David Fabian is Managing Partner and Chief Operations Officer of FMD Capital Management. David began his investment career in 2007 by co-founding a fee-only registered investment advisory firm and swiftly grew that company to over $100 million in assets. In 2013 he started FMD Capital Management with the commitment to build a world class investment firm focused on client service, investment discipline, and accountability. He has years of experience implementing actively managed growth and income portfolios using ETFs and mutual funds. David is often quoted in the Wall Street Journal and writes a daily ETF column for Benzinga. He is also a regular contributor on Investopedia, Seeking Alpha, Minyanville, TheStreet, InvestorPlace Media, and NASDAQ.com. David’s contact information: david@fmdcapital.com or 888-823-8111 x286

High Yield Bond Risk - Time for Defensive Strategies?

Investors have poured billions of dollars into Exchange-Traded Funds focused on high-yoeld securities. In this article, David Fabian of FMD Capital Management addresses the recent volatility in high yield bond ETF's and defensive strategies to protect capital.  Click here for David's article.

 

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3 Value ETF's for a Surging Market

Written by David Fabian of FMD Capital Management.   The stock market has now broken out to new all-time highs and many investors may be ill-positioned to take advantage of the latest surge.  Based on sentiment indicators, fund flows, and structural positioning the overwhelming momentum has been with defensive areas of the market.

The unrelenting decline in interest rates and grasp for yield has been a tremendous beneficiary to traditional safe havens.  Treasury bonds, utility stocks, REITs, low volatility indexes, and precious metals have all surged this year. 

But what about the areas that have been overlooked or just plain abandoned altogether?

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Emerging Interest in Energy ETF's - Rebound Coming?

oilgasWritten by David Fabian of FMD Capital Management.     A year ago I wrote an article about the unconventional trend of fund flows into energy ETFs as prices continued to plummet.  The surprising fact is that investors were pouring more and more money into these funds even as deflation continued to decimate both commodity futures and energy stocks.  This runs contrary to the typical cycle of outflows in a plunging asset class as fear of further losses sets in.

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Hedging Your Investment Portfolio - ETF Opportunities

Written by David Fabian of FMD Capital Management.   Hedging your portfolio is a strategy that is often employed by those who want to take out some downside protection against the possibility of a market drop. The most successful application of this process is to reduce your exposure in highly appreciated long positions with the assets that demonstrate inverse or non-correlated properties to the broad equity market.

This will allow you the flexibility of reducing your risk profile without having to shift your holdings to cash or disturb your existing cost basis in a taxable account. Playing defense in the midst of a correction or even a bear market may help you sleep better at night knowing that your capital has some layer of protection from a measured move lower.

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Propensity for Panic

Written by David Fabian of FMD Capital Management.    In this video series, we take a look at the panic that has gripped the stock market in the first month of 2016. This review includes several key charts, trends to watch, and important levels we are monitoring at this time.  Recorded after the market close on January 28, 2016.

Click here for the video.

A log of our previous videos are posted here.

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Why Trying To Avoid Every Dip Is A Fool’s Errand

Written by David Fabian of FMD Capital Management.    The unprecedented volatility to start the year has brought out nearly every type of expert opinion on the best way to ride out the storm. I have heard arguments ranging from “stay the course” to “this is just the start of the crash”.

Let me be clear by saying that absolutely no one knows what is going to happen over the next three to six months. We could be another 20% lower, 20% higher, or virtually anywhere in between. Anything can happen and to have 100% conviction in just one outcome is the sign of someone who is completely unhinged from reality.

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A Disturbance In The Force: The Bull and Bear Case

Written by David Fabian of FMD Capital Management.     Starting in the hole for the year sucks.  It’s psychologically defeating and immediately makes you feel like you are playing catch up for the entire first quarter, if not the first half.  Most investors I speak with are rightfully scared and questioning the “buy the dip” game plan that worked so steadily over the last several years.

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Tips To Successfully Invest In Sector ETFs For 2016

Written by David Fabian.    This time of the year is full of investment predictions for the New Year.  These expectations typically run the gamut from an extension to new all-time highs versus the apprehension of the next bear market cycle.  Yet, sprinkled in between are numerous calls for individual sectors that are expected to outperform in the current market environment.

