Moderate Risk Investors May Prefer A Conservative ETF Portfolio [Podcast]

by: Gary Gordon

With earnings of $101 per share and the S&P 500 trading at 1320, the P/E for the popular benchmark is a mere 13. Even the 2.0% dividend for the S&P 500 SPDR Trust (NYSEARCA:SPY) is more impressive than the 10-year treasury yield of 1.77%.

Do valuations even matter? Apparently, few seem to care when European stress indicators are on the rise.

Consider the popularity and profitability of ProShares UltraShort Euro (NYSEARCA:EUO). Not only has the euro depreciated 15% in value over the previous year, but “ultra-shorting” has earned traders 14.5% in just three months.

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There are some indications, however, that business sectors less sensitive to economic cycles are already bouncing back. Since the lows of May 18, PowerShares Dynamic Pharma (NYSEARCA:PJP), SPDR Select Sector Consumer Staples (NYSEARCA:XLP) and SPDR Select Sector Utilities (NYSEARCA:XLU) have recovered short-term, 20-day moving averages. In fact, PowerShares S&P 500 Low Volatility (NYSEARCA:SPLV) is demonstrating similar resilience, as it currently trades a mere 3% off a 52-week peak.

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Don’t get me wrong. I’m not predicting bull or bear here. In fact, nobody has any idea what is going to happen next. (And that’s the problem!) One month, you have analysts declaring that European debt problems are “priced in” or “contained.” The next month, you have Bill Gross talking about the possibility of treasury bond yields falling even further as the world waits for the results of a June 17 Greek election.

In essence, investing for the long-term will need to defer to short-term issues. China’s plans for monetary and fiscal easing should make low P/E Chinese equities popular ... theoretically. And Europe’s inevitable move away from austerity should give a lift to German and Austrian stocks ... theoretically.

Right now, though, lower-risk ETF assets with historically wide spreads over comparable treasury bonds account for the bulk of my portfolio at Pacific Park Financial, Inc. Top holdings for many of my moderate risk investors include:

Sample Portfolio Holdings For Moderate Risk Investors At Pacific Park
Vanguard High Dividend Yield (NYSEARCA:VYM) 3.5%
Vanguard Total Stock Market (NYSEARCA:VTI) 6.1%
Morgan Alerian MLP (NYSEARCA:AMJ) -3.5%
iShares iBoxx High Yield Corporate Bond (NYSEARCA:HYG) 1.2%
iShares Barclays Intermediate Corp Credit (NYSEARCA:CIU) 2.4%
PowerShares Emerging Market Debt (NYSEARCA:PCY) 3.7%
PowerShares S&P 500 Low Volatility (SPLV) 3.8%
Total 3.2%

Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.