How To Get Retold Tale

The Printing loves to dramatize the take chances and under-report the opportunity. Corrections are existent and they risk being wrong on the futurity. After a scrap of normal volatility in Japan, you now sympathise why we diversify our portfolios. South Africa and Brazil are up nicely since the offset of the year.

Major indexes (and related exchange-traded funds) in domestic U.S. and Japanese stock markets gave back their 2006 year-to-date profits last week in surprise corrections. In Japan information technology was just letting off steam from a strong rising market place but in the U.S. it was giving up profits that it hadn't earned in some time.

If you take been subscribing to The Proactive Fund Investor with Neb Donoghue, you accept been consistently warned away from the domestic stock marketplace whose only real profits have been earned and lost since the outset of the year. We accept also steered you toward foreign ETFs with spectacular results. Final week we recognized the slackening opportunity in the Topix ETF ITF with a SELL recommendation while staying with the broader MSCI Japan EWJ ETF. Meanwhile we recommended a shift to Southward Africa which is up xi.3% this year.

Nosotros as well differentiated our advice from the five-asset Sector ETF Portfolio and the more broadly-based PFI'due south All-time Portfolio, belongings on to ITF in the latter while selling it in the onetime.

Intermediate-term momentum tells it all and that is the basis for our recommendations. Stay with the leaders and your odds for profits ameliorate.

The opportunities are where the momentum rests

We have also been enjoying (in our Sector ETF and PFI's Best Portfolios) the benefits of potent trends in Latin America, Northern Asia and emerging markets (also as developed foreign stock markets in Due south Africa, Canada and Latin America).

The difference between the two corrections in Nihon and the U.South. is clear. Japan's problems were limited to their power to process a large book of orders and one company's alleged problems. In the U.S. stock market place it was the lackluster earnings of a few bellwether stocks including Yahoo YHOO and Intel INTC, a much more systemic economical challenge. Throw in a potential nuclear threat from Iran, a alert from terrorist Osama bin Ladin and high energy costs and you have real economic challenges.

Is a new Fed chairman good news?

Does anyone remember what happened within two months of the last time we changed leaders at the Fed? Greenspan assumed the chairmanship on August 11, 1987 and two months afterwards the "Crash of 1987" occurred. Now, nineteen years later, we are facing another transition in leadership in a globe where the markets move much faster. I'm not saying it's a given; I am simply saying that the economic system is more sensitive today than then.

I was the regular guest analyst on Financial News Network'due south (CNBC's predecessor) MarketWatch with Pecker Griffeth each Fri for nearly of 1987 and I can tell yous that those were challenging times. Yes, the market place was back to normal by year-cease but its confidence was shaken for years even in those less-troubled times.

Should you be shorting the domestic market place? Not yet!

Don't jump on to the Rydex and ProFunds acquit market funds yet. This is a gradual procedure merely the risk of a bear market place in the coming years, merely equally traditional long-only bull market common funds' three-year operation is looking so good, is a existent risk. Look until the single-beta style-box funds we recommend in Rydex and ProFunds get-go to rotate to conduct market positions to motion in.

A bear marketplace does non happen in a single day any more than than a bull market does. Only don't deny a long frustrating conduct market may be returning to the domestic stock markets.

The domestic stock markets may be defining a new and clear trend (exactly what proactive investors desire to see); the opportunity, however, will probable exist in behave market funds, not buy-and-hold funds.

For now, our advice has been to avoid this lackluster domestic market place and it may remain that style if the foreign stocks offer stronger trends and greater profit potential -- or if we observe a long and strong domestic downtrend.

Japan had profits to give back

Japanese stocks experienced a sell off terminal week. They simply had too aggressive a run-upwardly last quarter and investors (including PFI) were taking some profits. Volition Japanese stocks return to profitability? Peradventure, but our portfolios have already diversified broadly elsewhere in safer, more than predictable trends.

Last Monday, we recommended taking profits on the Sector ETF portfolio's iShares S&P 150 Topix, which represents 150 highly-liquid large-cap stocks on the Tokyo market. The position was moved to Due south Africa. This is a normal correction that will happen in volatile markets. That is why we diversify amidst several positions, five in the Sector ETF.

That leaves united states of america exposed to the Japanese stock market through eight% or less positions in Topix and Nihon ETFs in PFI's Best Portfolio. Isn't it fortunate that we didn't recommend ProFunds UltraJapan, the double-beta fund which roared in the concluding quarter and ended up the top-performing fund of 2005?

