We executed a trade the other day in larger accounts that does not increase our net long exposure but should increase the volatility of the portfolio a little allowing a little more participation should there be more upside to this rally.
Several years ago I changed around our exposure to the energy sector by selling a couple of of individual stocks in the sector and replacing them with the WisdomTree International Energy ETF (DKA). Swapping stocks for an large cap ETF should reduce the volatility of the portfolio and that was the case back when we did this trade. One way to get in front of a meaningful downturn (as opposed to a fast panic) is to reduce volatility, subsequently swapping from a large cap ETF into common stocks or a narrower ETF should add some volatility back into the portfolio.
We have done several trades in the last couple of years to increase equity exposure and volatility so the one from last week is simply the latest. We sold a portion of DKA and replaced it with the Market Vectors Coal ETF (KOL); again as dollar for dollar swap (subject to rounding) the idea with this trade is to add a little volatility.
Once the decision to add coal was made I decided I wanted to use an ETF because the two that are out there each cover a lot of ground including China and energy is a sector in China I am comfortable with. KOL trades more volume than the PowerShares equivalent plus the PowerShares fund has about 11% in uranium stocks which is not bad but I can see adding uranium one way or another as a separate holding at some point in the future.
A couple of nuggets about coal that you probably know about are that congress is expected to be more lenient toward coal companies which would benefit some of the stocks in the fund and something like 70% of China's electricity comes from coal which should benefit another portion of the fund and as mentioned the other day (and many other times) the ascendancy of the middle class will mean more energy consumption and this, in my opinion will be a steadier force in China's economy and so hopefully in the Chinese capital markets.
There are two big picture drivers behind wanting to add a little volatility. One is that after three years the S&P 500 is still 20% below its peak and there is plenty of skepticism toward the US market (I am plenty skeptical). While it is reasonable to expect negative consequences from quantitative easing I doubt we will see them in the immediate future based on what we know now about the plan for targeting assets and the wealth effect.
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14 comments:
Roger,
In keeping with your theme of diversifying your energy exposure, do you own any nuclear stocks or the nuclear ETF, NLR, for your clients? DNN & CCJ have really taken off this past week.
the nuclear ETFs seem to be heavy in Japanese industrial stocks that build power plants which i would rather avoid
"Bubble, Crash, Bubble, Crash, Bubble ..."
"In recent years, the average correlations among sectors and various asset classes have moved from about 30-40%, which is normal, to nearly 80% - meaning that the securities markets are moving in concert as if they are one single, giant security, driven largely by the anticipation of government interventions of one form or another. "
From Hussman
Buy anything - at least for now
Roger
Thanks for sharing as always. You said: "I doubt we will see them in the immediate future based on what we know now about the plan for targeting assets and the wealth effect." Can you elaborate on targeting assets, wealth effect?
If you read Ben Bernanke's op-ed in the WaPo dated November 4 you will see that one goal of the policy is to lift asset prices to make people feel wealthier. They have laid out a timeline that goes on for months with this.
Got Gold?
Gold has now outperformed ALL other asset classes in the last 30 years for buy and hold INVESTORS.
Why? It does NOT have a built in finacial industry tax, i.e. you $$ skimmed off the top by wall-street and the "advisors" that work to funnel "investors" into the paper money casino.
30 years ago the S&P 500 was at 129, today it is at 1223.
30 years ago gold was around $800 and now it is $1400.
what the hell you are talking about?
KOL will stall here around 43.6 based on my momentum studies.
oh, ok
Roger, I just got back from two weeks in China. Love the people. However, being outdoors there is like sticking your head in a coal stove. The air, if there is any, is putrid and constantly hazy and smoggy. I sure hope the profits you make are worth the lives of thousands of poor folk.
My daughter (a Physician Assistant) just returned from a medical mission to do pro bono reconstructive surgery for children in rural China. It was supposed to be a one month program in which each volunteer paid for expenses out of their own pocket. The Chinese Government first forced the Doctors to leave the country and then started investigating the motives of the medical mission. After 2 weeks of constant harassment by the local authorities AND the poor people she was trying to help and having to eat boiled chicken heads (I have photos), my daughter flew home, despondent, sick and pretty much disgusted. She said the rural Chinese were very resentful and hostile to any outsiders. Things are never as clear cut as anonymous 4:51 would have you believe.
Roger, thanks for the reminder about BB's Post op ed. Though there's a bounce in my step due to the market's rise, I have a truckload of concerns with the "plan". One is that the plan doesn't work.
China is a communist country.
America is a fascist country.
China on the way to Stalin 2.0
America on the way to Hitler 2.0
Great post, Roger. The discussion seems to have gone a bit off kilter though.
Sorry if this exacerbates the problem.
Any country going through industrialisation has environmental problems and millions of people suffered in the west during the 18th and 19th centuries.The Chinese have access to cleaner technologies than our grandparents could have dreamt of and access to the funding to produce their goods with a minimum amount of damage to their population, because our forefathers were exposed to chemicals and pollution without knowledge of the effects and investors are pouring cash into emerging markets.
300 million in China have been brought out of poverty in the last ten years because of this investment.
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