ETF Expert David Trainer discusses top sectors and his outlook for the economy and global stock markets.
John Nyaradi: Hi, everyone. I’m John Nyaradi, Publisher of Wall Street Sector Selector, a financial media site specializing in ETFs. Today, I am really pleased to welcome our special guest, David Trainer. David, welcome to Wall Street Sector Selector.
David Trainer: Thanks, John, great to be with you.
John Nyaradi: David is a Wall Street veteran and corporate finance expert. He is the author of the book, “Modern Tools for Valuation” from Wiley Finance and his stock-picking successes have been well-documented since 2005, including features on CNBC, in Institutional Investor Magazine and in Barron’s. He is a principal at New Constructs, a company focused on stock, ETF and mutual fund valuation, and he’s author of “Hidden Gems And Red Flags In The Stock Market,” a widely respected and widely read financial blog.
So David, let’s just jump in the top. You talk about how to find the best ETFs. Can you tell us how you do that?
David Trainer: Our research with ETFs is very unique because we’re actually basing our ETF ratings on the stocks that the ETF holds. And so, our ratings on the stocks drive the ratings for the ETF. If the ETF holds stocks that are given an attractive rating, then the ETF is most likely going to get an attractive rating.
John Nyaradi: We’re talking here in November, 2012. What factors do you see at work now after the election and heading into the end of the year?
David Trainer: A lot of folks are saying that the attention has now shifted — now that the election is behind us, attention shifts towards the fiscal cliff, tax issues and those kinds of things.
I don’t pretend to be able to explain what’s going on in the market day to day. I think the long term outlook is pretty bleak. You know, it’s hard to identify what is really going to drive markets up going forward. Monetary policy has essentially become ineffective. Fiscal policy is only going to be moving in the wrong direction because essentially I think it’s exhausted, we’ve squeezed as much as we can out of the federal budget in terms of trying to prop things up. We know the state and local budgets tend to be more underwater than not. And so, you know, I don’t know where growth is going to come from.
John Nyaradi: Tell us about your sector rankings.
David Trainer: Essentially, our work on stocks is very much based on data that you cannot get anywhere else. And when I say nowhere else, I mean nowhere else in the world. No one else’s work is this deep and comprehensive. And so when we aggregate this individual stock analysis up into a sector rating or an ETF rating, it’s really based on some really powerful bottom up analysis.
And one of the cool things we can do is rank sectors. You know, so for example, the consumer staples sector (NYSEARCA:XLP) in our fourth quarter sector ranking gets the number one rating out of all sectors in terms of the quality stocks and the quality of the ETFs and funds within that sector.
The number two ranking is information technology. (NYSEARCA:XLK) The worst is financials. (NYSEARCA:XLF) The second worst is utilities. (NYSEARCA:XLU) And so it’s a really unique approach based on deep fundamental analysis from stocks all the way up to the ETFs and the mutual funds.