U.S. STOCKS STUCK IN SLUMP AS TECH TUMBLES – A STRATEGY FOR HOLDING November 20, 2009
Posted by Marlowe Cassetti in MBB, XLU.trackback
Stocks slip as investors push into safe-haven investments; Dell weighs on technology stocks. Investors can’t shake their fears that the economy isn’t keeping up with the stock market. Investors can’t shake their fears that the economy isn’t keeping up with the stock market. Stocks fell for a third straight day Friday as a disappointing outlook from computer maker Dell Inc. suggested that an economic recovery could be uneven. The major indexes all had moderate losses, leaving the Dow Jones industrials with a slim 0.5 percent weekly gain while broader indexes slid. (courtesy of AP)
Remember my job jar? I haven’t forgotten. One my jobs was to develop a portfolio holding position while waiting for RSI to render a decision (see my November 17th blog for the discussion). I ran several simulations and attempted to develop an objective criteria for selecting funds to serve this function. What I came up with is to allocate excess funds, less a small cash position of about 10-12% allocated for trading. The rest is dumped into one or two income funds which yield something better than money market funds. I chose the two following ETFs:
- iShares Barclays MBS Bond (MBB) yield 3.40% exp. ratio 0.34%
- Utilities Select Sector SPDR (XLU) yield 4.44% exp. ratio 0.25%
The first fund MBB pays a monthly dividend and is invested in Mortgage Backed Securities (MBS) while XLU pays a quarterly dividend and invests in utility companies. As the chart shows, the utilities fund XLU is much more dynamic and volatile than MBB on a YTD basis. The strategy is to drain monies from these holding positions as RSI makes future picks and add to them with proceeds from closed positions. I anticipate there will be opportunities to minimize transaction costs by keeping down the frequency of moving funds around. That is why the cash buffer is necessary. You might want to place your holding money in other ETFs that give a reasonable yield. It is your choice.
Since RSI has made several ETF picks in the commodity sector. I found a great resource on this topic from Morningstar Solutions. Click on the link and take a look at their site. There are some nice features on their page.
Again, no RSI pick for today. Yes, it’s a waiting game at this point; hang in there.
Have a nice weekend. Catch my blog after the market closes Monday.
Comments»
No comments yet — be the first.