These forecasts are generally built on solid technical or fundamental themes that should provide a tailwind for specific areas of the market.  Often times they are predicated on the continuation of an existing trend or the expectation of a reversal given new data or emerging themes.

With that in mind, these tips should help you improve your investment success with individual sector funds.  Read the complete article at NASDAQ.com

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Pessimism Reigns Supreme On Wall Street

Written by David Fabian of FMD Capital Management.   On the Investor Insights blog we have been providing a great deal of coverage on the divergences between the “haves” and “have nots”. The performance chasing in high flying stocks like Amazon, Netflix, Google, and Facebook has created a wide gap between the “average” stock in the S&P 500 Index.

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Examining A Year Of Weak Returns For Diversified Portfolios

bull bear2015 will be over before we know it and despite a great deal of jostling in the stock and bond markets, the net effect has been very little real gains for diversified portfolios.  A look at a typical 60/40 mix of stocks and bonds in the iShares Growth Allocation ETF (AOR) is currently sitting at a total return of just 0.33% this year.  Not the worst outcome and there is a little bit of time left to improve on that number, but certainly nothing to write home about.   

This balanced mix of stocks and bonds is a very common asset allocation structure in the investment world.  You find it in everything from multi-billion dollar endowments to hedge funds, retirement plans, and individual investor portfolios.  Everyone loves to quote the percentage gain in the S&P 500 Index, but at the end of the day, most realistic portfolios are closer in alignment to a mix of multiple asset classes.  The goal of this diversification is to reduce the overall risk profile (or draw down) of the capital invested.

The last time AOR achieved such meager results was 2011, when it posted a gain of just 1.16%.  Nevertheless, that was followed by a gain of 11.36% in 2012, 15.92% in 2013, and 6.22% in 2014.

There is hope for the future, BUT the continual sector rotation carousel seems to be creating a lack of cohesive growth in stocks.  When you couple that with the real threat of rising interest rates weighing on bond prices, you have a recipe for weakening gains and overall frustration across the investment landscape.

There are individual publicly traded companies that have achieved phenomenal growth this year.  For example, Amazon Inc (AMZN) and Netflix (NFLX) have more that doubled their share prices in 2015.  However, those success stories are isolated anomalies in the broader context of the U.S. stock market.  Counteracting those high flying headliners are disasters like the 30% drop in Wal-Mart Stores Inc(WMT) and 40% decline in Alcoa Inc (AA), just to name a few.

Simply put, the tug of war between individual company performance has created a bifurcated sector map that has seen little net growth in most broad-based equity indices.  To further illustrate this point, the Guggenheim S&P 500 Equal Weight ETF (RSP) is virtually flat in 2015.

This type of environment may favor sector-specific strategies or niche portfolios with oversize exposure to high momentum areas of the market.  However, those same groups often come with a higher associated risk of being in the wrong place at the wrong time as strength transitions to fresh names.

Trust In The Process

Written by David Fabian of FMD Capital Management.     During periods of lackluster returns, its easy to lose faith in your investment strategy or start to get antsy to make changes.  We live in a society of instant gratification and are bombarded with information at a tremendous pace.  Sometimes its like trying to drink from a fire hose.

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The Risks of Selling the Rally

asset allocation thumbWritten by David Fabian of FMD Capital Management.    Investors that were fortunate to buy into the hole in either August or September have now been rewarded with a double digit gain on most broad-based indices.  What began with some skepticism as just a short-covering binge has now morphed into the notion of a full blown recovery.  There is even quite a bit of debate on whether or not we could take out the prior all-time highs on the S&P 500 Index before the year is out.

Of course, if you had the tenacity or good luck to buy the dip, you may question the risks of overstaying your welcome on the upside.  Those that took a more active approach in loading up on stocks near the lows are likely just as leery of a blow off top that ends in a swift and pernicious drop.

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Can The Stock Market Return to New Highs?

