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Recommendations roundup + more exciting newcomers

August 3, 2020

There are 35 ETFs recommended below, some already in the portfolio and some new. This time I have been able to present them in numerical order with the list of top 10 holdings under each recommended ETF. These lists of major holdings, which typically account for 30-50pc of the total value of the fund, give a major indication of where the fund is targeted, what is driving performance and how much overlap there is between funds.

There may seem to be too many to choose from but it may not matter too much which you choose. The vast majority of funds in the portfolio are showing a profit so you could probably pick the ones you buy with a pin. A good strategy is to invest some money every month or quarter. This could be in a fund you already hold or a new one. I like all the funds mentioned below, which is why I am recommending them. This doesn’t mean I don’t like others in the portfolio. On the contrary, most of the names are doing well.

The worst performer by far is the FTSE 250 fund with two times leverage, although even there my most recent recommendation is in profit. In a recent issue of Chart Breakout I wrote about the strange death of the UK stock market, which has become one of the worst performing stock markets in the world and has not had what I would call a sustained bull market for over two decades.

Personally, I have very few UK shares in my portfolio and the ETFs I favour are overwhelmingly US and technology focused. This explains why since 2017, when I launched QV for ETFs, the average gain on all my recommendations, assuming no sales whatsoever, is 23.2pc, while, over the same period the FTSE 100 is down around 14pc.

Note also that by making so many recommendations; there were 32 ETFs in the July issue of QV for ETFs, I am dragging the performance lower in the short run albeit hopefully higher over the long haul.

Subscribers should bear in mind that I am not interested in diversification per se. I don’t think it is a bad thing if all your investments or a big chunk of them are in US technology. On the contrary I think that is the best place for them to be, in the short, medium and long run. Technology is changing the world and it makes excellent sense to invest accordingly.

The reason why I think it is a good idea to hold a spread of ETFs is to spread your net wider over the areas of the stock market that are doing best. You can be heavily weighted for technology, while not being sure which technology shares are going to be the long-term winners. Each ETF has a spread of holdings. By investing in a spread of ETFs you end up with a spread of spreads. Because I show you the major holdings or each ETF you can make sure your portfolio has exposure to tech shares beyond the usual suspects, Amazon, Apple, Alphabet, Microsoft, Facebook, Netflix and company.

There are over 100 great quoted technology businesses on Wall Street and others emerging in other locations like China. The choice is great and getting better all the time. You can use these ETFs to gain wide exposure across that universe of great stocks.

1. IBUY @ $85.50 – The Amplify Online Retail ETF (IBUY) seeks to provide investment results that, before fees and expenses, correspond generally to the price performance of the EQM Online Retail Index. The Index is a globally-diverse basket of publicly-traded companies that obtain 70pc or more of revenue from online or virtual sales.

2, ARKF @ $37 – The ARK Fintech Innovation ETF (ARKF) is an actively-managed fund from the team at ARK Invest that tries to pick the companies best positioned to profit from advancements in energy, automation, manufacturing, materials and transportation.

3. ARKW @ $100 – ARKW (ARK Next Generation Internet is an actively managed fund with a broad mandate to invest in companies its managers have identified as benefiting from an infrastructure shift away from hardware and software toward cloud and mobile.

4. QQQ3 @ $2,700 – WisdomTree NASDAQ 100 3x Daily Leveraged is designed to track the NASDAQ-100® 3x Leveraged Notional Net Return index, the “Index”, providing three times the daily performance of the NASDAQ-100 Notional Net TR index (the “Benchmark”), adjusted to reflect fees and costs inherent to maintaining a leveraged position in stocks. Bear in mind that this ETF is extremely volatile. The list of 10 largest holdings will resemble that of the unleveraged QQQ ETF (see below).

5. TECL @ $289 – TECL provides 3x levered exposure to the S&P Technology Select Sector Index, reset daily. Like all levered funds, it tends to underperform in volatile markets if held for longer than its reset period, and is only suitable for short-term trading positions. The underlying index (tracked in unleveraged form by SSgA’s XLK) consists of all tech companies in the S&P 500, including telecoms. This broad definition of the tech sector means TECL is less concentrated than its 2x rival ROM but retains a huge stake in Apple, Microsoft, and Alphabet. It also devotes about a fifth of its exposure to sectors our tech benchmark excludes, like telecoms and professional & commercial services. The ETF review services always say these leveraged ETFs are only for trading, not for investors but the chart suggests that they can work for long term holders.

