Small Caps: the Direxion Russell 2000 Bullish 3X ETF (NYSEARCA:TNA) and the Direxion Russell 2000 Bearish 3X ETF (NYSEARCA:TZA)

I decided to hit up the never disappointing emerging markets. Those are always good for some volatility, right? Here”s what happened with the Direxion Emerging Markets Bull 3X Shares ETF (NYSEARCA:EDC) and the Direxion Emerging Markets Bear 3X Shares ETF (NYSEARCA:EDZ):

Here”s what happened with the Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (NYSEARCA:JNUG) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares ETF (NYSEARCA:JDST):

I presume (without running the numbers) that it would be especially profitable on VIX pairs like the ProShares Short VIX Short-Term Futures ETF (NYSEARCA:SVXY) and the ProShares Ultra VIX Short-Term Futures ETF (NYSEARCA:UVXY)

Financials 20.77%: XLF, RKH, BKX.

Information Technology 15.45%: XLK, SMH/SWH/HHH, SOX.

Health Care 11.67%: XLV, BBH/PPH, RXS.

Industrials 11.43%: XLI, None, None.

Energy 10.79%: XLE, OIH, OSX/EPX.

Consumer Discretionary 10.20%: XLY, RTH, XRE.

Consumer Staples 9.29%: XLP, None, None.

Telecommunication Services 3.75%: None, TTH, None.

Utilities 3.51%: XLU, UTH, UTY.

Materials 3.12%: XLB, None, None.

Other notable Sectors, outside the classified 10:

Housing HGX

Defense DFX

While not the only ETF to offer access to the Brazilian equity market, it’s the only one to hedge against exposure to the Brazilian real—a feature that impacts the pattern of returns of the fund as the currency fluctuates against the dollar.

DBBR tracks a market-cap-weighted index of Brazilian firms covering the entire market-cap spectrum, hedging out currency exposure. Year-to-date, the fund has struggled to break to the upside, tallying losses of 4.7 percent.

Symbol Name
(BAX) Baxter International
(CVX) Chevron
(JNJ) Johnson & Johnson
(K) Kellogg
(KMB) Kimberly-Clark
(LMT) Lockheed Martin
(MCD) McDonald”s
(MO) Altria Group
(PAYX) Paychex
(RSG) Republic Services
(SO) Southern Company
(WM) Waste Management

This article presents a variety of data points for those stocks, to help you decide if they make sense for you.
We currently own and have owned 4 of the stocks for a long time: LMT, JNJ, CVX and BAX.
Figure 1 shows S&P Capital IQ Ratings related to inclusion in SPLV (low volatility), SPHQ (high Quality) and SPHD (high dividend ):
Figure 1:
They all have Beta below 1.00 (less volatile than the S&P 500). They all have B+ or better earnings and dividend quality rankings (above average). They all have materially higher yield than the S&P 500.

Total Return (with dividends) 31.54%
For reference, full details of 2013 growth strategy returns (12/1/12 to 12/1/13):
Symbol Company Name Performance 12/1/12 – 12/1/2013 Dividend Yield
FSRV
FIRSTSERVICE CORP 45.87% 0.90%
EXTR
EXTREME NETWORKS INC 92.29% 0.00%
GPK
GRAPHIC PACKAGING HOLDING CO 40.28% 0.00%
TWI
TITAN INTERNATIONAL INC -15.45% 0.10%
JBSS
JOHN B. SANFILIPPO & SON INC 47.21% 0.00%
REX
REX AMERICAN RESOURCES CORP 80.31% 0.00%
DENN
DENNYS CORP 53.49% 0.00%
BRCD
BROCADE COMMUNICATIONS SYSTEMS INC 51.57% 0.00%
CLUB
TOWN SPORTS INTERNATIONAL HOLDINGS INC 37.44% 4.60%
NATR
NATURE”S SUNSHINE PRODUCTS INC 28.82% 2.10%
URS
URS CORP 38.41% 1.60%
STFC
STATE AUTO FINANCIAL CORP 49.18% 2.00%
ACAT
ARCTIC CAT INC. 49.09% 0.70%
WDC
WESTERN DIGITAL CORP 124.62% 1.60%
DK
DELEK US HOLDINGS INC 16.27% 2.20%
ACET
ACETO CORP 119.73% 1.20%
SKH
SKILLED HEALTHCARE GROUP INC -24.44% 0.00%
AMED
AMEDISYS INC 55.51% 0.00%
ITRI
ITRON INC -2.10% 0.00%
DF
DEAN FOODS CO 18.15% 0.00%
GTIV
GENTIVA HEALTH SERVICES INC 20.17% 0.00%
KS
KAPSTONE PAPER & PACKAGING CORP 142.84% 0.00%
VMI
VALMONT INDUSTRIES INC 3.47% 0.70%
ZAGG
ZAGG INC -43.16% 0.00%
SMP
STANDARD MOTOR PRODUCTS INC. 77.13% 1.30%
Average Return 44.27% 0.76%

