How Europe’s Easy Money will Affect the World

The ETF Tailwind of ECB QE

By far, the biggest market-moving event this week was the European Central Bank’s (ECB) decision to implement the Old World version of quantitative easing (QE). Although most everyone suspected the ECB would begin its own bond-buying program, the very bullish tailwind for both domestic and international exchange-traded funds (ETFs) was caused by the unexpected size and scope of the QE.

The ECB now has committed to buying 60 billion euros’ worth of bonds per month for 18 months, much larger than the estimate for 50 billion euros per month for 12 months.

More importantly, it’s the aggregate size of the ECB’s balance sheet that’s created the strong tailwind, as the new balance sheet will be more than 1.2 trillion euro QE by September 2015. That is far larger than the previously stated 1 trillion euro target.

A quick look at the charts of the following ETFs — the PowerShares DB US Dollar Bullish ETF (UUP), the SPDR S&P 500 ETF (SPY) and the Vanguard Total World Stock ETF (VT) — reflects the bullish reaction to the ECB’s QE pronouncement.

Interestingly, the rising U.S. dollar seen here via UUP is something that has the potential to weigh down U.S. equities in SPY, but we have yet to see this outcome reflected in the price of SPY.

Perhaps more important are the potential near- and medium-term gains in international equities of the sort found in VT. This fund now is back above both its 50- and 200-day moving averages, a bullish technical sign that we are watching extremely closely as a trigger point for new allocations to international equities.

While it remains to be seen whether the ECB’s QE program will help the European Union’s real economy, one thing that is clear is that QE props up nominal stock prices — and that is the kind of ETF tailwind smart investors need to ride.

An ETFU.com List Mania

Do you know what the best-performing U.S. sector exchange-traded funds (ETFs) were in 2014? How about the best-performing commodity ETFs? What about the top-performing fixed-income funds?

More importantly, do you know where to go to find out this type of critical investment information?

Well, now you do, and the place to get it all is my new website, ETF University, or simply ETFU.com.

Here is where you’ll find a host of “Top 10” lists featuring myriad categories of exchange-traded funds. Stocks, commodities, bonds, international, domestic, tech, etc., all the key areas you want to know about are covered at ETFU.com.

So, what are you waiting for? Go to ETFU.com and get all of your favorite Top 10 lists — absolutely FREE.

ETF Talk: Set Sail with the Biggest Overseas Fund

In the last two weeks, we have discussed SPY and IVV, the two largest exchange-traded funds (ETF), both focused on the U.S. domestic market. The fund featured in this week’s ETF Talk takes an opposite tack with its focus on non-U.S. markets. Today’s ETF is the third-largest ETF on the market and the most popular way to invest overseas: iShares MSCI EAFE ETF (EFA).

This fund tracks the results of an index composed of large- and mid-capitalization developed market equities outside the United States and Canada. As such, it allows investors to allocate to a broad basket of foreign companies.

EFA had a rough 2014 alongside battered global markets, falling 9.33%. However, it has a gain so far in 2015 of 1.43%. The fund manages a total of $53 billion. Its holdings match the index it tracks closely, including weightings. In addition, EFA offers investors a dividend yield of 3.69%, and it has an expense ratio of just 0.33%.

EFA’s holdings fall into a variety of sectors because of its broad, general nature. It allocates the greatest portions of its portfolio to financial services, 25.44%; industrials, 12.58%; and consumer discretionary, 12.46%. EFA has 12.9% of its assets in its largest 10 positions. Among these are Nestlé S.A. (NSRGF), 1.97%; Novartis AG (NVSEF), 1.81%; Roche Holding AG (RHHVF), 1.62%; Toyota Motor Corporation (TOYOF), 1.40%; and HSBC Holdings Plc (HSBC), 1.40%.

For investors interested in a general investment in markets outside of the United States, there are a number of ways to do so, and many investors go with iShares MSCI EAFE ETF (EFA), the biggest ETF player in the overseas market.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

More Deep Ways to Be a Better ETF Investor in 2015

For the past two weeks I’ve offered you suggestions on how to be a better ETF investor in 2015. This week, I want to elaborate on three more ways to be a better investor. Let’s take a closer look now.

1) Become passionate about ETFs. Knowing about ETFs isn’t a full-time job for most of us, but putting in a little time to really learn about these outstanding investment vehicles is well worth your effort. In fact, I think you need to cultivate a passion for this knowledge if you really want to succeed as an investor.

What this means is that you are engaged with your money and that you spend the appropriate amount of time making sure your investments are right for your goals. For example, going into 2015, you MUST review all of your accounts and all of your positions. Review your asset allocation, cash positions and the performance of your accounts. This must be done quarterly, at a minimum, but preferably it should be done monthly. Also, spend some time learning about the ETF landscape — and the easiest way to do that is to read this publication and listen to my weekly ETFU.com podcast.

2) Spread the word. Nothing is more powerful for achieving success than helping others. Now, I’m not talking about boasting about what a great investor you are. What I’m referring to is talking with your spouse, your friends, your children and your co-workers about their money and about ETFs.

Ask them if they are using ETFs. If they say no, ask them why not. Talk to them about ETFs just like you would if you got a great deal on something like a car or a home. Hey, when you share helpful knowledge, other helpful knowledge tends to come back to you. Another way to think of it is via a sports analogy. Most sports fans have a favorite team (mine is the Los Angeles Lakers), and I tend to promote the team whenever the conversation of basketball comes up. So, when the topic of money comes up, why not promote ETFs?

3) Look before you leap. There will always be stories about the best ETFs, the lowest-cost ETFs, actively managed ETFs, etc. I know we write about all of these issues in this publication. And while this is great information to know, before you buy any fund, you need to know a lot more than the headlines.

So, please don’t buy another ETF until you look at the following: fund objective, asset class, assets under management, expense ratio, volume and top holdings. Also, remember that repeat winners, especially sector specific winners, are rare. The bottom line here is you need to “look before you leap,” as you want to make sure you’re not jumping into either the unknown or the very little known.

Next week, we’ll take a final deeper look at the final four ways you can be a better ETF investor in 2015.

Truth is Independent

“Be not astonished at new ideas; for it is well known to you that a thing does not therefore cease to be true because it is not accepted by many.”

–Baruch Spinoza

One of the world’s greatest philosophers (particularly in the realm of ethics) reminds us here that consensus and truth are not synonymous. Indeed, much of the time truth is independent of the contrary opinion of the majority.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about what the currency market’s turmoil means for you. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian