Enterprising Investor Forum

With the market heading towards another pull back, the Enterprising Investor should be looking to take advantage of this volatility in order to secure superior long-term returns.

With a current yield of over 5% the Vanguard SF REIT ETF (VNQ) looks pretty interesting to us and a move back into the low 60s would definitely represent a good buying opportunity.

The investment seeks income and moderate long-term capital growth. The fund normally invests at least 98% of assets in stocks of real estate investment trusts (REITs) that are included in the Morgan Stanley REIT index.

This is a great and cost efficient way for investors seeking real estate exposure in their portfolio but that want to limit extreme volatility or the complete loss of capital that could come with picking individual REIT at this specific moment in time.

We all know, that the credit crunch is placing a lot of stress on housing markets but long-term, private and especially, commercial real-estate will continue to appreciate in value and offer good returns to patient investors.

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We often hear about investing in Russia and how there are incredible opportunities despite the fact that the market has surged so much.

However, the key question is always trying to understand how to take advantage of this and in what companies to invest: investors are always skeptical about transparency, accessibility, political risk and corruption amongst other things. Wouldn’t it be better to hedge your bets and follow a basket of the top Russia publicly traded companies?

One of the best ways to tackle this investment could be through and ETF: take a look at Market Vectors Russia ETF (RSX). Despite a very good performance so far, in has recently pulled back a little and certainly has more room to grow, without charging ‘crazy’ fees - the expense ration is 0,69%, which is very reasonable for this kind of ETF.

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As we finish looking through recent SEC filings from some of the all time investment Gurus, we thought we would report on one of the interesting things that caught our attention.

There has been quite a lot of movement into the Select Sector SPDRFinancial (XLF), amongst others, Arnold Van Den Berg and David Dreman have opened positions. This is a quite interesting ETF due to the fact that it holds all of the financial companies in the S&P 500 Index, has a very low expense ratio compared to competitors and is well diversified.

As you can imagine, this is a good way to play the inherent value which can be found in the financial industry without having to take a risky bet on a specific company. The industry is currently suffering but not all the companies are exposed in the same way and there is value left in there. Furthermore, this ETF is a way to play this investment thesis without only focusing on the banks, it also invests in diversified financials, insurance and real estate.

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Despite the fact that we favor a ‘buy and hold’ strategy focusing on ‘long’ investments, some of our readers have asked us about inverse ETFs and how to find them.

We feel that these products can be interesting, not necessarily to take a short-term view on an index or sector but as a way to tactically hedge against certain exposures. Please note that ’single leverage’ means the fund aims to produce the inverse daily performance of the target index or sector each day and ‘ double leverage’ means twice the inverse daily performance.

We had already posted a link on how to navigate the ETF world and find sector specific ETFs (link) but here is a really good pdf document we found on Money and Markets that offers a comprehensive list on Inverse ETF where you can search by index or sector you want to hedge against.

Please click: here.

In times of increased volatility, investors may have a difficult time deciding where to put their money to work. Despite being able to see opportunities arising, especially in specific and beat-down sectors, it is often difficult to actually invest in one single company. Basically, it is very frustrating to have identified the ‘right’ sector but having made a ‘wrong’ call on what company to buy.

As discussed in the past, one way of tackling this is through ETFs. Naturally, these are indexes so do not expect 10-baggers! However, even when looking at ETFs, this does not mean that we cannot screen for the same characteristics we would look for in traditional value plays.

We recently came across and interesting article on Morning* that specifically talks about this and offers some interesting ETFs to study: article link.

Trying to get your head around all the different ETFs can be quite tricky, especially due to the fact that there are so many new offerings.

We recently came across Bespoke Investment Group’s ETF Family Tree which we found extremely useful.

Hope it helps!

Some readers might be surprised to see us writing about an ETF but we feel that iShares MSCI Japan Index (EWJ) allows investors to try to exploit two different value plays at once:

1.      Strengthening of the Yen and therefore rally against the USD and the Euro.

2.      Shift of investor sentiment vs. Japan and therefore influx of funds in to the Nikkeï.

Despite the Bank of Japan refusing to raise interest rates; afraid that they could send the economy into recession, the overall picture seems quite positive. Economic growth is good, reaching 3,3% in the last quarter and latest consolidated figures for company profits increased 12% vs. last year.

These figures suggest that, if the recent pattern is confirmed, the Bank of Japan will have to raise interest rate and in turn, the market should react at an accelerated pace (please note that, as opposed to other indexes around the globe, the Nikkeï is still far from all time highs).

We believe in the long-term potential of Japan.