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Six ETFs to buy today – three are maximum volatility but exciting; three almost come with a guarantee

December 18, 2020

 

In the last three and a half years since the launch of Quentinvest for ETFs I have been on a journey of discovery learning about ETFs and what makes them such great investments. Just as a quick reminder ETFs are exchange traded funds so tradeable portfolios of shares. They first came into existence as a result of growing disillusion with actively managed investment funds, which came with high charges but almost all failed to do as well as the indices they used as benchmarks. Some clever person suggested that maybe it would be better to sack the managers, cut the charges to the bone and and settle for simple index tracking. The change was such a success that literally trillions of dollars are invested in ETFs, which have become so numerous and specialised that following them is almost like following shares.

However they do have one huge advantage over individual shares. Like the indices they track they are continually rebalanced to favour success so they don’t go bust and they do tend to climb alongside the long term trend in equity markets. Virtually every single ETF featured in the QV for ETFs portfolio is showing a profit, some ETFs are showing very large three figure profits and the average overall return on every single ETF alert since 2017 is fast approaching 40pc. I was not sure when I started but I am a total convert now; investing in ETFs is a brilliant way to invest in equities.

Part of the reason why my ETF alerts do so well is that they are carefully chosen. I choose ETFs in much the same way as I choose shares. I am looking for strong growth, great price momentum and an exciting story. If I find all those things I suggest that my subscribers buy the shares and then I keep on recommending them to try to pile gains on gains and also to make sure that funds are directed towards the best performers.

Just as an aside I do also feature some actively managed investments include a new breed of more actively managed ETFs. The growth of the passive index tracking ETF movement has obviously put active managers on their mettle. If they don’t beat the indices what is the point of them so these guys do beat the indices as do I myself with my share selections. One way in which I beat the indices is by doing what they do which is to concentrate funds (recommendations) in the best performers and neglect the poor performers. This is why with both shares and ETFs I never buy into weakness. I will buy after weakness into signs of strength and that works very well for me but I never try to catch a falling knife.

The other thing I like is the £-cost averaging effect of continually drip-feeding money into the market. The more you do this the more you turn the market’s gyrations to your advantage, which all helps to win in the end.

The six ETFs alerted below divide into two groups. The first group is the sensible group, ETFs which respectively track the Nasdaq 100, the Philadelphia Semiconductor index and a brilliantly chosen portfolio of exciting technology shares, mostly American but with some Chinese names, which has performed superbly up to now and which I expect to continue to do well in the future. The second group is similar or identical to the first group but with three times leverage built into the package. Many stock market experts say these leveraged ETFs are only suitable for traders because they are rebalanced daily and so cannot be relied on to track the index long term. This is obviously true but observation confirms that these leveraged ETFs can make incredible long term investments. QQQ3 (three times the Nasdaq 100) was launched in December 2012. Since then it has risen 38 times. As instruments they are incredibly volatile but I think they make an excellent home for a modest initial investment. It is not even clear that they are such a gamble since, like the Nasdaq 100, the long term trend, driven by an unfolding and arguably accelerating, technology revolution, seems set to remain firmly higher.

Three reliable winners

OGIG  O’Shares Global Internet Giants  Buy @ $55 Times recommended: 6  First recommended: $33.02  Last recommended: $50.90   OGIG is a kind of hybrid ETF. It tracks an index but that index is constructed according to a set of rules created by O’Shares so it has some of the characteristics of an actively managed fund. I like it because the portfolio is similar to the Quentinvest for Shares portfolio. They like the same kind of shares as I do, many of which are big in market capitalisation terms but hardly Internet giants.

QQQ   Nasdaq 100-tracker  Buy @ $309 Times recommended: 19  First recommended: $139.28  Last recommended: $304    QQQ broadly tracks the Nasdaq 100, which is my favourite index and is famously tech-weighted. There are no financials but it also includes consumer and health care shares. The index was launched in 1985 with a base value, after a split, of 125 so with the index around 12,700 it has risen a little over 100-fold. QQQ is my go-to ETF and has been recommended again and again. It is the ETF everyone should own, perfect for aggressive investors and for widows and orphans. To say it has outperformed the FTSE 100 is rather like saying Lewis Hamilton has beaten a dead rabbit.

SOXX iShares PHLX Semiconductor  Buy @ $376  Times recommended: 11 First recommended: £200 Last recommended: $370 SOXX tracks what used to be known as the Philadelphia Semiconductor index. Semiconductors play a key role at the heart of the technology revolution. They provide the brains for the estimated 50bn devices in the world, which either drive the Internet or are connected to it. The semiconductor industry is huge with long lead times as new generations of chips are developed and manufactured. In the past this has made it a little bit like farming with an endless cycle from feast to famine. This can be misleading though because over time this is very much a growth industry and it has driven some incredible share price performances. Back in the days of Wintel, when Microsoft Windows and Intel dominated the desktop computing industry and Moore’s Law saw chips becoming relentlessly faster and more powerful, the Intel share price climbed in 27 years (1973 to 2000) from four cents to $75, one of the all-time great share price performances. Moore’s Law isn’t working so well any more so semiconductor companies need new tricks to deliver the ever-increasing performance that the gadget makers require. This has led to the emergence of new stars like Taiwan Semiconductor Manufacturing, ASML, Applied Materials, Nvidia, Advanced Micro Devices and others. In broad terms the industry looks more exciting than ever as the drive to digital transformation on a global scale means insatiable demand for more and ever more powerful chips. Close observers of the industry see an exciting decade of growth ahead.

Three high volatility, high performance alternatives.

QQQ3 Wisdomtree Nasdaq 100 3x daily leveraged  Buy @ $126  Times recommended: 14  First recommended: $31.50  Last recommended: $90  Lowest recommended: $30.50   QQQ3 has been alerted 14 times and of those nine are showing three figure gains ranging as high as 313pc. You can see why I am such a fan of these leveraged ETFs. The volatility can be incredible. In the last quarter of 2018 this ETF fell 56pc and it had another dramatic fall last March when the virus struck. But, if you can weather those storms and better still buy early into the subsequent recoveries, the profits can be amazing. QQQ3 is my single best performing ETF  and one of my best performing investment recommendations.

SOXL Direxion Daily Semiconductor Bull 3x leveraged  Buy @ $459  Times recommended: 8 First recommended: $211.94  Last recommended: $364  Lowest recommended: $102  This index is basically SOXX times three. It is very volatile. The recommendation at $102 was on 25 March this year at the height of the Covid panic. Since then the shares are up 350pc or nearly 4.5 times. Most likely they will stay volatile but around a strongly rising trend.

TECL Direxion Shares Technology Bull 3x leveraged. Buy @ $386 Times recommended: 3  First recommended: $222 Last recommended: $300  TECL is a more recent discovery and unlike the other two, which are three times QQQ and three times SOXX respectively, this one has nothing to do with OGIG except that both are directly targeting a broad group of high technology shares. It tracks the S&P Technology Select sector index, which holds a wide-ranging group of technology shares. OGIG is focused on the Internet and e-commerce. This fund was created in 2009 and is up over 100-fold since then.

I think there is a case for buying all six of these ETFs and then if you can adding to your positions either at regular intervals (classic £/$-cost averaging) or whenever I recommend them. In theory, the leveraged funds are more risky but if you can stand the volatility or ideally exploit it, the odds on doing well seem good. The real key to success is the unfolding technology revolution. If you believe, like me and many people involved in the industry that we are still at an early stage of a seismic period of change there should be huge gains still to come.

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