6. GAMR @ $64 – GAMR (Wedbush Video Game Technology) tracks an equity index of global firms that support, create or use video games. Stocks are assigned to pure play, non-pure play or conglomerate baskets, and weighted equally within each.

7. HACK @ $48.50 – HACK (Prime Cyber Security) tracks a tiered, equal-weighted index that targets companies actively involved in providing cyber security technology and services.

– XITK (FactSet Innovative Technology) tracks an index composed of U.S.-listed technology and electronic media companies deemed innovative or disruptive by FactSet.

9. FDN @ $185 (new entry) – FDN (First Trust Dow Jones Internet) does a great job of capturing the Internet industry at a competitive all-in cost. It holds the 40 biggest US internet companies, prominently featuring names like Amazon, Facebook and Alphabet (formerly Google).

10. FXH @ $97 (new entry) – FXH (First Trust Healthcare AlphaDEX) tracks a quant-driven index that attempts to achieve excess returns by selecting and weighting health care stocks based on growth and value factors. The portfolio offers noteworthy midcap exposure, downplaying familiar large-cap names relative to cap-weighted peer funds. Pharma is underweight relative to the market, but biotechnology and healthcare providers have a significant presence.11. FPX @ $91 (new entry) – FPX (First Trust US Equity Opportunities) tracks a market-cap-weighted index of the 100 largest US IPOs over the first 1,000 trading days for each stock.

12. GOAU @ $24.48 (new entry) – The US Global Go Gold and Precious Metal Miners ETF (GOAU) truly shines thanks to its actively managed nature. GOAU only holds 28 companies, and the three royalty companies holding 30pc have great financial discipline, compared to a lot of the rest of the industry. The focus for GOAU is on the carefully selected 25 other companies out of the additional 100 or so gold producers. Putting that into perspective, when gold goes up, gold mining companies tend to do even better than gold itself.

13. EBIZ @ $27 – EBIZ (Global X E-commerce) is designed as a play on the increasing importance of e-commerce within the retail industry. In addition to retailers themselves, the fund holds companies that operate online marketplace platforms, or provide software or services to facilitate e-commerce. EBIZ can hold companies of any size, and though global in scope, limits emerging-market exposure to a few specific countries (most notably China).

14. FINX @ $36 – FINX (Global X FinTech) charges a reasonable fee for its cross-sector exposure to the emerging FinTech—financial technology—theme. FINX is comprised of stocks, in developed markets, with significant exposure to at least one of six FinTech themes: mobile payments, marketplace lending, crowd funding, enterprise solutions, blockchain and alternative currencies, and personal finance software and automated wealth management services.

15. AIQ @ $22.25 – AIQ (Global X Artificial Intelligence & Technology) is passively managed to invest in developed market companies that are involved in the use of artificial intelligence to analyse big data, whether for their own operations, as a service to other companies, or through the production of related hardware.

16. MILN @ $29.50 – MILN (Global X Millennials Thematic) provides exposure to companies that are determined to have significant revenue from the millennial generation’s spending habits. The index uses a proprietary research process to determine which spending categories are relevant to millennials. These categories include clothing, entertainment, travel, food, education, financial services, housing, and health. A maximum of 15 companies and a minimum of 5 are selected for each spending category. U.S. companies with relevant exposure to these categories are scored by the level of their exposure. Firms determined to have significant exposure to the stated spending categories are then scored by a proprietary scale that determines which companies have a higher millennials focus. These selected companies are weighted by market cap, with a maximum of 3% and a minimum of .3% for any given holding

17. RBOT @ $7.75 – RBOT (iShares Automation & Robotics)  seeks to track the performance of an index composed of developed and emerging market companies which are generating significant revenues from specific sectors associated with the development of automatic and robotic technology.

18. IYW @ $291 – IYW (iShares U.S. Technology) offers broad exposure to the US Technology segment, tracking a diversified, market-cap-weighted index. Cap-weighted exposure in this sector often translates to concentrated positions in tech giants. On 24 June 2019, IYW switched to a “capped” version of its index which at rebalance limits single positions at 22.5pc and caps aggregate positions over 5pc at 45pc total. Such index variants are not unusual and still allow for plenty of single-name impact. The index pulls from a universe covering the top 95pc of the market.

20. IGM @ $302 – IGM (iShares Expanded Tech Sector) offers broad, comprehensive coverage of the North American technology sector, but caps each security’s weight at 8.5% to provide diversified exposure to a concentrated industry. The cap reduces the weight of sector giants like Apple, tilting IGM slightly toward smaller growth firms. The fund also includes online retailers, normally classified as consumer cyclical firms.

