The iShares Barclays 20+ Year Treasury Bond is a bond ETF that invests at least 95% of its assets in U.S. government bonds, and seeks investment results that correspond to this underlying index. The ETF tracks this index with a weighted average maturity of over twenty seven years and it carries a high interest rate risk as measured by the effective duration of 17.25 years. Its portfolio comprises of twenty two securities with over seventy three percent of total assets invested in the top ten holdings - the long term treasury bonds.

    There are several Treasury bond ETFs out there, such as PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (NYSEARCA:ZROZ), SPDR Barclays Capital Long Term Treasury (NYSEARCA:TLO), iShares Barclays 20+ Year Treasury Bond. My favorite one is TLT, because its trend has consistently been opposite to that of the major indices. For example, take a look at TLT's chart in 2012 below.

    (click to enlarge)TLT in 2012 Second Quarter

    In July 2012, I had highlighted how these treasury bonds had outperformed the market significantly. TLT had gained by 12.4% during the month of June after the May correction had significantly slowed down the 2012 turnaround in equities.

    TLT is the biggest and most popular ETFs in the long-term Treasury bond space. TLT's sharpe ratio on a 3-year basis is 0.86, its net annual expense ratio only 0.15%, and credit quality is high. Being a bond ETF, its interest rate sensitivity is high as well, which we address below in the risks. The nine year old ETF has net assets of about $3.21 billion, with trailing 1-year, 3-year and 5-year returns of more than 3.2%, 12.6% and 8.6% respectively.

    Risks associated with investing in TLT and other treasury funds include:

    1. Rising interest rates negatively affect the prices of bond funds.
    2. Opportunity cost if the market correction is relatively flat.


    If you are an investor with a long term horizon, and you hold stocks (at probably close to 52-week highs now) that are well aligned with the business cycle and fueled by a macro-economic recovery story, you may be wondering if it is a good time to take profits.

    My take is that most of these stocks that are recovery related are tied closely to energy, industrial, construction/real estate and business services sectors or sub-industries, and that they may still have upside considering that we are not fully done with the recovery. Stocks in these sectors that have a fundamental story behind them will continue to benefit in the long term, but considering that in the past decade, the market has twice pulled back from S&P 500 highs (once in 2000 and then again in 2007), it does not hurt to either take profits or enter into defensive plays.

    TLT is an excellent Risk-Off play so you don't have to switch to cash during market pullbacks and corrections. Happy investing, folks!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Tags: TLO, ZROZ, TLT, long-ideas
    Apr 16 1:29 PM | Link | Comment!
  • Recommendations - Performance And Scorecard

    Quick snapshot of all my recommendations and performance:

    Recommendations: ATTU, CMI, EMC, JPM, KO, LAZ, POT, S, SLB, STX, TRW, URI, VLO

    Invest with confidence!


    Disclosure: I am long EMC, URI, CMI, S, AAPL, ATTU.

    Sep 23 12:00 PM | Link | Comment!
  • Thoughts On Wednesday's FOMC Minutes

    Wednesday's FOMC minutes for June 20 meeting gave investors nothing to cheer about. The Fed said that they will take additional action (read QE3) if and when appropriate. Basically, the minutes show no additional probability of QE3 than what investors believed or at least hoped for ahead of today's announcement.

    Operation Twist and Rates Untouched

    The Operation Twist will remain extended throughout 2012 until year end. There were no additional announcements regarding rates - the rates will stay the same through 2014.

    Fed Acknowledges Sluggishness

    But at least the FOMC members are taking note of slowing economic conditions. The members agreed that some indicators showed smaller than expected increases, and the most important among them was the jobs growth number while the unemployment rate stayed at the same high levels from previous month.

    Of course, most stocks dipped a bit ahead of the FOMC minutes and continued to fall further.

    Hope for QE3 Remain

    The meeting minutes announced on Wednesday were for the meeting that took place in June, before the horribly dismal jobs data came out.

    So intuitively one could still have reason to remain hopeful that QE3 is possible. In fact, right after their June 20 meeting, Ben Bernanke had mentioned that the FOMC members will take a close at jobs data and then reevaluate.

    Diminishing returns?

    However, economists argue that there are diminishing returns of Quantitative Easing. Earlier, Ben Bernanke had also said that more easing will have diminishing returns. In his exact words, Bernanke had said:

    "There may be some diminishing returns to further (QE) action. I'd be much more comfortable if Congress would take some of the burden from us."


    What will happen still remains to be seen, as Fed plays a tricky game with the investors' minds.

    Many Wall Street analysts are still expecting billions of dollars of easing in September. If that happens, the likes of Jeffrey Hirsch will be delighted to see their January Barometer and countless other theories proved true, as the indices start sky rocketing while inebriated in Keynesian liquor (pun very much intended).

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: economy
    Jul 11 4:31 PM | Link | Comment!
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