What Is the Blue Chips Chnt at Eginning of Game
According to Monday's Wall Street Journal, iShares MSCI Brazil posted a 24% for January and ranked No. 3 overall. We have been on the trail of those profits for months now. Where are the blue chips today?
Remember the days when "blue-chip" stocks of the best run companies in America were all the rage? Remember when well-chosen bonds were the "cat's meow?"
Well, for the first quarter of 2006, the most profitable funds have invested in gold, natural resources, energy, energy wervices and the stocks of countries doing business with China. The last includes Mexico, Brazil, and the blue chips of Latin America (Latin American 40), Japan, South Korea and South Africa.
If those themes seem familiar, I have been reiterating them each issue because I want you to remember that our recommendations are not one of those lame economist's predictions that next year will be "better." We will never tell you that you should invest in the "widows' and orphans" stocks of the past.
Recommendations in this newsletter are based solely on what is rising in value at the time and then diversifying your portfolio. My opinions reflect a rationalization of what the markets are recommending, not a recommendation of what the markets will do.
This week's recommended trades are:
Globally, iShares Goldman Sachs Natural Resources IGE is a SELL and streetTRACKS Gold Shares GLD is a BUY.
Domestically ProFunds OTC OTPIX is a SELL and Small-Cap Growth SGPIX is a BUY.
Proactive Index Portfolios
Keep an eye on these domestic portfolios but don't expect to make long-term bull market bets on them. The odds are that a bear market bet here will generate greater profits but only when the time is right.
Fine Tuning ProFunds
Other than an upgraded ProFunds recommendation to move out of the OTC or Nasdaq 100 fund into Small-Cap Growth in the ProFunds Portfolio, there is little to do.
Frankly, I would stick with PFI's Best and Sector ETF portfolios. The recent growth in these portfolios is too short-lived to be trusted and it comes at a point where domestic stocks markets are too vulnerable and over-valued.
Rydex Sector Portfolio
Stick with Mid-Cap, Small-Cap and OTC - no blue chips here!
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| RYOCX | Rydex OTC (Long NDX 100) | 8/2/05 | 20% | 1.60% |
| RYAVX | Rydex MidCap Value (Long S&P MidCap 400/Citigroup Pure Value Index) | 7/26/05 | 20% | 4.70% |
| RYBHX | Rydex MidCap Growth (Long S&P MidCap 400/ Citigroup Pure Growth Index) | 7/26/05 | 20% | 10.00% |
| RYWAX | Rydex SmallCap Growth (Long S&P SmallCap 600/Citigroup Pure Growth Index) | 7/26/05 | 20% | 5.45% |
| RYAZX | Rydex Small Cap Value (Long S&P Small Cap 600/Citigroup Pure Value Index) | 01/31/06 | 20% | -1.99% |
We built this five-fund portfolio from the eight bull market and five bear market (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 often require unwarranted minimum holding periods, short-term trading fees and excessive trading costs.
Rydex Index Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -1.24% | -0.93% | 2.72% | 2.97% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue.
ProFunds Index Portfolio
If you are following this portfolio because it is the only choice in your 401(k), this is probably a good time to talk to your human resources executive about a self-directed brokerage plan so you can get to the ETFs which are better choices.
ProFunds OTC (OTPIX) is a SELL and Small-Cap Growth (SGPIX) is a BUY.
| Ticker | Fund Name | Purchase | Weight | Change |
| MGPIX | ProFunds MidCap Growth (Long S&P MidCap 400/Barra Growth) | 10/25/05 | 20% | 11.69% |
| MDPIX | ProFunds MidCap (Long S&P MidCap 400) | 7/26/05 | 20% | 7.96% |
| SGPIX | BUY ProFunds SmallCap Growth (Long S&P 600/Barra Growth) | 02/07/06 | 20% | 0.00% |
| SLPIX | ProFunds Small Cap (Long Russell 2000 Index) | 01/31/06 | 20% | -1.16% |
| MLPIX | ProFunds MidCap Value (Long S&P MidCap 400/Barra Value) | 12/20/05 | 20% | 4.87% |
| OTPIX | SELL ProFunds OTC | 11/15/05 | 0% | 1.02% |
We built this five-fund portfolio from the eleven bull market and four bear market (inverse) single-beta stock and currency index 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 can qualify for the lower-than-Rydex $15,000 minimum initial investment. Avoid traditional brokers which often require unwarranted minimum holding periods, short-term trading fees and excessive trading costs.