21. IETC @ $41.25 – IETC (iShares Evolved U.S. Technology) provides exposure to US technology companies as part of a suite of alternative sector funds from iShares. The suite, which is actively managed but follows a rules-based methodology, redefines the US market into “evolved” sectors by using artificial intelligence to scan through annual reports and identify groups of similar firms. The methodology weights holdings by market cap, but allows a single company’s weight to be split proportionally between funds (say, 70% in one and 30% in another) if it doesn’t fit neatly into one sector.

22. IWF @ $209 (new entry) – IWF (iShares Russell 1000 Growth) is one of the most popular US large-cap growth ETFs with a long track record. IWF holds stocks selected from the popular Russell 1000 Index, based higher I/B/E/S forecasts for medium-term growth and higher sales per share historical growth as compared to others in the index. Like our benchmark, the fund’s top holdings are mostly packed with tech giants. While IWF is considered a large-cap fund, a sizable portion of the portfolio is allocated to midcaps due to its expansive Russell 1000 parent.

23. IWY @ $116 – IWY (iShares Russell Top 200 Growth) is a solid mega-cap ETF, holding a portfolio of growth stocks chosen from the 200 largest US companies by market cap. Its weighted average market cap is considerably higher than our benchmark’s. Stocks are selected based on two main growth factors: medium-term growth forecasts and historical sales per share growth. Russell’s style methodology differs from our MSCI benchmark, causing IWY to tilt heavier in technology, while comparatively reducing its financials exposure.

24. IHI @ $295 – IHI (iShares U.S. Medical Devices) is a niche sector fund that specifically targets companies engaged in the medical devices portion of the broader health care space. Holding about 50 companies, the fund is heavily biased towards suppliers and distribution, with another big bet placed on equipment and technology.

25. ISPY @ 1575p – ISPY (L&G Cyber Security) is comprised of companies which are publicly traded on various stock exchanges around the world that generate a material proportion of their revenues from the cyber security industry. The industry is deemed to be comprised of companies in the following two sub-sectors: (1) Infrastructure Providers that develop hardware and software for safeguarding internal and external access to files, websites and networks; and (2) Service Providers that provide consulting and secure cyber-based services.

26. PSI @ $83 (new entry) – PSI (Invesco Dynamic Semiconductors) attempts to beat the industry by selecting and weighting 30 semiconductor companies using a proprietary, quantitative methodology that focuses on risk factors, style classification and stock valuation. In a heavily concentrated industry dominated by Intel (which makes up a large portion of our neutral benchmark), PSI tilts firmly toward smaller growth companies so its weighted average market cap is only a fraction of that of our benchmark.

27. QQQ @ $268.50 – QQQ is one of the best established and typically one of the most actively traded ETFs in the world. Often referred to as “the triple Q’s”, it’s also one of the most unusual. The product is one of a few ETFs structured as a unit investment trust. Per the rules of its index, the fund only invests in non-financial stocks listed on NASDAQ, and effectively ignores other sectors too, causing it to skew massively away from a broad-based large-cap portfolio. QQQ has huge tech exposure, but it is not a ‘tech fund’ in the pure sense either. The fund’s arcane weighting rules further distance it from anything close to plain vanilla large-cap or pure-play tech coverage. The ETF is much more concentrated in its top holdings and is more volatile than our vanilla large-cap benchmark. Still, the fund has huge name recognition for the underlying index, the NASDAQ-100. In all, QQQ delivers a quirky but wildly popular mash-up of tech, growth and large-cap exposure. The fund and index are rebalanced quarterly and reconstituted annually.

28. SOXX @ $295 – SOXX (iShares PHLX Semiconductor) is a comprehensive semiconductors ETF providing capped exposure to US-listed companies in that industry. The semiconductors industry is heavily concentrated, so the fact that SOXX caps its individual security weights around 8pc causes its portfolio to diverge from our neutral benchmark and tilt toward smaller companies. It’s also worth noting that SOXX has a slightly broader definition of the US semiconductors industry: its selection universe includes companies that are not based in the US, but are merely listed there. These differences aside, SOXX provides great sector exposure.

29. XHE @ $96.50 – XHE (SPDR S&P Health Care Equipment) offers equal-weight exposure to US companies in the health care equipment & supplies business. While XHE’s holdings encompass all cap sizes, its weighted average market cap is only a fraction of the market’s, giving it a significant small-cap tilt.