Why didn't we recommend ProFunds UltraJapan when it was doing so well? First, we choose funds based on strong upside trends with minimum volatility. UltraJapan earned its excess return over our safer choices in Latin American ETFs, for example, only in ane quarter, the last of 2005. It was a riskier bet with a less stable trend and would not have met our criteria. Second, why invest in a ProFunds Japanese fund when Japanese ETFs are much cheaper? 3rd, our ProFunds portfolios tin find enough returns over the long-term from domestic volatility for which they are uniquely qualified.

Proactive Index Portfolios

Still no compelling domestic opportunities

Equally much as you may want to make money in the U. Southward. stock market, the odds are slim for the foreseeable future. Maybe it'southward fourth dimension for you to talk with your banker and your employer about your choices.

You take to wonder why your broker or counselor is e'er talking almost domestic investments simply and counseling investing only 10-20% of your assets in lackluster diversified international funds. The usual reason is because your advisors or brokers don't follow foreign stock markets and really don't have much to offering or that they don't want to proactively manage your portfolio.

For now, don't invest domestically until the trends are clear and that will probably be down into a bear market. Watch here for recommendations when that happens.

Rydex Sector Portfolio

No changes this calendar week.

Ticker	Fund Name	Purchase	Weight	Modify
RYOCX	Rydex OTC (Long NDX 100)	8/two/05	20%	2.33%
RYAVX	Rydex MidCap Value (Long S&P MidCap 400/Citigroup Pure Value Index)	7/26/05	20%	2.13%
RYBHX	Rydex MidCap Growth (Long Southward&P MidCap 400/ Citigroup Pure Growth Index)	7/26/05	20%	6.95%
RYWAX	Rydex SmallCap Growth (Long S&P SmallCap 600/Citigroup Pure Growth Index)	vii/26/05	twenty%	two.59%
RYZAX	Rydex LargeCap Value (Long South&P 500/Citigroup Pure Value Index)	01/eighteen/06	20%	-1.01%

We built this 5-fund portfolio from the eight bull market and 5 behave marketplace (inverse) single-beta stock index funds with the strongest positive price momentum that are currently available from Rydex. Recommendations are evaluated weekly. Often the most economical trading platform for this portfolio is to invest directly with Rydex Investments if you can qualify for the $25,000 minimum initial investment ($50,000 for on-line trading). Avoid traditional brokers which oftentimes require unwarranted minimum belongings periods, short-term trading fees and excessive trading costs.

Rydex Alphabetize Operation

1 - Week	iv - Weeks	12 - Weeks	Since Inception
-i.64%	-0.96%	v.lxxx%	one.40%

Operation as of Friday's shut. Inception began on July 26, 2005, the day following the kickoff issue of the Proactive Fund Investor, with Beak Donoghue.

ProFunds Alphabetize Portfolio

As yous will observe, these profits are just making upward for lost time from the previous best choices which lost money.

No changes this calendar week.

Ticker	Fund Proper noun	Purchase	Weight	Change
MGPIX	ProFunds MidCap Growth (Long S&P MidCap 400/Barra Growth)	10/25/05	twenty%	9.89%
MDPIX	ProFunds MidCap (Long Southward&P MidCap 400)	7/26/05	xx%	5.91%
SGPIX	ProFunds SmallCap Growth (Long S&P 600/Barra Growth)	11/29/05	20%	2.63%
MLPIX	ProFunds MidCap Value (Long S&P MidCap 400/Barra Value)	12/20/05	20%	two.73%
OTPIX	ProFunds OTC	11/15/05	20%	1.77%

Nosotros built this v-fund portfolio from the eleven bull marketplace and four bear market place (inverse) single-beta stock and currency alphabetize funds with the strongest positive price momentum currently available from ProFunds. The most economical trading platform for this portfolio is to invest directly with ProFunds if you tin can qualify for the lower-than-Rydex $15,000 minimum initial investment. Avoid traditional brokers which ofttimes require unwarranted minimum holding periods, curt-term trading fees and excessive trading costs.

ProFunds Index Performance

1 - Week	4 - Weeks	12 - Weeks	Since Inception
-1.61%	0.60%	7.84%	2.74%

Functioning as of Friday'southward close. Inception began on July 26, 2005, the 24-hour interval following the starting time issue of the Proactive Fund Investor, with Bill Donoghue.

Double-Beta Portfolio

As you will notice, these profits are only making up for lost time from the previous best choices which lost money.

No changes this week.

Ticker	Fund Name	Buy	Weight	Change
UMPIX	ProFunds Ultra Mid-Cap (Long South&P Mid-Cap 400)	7/26/05	34%	10.00%
UOPIX	ProFunds Ultra OTC (Long NDX 100)	11/ane/05	33%	eleven.38%
UAPIX	ProFunds Ultra Small Cap (Long Russell 2000)	7/26/05	33%	five.34%

We built this iii-fund portfolio from the 5 bull and five bear market double-beta domestic equity funds currently available from Profunds for long-term investors seeking a more aggressive portfolio. The safest time to start investing might be afterwards the next SELL bespeak by investing in the new Purchase recommendation. Funds are selected with the strongest positive cost momentum.

