It Has Been Over A Year Since …

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December 26, 2006 | ETFs | | Author Asif

… I Gave In To Temptation and bought my first ETF (Exchange Traded Fund) to add diversity to my all-stock portfolio. The PowerShares Value Line Timeliness Select Portfolio (PIV) was introduced last December and is based on the Value Line investment newsletter, one of the best performing investment newsletters over a 25 year period according to the Hulbert Financial Digest. The Value Line Investment Survey was also part of the “2007 Honor Roll” in the latest edition of the Hulbert Financial Digest, an honor reserved only for those newsletters that do well in up and down markets.

Given this excellent long-term track record, how did this ETF perform in 2006? It turned out to be a dog returning a meager 4.65% since the start of 2006 and underperforming the S&P 500 by a wide margin. For folks like me who bought this ETF shortly after its release last December, returns were even lower but thankfully still in positive territory. In contrast, stocks like Pfizer (PFE), Tata Motors (TTM) and VA Software (LNUX) that I picked up around the same time for my personal portfolio and the SINLetter model portfolio have posted impressive gains of 23.37%, 58.86% and 173.46% respectively.

So is it time to jump ship and abandon this ETF after these lackluster returns? One of the reasons many investors often tend to under perform the very mutual funds that they invest in or the investment newsletters that they follow is because they tend to abandon the fund or newsletter at the first sign of underperformance. This tendency to switch frequently between funds or newsletters can do some serious damage to the long-term returns of a portfolio. Apart from Value Line’s long-term track record, I also picked up the PowerShares Value Line Timeliness Select Portfolio (PIV) ETF to reduce the risk of my overall portfolio. Given my bleak outlook for 2007, Value Line’s tendency to do well in down markets makes it an ideal choice.

I plan to stick with this ETF through 2007 unless I need the capital to invest in the Chile Fund (CH), a closed-end fund that as the name suggests, invests in Chile. After trading at a premium for much of 2006, the fund is finally trading at a discount of -3.22% to Net Asset Value (NAV) and is beginning to look attractive as a play on a country with the highest nominal GDP per capita in Latin America.

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  1. mumbaiKar
    January 14th, 2007

    I would stick to PIV. Holdings like these reduce the standard deviation of your portfolio. If you are in it for a long term, then the volatility of your portfolio is equally important.

    There is this theory by Ashwin Chabra about wealth management framework. It divides the portfolio into three parts. Protection, Market, and Aspiration. PIV would be the part of your market portflio which aspires to at least as good or better than the market. The rest of the high return but higher risk securities form a part of your aspiration portfolio which you would hopefully use to jump the ranks.

    I like Tata Motors. Ratan Tata who is the chairman of the Tata group in keenly interested in this company.

    Good column posting here. Clearly a quality site.


  2. Asif
    January 18th, 2007

    Mumbaikar, thank you for stopping by and for your kind words. I like Tata Motors (TTM) as well and featured it on SINLetter, a little over a year ago. Despite the fact that it has appreciated more than 83% since I added it to the model portfolio, I still like its valuation. As you may be aware, total vehicle sales grew 43.01% in November (YOY) followed by a 33% gain in December 2006.

    I added PIV to my personal portfolio to add some diversification and reduce risk. Even though I was not satisfied with its 2006 performance, it has done well in recent weeks and I will probably continue to hold it for the near future.

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