30. XSD @ $124 (new entry) – XSD (SPDR S&P Semiconductor) has the highest percentage of pure-play semiconductor companies in its segment, with around 90% of its holdings meeting our specifications. In the highly concentrated semiconductors segment, XSD’s equal-weighting scheme tilts its portfolio away from titans like Intel (which makes up about a third of our neutral benchmark) and toward smaller growth companies. This tilt makes it more volatile than the broad semiconductors market—a boon when smaller-caps are in favour, but a disadvantage when they’re not.

31. XLK @ $112.50 – XLK (Technology Select Sector SPDR) was the first to launch in this space, as such it offers a more narrow focus on the US technology segment. Its S&P 500-only portfolio tilts away from our segment benchmark. XLK is heavily concentrated and also a few that seem like misfits, such as financial payment processors or telecom firms. Its limited selection universe excludes small-caps and most mid-caps.

32. MGK @ $178 (new entry) – MGK (Vanguard Mega Cap Growth) provides focused exposure to the largest growth companies in the US. It selects companies exhibiting six growth characteristics: future long-term growth in earnings per share (EPS), future short-term growth in EPS, three-year historical growth in EPS, three-year historical growth in sales per share, current investment-to-assets ratio, and return on assets. With the same cap size split as our benchmark, and similar weighting among sectors, MGK provides market-like exposure.

33. VOOG @ $202 (new entry) – VOOG (Vanguard S&P 500 Growth)  provides one of the most cost-efficient ways to gain broad exposures to the largest US growth companies, specifically selected from the S&P 500 Index based on three growth factors: sales growth, the ratio of earnings change to price, and momentum. The fund competes directly with iShares’ IVW and State Street’s SPYG—two larger funds that track the same index—and its portfolio looks a lot like theirs.

34. VUG @ $219  – VUG (Vanguard Growth) is passively managed to provide broad exposure to US large-cap growth firms. VUG’s CRSP index (which it switched to in 2013) selects stocks based on six growth factors: expected long-term growth in earnings per share (EPS), expected short-term growth in EPS, 3-year historical growth in EPS, 3-year historical growth in sales per share, current investment-to-assets ratio, and return on assets. The fund holds many of the same names as our benchmark in its top holdings, yet is less concentrated because it dips into the midcap space.

35. VCR @ $219 (new entry) – VCR (Vanguard Consumer Discretionary) delivers plain-vanilla exposure to the consumer discretionary space in a low-cost and liquid wrapper. VCR’s distinguishing factor is its breadth, holding a huge basket of stocks that it selects and weights by market cap.

I am a huge fan of £-cost/ $-cost averaging but only against the background of a secular bull market. Technology shares, especially in the US are heavily represented in the ETFs above and at an early stage, I believe, in what may develop into the greatest bull market of all time. Yeah, I think it is that exciting!

As long as I continue to believe in the secular bull story and it would probably take a direct hit on New York by a meteor to make me change my tune I am going to keep recommending ETFs to buy, probably lots of them. I like to buy into strength, as now, or after a crash, as we had last March, when a new Chinese virus turned into a global lockdown and scared the pants off everybody.

I also like just regular buying into strength, weakness or whatever, especially with broad based technology ETFs like QQQ and its crazily volatile brother, QQQ3. Keep buying, keep believing and there are fortunes to be made.

I know many ‘experts’ are talking about a correction. My guess is that as long as they keep talking shares will keep climbing – my kind of shares anyhow. There is still massive liquidity on the sidelines.

Just a quick recap for newcomers. ETFs are Exchange Traded Funds. They are portfolios of shares which track indices. As such there is little management involved and fees are typically low. Some are UCITS so easy to buy for UK investors; others are not and life becomes more complicated.

Many can be bought in leveraged CFD accounts; that is the way I prefer to go because I am a crazy gambler, excitement addict. If you want to make more money and have a more exciting time use some leverage but keep it sensible so you can (a) weather crashes and (b) take advantage of them to add to your holdings. ETFs don’t go bust because they are continually rebalanced around winners (survivor bias) and although we have had several crashes in the Nasdaq 100 (my favourite index tracked by QQQ, QQQ3 and one way or another by many others) none of them since 2009 has lasted more than about three months. It pays to hold your nerve and believe in the long run bull story. The doom and gloom guys grew up without breast milk – that’s my theory anyhow; something has curdled their brains.

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