ProFunds Index Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -0.77% | 0.57% | 5.35% | 4.35% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue.
Double-Beta Portfolio
Double-beta funds in an over-valued market seem like walking on ice. Think before you jump into these portfolios.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| UMPIX | ProFunds Ultra Mid-Cap (Long S&P Mid-Cap 400) | 7/26/05 | 34% | 13.95% |
| UOPIX | ProFunds Ultra OTC (Long NDX 100) | 11/1/05 | 33% | 9.57% |
| UAPIX | ProFunds Ultra Small Cap (Long Russell 2000) | 7/26/05 | 33% | 10.81% |
We built this three-fund portfolio from the five 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 after the next SELL signal by investing in the new BUY recommendation. Funds are selected with the strongest positive price momentum.
Double-Beta Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -2.80% | -0.13% | 9.66% | 9.33% |
Performance as 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 change throughout the trading day, just 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
This portfolio is up nearly 37% since we started the newsletter! Follow the sector rotation as it evolves throughout the year, however, I suspect we will be holding most of these positions well into long-term capital gains territory.
This wonderful portfolio has got to be frustrating our buy-and-hold critics (don't you just love it?). We have only had one trade since mid-October and it is one we have been watching for some time. Three positions are ones we held in the first weeks of the newsletter.
Keep in mind, however, that in the early 1990s when China was a new opportunity emerging markets and Southeast Asia stocks went through two very volatile bull and bear markets in just a few years. These markets are much savvier and mature now but China is the single driving force and it can hold its share of mysteries. Over-confidence can and has taken back the profits they thought they couldn't lose.
There are stronger and broader economic trends today and global markets offer more viable choices than domestic markets. Be prudent.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| ILF | iShares S&P Latin Am 40 | 7/26/05 | 20% | 48.08% |
| EWZ | iShares MSCI Brazil | 8/9/05 | 20% | 44.89% |
| EWW | iShares MSCI Mexico | 7/26/05 | 20% | 35.07% |
| EWW | iShares MSCI South Africa | 01/18/06 | 20% | 7.66% |
| EWY | iShares MSCI South Korea | 10/18/05 | 20% | 25.94% |
| Money Market | 0.00% | 0% |
We built this five-position portfolio using the five ETFs with the strongest positive price momentum from a universe of 124 sector, style-box, single-country and regional ETFs.
ETF Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -2.17% | 2.33% | 17.88% | 36.91% |
Performance as 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 change throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary.
Cool Income Portfolio
The 30-Year Bond Returns: Don't Buy It!
Who in his right mind would tie up their money in today's low interest rates for 30 years? I will bet more of these 30-year bonds will be bought simply to provide collateral for shorting than held long. Stay away from this bond and wait for rates to rise to invest in Rydex Juno or ProFunds Rising Rate Opportunity.
Cool Income should beat the pants off of money funds for the year. I can't wait for long-term interest rates to rise (Why? Because if they fall when the Fed wants them to rise, they must rise when the new Fed Chairman stops cutting rates, right?). At that point our Rydex Juno BUY signal should ring. By then, all of those who invested too soon will be gone and missed the best income opportunity in years.
No changes this week.
| Ticker | Fund Name | Purchase | Weight | Change |
| FSICX | Fidelity Strategic Income | 7/26/05 | 50% | 2.74% |
| FDRXX | Money Market | 7/26/05 | 50% | 1.73% |
This deceptively simple portfolio takes advantage of two 50% allocations to: (1) High-Yield Bonds. As a long-term investment, Fidelity Strategic Income Fund (FS ICX) is a well-managed multi-asset bond fund which proactively manages both its bond maturities and allocation to high yield bond markets. (2) Government Bonds. The portfolio seeks to profit from the Rydex Juno during rising interest rate markets as well as money market positions.
