Despite 2020, It’s a Benevolent Universe
This year is, thankfully, almost over. Yet for me, the universe just doesn’t seem to want to stop delivering sadness.
Earlier this week, I learned of the death of one of the investment world’s outstanding pioneers, and also the creator of the original iteration of the Successful Investing newsletter, Dick Fabian.
Dick was an independent man of action, and someone who created opportunity out of adversity. After suffering big losses in the bear market and recession of the early 1970s, Dick decided that there had to be a better way to invest and a better way to help investors protect their money from the kind of market that hit so many, so hard.
So, he sat down at his dining room table and began the process of thinking up a plan to track the wider trends in the market. It was there that he discovered that if you had owned shares in the market during periods when the domestic benchmark was trending above its 39-week moving average and, more importantly, if you were out of the market during the periods when that benchmark was trending below its 39-week average, you would have largely optimized your gains and minimized your losses.
It is this simple, yet brilliant, insight that allowed Dick Fabian to build one of the most successful, and longest-lasting, newsletters in the industry. And it is that same insight that his son, my friend and fellow investment guru Doug Fabian, continued to put into action in the service to help investors for decades when he took over the reins as editor.
Today, I am both humbly honored and proud to continue applying Dick’s brilliant insight and Doug’s expert stewardship to a new generation of investors through my leadership of Successful Investing. And whatever the new developments in the market may be, the heart of this service will always feel the distant beat of the man who sat down at the dining room table and subsequently created something from nothing via the power of his rational mind.
This kind of man is both rare and truly deserving of celebration. I know I will be honoring and celebrating his life today at his memorial service in Southern California, with Doug alongside members of the Fabian family and Dick’s many friends and colleagues.
The famous clergyman Robert South once said, “If there be any truer measure of a man than by what he does, it must be by what he gives.” Well, Dick Fabian’s gift to the world was his brilliant insight, and for that, we all must bow our heads in gratitude.
Finally, the end of 2020 is just a little more than a week away. And I am sure this year is one that we’d all love to lose our collective memory of. Yet the fact is that society, at large, has prevailed, mostly intact, throughout another bout of pestilence.
And do you know why we prevailed?
It’s because humans are the most resilient and most successful species on the planet, and the reason for our success is our reason, i.e. our only tool of survival, our rationality. Remember this, and revere this, and know that you are part of an exclusive club that conquers the adversity of existence with the power of thought.
Also remember that while this year’s sadness and tribulations have tested our individual and collective mettle, the concept of what the philosopher Ayn Rand called the “benevolent universe premise” remains intact. What this means is that the universe and reality are “benevolent,” not in the sense that they are designed for humans in mind. They are not. In fact, I think the universe is entirely indifferent to humans.
What the benevolent universe premise means is that if we choose to think for ourselves, if we choose to adapt to the ever-changing nature of reality and if we act rationally — we can give ourselves the best possible chance to achieve our values.
So, despite sorrow, hardship, pandemic, loss, suffering and sadness — the benevolent universe remains — and now it is up to us all to choose our own happiness.
ETF Talk: Tapping into Former State-Owned Enterprises
A relief rally in emerging market equities occurred once former Vice President Joe Biden appeared to win the election, a divided Congress seemed assured with Republicans positioned to retain the Senate and Democrats controlling the House, while an erratic and protectionist trade policy, especially vis a vis China, of the past four years likely to be replaced by a steady one.
What President-elect Biden will do remains to be seen, but some analysts noted that a desire to decouple the United States from its supply chains in China is prevalent on both sides of the political aisle in Washington and predict he will not reverse all of President Trump’s trade policies. Instead, he will likely pursue a more measured and multilateral approach with regards to negotiations with President Xi Jinping.
Since such an approach might impel investors to become more confident in emerging markets, it is time to turn our attention to the WisdomTree EM ex-State-Owned Enterprises (NYSEARCA: XSOE) exchange-traded fund (ETF). Driven by the notion that private companies perform better than those owned by the government, the fund tracks a market-cap-weighted index of emerging-market companies, excluding state-owned enterprises (SOE). The fund’s managers define an SOE as a company that has more than 20% government ownership, and attempt to provide a broad exposure to emerging markets.
Some of this fund’s top holdings include Alibaba Group Holding Ltd. (NYSE: BABA), Tencent Holdings Ltd. (OTCMKTS:TCTZF), Taiwan Semiconductor Manufacturing Co., Ltd. (NYSE: TSM), Samsung Electronics Co., Ltd. (KRX:005930), Meituan Class B (OTCMKTS: MPNGF), Naspers Limited Class N (OTCMKTS:NPSNY), Reliance Industries Limited Sponsored GDR 144A (NSE:RELIANCE) and JD.com, Inc. Sponsored ADR Class A (NASDAQ: JD).
This fund’s performance has been relatively strong, even when including the damage done by the COVID-19 pandemic. As of Dec. 22, XSOE has been up 2.81% over the past month and up 15.01% for the past three months. It currently is up 23.91% year to date.
Chart courtesy of www.stockcharts.com
The fund has amassed $3.34 billion in assets under management and has an expense ratio of 0.32%.
