… 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.