Double-Beta Performance

ane - Week	4 - Weeks	12 - Weeks	Since Inception
-iii.xc%	1.77%	17.49%	half dozen.75%

Operation every bit of Fri'southward close. Inception began on July 26, 2005, the day following the get-go consequence of the Proactive Fund Investor, with Pecker Donoghue. ETF shares change throughout the trading day, only like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary.

Sector ETF Portfolio

Every bit yous can run into, we are out of the Japanese marketplace with final week's SELL on Topix ETF. Even with the recent pullbacks this portfolio is worth every bit of volatility equally these are the best opportunities in today's markets. The volatility is well within the normal volatility. Think, if it ain't volatile, it can't go up a lot.

No changes this week.

Ticker	Fund Name	Purchase	Weight	Change
ILF	iShares S&P Latin Am 40	7/26/05	20%	42.82%
EWZ	iShares MSCI Brazil	viii/9/05	20%	37.28%
EWW	iShares MSCI United mexican states	7/26/05	xx%	31.32%
EZA	iShares MSCI South Africa	01/18/06	twenty%	3.25%
EWY	iShares MSCI Due south Korea	10/xviii/05	20%	19.87%
	Coin Market		0.00%	0%

We built this five-position portfolio using the v ETFs with the strongest positive toll momentum from a universe of 124 sector, style-box, single-country and regional ETFs.

ETF Performance

1 - Calendar week	4 - Weeks	12 - Weeks	Since Inception
-2.55%	iv.69%	xix.95%	31.27%

Performance as of Friday'south close. Inception began on July 26, 2005, the day following the first upshot of the Proactive Fund Investor, with Bill Donoghue. ETF shares modify throughout the trading twenty-four hours, but similar individual stocks. Pricing on this portfolio reflects the closing prices on the 24-hour interval of buy or sale. Your bodily performance may vary.

Cool Income Portfolio

Peachy total functioning for only half-dozen months in a low-run a risk portfolio with the proactive guts to profit from rising interest rates as well and then simply when rates ascension, not when you are afraid they might ascent.

No changes this week.

Ticker	Fund Name	Purchase	Weight	Change
FSICX	Fidelity Strategic Income	vii/26/05	50%	3.fourteen%
FDRXX	Money Market place	seven/26/05	50%	one.73%

This deceptively elementary portfolio takes advantage of two 50% allocations to: (ane) High-Yield Bonds. As a long-term investment, Fidelity Strategic Income Fund (FS ICX) is a well-managed multi-nugget bond fund which proactively manages both its bond maturities and allocation to high yield bond markets. (ii) Authorities Bonds. The portfolio seeks to profit from the Rydex Juno during ascent interest charge per unit markets equally well as coin market positions.

Cool Income Performance

ane - Week	4 - Weeks	12 - Weeks	Since Inception
0.00%	0.50%	ane.65%	one.80%

Performance as of Fri's close. Inception began on July 26, 2005, the day post-obit the first issue of the Proactive Fund Investor, with Bill Donoghue. Money Market returns based on Fidelity Greenbacks Reserve (FDRXX). Your yields may vary.

PFI's Best Portfolio

This infrequently-traded portfolio is producing some very attractive returns, some of which are likely to be very tax-efficient for a proactive portfolio which may well produce some long-term majuscule gains before information technology sells.

In retrospect, information technology looks as if the Japanese market may well rebound from the one-stock correction by and large due to tiresome order-processing of panic selling. Does that remind you of the 1987 Crash which was as well mostly a not-economic event, not related to strong economical reasons and more to processing reasons?

No changes this week .

Ticker	Fund Name	Purchase	Weight	Alter
ILF	iShares S&P Latin America twoscore	vii/26/05	8%	42.82%
EWZ	iShares MSCI Brazil	seven/26/05	viii%	57.76%
EWW	iShares MSCI Mexico	seven/26/05	8%	31.32%
EWY	iShares MSCI South korea	7/26/05	8%	23.98%
EWC	iShares MSCI Canada	9/vii/05	8%	eleven.50%
EZA	iShares MSCI South Africa	9/27/05	8%	25.73%
ITF	iShares Due south&P/Topix 150	11/1/05	viii%	7.45%
EWJ	iShares MSCI Nippon	11/1/05	8%	8.47%
EEM	iShares MSCI Emerging Markets	11/fifteen/05	8%	14.27%
VPL	Vanguard Pacific VPRS	12/28/05	8%	-0.74%
FSICX	Fidelity Strategic Income	seven/26/05	10%	3.fourteen%
FDRXX	Coin Market	vii/26/05	10%	1.73%

The portfolio holds near a dozen positions called from over 150 current ETF, Rydex and ProFunds no-load sector alphabetize funds as well as a 20% position in the Cool Income Portfolio. In troubled markets, this portfolio tin can be as much every bit 50% in money funds.

