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Regular investing with ETFs

September 29, 2020

The Nasdaq 100 is my bellwether for the health of global stock markets and most especially US technology shares, which dominate this index. Since 1985, when this index was created, there has been a technology revolution led by the US and its famed Silicon Valley in California. This revolution has been reflected in the performance of the index, which has risen over 100-fold since the low point in 1986.

Conclusion number one is that US technology shares have already proved themselves as the greatest investments in the history of capitalism.

Conclusion number two; this revolution is not only ongoing but accelerating. In investment terms we could hardly be living through a more exciting time. This is a moment to have faith and bet big on this revolution continuing.

This is exactly what I am doing with Quentinvest for ETFs. We buy and with many ETFs, we buy again and again and again – a programme sometimes described as £ or $ cost averaging, where you invest equal amounts in shares every week, month, quarter or whatever. It is a perfect strategy for ETFs because unlike individual shares they have no risk of going bust and they are regularly rebalanced around the best performers.

Let’s take an example of this programme in action. Below is a screenshot of all the alerts for an ETF with the code QQQ. This is one of the biggest ETFs by market value in the world and broadly tracks the Nasdaq 100. The QV alerts are marked in yellow and are presently all in profit even though the Nasdaq 100 is currently trading 8.6pc below its recent peak.

I sometimes wonder if any of my subscribers have acted on any of these alerts or followed any kind of regular investment programme with QQQ. If you did you should be doing very well.

There is a way of investing in QQQ with three times leverage. It is an ETF traded in London but priced in US$ with the code QQQ3. It multiplies daily moves in the Nasdaq 100 by three, up and down. It is rebalanced daily so its performance does not correlate precisely with the Nasdaq 100 in the medium and long term. Because of this there is a warning that it is not suitable for longer term investors and it is cetainly incredibly volatile.

However, my impression is that if you can stand the volatility it is actually a very rewarding long term investment. Below there is also a screen shot of the QV alerts for this ETF. As you can see these alerts are delivering spectacular returns for anyone who has been acting on them.

Again I wonder if this applies to any of my subscribers. You will see that as well as the early alerts the alerts made in March and April this year have been very rewarding. QQQ3 is a great ETF to buy into periods of stock market weakness because the record suggests that it will ALWAYS recover and go on to reach new peaks.

Below is a list of 21 ETFs from the QV for ETFs portfolio that I think are suitable for purchase now. They are all in profit from earlier recommendations and well placed to continue to perform strongly in the years ahead.  There are various options for using these alerts. You can buy them all; choose ones that appeal to you or which you already have or you can pick the ones to buy with a pin. I don’t think it matters too much because (a) I think they will all do well and (b) unlike many investment practitioners I am not concerned with diversification.

Diversification is for investors who don’t believe in what they are doing. I do. If you told me your portfolio was entirely invested in US technology shares I would commend you for a wise decision. If you told me 80pc was in a balanced selection of FTSE 100 shares I would say big mistake. The FTSE 100 has been an elephants’ graveyard for shares for over 20 years. You don’t need a diversified portfolio; you need a great portfolio and a great portfolio consists entirely of shares in great companies.

If somebody told you to sell one of your great technology shares to buy shares in a rubber plantation because that adds diversity would you do that; I don’t think so. Well, all diversity is a bit like that; a strategy for underperformance.

Below is my list of ETFs to buy now.

DIA  Buy @ $275        Tracks the Dow Jones Industrials (the ETF price is the level of the Dow Jones Industrials index divided by 10) Times recommended: 2 First recommended: $292.32 Lowest recommended price: $238.92

FDN  Buy @ $188       Holds the 40 biggest US Internet companies  Times recommended: 1 First recommended: $185

IGV    Buy @ $311       Diverse exposure to the US software industry   Times recommended: 7  First recommended: $191.5  Lowest recommended: $188.57

IHI      Buy @ $294       Holds a who’s who of top US medical device companies   Times recommended:  4 First recommended: $241.83

ISPY   Buy @ 1538p     London quoted but full of exciting US cyber-security stocks  Times recommended:  2 First recommended: 1499p

