May 15, 2015 3:01 am

Top Ranked Rotation Strategies

Posted In: Uncategorized

Hello- Thought you'd be interested to see some of the most popular strategies involve ETF Rotation. If you're going to do rotation, be sure to get it right and protect yourself from downside moves. Reply to this email or contact Delta at 415-249-6337 if you'd like more information. Best wishes for your success, Jackie Ann Patterson Author, Truth About ETF Rotation


Delta Investment Management is a registered investment advisory firm specializing in tactical investment strategies. Delta manages client portfolios in separately managed accounts at Charles Schwab and TD Ameritrade. Please contact Delta at [1] or 415-249-6337 if you would like to explore opening an account. [2]Sign up to receive the Delta Wealth Accelerator weekly newsletter by clicking here[3]. ______________________________________________________________________

May 8, 2015

1 Year, $3 billion, #1 Rank

The #1 ranked newly launched Exchange Traded Fund (ETF) over the past year in terms of attracting money is the First Trust Focus Five (FV). FV began trading on March 6, 2014 with just under $2 million. Today, the fund has approximately $3 billion in assets.

What causes a fund to collect $3 billion dollars in about one year? 1) a great marketing organization -- First Trust, the FV sponsor, grew 68% last year and has total assets in excess of $100 billion with a 100+ person nationwide sales team, 2) an easy to explain story, 3) convenience and 4) performance.

Story: The Focus Five is a portfolio constructed of top performing First Trust sector ETFs. It is an ETF of ETFs. It measures the relative strength of 20 First Trust sector ETFs and buys the five strongest. The relative strength model used to select positions is managed by Dorsey Wright & Associates, an experienced relative strength manager. FV currently owns biotechnology, healthcare, internet, consumer staples and consumer discretionary First Trust sector ETFs. It is a concentrated portfolio. It does not have the option to shift into defensive positions if the market turns down. An investor in the Focus Five should expect to experience volatility greater than the S&P 500 index.

Convenience: By owning FV, an investor does not have to pick sectors. The Focus Five will do this automatically.

Performance: Since inception, Focus Five is up about 18% versus the S&P 500 advance of about 13%. Much of the out-performance can be attributed to the fund’s exposure to biotechnology. Since the October 2014 lows, the biotechnology sector is up more than 30% relative to the S&P 500 advance of 12%.

Result: $3 billion of assets in one year.

Focus Five came to market at a good time. For the past five months, the S&P 500 has effectively traded sideways. Market momentum is stalling as S&P 500 earnings for the past two quarters have declined year-over-year. With earnings down, Fed Chairwoman Janet Yellen pointed out this week that stock prices are “quite high” and risk is elevated. This is especially true if interest rates rise on a sustained basis. In the past three weeks, the 10-year U.S. treasury yield has climbed by about 20%.

With this backdrop, outsized performance can be blinding. As the investment becomes hotter, hot money flows faster. Caution is thrown to the wind. Investors might look past issues that would normally cause hesitation.

The attractive part of the Focus Five is a concentrated portfolio of the best performing sectors of a bull market which should deliver better than benchmark results during bullish cycles.

The negative is what might happen to a concentrated sector portfolio in a bear market. Actually, we saw a preview of this during the first month FV traded. The ETF lost about 13% of its value compared to the S&P 500 index loss of about 3% by having high relative exposure to biotechnology. The period of turbo loss lasted for only about a month as the biotech sector bounced back. The S&P 500 has generally been in a bull move since last March. Today, about 45% of the FV is invested in the health care and biotechnology sectors as there have been no trades/rebalancing since inception. If the market were to roll-over, there is no escape hatch for the FV to rotate into. The onus of asset protection is on the investor to sell their FV position if downward momentum becomes unacceptable.

Delta Investment Management is a registered advisor. As an advisor, we see asset protection as an important part of asset management. We have difficulty allocating capital to the Focus Five strategy as we know there is no process to lower exposure to stocks in an extended equity market downturn. We have already seen high levels of negative volatility in the first year of trading and expect this characteristic may reappear.

On the other hand, we do like the upside potential of the Focus Five. We intuitively are attracted to the concept of buying the best performing sectors of the economy, particularly during a time when overall economic growth is slow.

Delta has several strategies that are similar to the Focus Five. Our relative strength rotation strategies are called Opportunity, Capital Appreciation and Multi-Fund Diversified. All three of these investment strategies have two key advantages over the FV:

1. They have defense – a rules-based plan to protect principal. These strategies may transition 100% into cash and U.S. treasuries if these are the best performing assets or if equity market risk is elevated, and 2. They have more opportunity. Focus Five is a sector fund that can only pick five positions from a pool of 20 candidates. Delta’s strategies may select positions from a much larger candidate pool that includes sectors, styles (value, growth), size (small, mid and large) and geography (U.S., emerging markets, developed international markets).

Delta’s Opportunity, Capital Appreciation and Multi-Fund Diversified strategies are open to thoughtful and informed investors who would like their accounts managed on the institutional platforms by Delta of either TD Ameritrade or Charles Schwab by Delta in a dynamic manner.

Delta Market Sentiment Indicator (MSI) as seen in [4]Barron’s

[5]Sign up to receive the Delta Wealth Accelerator weekly newsletter by clicking here[6].

As always, if you have any questions or any interest in our tactical strategies and our wealth management solutions, please give us a call at (415) 249-6337 or email us at [7] ___________________________________________________________________________ ___ Pursuant to the provisions of Rule 206(4)-1 of the Investment Advisors Act of 1940, we advise all readers to recognize that they should not assume that recommendations made in the future will be profitable or will equal the performance of past recommendations. This publication is not a solicitation to buy or offer to sell any of the securities listed or reviewed herein. The contents of this letter have been compiled from original and published sources believed to be reliable, but are not guaranteed as to accuracy or completeness. Nicholas Atkeson and Andrew Houghton are also principals of Delta Investment Management, a registered investment advisor. Clients of Delta Investment Management and individuals associated with Delta Wealth Accelerator may have positions in and may from time to time make purchases or sales of securities mentioned herein.



Delta Investment Management One California Street, Suite 2800 San Francisco, CA 94111 (415) 249-6337 [9]


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This message was sent to from: Jackie Ann Patterson | | Own Mountain Trading Company | PO Box 620427 | Woodside, CA 94062-0427

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