Written by David Fabian of FMD Capital Management.     Surely one of the most incredible, and often times frustrating tendency in the stock market, is for the major indices to rally in the face of so much adversity.  Just when it appears that the world is falling apart through a combination of fundamental, technical, and cyclical factors, some unseen force comes through to unwind the negativity. 

This is also why its so difficult to forecast where stocks are headed with a high degree of conviction.  Last month all of the experts on TV told us we were headed for (or already in) a bear market.  Now those exact same talking heads are waving the all clear flag and talking about how the coast is clear.  What changed in so short a time frame?

There is a great saying on Wall Street that I will paraphrase as: nothing changes sentiment like price.  Meaning you are apt to get more bearish on the way down and more bullish on the way up.  It’s natural to become risk averse when you are losing money and want to get back in when it appears everyone else is riding prices higher.  Fighting those impulses, or adopting a counterintuitive mindset, can be one of your greatest allies throughout your investing career.

Examining where we are at in the current market, there is no doubt that the recent jump in the SPDR S&P 500 ETF (SPY) has been forceful.  I believe that many were positioned for more volatility ahead and were caught off sides when stocks all of a sudden adopted a resilient tone.

spy

This most recent leg higher appears different than the September fake-out.  Even modest dips have been bought throughout the rally and stocks have managed to keep down days to minimal blips on the radar.  This ultimately creates a “fear of missing out” (FOMO) that propels more and more investors back into the market as they try to recoup their losses or finish the year on a positive note.

No one wants to be the guy who sold and went to cash when their account was down 5%, only to see the market rally and finish the year with a 5% gain.  However, there is the potential for just that type of scenario to play out.

I’m not here to wave the green flag and tell you that you are going to miss a huge opportunity over the next two months.  By contrast, I am hesitant to put new money to work in stocks after such a big move to the upside.  I think that a more conservative approach of laddering back into new positions over time or looking to buy on weakness would serve you much better at this stage of the game.  Jumping in with both feet and whole lot of hope isn’t a sustainable investment approach.

One area of the market I have my eye on right now are semiconductor stocks.  There has been a great deal of M&A activity in this industry over the last several weeks in addition to a change in overall trend.  The iShares PHLX Semiconductor ETF(SOXX) is a market-cap weighted index of 30 companies in this sector.

soxx

After falling steeply in the third quarter and leading on the downside, SOXX has experienced an enviable snap back in recent weeks.  From a technical perspective, I think its worth noting that SOXX put in a higher low in September that was a positive sign of divergence from the broader market.  This has likely created a new momentum category that both growth and income investors should be mindful of through the remainder of the year.

The Bottom Line

The stock market loves to head fake us into uncomfortable decisions at the worst possible times.  That is why it is imperative that you make changes to your portfolio with a well-defined risk profile and sound investing principles.  My preferred tactic right now is to use a balanced asset allocation structure to survive market volatility and still participate in any additional upside momentum that carries us into year-end.

 

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Why Managing Money Is So Hard

exaggerationWritten by David Fabian of FMD Capital Management.     There are many casual observers in the investment world that probably think managing money is easy. All you have to do is come up with some sort of strategy that involves a definable technique or asset allocation structure. The next step is to align yourself with like-minded investors who favor your style above the other suitable variants. Then stick to the rules by implementing the strategy in their accounts and everyone is happy.

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Taking Stock Of International ETFs After The Sell Off

Written by David Fabian of FMD Capital Management.     Exchange-traded funds (ETFs) that track international markets started the year with tremendous promise that ultimately lost ground to a host of fundamental concerns. Despite the best efforts of the European Central Bank to stimulate economic growth through quantitative easing programs, both developed and emerging markets overseas have seen momentum vanish in 2015.

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Two Ways To Ruin Your Retirement Portfolio

escaltorWritten by David Fabian of FMD Capital Management.   I always enjoy working with investors who are fully engaged in living their retirement dreams.   For some that means spending time with their grand kids or taking up new hobbies.  Others have more time to devote to their investment portfolio and planning the right path forward for their hard-earned nest egg. 