Cool Income Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -0.05% | -0.19% | 1.19% | 1.60% |
Performance as of Friday's close. Inception began on July 26, 2005, the day following the first issue of the Proactive Fund Investor, with Bill Donoghue. Money Market returns based on Fidelity Cash Reserve (FDRXX). Your yields may vary.
PFI's Best Portfolio
I always look at PFI's Best Portfolio as our "junior varsity" portfolio which lags the varsity in the short-term and could easily upstage them in the long-term. It has all five of the Sector ETF positions plus some of the up-and-coming positions in gold, and the Japanese Topix, Japan, and Pacific positions as well as a prudent money market position.
PFI's Best may seem overly-prudent but its prudence can pay off handsomely over the long-term. It's up 24% since late July.
Recommendations: iShares Goldman Sachs Natural Resources (IGE) is a SELL and streetTRACKS Gold Shares (GLD) is a BUY.
| Ticker | Fund Name | Purchase | Weight | Change |
| ILF | iShares S&P Latin America 40 | 7/26/05 | 8% | 48.08% |
| EWZ | iShares MSCI Brazil | 7/26/05 | 8% | 66.50% |
| EWW | iShares MSCI Mexico | 7/26/05 | 8% | 35.07% |
| EWY | iShares MSCI South Korea | 7/26/05 | 8% | 30.26% |
| EWY | BUY streetTRACKS Gold Shares | 02/07/06 | 8% | 0.00% |
| EWY | SELL iShares Goldman Sachs Natural Resources | 01/31/06 | 0% | -3.53% |
| EZA | iShares MSCI South Africa | 9/27/05 | 8% | 31.11% |
| ITF | iShares S&P/Topix 150 | 11/1/05 | 8% | 14.04% |
| EWJ | iShares MSCI Japan | 11/1/05 | 8% | 14.05% |
| EWY | iShares MSCI Emerging Markets | 11/15/05 | 8% | 19.07% |
| EWY | Vanguard Pacific VPRS | 12/28/05 | 8% | 3.44% |
| FSICX | Fidelity Strategic Income | 7/26/05 | 10% | 2.74% |
| FDRXX | Money Market | 7/26/05 | 10% | 1.73% |
The portfolio holds about a dozen positions chosen from over 150 current ETF, Rydex and ProFunds no-load sector index funds as well as a 20% position in the Cool Income Portfolio. In troubled markets, this portfolio can be as much as 50% in money funds.
PFI's Best Performance
| 1 - Week | 4 - Weeks | 12 - Weeks | Since Inception |
| -1.79% | 1.42% | 14.77% | 24.05% |
Performance as 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 change throughout the trading day, just like individual stocks. Pricing on this portfolio reflects the closing prices on the day of purchase or sale. Your actual performance may vary. Money Market returns based on Fidelity Cash Reserve (FDRXX). Your yields may vary.
Q&A
Why are you recommending ILF when approximately 88% of its holdings are in Brazil & Mexico which are covered by EWZ & EWW? -- Jim G.
Good question, Jim. These Latin American funds, while they feature a lot of overlap, do provide considerable concentration into what has proven a profitable trend.
Frankly, I like both of their strong up trends and narrow volatility ranges more than I am concerned about their overlaps.
I would rather bet 40% on a long and strong trend than diversify 20% each and have to dilute the trend. If you want less concentration, choose a fund from PFI's Best's junior varsity list: gold, Japan, Topix or Emerging Markets.
Send your questions to mwfeedback@marketwatch.com and be sure to note that it's for PFI.
Bill Donoghue
deschampsziese1954.blogspot.com
Source: https://www.marketwatch.com/story/bye-bye-blue-chips
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