A 7 Sector ETF Portfolio

by: Gary Gordon

The University of Michigan’s Consumer Sentiment Report could not have been more dismal. The gauge fell to its lowest level of confidence since the 2009 start of the Obama Administration.

The news weighed heavily on stocks, pushing the S&P 500 back into solid correction territory… roughly 12.5% off its April high. And yet, consumers and investors are as frightened as they’ve ever been.

Should we count the lucky charms in our portfolio bowls? Has the March 2009 cyclical bull met its match?

Personally, it’s hard to see how this much negativity is justified. I might note that 75% or more of companies are on track to beat earnings estimates; the historical norm is closer to 65%. And the semiconductor industry tends to be a premier indication for economic recovery. Intel’s achievement (i.e., best earnings report ever, raised forward guidance, etc.) should not be overlooked.

It is true that the cyclical bull appears awfully tired. The year-over-year gains of 17% for the Dow Jones Total U.S. Market might be impressive in a vacuum. In the context of an epic turnaround for stocks, however, the 17% gains are decidedly unspectacular.

Considering the amount of ceaseless pessimism in the blogosphere, I thought it might be worthwhile to show a stock-only portfolio with positively wonderful results. The criteria? Each of the components must represent a different segment of the economy. And the majority of components need to have less standardized risk (vis-a-vis RiskGrades) than the S&P 500.

7 Sector ETF Portfolio Earns 45% Year-Over Year
Approx YOY % Gains
Claymore Airline (NYSEARCA:FAA) 72.6%
iShares Cohens Steers Realty Majors (BATS:ICF) 58.7%
Internet Infrastructure HOLDRs (NYSE:IIH) 58.1%
JP Morgan Alerian MLP (NYSEARCA:AMJ) 46.5%
SPDR Pharmaceutical (NYSEARCA:XPH) 32.5%
Market Vectors Gold Miners (NYSEARCA:GDX) 27.0%
Rydex Equal Weight Consumer Staples (NYSEARCA:RHS) 20.1%
Portfolio Average 45.1%
Dow Jones U.S. Total Market 16.5%

I have been an outspoken advocate for Energy MLPs for several years. Energy Transfer Partners (NYSE:ETP) has been my highest conviction stock and I have recommended the Alerian MLP ETF on many occasions. I’ve also talked about buying gold and gold-miners on dips.

Still, it’s true that few of these ETFs make the recommended list of any ETF enthusiast. Airline stocks? Transporter stock strength is a bonafide economic bellwether, but I’m usually focused on railways and shippers. Pharma? While the bigger firms have struggled, mid-sized firms have been steady Eddies as part of XPH’s equal-weighted market cap index.

Obviously, past performance doesn’t predict future performance. What it should do, though, is give you a sense that Armageddon is the longest shot of all.

Disclosure Statement: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company and/or its clients may hold positions in the ETFs, mutual funds and/or index funds mentioned above. The company receives advertising compensation at the ETF Expert web site from Invesco PowerShares Capital Management, LLC. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.