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Beat the S&P With Cabot ETF Investing System

Investing in an ETF can be an attractive option for the conservative investor.

By Matt Delman


Introducing Cabot ETF Investing System

The Hand Dealt is Determinism The Hand Played is

Free Will

Stock Market Video

In Case You Missed It


Exchange-traded funds, or ETFs, can be one of the more attractive investment vehicles on the market today. Traded on the market like stocks, but with the relative safety afforded by mutual funds, investing in an ETF can be an attractive option for the conservative investor.

Before you buy an ETF, as with any investment vehicle, it pays to do your research. Should you read Cabot ETF Investing System as part of that research, you could bank gains that beat the S&P 500 by 33.86% over the three years prior to August 31, 2011.

To explain more about the Cabot ETF Investing System, I’m going to turn the floor over to contributor Elyse Andrews.


Over the years, countless investors have asked us for advice on investing in exchange-traded funds (ETFs). Many have even suggested we start a newsletter devoted to these instruments ... there are more than a thousand to choose from.

But we refused because we didn’t have an ETF investing system that could beat the market. And isn’t that the point?

So we searched high and low for the right system and today, I’m pleased to announce that we’ve found it!

Our newest advisory is called Cabot ETF Investing System and its editor is Robin Carpenter, who has decades of experience developing market metrics for investment professionals.

Now, he’ll be heading up Cabot ETF Investing System, which identifies major market sectors favorably positioned to beat the S&P, and then adds a market-timing element (Cabot Tides) to avoid intermediate downtrends. The best news? Back testing of the system revealed average annual returns of about 10% better than the S&P 500 ... so it may just be the investing method you’ve been waiting for!

But let’s back up a second. You may be wondering ... what is an ETF?

An ETF is an investment fund. ETFs are traded on public stock exchanges like stocks. But unlike individual stocks, ETFs hold dozens and even hundreds of stocks, commodities or bonds, so you get the safety of diversification. In that way, they’re much like mutual funds.

Because ETFs are “unmanaged,” however--you might say they run on autopilot--ETFs entail lower annual fees than comparable index-based mutual funds, and far lower fees than actively managed mutual funds. And instead of pricing once a day after the market closes, like mutual funds, ETFs are traded throughout the day as if they are regular stocks, so you can buy anytime you want and when you buy, you get exactly the price quoted when you buy.

Now, of the more than 1,000 ETFs available, many are designed to mimic the performance of major indexes. You can buy indexes that duplicate the performance of the S&P 500 and the Dow Industrials. You can also buy indexes that mimic lesser-known indexes like the S&P Emerging Markets Small Cap Index and the Dow Jones Small Cap Value Index.

Those are fine for investors who are content to just do as well as the averages.

But if you want to beat the averages, you’ve got to specialize. And for that, the perfect investment vehicles are sector ETFs, which allow you to invest precisely in the economic sectors most likely to bring the biggest gains.

Cabot ETF Investing System uses these nine sector ETFs:

* Basic Materials Select Sector SPDR ETF (XLB): Companies like Monsanto, DuPont and Dow Chemical.

* Consumer Discretionary Select Sector SPDR ETF (XLY): Companies like McDonald’s, Walt Disney and Comcast.

* Consumer Staples Select Sector SPDR ETF (XLP): Companies like Wal-Mart, Proctor & Gamble, Philip Morris and Coca-Cola.

* Energy Select Sector SPDR ETF (XLE): Companies like ExxonMobil, Chevron and ConocoPhillips.

* Financials Select Sector SPDR ETF (XLF): Companies like JPMorgan Chase, Wells Fargo and Bank of America.

* Health Care Select Sector SPDR ETF (XLV): Companies like Pfizer, Johnson & Johnson and Abbott Labs.

* Industrials Select Sector SPDR ETF (XLI): Companies like Boeing, Minnesota Mining & Manufacturing (3M), and United Parcel Service.

* Technology Select Sector SPDR ETF (XLK): Companies like Microsoft, AT&T, IBM and Cisco.

* Utilities Select Sector SPDR ETF (XLU): Companies like Exelon, Southern Co. and Dominion Resources.


Here’s this week’s Contrary Opinion Button. Remember, you can always view all of the buttons by clicking here.

The Hand Dealt is Determinism The Hand Played is Free Will

Originally by Indian Prime Minister Jawaharlal Nehru, who wrote, “Life is like a game of cards. The hand you are dealt is determinism; the way you play it is free will.” It makes sense to me. What’s great about the investment world is that we are all dealt the same cards (ignoring the professionals with their super-fast computerized trading systems), so we all have equal opportunity to make brilliant, highly profitable investments.


In this week’s Stock Market Video, Cabot Top Ten Trader and Cabot Market Letter Editor Mike Cintolo says that it’s been a pretty good New Year so far, but the big picture has remained the same since roughly October. Mike also sees some good gains in biotech, energy, home builders, and retail. Stocks discussed: Continental Resources (CLR), Oasis Petroleum (OAS), Cabot Oil & Gas (COG), Nuance Communications (NUAN), Biogen Idec (BIIB), Sandisk Corp. (SNDK) and Buffalo Wild Wings (BWLD).

Miss an issue of Cabot Wealth Advisory this week? Click on the links below to get caught up on your weekly dose of investing and stock tips.

Cabot Wealth Advisory 1/2/2011 - Which Stocks Will Perform Well in 2012?

On Monday, Cabot Benjamin Graham Value Letter Editor J. Royden Ward shared his predictions for the stock market and the Dow Jones Industrial Average in 2012. Roy also discussed 5 stocks to watch this year, which include a conservative exchange-traded fund and four U.S. stocks with exceptional prospects in the coming year. Roy’s stock picks include Abbott Laboratories (ABT), set to split into two companies that could be worth more than the current firm.

Cabot Wealth Advisory 1/5/2011 - Trends That Could Define 2012

On Thursday, Dick Davis Digests Editor Chloe Lutts discussed a number of trends with the ability to define how the market moves in 2012. Rebirths, revivals and resurgences are the name of the game in 2012, specifically in the housing sector, emerging markets, metals and energy. Featured stocks are Home Depot (HD) and Lowe’s (LOWE).

Until next week,

Matt Delman

Editor, Cabot Wealth Advisory