IYW     Buy @ $299       Heavily weighted for the largest US quoted technology shares  Times recommended: 2 First recommended: $264

JFJ  Buy @ 617p  JPMorgan managed investment trust specialising in Japanese shares  Times recommended: 1 First recommended: 527p

MGK    Buy @ $184       Another classic portfolio of large-cap US growth stocks  Times recommended: 1  First recommended: $182.4

MTE     Buy @ 1400p    Invested in Eurozone, Europe ex Euro and UK – does well  Times recommended: 3  First recommended:  1045p  Lowest recommended: 966p

OGIG    Buy @ $43.50   Rules-based selection of exciting US growth shares  Times recommended: 3  First recommended: $34

PCT      Buy @ 2045p     Actively managed mostly US-invested but UK based technology trust  Times recommended: 7 First recommended: 1672p

PNQI     Buy @ $204       Holds US Internet companies; similar to FDN  Times recommended;  9 First recommended: $131.3   Lowest recommended: $123.81

PSJ        Buy @ $123      Holds 30 US software companies chosen to outperform  Times recommended:  5 First recommended: $92.83  Lowest recommended: $89.83 

PTF        Buy @  $109    US tech momentum focus – all top 10 holdings in the QV for Shares portfolio  Times recommended: 5 First recommended: $75.98  

QQQ       Buy @ $276      Broadly tracks Nasdaq 100  Times recommended: 17  First recommended:  $151.89 

QQQ3     Buy @ $2799    Tracks Nasdaq x 3 – only for investors who like excitement and can deal with extreme volatility  Times recommended: 14  First recommended: $943.5  Lowest recommended: $915

SKYY      Buy @ $78.40    Tracks an index of US companies providing cloud services  Times recommended: 6  First recommended: $54.50

SOXL      Buy @ $256     Tracks semiconductor index x 3 so again expect high volatility and plenty of excitement  Times recommended:  6  First recommended: $211.94  Lowest recommended: $102

SOXX      Buy @ $305    A comprehensive semiconductors ETF holding the big names in the industry  Times recommended: 8  First recommended: $200

TECL       Buy @ $300    Tracks technology stocks in the S&P x 3 so exciting but volatile  Times recommended: 2 First recommended: $222

VUG        Buy @ $226     Offers exposure to large cap growth firms so similar to other US large cap growth funds.  Times recommended: 2  First recommended: $200.73

Every time I read about leveraged ETFs on the Internet there is a warning attached. For example this is what one service says about TECL, a three times leveraged ETF holding a portfolio of US technology shares. “TECL provides 3x levered exposure to the S&P Technology Select Sector Index, reset daily. Like all leveraged 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 facts say different. The single best performing ETF out of all the ETFs I have recommended in Quentinvest for ETFs is QQQ3, an ETF which multiplies the daily movements in the Nasdaq 100 by three. Common sense suggests that if the Nasdaq 100 performs well over time this ETF should do even better and that is exactly what happens. You can see this in the screenshot above. QQQ, the unleveraged tracker has done well but QQQ3 has done better.  If you can stand the volatility buying shares in QQQ3 after weakness, just like now, has historically been a good idea.

Since the recent peak the Nasdaq 100 is down 8.6pc while QQQ3 is down 26.8pc. At one stage in the latest correction it was down 39pc. I thought of alerting on them then and probably should have done. In the short term holders take a hit and this kind of volatility keeps on happening but over the long haul holders and regular buyers of the shares can do very well. Since 2013, when it was launched, this ETF is up over 30-fold. It is a good bet that one day it will be up 100-fold.

It is this kind of performance that makes me a fan of leveraged ETFs , especially ones like QQQ3, SOXL and TECL, which are firmly plugged into the US-led global technology revolution.

If the leverage is too unsettling there are plenty of great ETFs in the list above. Among my favourites are QQQ, SOXX, PCT and OGIG but really they are all good as are almost all the ETFs in the QV for ETFs portfolio. As noted above, I don’t choose for diversification, I choose for performance.

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