ETF XRAY

How Chartwell Picks ETFs

Every day I am asked to explain how the Chartwell ETF Advisor goes about picking exchange-traded funds for its model and customized portfolios. Of course picking ETFs is the easiest part of the process. Blending them and managing them in a portfolio that suits a particular investor’s goals, personality and risk profile is the hard part. But let’s start with how we select ETFs for the seven model portfolios that members then need to evaluate on their own or even better with the help of their financial advisors.

First, our approach is decidedly global and strategic. For example, some of the basic themes that have colored our ETF selections over the past few years are an Asian tilt, Southeast Asian countries as the best proxy for Chinese growth, undervalued and underappreciated European companies, Japan’s economic recovery, Eastern European growth and the secular bull market in energy and commodities.

Going forward, the themes will be adjusted or discarded and I try to be contrarian at the margins since that is where you will oftentimes find value. From the broad themes we move to more specific ETF selection criterion which include:

1) Momentum - above 30, 50 and 200 day moving average
2) Valuation ETFXRAY - p/e average, price to book and other metrics for composite of top holdings
3) Macro considerations - direction and pace of economic growth, currency, interest rates, political considerations, price of overall market relative to other global markets
4) Capital flows - direction and trend of net monthly flows by global equity managers
5) Point and figure charting to identify resistance and support levels and check on timing

Check out our results.

By Carl Delfeld of the Chartwell ETF Advisor

Evaluating Large Groups of Similar ETFS

The chart below shows small cap ETFs solidly in demand up 6% YTD. Last year these same 21 ETFs quickly reached +15% by May 2006 and after a serious correction rebounded to finish the year at +15%.

What is the value of this chart?
Because most portfolios have a portion allocated to small cap MyPortfolioView offers a tool that helps distinguish the strong from the weak. I personally review each ETFs point & figure chart before recommending it for a portfolio. With this unique tool you’re able to compare the performance of each ETF in identical market conditions. I don’t just pick the ETF up the most I review its path to that point. I’m content leaving a little gain on the table for the right ETF that performs well with less volatility.

(Click image for larger view)

DE Smith of MyPortfolioView

The Masters ETF Strategy

As the self-appointed golf writer for Forbes, I made a pilgrimage to the Masters golf tournament and on the way home dreamt of winning the prized green jacket and reflected upon what investors could learn from the best golfers in the world.

The Masters Tournament, first played in 1934, has evolved into a global competition, which leads me to the first lesson for investors: Wake up and take a global perspective in building you portfolio. Players from 16 foreign countries participated in this years’ tournament. Gary Player of South Africa was the first foreign winner in 1963 followed by Seve Ballesteros of Spain with the first of his two titles in 1980, and then Bernhard Langer of Germany in 1985. Nick Faldo of England became one of only three back-to-back winners and has three green jackets in his locker. The world is indeed filling in and you need to adjust your portfolios accordingly.

See the rest of Carl Delfeld's Forbe's article here.

ETF Portfolio Rules

By Carl Delfeld of the Chartwell ETF Advisor

Managing a global exchange-traded fund or ETF portfolio does not have to be rocket science. Follow these eight rules and sleep easier.

1) Liquidity First: Before you even think of building an investment portfolio, you should set aside about six month of income in a “rainy day” account. This could be put into a money market fund or U.S. Treasury securities. Having this money set aside will ease your mind and allow you to be more open and creative with your global portfolios.

2) Separate Portfolios: you should separate your core conservative portfolio from your growth portfolios. With the core conservative portfolio, your top priority is capital preservation and growth is a secondary consideration. Your growth portfolios are more speculative with capital growth as the primary goal.

3) Really Diversify your Portfolios: You need positions in your portfolios that are likely to offset each other as unexpected events and market movements become a reality. This is not accomplished with different sectors ETFs or a mix of small cap, mid cap and large cap ETFs. Rather the goal is to have some investments that are on both sides of risks.