Making Money Alert: The Best ETF Developments of 2013

The past 12 months have been another banner year for exchange-traded funds (ETFs), but what were the best new developments on the ETF front in 2013? While there are plenty of positive development candidates to choose from during the year, I have narrowed down my personal list to what I think are the three best of the best developments on the ETF front over the past year — and here they are.

1) Hedged currency ETFs

There’s been a lot of upside in Asian equity markets this year, and perhaps the best example is Japan. That nation’s stock market skyrocketed in 2013, and though the upside in the space was stellar, it’s tough not to be concerned about the currency fluctuations with the yen.

To address currency concerns, a lot of investors have embraced ETFs that use currency hedge strategies along with equity index strategies. In Japan, that fund is the WisdomTree Japan Hedged Equity (DXJ). The fund is up nearly 38% during the past 12 months, a gain that crushed the S&P 500’s über-impressive 29% rise.

2) Floating-Rate Funds

Interest rates are on the march, and just last week the yield on the benchmark 10-Year Treasury note spiked more than 3%. This is a trend I expect to continue well into 2014, as the Fed actually begins tapering its bond purchases.

Taking advantage of the move higher in yields are senior loan and floating rate ETFs. Funds such as the PowerShares Senior Loan Portfolio (BKLN) have been the subject of a lot of speculation of late, as they tend to perform well in a rising rate environment. This is a development I expect to see continue well into next year and beyond.

3) Closed-End Fund ETFs

Closed-end funds have been around for some time, but in the second half of the year we’ve seen renewed attention given to closed-end fund ETFs such as the PowerShares CEF Income Composite Portfolio (PCEF).

This fund is essentially a fund of closed-end funds, and it is designed to take advantage of the nature of closed-end funds, which trade on supply and demand and therefore create a premium or discount to their net-asset value. The chart here shows the recent surge in PCEF above its 50- and 200-day moving averages, a trend we currently are profiting from in my Successful Investing advisory service.

Finally, while these three developments in ETF-land are at the top of my list, they are by no means the only positives for ETFs in 2013. Moreover, 2014 is setting up to be another banner year for this asset class, and over the next 12 months we’ll continue to bring you more info on the best sectors to check out going forward.

ETF Talk: Sink Your Teeth Into Soybeans

You may be most familiar with soybeans as the snack, edamame, served at your favorite Japanese restaurant or as a dairy-free alternative to milk in your morning coffee. As a commodity, however, soybeans are ubiquitous in the American food supply. Soybeans appear as protein-rich flour in processed foods, vegetable oil and meal for animal feed. In addition, various forms of fermented and prepared soy are staples of many Asian diets. One ETF that tracks the price of soybeans is Teucrium Soybean (SOYB).

This fund is designed to mirror the daily changes of the weighted averages of the closing settlement prices for three soybean futures contracts traded on the Chicago Board of Trade (CBOT). It normally uses direct investment in those futures contracts, but it may also invest in options on exchange-traded soybean futures contracts or in soybean-based swap agreements.

While soybean demand remains high worldwide, soybean production has more than met the demand, depressing prices. Therefore, the fund is down 3.49% for the year. It was up 0.09% in 2012, after a drought.

As a fund tracking a single commodity, this ETF doesn’t own stock in companies, but it instead has weighted holdings in soybean future contracts, specifically: second-to-expire CBOT Soybean Futures Contract (currently March 2014), 35%; third-to-expire Sobyean Futures Contract (currently May 2014), 30%; and the November CBOT Soybean Futures Contract following the third-to-expire contract, 35%.

Soybeans are a major agricultural commodity, but investing in them is usually done through the medium of futures contracts. Now is not the moment to do so, since, in addition to a good start to the U.S. crop, both Brazil and Argentina have planted soybeans in record numbers. But if you do hear about a problem with the soybean crop or a new industrial application that makes these multi-faceted beans even more valuable, Teucrium Soybean (SOYB) is the ETF tool for taking advantage of that news.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing advisory service. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

New for 2014 at Fabian Wealth Strategies

Next year is going to be big for my investment advisory firm, Fabian Wealth Strategies. In 2014, we have huge plans for an expanded media presence, including more content on our FabianWealth.com website.

Starting in January, you’ll find much more educational material on the website, including more ETF news, and additional weekly, monthly and quarterly updates. We also will provide recaps of all of our podcast segments. But perhaps the biggest news is our return to the radio airwaves.

Beginning Monday, January 6, at 11 a.m. Pacific, you can hear me live on the radio in Palm Springs, Calif., or via the internet, at Money Radio 1200. I’m very excited to be back on live radio again, as it’s a passion of mine, and a great way to help investors make better decisions.

To find out more about what’s in store for 2014, check out our latest podcast.

Happy New Year,

Doug and the Fabian Wealth Strategies team

NOTE: Fabian Wealth Strategies is a SEC registered investment adviser, and is not affiliated with Eagle Publishing.

On Ignorance and Confidence

“Ignorance more frequently begets confidence than does knowledge; it is those who know little, not those who know much, who so positively assert that this or that…”

–Charles Darwin

If you feel like you just know the market is going to go a certain way next year, then most likely you’re ignorant. You see, the fact is that there are a host of unknowns that could affect things in 2014, and nobody knows yet how this will translate into action in the trading pits. My advice to you next year is not to be too confident about things, as that can get you into trouble. Be open to change and aware of developments on the ground. Doing so will enable you to make the correct adjustments as the year unfolds.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

Read my e-letter from last week’s Eagle Daily Investor about how you can profit from the 2014 market’s vital signs. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.

Best,

Doug Fabian