Below is the model ETF portfolios from Fundadvice.com with updates for the 200 day moving average for the close of August. One could either buy and hold this portfolio or only hold the positions currently above a moving average. Suggested allocations from Fundadvice are next to each ETF for aggressive, moderate, and conservative investors. Moving averages will be updated monthly on my blog, Scott's Investments.

Portfolio availble at Fundadvice.com

I featured a custom portfolio at the beginning of July, titled 'Scott's Alternative'. Below is the update for September if you were to base buy/sell decisions on the 200 day moving average at the end of August. The portfolio is updated once per month. For some additional analysis on projections for Gold prices, which directly impact a holding GDX, there is an excellent video here. The portfolio is below:

Here is a list of 73 exchange traded funds with at least $100 million market-cap, at least $1 million daily Dollar trading volume, and at least 3% annualized last dividend yield.

click image to enlarge

Studies have shown that asset allocation is the most important determinant factor in a mutual fund's performance: according to a study by Gary Brinson, Randolph Hood and Gilbert Beebower, asset allocation strategies are responsible for over 90% of variations in portfolio performance.

The tumultuous 2008 taught us an important lesson: static asset allocation over diversified assets is not effective enough to shield us from severe market loss. What's called for is tactical asset allocation which re-allocates capital based on the current and future economic and market conditions. In previous articles, we introduced several tactical asset allocation strategies including cross-asset momentum strategies. Those strategies are based on quantitative price or value evaluation. Another way is to simply follow the great investors' asset allocation decisions.

I decided to run an ETF screen over at FINVIZ.com for the following:

1) Yield > 4% (to give you perspective, a 10 year treasury bond yields around 3.79%)
2) Average Volume > 50k shares
3) Trading Above the 200 Day Moving Average

I featured a custom portfolio at the beginning of July. Below is the update for August if you were to base buy/sell decisions on the 200 day moving average at the end of July:

Disclosures: None.

Below is the model ETF portfolios from Fundadvice.com with updates for the 50 and 200 day moving average for the close of July. Positions in green are trading above the 200 day simple moving average at the end of July and ones in red are below the 200 day (only IEF for this month). One could either buy and hold this portfolio or only hold the positions currently above a moving average. Suggested allocations from Fundadvice are next to each ETF for aggressive, moderate, and conservative investors. Moving averages will be updated monthly on my blog, Scott's Investments.

Are There Any Deflationistas Left?

As I have said and written over the past year: Deflation is not a threat, rather inflation is the greater threat. Significant and sustained Price Deflation is not a threat under a Fiat Currency and a profligate free spending Congress.

Months ago rating agency Moody’s warned that the U.S. Government was at risk of losing its prized AAA credit rating. In May, Bill Gross, head of PIMCO, the world's biggest bond shop, warned that the United States will eventually lose its top AAA credit rating. Also in late May, Moody's said it is comfortable with the current AAA rating on the United States, but it is not guaranteed forever. Steven Hess, lead analyst for Moody's:

There are longer-term pressures on the rating, that's very clear.

We have all heard too much already about the debt crisis: the U.S. Citizen is overextended in consumer loans and mortgage debt. Banks and commercial real estate are overextended. The Federal Government is printing and lending money at a furious pace, effectively assuming the debt of its corporations and citizens. Fellow SA Contributor Jim Welsh wrote an excellent article on this.

While the U.S. Consumer pares down his debt, the Federal Government is increasing their own by an even greater amount. The Federal Government is overwhelmed by its own liabilities: Social Security is effectively insolvent and a 36 Trillion Medicare shortfall is looming. If you think the Federal Debt is already too large, you ain't seen nothing yet.

Owning multiple funds with close correlations is mostly wasted effort and potentially self-deception. Owning multiple funds with a significant correlation spread can be helpful in reducing overall portfolio volatility.

Here is a table with the 6-month correlation of daily returns of selected iShares ETFs with at least 6 months of history (as of April 21, 2009), as rendered by the iShares website.

In part I, I took an article by Matt Hougan of Index Universe to task.

Before I move on to more important topics, I'd like to briefly revisit my thoughts on what Matt Hougan had to say. Matt stated on February 5th, 2009 that the time for holding the market is now. He made no distinction between active 'traders' who supposedly have such high turnover they can never hope to succeed, and those who buy, close their eyes, and hope, er, hold for the long term. The common investor is becoming more sophisticated than Matt is giving them credit for and we realize there are myriad alternatives to either a) being a daytrader, or b) feeling like a sucker for buying and holding stocks on either their broker's advice or the advice of an online financial columnist who sees investing only in terms of diversification and expenses.

Some of our readers have asked us how we would go about constructing a diversified ETF portfolio. Naturally, it always depends on what your ultimate investing goals are, your age, what percentage of your liquid net-worth will be invested in the portfolio, etc, etc… However, we thought that we would offer our view on what we feel could be a starting-point for a well-balanced option.

First of all, since stocks outperform all other asset classes over the long-term (see post and graphs: here), we would aim to have a majority of the portfolio in stocks and would therefore opt for a 60/40 split vs. bonds. In terms of bonds, we would place half of the allocation in a total bond market ETF and split the rest between short-term and long-term bonds. You could also just place it all in the total bond market but since we would aim to slowly build up all of our positions by buying in  thirds, we would prefer to have more choice when entering the markets:

One of the major pathways for ETF investors to get international exposure is by investing in the MSCI Australasia Far East Index, or the EAFE. This famous benchmark dates back to 1969, and tracks 85% of the world’s developed markets besides the Americas.

Eric Uhlfelder for Advisor Perspectives reports that this index is also market-cap weighted, measures stocks free float, or the measure of a stock’s equity that is actually tradeable. The EAFE is the world scale S&P 500.

A recent blog posting over at Morningstar sniped at Professor Jeremy Seigel of Wisdom Tree, indicating that his firm's stock selection methodology and retention of assets depended on his call that a market bottom had been hit.

The post compared the performance of several Wisdom Tree ETFs to various total market benchmarks, showing relative YTD performance is lagging for Wisdom Tree dividend selection process. While true, it ignores the beating that all value benchmarks have taken since the credit crisis began in the summer of 2007.

The good old days

By Murray Coleman

When picking out exchange-traded funds for his clients, Andre Weisbrod says he likes to keep an eye on the bigger picture.

By clicking on the chart below, you'll be able to see comparative year-to-date returns for EAFE (Europe, Australasia, Far East) value stocks (EFV); EAFE growth stocks (EFG); S&P 500 value stocks (IVE); and S&P 500 growth stocks (IVW).

By Jim Wiandt

click to enlarge

* Mixed Global Picture - Here we see year-to-date returns for the S&P 500 value stocks (IVE); S&P 500 growth stocks (IVW); EAFE value shares (EFV); and EAFE growth issues (EFG). Notice that growth has been underperforming value in the U.S. (observe recent weakness among such stocks as GOOG and AAPL), but not in Europe, Australasia, and the Far East. Returns are negative all around, but while many economies are dealing with double-digit inflation rates, recession seems to be the larger concern in the U.S.--recent commodity spikes notwithstanding. Mr. Bernanke's testimony to Congress on Wednesday will play an important role, given this backdrop.