I am sure that all of you know that we had a market pullback last week. Dow Jones Industrial Averages lost about 700 points in a week. Although the market has rebounded yesterday, we can expect high volatility in the next couple of days.

I heard that some people are buying leveraged bull ETFs in this pullback. Their rationale is that we are still in a bull market. This is only a temporary pullback. The market should make a new high soon. By buying leveraged ETFs, they hope to double or triple their profits.

For those who don’t know about leveraged ETF, you can read our previous posting, Leveraged ETF = Getting Rich Quickly. A leveraged ETF is basically a financial derivative that amplifies the return of the underlying index. For example, SSO is a double (2x) leverage ETF of S&P 500 from ProShares. It means, when S&P 500 goes up 1% on a single day; this ETF goes up 2% in price. On the other hand, when S&P drops 2%, this ETF drops 4%.

Should we buy leveraged ETFs? Personally, we had a bad experience with leveraged ETFs in the last market crash. Here is the story:

When leveraged ETFs are still pretty new to the market about 3 years ago, we bought them with a large amount of money. We didn’t do enough research. We didn’t even realize that it amplifies the underlying index on a daily basis. Then, it came market crash in 2008. That’s when we realize that this product is just garbage. As we pointed out in our previous posting, SSO lost –46% from 2006 to 2010; while the underlying index, S&P 500 lost only –11%.

Our recommendation, stay away from leveraged ETFs. It is not a good investment vehicle. If you want to do day-trading with them, it is up to you.

Link

• Leveraged ETF = Getting Rich Quickly

Today, we tried to run our RSI system against our ETF database. Here is the list of ETFs that are leading the market in the last 5 days.

Note that we only choose ETFs with the following criteria:

• average volume at least 100K daily
• no leveraged ETF is included

As you can see, TAN is leading the market today with +5.72% increase. For those who don’t know, TAN is an ETF that invests in solar-cell related companies.

If we go back to 2 days range, we can see that ICF is leading the market with a total of +4.98% increase. ICF is an ETF that invests in large and liquid REIT (Real Estate Income Trust).

Based on a table like above, we can see which sectors or countries are leading the market. For example, we can easily identify that REIT dominates the market this week.

Our first project is a simple ETF screener. We gathered a list of all ETFs traded in the US stock exchange. Thanks to MasterDATA who has provided a free CSV file containing the complete list. Then we use data from Yahoo Finance! to generate various customized screeners. One of them is generating ETF dividend yield.

  Click here to download table of ETF dividend yield (in CSV format)

Here is the 15 ETFs that pay highest dividend as of today.

Links

• Highest Paying Dividend ETFs in Canada
• Highest Paying Dividend ETFs in NYSE

Marketplace had a very nice video explaining SEC’s fraud allegations against Goldman Sachs. Senior editor Paddy Hirsch tried to explain it in a very easy way using an analogy of a horse race.

SEC goes after Goldman from Marketplace on Vimeo.

Million Dollar Journey had an alternative to retirement income ETF portfolio. What ETFs to own to earn high-dividend yield while preserving our capital.

Canadian Dream: Free at 45 had some ideas what to do when interest rates hike later this year. As indicated by Canadian Mortgage Trends, there was a report from Canadian Big 5 Banks that we might see 2.75% interest rate hike by end of next year. Better be prepared.

Some people call it “passive investing”.  Some others call it “index investing”. They are all basically an investing strategy that means buying an index fund or ETF. Beating the index, like S&P 500, is not an easy task. Many fund managers are not able to beat the index consistently. Rather than spending time trying to beat the index, why don’t we just stay with the index?

Coach Potato Portfolio

One of the most popular passive investing is The Couch Potato Portfolio, created by Scott Burns. The idea is to invest in:

• S&P 500
• Shearson/Lehman Intermediate Bond Index

Investors can adjust the percentage of allocation based on their risk tolerance. For example, investors with higher tolerance can invest 75% in S&P 500 and 25% in the bond index.

Lazy Portfolio

Another popular passive investing in Lazy Portfolio from Paul B. Farrell. Paul has 8 different lazy portfolios depending on how complicated or how simple you want. One of Paul’s simplest portfolio is Second Grader’s Starter. It invests in Vanguard mutual funds:

• Vanguard Total Stock Index
• Vanguard Total International Stock Index
• Vanguard Total Bond Index

If you are interested to learn more about Paul’s Lazy Portfolio, you can read his book, “The Lazy Person’s Guide to Investing”.

Permanent Portfolio

Harry Browne has passive investing, called Permanent Portfolio, with unique approach since he’s recommending large amount of cash and gold. His permanent portfolio consists of:

• 25% in US stocks
• 25% in long-term US Treasury Bonds
• 25% in cash
• 25% in precious metals (gold especially)

If you are interested to learn more about Harry Browne’s Permanent Portfolio, you can read his book, “Fail-save Investing: Lifelong Financial Security in 30 Minutes”.

