Position Sizing: Key to Maximizing Returns

In a time when market volatility and equity preservation is of utmost importance, determining the correct number of shares to buy, or “position sizing”, is key to maximizing returns and minimizing risk.

The common investor generally doesn’t spend much time thinking about how many shares to buy or how significant of a position to take.  Instead, most investors use a common methodology of trading the same number of shares each time, which usually translates to a specific dollar amount.  Other, more sophisticated investors, opt to allocate a certain percentage of their portfolio value to a specific position. Following this train of thought, a new position in a portfolio of $100,000 would transcribe either a $10,000, or 10%, investment or a usual position of 50 shares.

Although these methods may work for some, using the volatility of a specific portfolio is likely to be the most effective decision tool.  Measuring a portfolio’s overall volatility enables an investor to decide on what percentage of that portfolio he is willing to risk losing on the new position.  This methodology is better explained through the following example.

How to Play Rising Gasoline Prices

as published at  http://www.stockpickr.com/how-play-rising-gasoline-prices.html

NEW YORK (SmartStops) — President Obama made some commentsover the weekend that there is no “silver bullet” to help bring down gas prices. While this isn’t what most Americans want to hear, investors and traders can profit from rising gasoline prices to help hedge their daily expenses.

If you believe that Obama is right, here are a few ways to profit from rising gas prices, either by playing certain ETFs or specific equities.

In his weekly radio address, Obama said: “Now, whenever gas prices shoot up, like clockwork, you see politicians racing to the cameras, waving three-point plans for $2 gas. You see people trying to grab headlines or score a few points. The truth is, there’s no silver bullet that can bring down gas prices right away.”

Foreclosure Inventory Could Hinder Real Estate ETFs

As the number of foreclosures around the nation continues to climb, a massive flooding of these homes into the market could result in a supply shock which could eventually depress real estate prices, affecting the iShares Dow Jones US Home Construction (IYB), PowerShares Dynamic Building & Construct (PKB) and the SPDR S&P Homebuilders (XHB).

According to Clea Benson of Businessweek, the inventory of foreclosed homes that government-controlled Fannie Mae (FNMA) and Freddie Mac (FMCC) currently have has quadrupled over the past three years and stands at a whopping $24 billion.  Furthermore, the physical number of homes that these two companies own has increased to nearly 242,000 and is likely to continue going up.  In fact, RealtyTrac, a data company specializing in compiling data on residential real estate, expects the number of homes subject to foreclosure filings to rise by as much as 20 percent this year. 

Medical Device ETFs Destined To Shine

Increased demand from emerging markets and domestic macro factors are expected to be major driving forces behind growth in the medical device and biotechnology sectors and the exchange traded funds (ETFs) that track them.

Emerging markets are expected to be at the forefront of economic growth for the next few years as many are rich in natural resources, which are expected to be in high demand in the near future, and most are much more nimble than their developed counterparties which enable them to grow at a more rapid pace.  Furthermore, many emerging nations were able to shun themselves from the global financial crisis due to lack of exposure to global credit markets and the natural propensity to save that is instilled in their consumers.

Two ETFs To Reap Earnings Growth In Financials

Despite facing new and fresh stress tests, large-cap financial institutions appear to be positioned for earnings-per-share growth in 2011, making the Financial Select Sector SPDR (XLF) and the iShares Dow Jones US Regional Banks Index Fund (IAT) attractive.

According to an article in Barron’s magazine, Credit Suisse expects large-cap financial institutions like Bank of America (BAC), JP Morgan Chase (JPM), Wells Fargo (WFC), PNC Financial Services (PNC), US Bancorp (USB) and Citigroup (C), to witness earnings-per-share growth of 25 percent.  The true driver behind this profitability is expected to be improving credit costs and more active capital management. 

4 ETFs To Play Surge In E-Commerce

Over the recent holiday period, the e-commerce sector witnessed exceptional growth as many consumers opted to shop on-line, as opposed via the traditional brick and mortar storefronts, paving the path to opportunity in the near future for the sector. 

According to a recent article in Barron’s, U.S. e-commerce spending accelerated 13% during the holiday season, pushing total e-commerce growth in 2010 to 10% year-over-year.  Furthermore, the article also contends that US e-commerce is expected to witness another 10% year-over-year growth in 2011, pushing spending to over $150 billion for the year. 

Three ETFs For Increased Manufacturing Activity

The US economy continues to show signs of improvement, reinforcing signs that economic expansion is gaining momentum and an economic recovery is likely sustainable giving positive support to the iShares Dow Jones US Industrials (IYJ), the Vanguard Materials ETF (VAW) and the PowerShares DB Base Metals (DBB).

Most recently, the Institute for Supply Management’s index jumped to a 57 last month from 56.6 in November, indicating yet another consecutive month of expansion.  Furthermore, the ISM’s report indicated that US factories reported faster rates of orders and production as booking measures rose to a seven month high in December.    

Transportation ETF Likely To Keep Rolling

Transportation giant FedEx Corp. (FDX) recently raised its full-year forecasts despite a drop in profits and an increase in revenues in the second quarter, providing positive price support to the iShares Dow Jones Transportation ETF (IYT).

The Memphis-based company reported strong gains in package shipping internationally and raised its expectations for domestic shipments on expected US GDP growth and positive macroeconomic trends.  The increased revenue that the company witnessed was primarily driven by increases in online and catalog shopping by US consumers, which require shipping to either a store front or directly to the consumer’s front door.  A second force that contributed to the 12 percent year-over-year increase in revenue came from the record high exports from the Asia Pacific region that was seen.

5 ETFs Influenced By Global Banking Regulations

Recently, global regulators pushed through increased world banking regulations which will force financial institutions to increase reserves protecting against unexpected losses, with the effects influencing iShares S&P Global Financials (IXG), SPDR S&P International Financial Sector (IPF), the iShares MSCI ACWI ex US Financials Index (AXFN), the Financial Select Sector SPDR (XLF) and the Vanguard Financials ETF (VFH).

More specifically, the new rules are designed to rein in the kinds of risky activities that aided in bringing down the global financial system.  The primary focus of these new rules is the amount of capital that financial institutions are forced to hold.   More specifically, regulators agreed to require banks to hold a specific level of a basic type of capital known as common equity, which is considered the most effective type of capital because it is used to directly absorb losses.  Furthermore, officials agreed large, internationally active banks will have to hold levels of common equity equal to at least 7% of their assets, much higher than the roughly 2% international standard or 4% standard for large U.S. banks.

Three ETFs Influenced By Obama’s Public Works Plan

In yet another attempt to bolster the US economy, President Obama and his administration used the long weekend to unveil a public works plan that emphasizes on transportation and infrastructure, potentially influencing the iShares Dow Jones Transporation Average (IYT), the PowerShares Dynamic Building & Construction Portfolio (PKB) and the PowerShares DB Base Metals (DBB).

This latest plan is estimated to cost as much as $50 billion over the next six years and includes rebuilding nearly 15,000 miles of road, constructing nearly 4,000 miles of railway, revamping airport runways and moderninzing the air traffic control system.  Additionally, President Obama called for an “infrastructure bank” which would focus on funding regional transportation upgrades.