Year End ETF Bargain Hunting

The Year End Bargain Hunter Strategy

Since I first started watching the stock market, I've always noticed that the best performing investments of one year often turn out to be the worst performing the next year and vice versa. Many strategies have been devised to take advantage of this phenomena such as the "Dogs of the Dow" but it seems to be much more predictable using sectors rather than individual companies. Now with so many ETF categories available, you can truly take advantage of the herd mentality.

Since we are in a bull market phase, I am only looking to invest in underperforming sectors and sell any positions that have performed extremely well. In 2004 the best performing ETF was EWO ( Austria iShare ), with a 1 year return of 75.13%. EWO has been benefiting from the birth of capitalism across Eastern Europe. The best performing sector fund was XLE ( Energy Sector SPDR ) which has a one year return of 55.87%. Housing and other real estate sectors have also outperformed in the past year.

Now for finding the bargains! Doing a quick screen we find that there is a clear winner for the biggest loser.... SMH ( Semiconductor HOLDR ) -20.90% and IGW ( GS Semiconductor iShare ) with a -19.96% 1 yr return! Technology in general (IYW) is also down slightly over the past year.

Health Care ( IYH +3.35%) and Biotech ( IBB +1.66%) are two areas that have under-performed in the past 12 months but are slightly positive on the year.

Out of these areas the two that intrigue me are Semiconductors and Biotech. I tend to go with the highest volume ETF's so I'm using IBB and SMH. IBB recently crossed above it's 200 day moving average so that indicates to me the biotech sector is strengthening.



Right now SMH is trapped within a tight range between $32 and $35. The 200 day moving average also comes in at $34 so there is plenty of overhead resistance that needs to be cleared.



Some people prefer not to look at charts and simply move money at year-end into the underperforming sectors. Each investor needs to access their risk tolerance and determine which method is right for them.


Note: This is not intended to be investment advise and is only offered as an illustration of how to use ETF's to find value in the stock market. Please consult your investment advisor prior to making investment decisions.