In short, while XSOE does provide an investor with a chance to tap into the world of emerging markets, this kind of ETF may not be appropriate for all portfolios. Thus, interested investors always should conduct their due diligence and decide whether the fund is suitable for their investing goals.
As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.
In case you missed it…
The One Must-Own ETF for 2021
About this time of year, you see a whole lot of articles in the financial press touting or predicting what the best investments will be in the year to come. Sometimes, those picks turn out to be brilliantly on point. Very often, however, many a new-year prognostication falls short of expectations.
This should come as no surprise, as those of us who are tasked with breaking out the crystal ball and predicting what human behavior will be like months down the road face a perilous pursuit. Take this year, for example. I mean, nobody predicted that a global pandemic would cause the human, social and economic devastation that it did in 2020. Or that the S&P 500 would plunge some 25% from late February through late March, only to surge back to all-time highs in the fourth quarter of the same year.
Now, while there are many reasons to be fearful of future peril when it comes to the lasting damage caused by COVID-19, the recent developments of the first doses of a vaccine actually being injected into the arms of the first recipients is a tremendously encouraging omen for 2021.
My “prediction” here, if you want to call it that, is that, by mid-2021, we will be close to a sense of “normal” in the world. What that normal will be like, and how it will look compared to the pre-pandemic days, is very difficult to assess. Yet, I do think that humans are a remarkably resilient species, and that means we will recreate, rebuild and return (as close as possible) to the lives that we created before this pandemic knocked us on tilt.
Indeed, we have already seen that in the aforementioned rise to new highs in the major domestic averages. Will that rise continue? Will the leaders from this year be the leaders of last year? What specific exchange-traded funds (ETFs) should we own to take advantage of the likely prevailing tailwinds that can drive stocks in that segment higher?
All of these questions remain to be answered in what promises to be, hopefully, a more “normal” year. So, with the caveat here that nobody has a coveted crystal ball, today, I will give you one “must-own” ETF that I think will deliver for investors over the next 12 months. It is the Invesco S&P 500 Equal Weight (RSP).
In late 2020, we finally started to witness a “Growth to Value” rotation. This is a trend Wall Street has been waiting for, but over the past several years, it has remained elusive. Yet, with the vaccine now literally waiting to be injected, this could be the moment that investors have been waiting for to finally rotate capital out of large-cap tech/growth stocks and reposition that money into more traditional value sectors.
With RSP, you get exposure to the same stocks in the S&P 500 that are in the more common SPDR S&P 500 ETF Trust (SPY). However, with RSP, you get each company equally weighted in the index. Meanwhile, SPY is market-cap weighted.
My macro analyst firm of choice, Sevens Report Research, crunched the numbers here and discovered the real difference between RSP and SPY. Because SPY is market-cap weighted, you get about 35% of assets in technology, followed by about 15% in consumer discretionary. And of that consumer discretionary sector, almost half is dedicated to Amazon (AMZN) because of that stock’s heavy market-cap weighting. This means that SPY is effectively about 40% large-cap tech/growth stocks.
Now, that overweight has worked extremely well for many years. However, if we do see a rotation into value sectors, then RSP is likely to outpace SPY because of its greater exposure to value sectors such as industrials, financials, consumer staples and health care. Together, these sectors make up about 53% of RSP, as opposed to just 41% of SPY.
To be certain, owning RSP vs. SPY over the past several years was not wise from a relative performance standpoint. Over the past three years, RSP has had a total return of 33.7%, while SPY has delivered some 46.1%.
Yet, over the past three months, that performance has reversed, with RSP far outpacing its market-cap weighted brother with a gain of nearly 15% vs. a gain of just 9% for SPY. So, by adding RSP to your holdings, you can immediately gain greater exposure to the value segment without making any drastic bets on any one value sector fund (e.g. financials or industrials) or any specific value-oriented company.
Earlier this year, subscribers to my Intelligence Report newsletter advisory service received a recommendation to add RSP to their tactical portfolio, as this is one of those medium- to long-term trends that I suspect we will have in the portfolio well into 2021 (and likely beyond).
If you want to find out what other funds, and which individual stocks, I am currently recommending in Intelligence Report, then I invite you to check out the service today.
And, if you are looking for that “must-own” fund for the coming year, then definitely consider RSP.
Stoicism and Life’s Flow
“Don’t seek for everything to happen as you wish it would, but rather wish that — everything happens as it actually will — then your life will flow well.”
The Greek Stoic philosopher teaches us a more literary version of the rather profound, yet much more pedestrian, adage, “Go with the flow.” Indeed, one of the keys to a life well lived is to realize that things will not happen as you want them to, and no wishing of any sort will make this so. Once you are firm in that knowledge, you can let yourself bask in the reality of reality — and you can begin to love life’s flow.
Wisdom about money, investing and life can be found anywhere. If you have a good quote that you’d like me to share with your fellow readers, send it to me, along with any comments, questions and suggestions you have about my newsletters, seminars or anything else. Click here to ask Jim.
In the name of the best within us,