There are several advantages to using ETF’s for a trading system:

• Unlike ordinary mutual funds, there are no limits on how often ETF’s can be traded. It’s not uncommon for even the best mutual funds today to charge a fee if the fund is not held 90 to 180 days, which severely limits your investment flexibility. ETFs can be traded just like stocks

• These are diversified within the sector or country, so the risk is reduced, and the persistence of ETF sector trends is consistent enough to trade.

• There are literally over 100 ETF’s, with the number growing daily. There is an ETF fund is available for almost any market sector, and dozens of countries, so if there is market strength anywhere at a given time, there’s a good chance you can capture it using Exchange Traded Funds. There are even ETF’s being introduced that allow you to take a long position in a bear fund. These exchange traded funds are backed by large financial institutions like Vanguard, Barclays iShares, PowerShares, and the S&P HLDRs, so liquidity and stability are not a concern.

• You can trade Exchange Traded Funds with about any discount broker, even in many Individual Retirement Accounts (IRA), and many can be traded in odd lots so the minimum amount to invest can be just a few thousand dollars.

The FundzTrader ETF Trading System:

Funds for this trading system are selected using a proprietary metric that captures both fund momentum and volatility. They are then held for about 60 days. The fund selection approach is similar to that used to select the best Fidelity funds in our Fidelity Mutual Fund system.

These systems have been optimized to reduce volatility and drawdowns. You can see that in periods of strong market advances the system can under perform the market, but in down years it should outperform the market. We trade every 60 days as that seems to be long enough for trends to materialize, but gets us out of underperforming sectors before a lot of damage is done.

We have selected a family of about 50 exchange traded funds that have at least 3 years of trading history, and good daily volume so that liquidity should not be a problem. There are several types of exchange traded funds, often referred to as iShares, Powershares, HLDRs, or simply ETF’s.

ETF Investing

• Fidelity ETF - The Story with Fidelity and ETF?s
Fidelity does sponsor an ETF, but the most common way to trade ETFs at Fidelity is through the brokerage arm. Let’s take a loo…

• Fundamentally Weighted ETF?s
We are constantly on the lookout for ways to both diversify our portfolios, while simultaneously improving the risk adjusted re…

• A Coal ETF - A New Commodity Based ETF in Energy
We have previously taken a look at a handful of commodity based ETFs as a way to diversify your investing portfolio. One of th…

Sector Rotation and Trading Strategies

• Trend Following - Trend Following Traders Returns for 2008
Sector rotation and trend following are interrelated parts of most successful trading strategies. As we all know, 2008 was a t…

• Sector Fund System - Simple Rotation Trades Just One Fund a Month
This sector fund trading system uses a strategy of sector rotation that only trades one fund at a time from the Fidelity sector…

• Oil Stocks - How to Invest in Oil Stocks
Should I invest in oil stocks?
That’s a question that a lot of investors have been asking themselves over the last couple of ye…

Sector ETFs

• Fidelity ETF - The Story with Fidelity and ETF?s
Fidelity does sponsor an ETF, but the most common way to trade ETFs at Fidelity is through the brokerage arm. Let’s take a loo…

• A Coal ETF - A New Commodity Based ETF in Energy
We have previously taken a look at a handful of commodity based ETFs as a way to diversify your investing portfolio. One of th…

• Gold Mutual Funds - Are They as Good As Gold?
In a previous post, we talked some about the options mutual fund investors had for investing in gold mutual funds. It turns ou…