Smoking Securities

Half Baked High Finance

Portfolio Theory

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I was browsing here when I decided to start this column. I’m going to track 5 uncorrelated ETF’s with the premise that a combination of them will yield better risk adjusted returns than the SP500.
Till I can find a better proxy, DBC will serve as my commodities aggregate, even if it is oil heavy. The volume suggests that a potential bottom is forming, but the trend is still down. This is a very high risk long, exclusively for masochists and daredevils.
EEM is a good emerging market proxy, and now that it is in a newly confirmed uptrend, this looks like a good time to start buying the dip.
IWN is my stand in for the small cap value sector. Now that it is trading above its upper Bollinger, buying the dip is in play, but we’re still in a long term downtrend.
IYR is a nice liquid way to play Real Estate. While we’re getting more bullish, the volatility of this sector make the returns here tricky without proper position sizing.
PLW is a proxy for the total bond market, but I might replace it for a more liquid ETF like TLT. The trend is up, but the asymptotic move is bubbly.

The emerging markets are establishing a new uptrend as the bond market enters the vertical ascent often seen before volatile reversals. The commodities markets continue to be dragged down by oil, so one can only feel a reversal coming, hardly the kind of one should trade one. Another bullish theme is the out performance of small caps over large, and the sector does seem to be finding its legs. Finally, real estate is improving, but the risks are still very high. Cash is still a reasonable position, but with weakness in the dollar, the ‘fraidy cats may stand to loose the most.
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Written by chucklesamadeus

December 20, 2008 at 5:26 pm

Posted in DBC, EEM, IWN, IYR, PLW, Portfolio Theory

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