Total Return (with dividends) 45.03%

When it comes to stock market seasonality there are many rules of thumb or adages that have developed into myths and have a very strong following. Everyone knows that they should “sell in May and go away” or that the fall period from September to November has seen some of the worst market crashes in history and should be treated with caution.
Most people realize two things; that the effect, if any, is psychological, and that this fact does not mean it””s not real. The market after all is just composed of individual decision makers who are influenced by their own individual hopes, fears and feelings. If these market participants all hear the same stories and they act on them in the same way, then the stories create a self fulfilling reality. If everyone sells in May because they hear “sell in May and go away” then it will push the market down which will confirm the old adage. A shrewd investor cannot ignore this even if it is irrational.
You might think that these are old superstitions and today””s market is far too sophisticated for them to work. You may also think that with the tight international relationships in today””s markets these effects might have become muted. I used the S&P500 (.INX) as a market proxy and decided to check how well these sayings hold in recent history. I looked at the S&P500 level at the end of each month since 1989 and calculated the return for the month by dividing this level by the end of the previous month level. This simple calculation gave me the monthly return for each month since January 1989. It was a simple task from there to calculate the average monthly return for each calendar month. The following are the results:
Jan -0.39%
Feb 0.47%
Mar 1.95%
April 2.14%
May -0.18%
June -0.26%
July -0.20%
August -0.71%
Sept 1.35%
Oct 1.34%
Nov 1.43%
Dec 0.49%
What is evident from the data is that “sell in May and go away” has amazing staying power. I am a little baffled as to why this might be the case given that today””s S&P500 returns are affected by people from all over the world who have probably never even heard the “sell in May” saying. However, if you were to sell in May and buy back in September every year since 1989 you would, on average, save yourself 135 basis points per year (ignoring trading costs).
However, not all adages appear to be confirmed. It seems that the period from September to November is actually one of the best times to invest. This period has seen some of the worst market crashes but it has also seen some of the biggest rallies. This appears more consistent with the idea that September to November has increased volatility rather than it being a bad time to be in stocks. After all market theory tells us that wherever there is increased risk/volatility there is also potential for increased return. If you were to wait until December to buy into stocks you would, on average, cost yourself 269 basis points per year. This is far more than getting out of stocks in May.
I went a bit further and broke the year down into quarters based on the returns in the above table. Instead of using calendar quarters I used the monthly returns as a basis for breaking the year up into quarters.
Dec-Feb 0.57%
Mar-May 3.91%
Jun-Aug -1.16%
Sep-Nov 4.12%
The above is the average return for each quarter. In theory it should be possible to beat the market by staying invested only during Mar-May and Sep-Nov while substituting some other type of investment for Dec-Feb that will yield over 57 basis point during that period.
I agree this is all a bit wonky and seasonality is a concept with little theoretical underpinning. However, the numbers do not lie, and if the next year is anything like the previous 23 years then this will turn out to be a great time to purchase broad market US index ETFs such as SPY, DIA or QQQ.

Weekly Trading

Since 1932, most of the S&P 500’s capital gain has come during a seven-day period at the turn of each month—specifically, the last four trading days and the first three trading days of each month. This represents about one-third of the total trading days. During the rest of the month, the stock market actually lost money.
Here are the numbers: Since the beginning of 1932, the S&P 500 has gained nearly 14,000%, which is about 6.5% annualized. Investing in just the last four days and first three days of each month would have returned over 63,000% (not including trading costs). Annualized, that’s 8.6%. However, if you consider that it’s really only 32% of the time, the true annualized rate is over 28%.
The rest of the month — the other 68% of the time — has resulted in a combined loss of close to 78%.
Let me add some important caveats. First, I’m not offering this as trading advice. I’m merely showing that the market has historically experienced outsized gains at the turn of each month. Remember that trading in and out of the market is costly and these results don’t include taxes or commissions.
Secondly, this only refers to capital gains, not dividends. A very large part of the market’s total return is due to dividends, and if you’re only invested one-third of the time, you’re going to lose out.
Having said that, here’s a graph showing what turn-of-the-month investing looks like. The S&P 500 is the red line. The blue line is performance during the seven-day period and the rest of the month is the black line.