The outlook is Positive for US Large Caps

Posted on: April 28, 2011 in: Economic Growth, US Equities with 0 comments

iShares S&P 100 ( Ticker: OEF )

US central banker Ben Bernanke is caught between a rock and a hard place. Unlike our central bank, the US Federal Reserve has a dual mandate: employment and inflation. Speaking yesterday, Bernanke admitted that despite its efforts, the US unemployment rate, though down from last year, is still too high. At the same time, gasoline and food prices are pushing up inflation. That means he can do little to stimulate the economy and get consumers to spend. That’s the bad news.

Now for the good news. The Fed expects inflation will ease in 2012. Makes sense: if consumers cut back spending, then prices will fall. If the Fed expects inflation too fall, then it will not raise interest rates for some time. High unemployment will suppress wage inflation. Both are good for business. If interest rates remain low relative to others – Euro-land, Australia, Emerging Markets – then the US Dollar will remain weak. That is good for US exporters.

All this re-affirms our view that with weakness at home, a full US recovery will need to be driven by  exports. OEF, with its 100 large, global companies, remains our preferred US equity ETF. Since we bought the iShares S&P 100 ETF in mid-January, it is up about 7%. This earnings season has been great, with 77% of large companies beating expectations. The price-earnings valuations remain low. P/E for the OEF and the Dow is at 13; slightly higher at 14 for the S&P. But well below their historic levels and far below the current 20x P/E on the TSX 60. True, the weak US$ has hurt our position but we expect the US$ will strengthen as soon as the Fed signals that rate increases are on the way, possibly late this year or early 2012.


archerETF Metrix OEF
Category US Equity
Benchmark S&P 100
Total Holdings 100
52 Week High $60.19
Recent Price $60.60
52 Week Low $45.69
Avg Daily Volume 0.95 Million Shrs
Avg Daily Volume ($) $57.75 Million
Total Market Cap $3.04 Billion
ETF Annual Fee 0.20%
ETF Trading Currency USD
ETF FX Exposure USD
Annual Volatility 23.9%
Correlation to S&P 500 97.6%
Return to Risk Ratio 0.22
Use of Leverage No
Use of Futures No
6 month Return 14.23%
1 Year Return 13.37%
2 Year Return 55.69%
3 Year Return -1.92%
Dividend Yield (TTM) 1.80%

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© 2011 archerETF Portfolio Management is a division of Bellwether Investment Management, a discretionary portfolio manager registered with the Ontario Securities Commission. This report is provided for information only and does not constitute investment advice. While we believe the information to be accurate and timely, we make no claim or warranty to that effect. Please seek professional advice before making any investment decision. We may hold positions in any or all securities discussed in this report.

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