We just found an article on Artremis that lists all ETF issuers in the US with their total assets. The biggest one is, no surprise, iShares that is owned by BlackRock. Here is the 10-ten list of largest ETF issuers in the US:

15% US Index

• PowerShares QQQ Trust, Series 1 ETF (NASDAQ:QQQQ)
• BlackRock Enhanced Capital and Income Fund (NYSE:CII)

15% Canadian Index

• CIBC Canadian Index (CIB300)

15% Emerging Market Index

• Claymore Canadian BRIC ETF (TSE:CBQ)
• Market Vectors Brazil Small Cap ETF (NYSE:BRF)
• Claymore/AlphaShares China Small Cap ETF (NYSE:HAO)

30% Fixed Income

• TD Canadian Bond Index (TDB966)
• iShares iBoxx High Yield Corporate Bonds ETF (NYSE:HYG)
• PowerShares Financial Preferred Portfolio ETF (NYSE:PGF)

5% REIT

• Vanguard REIT ETF (NYSE:VNQ)
• iShares Canadian S&P/TSX Capped REIT ETF (TSE:XRE)

Notes

• For the US index, we basically invest in Nasdaq-100 and S&P 500. We use a closed-end funds (CII) for S&P 500 because of its dividend. Check also our posting here for a couple of different closed-end funds that replicates S&P 500.
• Although Canada represents only 2% of the world GDP, we maintain a pretty high percentage of Canadian index. Why? It’s just because we live in Canada. Our “native” currency is Canadian dollar.
• We know that CIBC Canadian Index might not be the best mutual funds. However, we have to keep it this way until end of next year.

Are you familiar with leveraged ETF? For those who don’t know, here is the description from Investopedia.com:

An exchange-traded fund (ETF) that utilizes financial derivatives and debt to amplify the returns of an underlying index.

These ETFs are usually double (2x) or triple (3x) the underlying index. For example:

• SSO is a double (2x) leverage ETF of S&P 500 from ProShares. It means, when S&P 500 goes up 1% on a single day; this ETF goes up 2% in price. On the other hand, when S&P drops 2%, this ETF drops 4%.
• EDC is triple (3x) leverage ETF of MSCI Emerging Markets Index from Direxion. It means when the index goes up 1%, this ETF goes up 3% in price. The same is true for the downside.

Is this an easy to way to get rich quickly? When these ETFs were pretty new in the market a couple of years ago, we think it is. We were dreaming that we could easily beat the index by investing in these ETFs. We didn’t do more research at that time. We invested *a lot* of money in a couple of leveraged ETFs. What happened then? We were totally doomed, especially during the recession.

These ETFs amplify the underlying index only on a single day. It doesn’t accumulate for longer period of time. Let’s take an example:

• Day 0: S&P 500 is at 1,000. Our triple leveraged ETF for S&P 500 is at $100.
• Day 1: S&P 500 goes down by 10% to 900. Our ETF drops 30% to $70.
• Day 2: S&P 500 goes up by 12% to 1008. Our ETF goes up by 36% to $95.2.

As you can see, after the second day, S&P 500 is higher than day 0; but our ETF is still below day 0.

The chart below the comparison of SSO and S&P 500 from June 2006 to today. As you can see here, the return of S&P 500 in this period is –11.66%. However, the return of SSE is –46.93%.

Be really careful when investing in leveraged ETFs. We don’t invest in any of leveraged ETFs today.

A couple of days ago, someone posted a question at Canadian Money Forum about Canadian ETF screener. The good news is that there are only four ETF issuers in Canada, i.e.:

• iShares Canada
• Claymore Canada
• Horizons BetaPro
• BMO

So, as mentioned by Canadian Capitalist, we can just visit the web site of those companies and see what they have.

Alternatively, GlobeInvestor.com also provides a stock filter that can be used to search for ETFs. Go to the following URL

http://www.globeinvestor.com/v5/content/filters

and then select “ETF” in the “Security” box. Also make sure that “Toronto Stock Exchange” is selected in the “Exchange” box.

Links

• High Paying Dividend ETFs in Canada
• High Paying Didend ETFs in NYSE

As always, we remind you to consult your financial advisor before buying any of these ETFs. Also be aware of ETFs with very low volume. As you might know, many ETFs are now in the list of ETF Death Watch. We personally owns iShares High Yield Corporate Bond ETF only from this list.

Update (19-Feb-2010): As we mentioned in our previous posting, the data are coming from GlobeInvestor.com web site as of the date of this posting. There might be differences as the stock prices move up/down or because of dividend raise/cut.