PFI's Best Performance

1 - Week	iv - Weeks	12 - Weeks	Since Inception
-2.39%	ii.96%	14.67%	19.86%

Performance equally of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. ETF shares modify throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the endmost prices on the day of purchase or sale. Your actual functioning may vary. Money Market place returns based on Fidelity Cash Reserve (FDRXX). Your yields may vary.

Q&A

I am the "wise subscriber" you wrote well-nigh a few weeks ago. I accept taken your advice and have most of my Rydex/Profunds coin on its way to Scottrade. Using your ii best portfolios, how should information technology be invested? Past increments or 100% at once? Increments of 25%, 33% or 50%? If in increments, how much of a gain (% wise) before the side by side increment? Thank you very much. Your newsletter is perhaps the best I take ever read! -- Gene

Thanks for your compliment. Good move to shift to Scottrade. At Scottrade, y'all have access to our Sector ETF and PFI's Best portfolios at low trading costs, which I suspect will produce the best returns for you over the coming twelvemonth. If the bottom falls out of the domestic market place you lot can also consider using the domestic bear market funds at Rydex and ProFunds.

As to when to get-go, the corrections in the strange ETFs brand a strong argument to expect a bit to see how this shakeout settles out in the next calendar week or so. These two portfolios are well-diversified, just when yous are just starting to invest in these portfolios, timing tin brand a difference. Accept a deep jiff and look for a five% to10% pullback in some of these state funds, lookout for shifts in our recommendations and so build the entire portfolio all at once.

I don't ever know which state funds volition exist the most successful. I am impressed with the Latin American ETFs which have potent reasons (energy, growing economic system, etc.) for growth but I would be careful in the Japanese market before getting back in. The back-up potential funds to Japan tin can exist seen in PFI's Best: Canada and S Africa.

Watch those portfolios for the side by side two or three weeks then movement in in a fully diversified manner.

The dominion of thumb is: "Accost the known risks; diversify to avoid the unknown risks."

I capeesh your practical wisdom of the market place. However, beneath the homespun chit chat, a grasp of deeper understanding is ofttimes revealed.

Would you please talk over the relative merits of the iShares:MSCI EAFE EFA ETF and surrogates as a global market index fund and as a hedge against a weakening dollar? Thank you lot -- Wes

Thanks for asking. EAF is a one of Barclay's iShares ETFs tied to the international EAFE index. Information technology's a broadly diversified international fund. If you lot want to profit in international besides as domestic investing diversify among the leaders, don't spread your risks too widely. International markets are as different and individual as domestic sectors.

Equally a hedge against the weakening dollar it would only be partially effective because it includes both emerging markets and developed markets.

Adult markets are frequently countries and regions whose currencies are independent of the dollar and thus investing in those markets may be a hedge confronting a weakening dollar. Every bit the dollar weakens each 24-hour interval, when the foreign currency-denominated developed state stocks are valued each day in dollars they buy more than dollars. If the dollar strengthens, the stocks purchase fewer dollars.

Emerging markets are smaller countries oft with their currency tied direct or indirectly to the U.S. dollar. Therefore, they are not a practiced hedge against the dollar.

Successful international investing at best has ii purposes; first, to turn a profit from ascent stock values and two, to turn a profit from currency opportunities. Therefore, the best way to cull international investments is to invest in low-cost liquid ETFs which have the strongest trends based both on stock growth and currency benefits. It's hard to separate the two; so, why not look at the effect and avoid speculating which reasons are driving the profits?

As you tin see past our investment results, past investing in what's going upward and cutting our losses on those going down, and letting our strongest winners run, has produced superior results at surprisingly-lowered diversified portfolio risks.

EAFE is too broad an index to maximize both opportunities. If currency shifts are driving profits or if stock profits are driving profits, the leading funds with the longest and strongest trends are the best choices. Being proactive in updating your portfolio to stay in those funds and being disciplined can make all the difference.

Send your questions to mwfeedback@marketwatch.com and be sure to note that it's for PFI.

Bill Donoghue

Source: https://www.marketwatch.com/story/a-tale-of-two-corrections

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