Investors currently in retirement are usually more risk averse than those who have time and a consistent income steam to make up for bad decisions.  During the growth phase of your life, you can afford to be more cavalier with your investment portfolio or take greater risks.  However, there is a different (more conservative) mindset that comes with the knowledge that you are no longer able to make up for a big mistake.

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The News Is Always Worst At The Bottom

Written By David Fabian of FMD Capital Management.     There is an old saying on Wall Street that I will paraphrase as: the news is always best at the top and worst at the bottom. That is because good news drives buyers in and bad news generally causes widespread selling and/or panic as sentiment reaches extremes. Once all of the band wagon investors have either jumped on or stepped off a trend, the price begins to reverse course.

This axiom is more of an observation of investor behavior rather than an actionable trigger for calling tops and bottoms. However, I am reminded of this logic when I look at the situation in emerging market countries and even more so with Brazil.

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Are Energy ETFs Primed For a Comeback?

Written by David Fabian of FMD Capital Management.     Without a doubt, one of the more shocking revelations from the 2015 stock market correction is how sharply crude oil prices are rebounding. Just when you turn your back on the seemingly endless sea of red in this sector, it begins to perform during one of the most stressful periods of the last three years. That counterintuitive psychology is what makes investing so difficult and at the same time quite alluring to those of us who follow the market’s fickle machinations.

The United States Oil Fund is an exchange-traded fund that tracks the daily price movement of West Texas Intermediate Light Sweet Crude Oil futures contracts. This fund has $2.9 billion in total assets and a total expense ratio of 0.72%.
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Why The Drop In Stocks Feels So Painful

Written by David Fabian of FMD Capital Management.     The last week and a half has certainly been a roller coaster ride of emotions in the stock market.  After a 3-day sell off that culminated in extreme levels of fear, broad-based equity benchmarks managed to stage a sharp rally that has alleviated (some) feelings of panic.

By the numbers, the SPDR S&P 500 ETF (SPY) fell 12% from all-time July high to the depths of the August lows.  It has subsequently rebounded half of that decline as we head into the first days of September. spy

While there is still a great deal of work to be done in order to recoup the full extent of those losses, examining how your portfolio performed in the midst of the chaos can be a helpful exercise.  Many investors may be surprised at how deeply their accounts fell despite the intention of having a relatively balanced or even conservative asset allocation.

The Shock Absorber Is Missing In Action

One of the most underwhelming asset classes during this sell off in stocks has been the lack of performance in high quality bonds.  Since SPY peaked on July 20, theiShares U.S. Aggregate Bond ETF (AGG) has gained just 0.39%.  This weak follow through was mirrored in the iShares Investment Grade Corporate Bond ETF(LQD) and iShares 7-10 Year Treasury Bond ETF (IEF), which gained a timid 0.19% and 1.57% respectively.

agg

Typically, during periods of extreme stock market volatility, we see a flight to quality in bonds that helps cushion the draw down in our portfolios.  This is one of the primary benefits of multi-asset diversification and helps alleviate overwhelming conviction in a single high risk outcome.  Those who have come to rely on the strength of bonds during a sell off have been let down over the last several weeks.

Put simply, if your bonds aren’t marginally offsetting the losses in stocks, you are going to feel the pain of those losses more acutely. 

In my opinion, most of this indecision in the bond market is due to three factors:

  1. We had a strong sell off in Treasury yields (jump in bond prices) during June and July that left fixed-income investors near the high end of relative valuations. This put the bond market in a precarious spot right as the mini stock storm descended.
  2. Many investors in stocks are wary about transitioning to high quality bonds in front of a near-term interest rate hike by the Federal Reserve. After 6 years of zero interest rate policy, there is no way to know exactly how the fixed-income markets will react to this first adjustment.
  3. The CBOE 10-Year Treasury Note Yield (TNX) jumped sharply higher as stocks staged a comeback late last week. This may point towards an opportunistic rotation out of bonds and back into stocks for those that were looking for a spot to buy well off the recent highs or feared missing out on a V-shaped recovery.

