Some traders focus all of their time, capital and attention on individual stocks. This can be a double-edged sword. On the one hand, focusing on individual stocks can produce outsized gains. But, of course, the opposite is also true; a trade gone bad on an individual stock can be financially painful, which is why some traders opt for ETFs. On the surface, ETFs seem to offer some diversity and protection. But is this always the case? Not necessarily. And this is why you need to fully understand “what lies beneath” each ETF before you add them to your portfolio.
As an example, you may identify an ETF that represents a specific sector that you believe has promise. But do you actually know what specific stocks make up that ETF? Or do you know the weighting of each stock that makes up an ETF? Most traders would say no. But knowing this information could help you make better decisions.
For example, you might decide to buy an ETF that represents small cap stocks, which on the surface might seem like a good idea. But what if there are stocks in the ETF that are technically broken that could have a negative impact on overall performance? You would have no way of knowing this, unless you examined every individual stock in the ETF — a time-consuming exercise indeed.
At EarningsBeats.com, we offer a service which includes providing our members with specific ETFs that make up our “Model Portfolio”; those ETF’s we believe are poised to outperform the S&P. Since its inception in October of 2020, the Model ETF Portfolio has come close to matching the S&P during that period of time. The most current quarter — which ends this upcoming Monday — lagged the S&P, primarily due to the sudden shift from growth to value stocks. But a few of the ETFs in the Model portfolio matched or beat the S&P, like PAVE, which was higher by 13.2% compared to the S&P of close to 10%.
But the prior quarter saw our Model ETF climb higher by almost 17%, compared to the S&P moving 11% higher during the same period of time. And now we are getting ready to unveil a new batch of ETFs this Monday — which are meant to be held for a full 90 days — when our Chief Market Strategist Tom Bowley will reveal during a member webinar which ETFs he believes provide the best opportunities given the current market environment. Tom’s overall theme as he searches for and unveils those ETFs he believes can outshine the S&P is “Know What You Own,” which includes all of the beneath-the-surface homework necessary to identify the “best of the best.” If you would like to learn more about this Monday’s ETF webinar — as well as a special FREE event this Saturday, April 17, where Tom will be discussing Q1 Earnings — just click on this link to register.
In the meantime, if you decide that ETFs suit your trading style rather than individual stocks, make sure you know EXACTLY what you are buying before you commit to the trade.
At your service,