Put Your Cash To Work (3/13)


Put Your Cash To Work

By David Kreinces, ETF PM (3/13/13)

Legendary investor Martin Zweig coined the popular Wall Street maxim “Don’t fight the Fed,” and this rule has been working well. The S&P 500 returned 16% last year and over 8% already this year. Investors should think very carefully before fighting the Fed, let alone global central bank easing.

According to Sam Stovall, S&P’s chief equity strategist, the S&P 500 delivered an average annual return of 24% during years in which January and February were both positive. Also, over the 26 years in which this occurred, the S&P 500 total annual return was always positive. If you are still overweight cash, consider putting it to work!

ETF Trend Following

In many respects, listening to the Fed is a form of “Trend Following,” which is a leading investment strategy on Wall Street today. Trend followers delivered gains during the market crash of 2008 and they have provided important investment diversification for over 30 years. Still, trend following requires patience and discipline because it frequently underperforms indexing for years, between periods of extraordinary outperformance.

Given the tremendous growth in exchange-traded funds (ETFs) over the past 20 years, innovative portfolio managers have begun to offer trend following using ETFs. In ETF trend following, we have recently seen emerging markets, precious metals, and the transports all deliver surprises for investors.

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