The Bottom Line

Most aggregate bond funds are sitting near the flat-line for the year and have yet to participate in a meaningful way for 2015.  Nevertheless, I’m not looking to reduce my overall exposure for clients at this juncture.  In my opinion, this asset class still represents a solid foundation for balanced or conservative investors to bolster their income and lower total portfolio volatility.

I prefer the risk management and security selection that comes with an actively managed ETF such as the SPDR DoubleLine Total Return Tactical ETF (TOTL).  Now more than ever, it is important to be flexible with respect to credit and interest-rate positioning as the Fed transitions to a new fiscal policy phase.

I pointed out last week that it’s important to make changes on the stock side of the portfolio that are based on rational intermediate or long-term strategy, rather than short-term fear.  This may include lightening up overexposure into a rally or taking advantage of new opportunities from your watch list during a correction.

Above all, don’t let these periods of uncertainty get the best of you.  Make sure you have a game plan for what you are going to hold or when it makes sense to fold.  That way you are prepared for multiple outcomes and able to implement a decisive investment strategy to improve your long-term results.

Looking for new ETF ideas? Check out our library of free special reports on growth and income investing.

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3 Sectors To Watch In The Second Half Of 2015

sectors04242015Written by David Fabian, FMD Capital Management

The S&P 500 Index was nearly unchanged in the first half of 2015, yet the divergences in underlying sectors told a very different tale. The tepid return in the major averages was generated by weakening in interest rate sensitive areas and continued strength in high growth leadership categories. This tug-of-war style market has created a relative valuation chasm between several important sectors that warrants close attention.

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Recent Thoughts On Trend Following And Long-Term Moving Averages

Written by David Fabian of FMD Capital Management

Technical analysis of the market price in relation to its long-term moving averages can be a helpful tool in deciphering trend direction and areas of potential support or resistance. These never turn out to be perfect inflection points, but can provide guideposts for those inclined to take a more active approach to portfolio management.

More recently, the sideways grind in the major averages has created a narrowing of the percentage difference between the current price and the long-term moving average. I think it’s important to point out this effect and its potential ramifications for trend followers.

Looking at a chart of the SPDR S&P 500 ETF (SPY), it’s easy to see that little forward progress has been made this year. Nevertheless, the 200-day simple moving average (smooth red line on the chart) has been steadily moving higher as it continually adjusts to the higher prices in the market.

SPY

The 200-DMA of SPY started the year near 193 and is now sitting at 204. That represents an increase of approximately 1.8 points per month and has now narrowed the spread to less than 3% below the current price of SPY.

TRANSLATION: Those that use the 200-day moving average as a buy and sell signal would be forced to liquidate their positions if the market fell just 3%.

That’s a very narrow margin of differential that will have to be evaluated in the context of your personal risk tolerance and long-term game plan.

There are three things that could happen from this point:

  1. Stocks blast off from here and give us some breathing room between the price of SPY and the 200-day moving average.
  2. Stocks continue to trade sideways for another 3-4 months until the price of SPY seemingly runs into the 200-day moving average.
  3. Stocks drop and cross below the 200-day moving average, which would ultimately force a decision on reducing exposure or not.

Obviously those that are fully invested would prefer option one. However, the other scenarios are also quite likely as well and must be evaluated accordingly.

The most dangerous situation for trend followers is a quick drop that culminates in a whipsaw back to the highs. This scenario unfolded back in October 2014, when SPY spent four trading days below the 200-day moving average and then quickly recovered. Those that sold likely found it difficult to put money back to work in stocks or were forced to add back at even higher prices.

Nevertheless, that this is trade off in risk that you assume when you implement stop losses to protect your capital. Risk management can be a double edged sword.

My personal preference at this stage is to give stocks more leeway for at least a modest pullback. A 5-6% dip would put SPY near its January lows and make for a more natural zone of support. This level would more than likely carry greater weight than the long-term moving average at this juncture.

Of course, your own personal game plan should be dependent on your current exposure, cost basis, and risk tolerance. Every pullback should be independently evaluated according to how you are positioned heading into it. Many times these are excellent opportunities to put new money to work in areas of the market that have been on your watch list as well.

Looking for new ETF ideas? Check out our library of free special reports on growth and income investing.

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