The last two weeks in the markets have seen investors selling
nearly every asset class across the board. Stocks, bonds, and
commodity prices have fallen in tandem, which is a relatively rare
event considering that most sell-offs favor a transition from one
asset class to another. The hardest hit sectors have clearly been
precious metals stocks;
reported that the
Global X Gold Explorers
Market Vectors Junior Gold Miners ETF
(NYSEARCA:GDXJ) lost 18.54% and 17.26% respectively last week.
However, the real story has been those
that have held up well despite the barrage of selling on Wall
Street. Throughout every correction, there are usually one or two
bright spots that may signal areas of the market that will
outperform during the next growth phase. Conversely, they may also
be sectors that are acting as temporary safe havens from the storm,
but will ultimately lose momentum when volatility subsides. Either
way, it is important to identify these outperforming funds that can
give your portfolio a much needed boost.
The first ETF on my watch list that has bucked the market downtrend
SPDR S&P Regional Banking ETF
(NYSEARCA:KRE). This ETF is composed of 77 small- and mid-cap
banking stocks with total assets of over $1.5 billion. The top
three holdings in KRE are
Webster Financial Corporation
Susquehanna Bancshares Inc.
). This fund currently sits less than 1% from its 2013 highs and
has shown excellent relative strength vs. the broader financial
Regional banks may be viewed as safer than larger banks or
investment houses because of their focus on risk aversion and core
business strategies. Regional banks typically center their mortgage
portfolios on the highest rated loans and are well capitalized by
depositors to weather any potential economic downturns. While I
don't have a position in KRE at this time, I am closely watching
this sector for a favorable entry point moving forward.
US Dollar Index
Another area that has benefitted from the recent volatility in the
broader stock market is the
PowerShares US Dollar Bullish Fund
(NYSEARCA:UUP). This fund is designed to track the daily price
movement of the US dollar vs. a basket of six major foreign
currencies. UUP is one of the only ETFs that gives you direct
access to this currency strategy and currently holds over $700
million in assets.
One of the reasons that UUP has strengthened is due to the
devaluation of foreign currencies along with the concomitant fall
in the price of precious metals. In addition, investors are
currently in the process of dumping nearly every other asset class,
which is going to push money back into cash and/or money market
funds. Right now, UUP looks strong, but I would be interested to
see how it reacts when stocks or bonds stabilize. This may just be
a temporary safe haven from the storm.
It should be noted that UUP is structured as a partnership that
generates a K-1 for shareholders. The reason for this is that the
fund must be structured as a partnership (instead of a trust) in
order to participate in buying currency futures contracts. Before
investing in UUP, you should read the prospectus and research the
tax implications of this ETF on your portfolio.
Floating Rate Notes
The last ETF of my relative performance trifecta is the
iShares Floating Rate Note ETF
(NYSEARCA:FLOT). This ETF holds over $1.8 billion in very
short-term debt of financial companies whose coupon payments change
based on the prevailing interest rate environment. Floating rate
notes are widely considered to be an effective tool to combat
rising interest rates because of their short duration and
One of the benefits to investing in FLOT is that it holds highly
rated investment grade notes, which have less credit risk than
senior loans. This is one of the reasons why there has been such
little price fluctuation in the fund. However, the drawback is a
lower yield, with
listing the current 30-day SEC yield of FLOT at just 0.38%.
This may be the type of fund that is used as a short-term hiding
spot for a portion of your fixed income portfolio until interest
rates begin to stabilize. A little stability during this summer of
volatility might be just what the doctor ordered.
Read more from David Fabian, Managing Partner at Fabian Capital
Do Growth Investors Have Anywhere to Hide?
Three Great Income ETFs to Buy During This
5 Mistakes to Avoid With Your ETF Portfolio