Gamble on horse races…not your investments

Tuesday, 6 November 2018
Melbourne, Australia
By Bernd Struben

  • Gaining Broad Exposure to the Market via an ETF
  • ‘Nanny State Under Fire Over Absurd Law’

The big race is on in Melbourne today.

By the time you read this it may all be done and dusted. But at time of writing…bets are still being placed.

The Melbourne Cup isn’t just any old horse race. Aside from the bookies and some lucky gamblers who’ll fatten their wallets, it’s big business for Victoria.

Over 20,000 staff were employed last year at Flemington Racecourse in the lead-up and for the duration of the event.

The 2017 Melbourne Cup long weekend also saw $39.4 million in commercial accommodation spending, $56.9 million in retail spending and $27.1 million spent on food and beverages.


Almost as importantly, at least for the hardworking staff at Port Phillip Publishing, it’s also a state holiday in Victoria today.

As such, our Albert Park office is closed for the day. And you won’t find a market section in today’s Port Phillip Insider.

Instead, we’re bringing you a guest essay from editor and chartist, Terence Duffy.

If you subscribe to Money Morning Trader or Cycles, Trends & Forecasts you’ll know Terence already.

Terence specialises in charts. Specifically, in how they tell you everything you need to know about the economy and the stocks about to move.

In today’s essay he covers exchange traded funds (ETFs).

If you’re a regular reader, you’ll know there’s a lot to like about ETFs.

I’ve given you a few to consider this year. Those ranged from a way to benefit from a falling oil price, or from a rising stock prices in South Korea, Mexico, and Russia. Of course, if the trend goes against you, ETFs can lose you money as well.

Speaking of losing money, I still have time to place a bet before the race. You should expect to lose money gambling…but not when you’re investing.

Now over to Terence.


(You can follow Terence’s work alongside cycles guru Phil Anderson over at Cycles, Trends & Forecasts. Details here.)

Gaining Broad Exposure to the Market via an ETF
By Terence Duffy

Investors are glad to say goodbye to October.

It was a turbulent time marked by an increase in volatility.

As we’ve said before, the price action wasn’t unusual.

In fact, it was quite normal. It’s happened around 45% of the time since the Dow Jones Industrial Average was first published in 1986.

Information like that can be quite helpful. That’s why we study history and cycles. History doesn’t necessarily repeat exactly, but it often rhymes with similar events and outcomes.

The most regular cycle of rhyming events is the global real estate cycle. A decline in real estate values has led every economic depression coupled by a stock market crash in history. You can learn all about it from my colleague, Phil Anderson, at Cycles, Trends & Forecasts.

This week, we also spoke of the approaching US mid-term elections. All 435 members of the House of Representatives and a third of Senators are up for election.

The S&P 500 index was created in 1957 and re-calculated back to 1950. There have been 17 mid-term elections since then. US stock markets rallied after each of these occasions except for two.

Both of these exceptions occurred during extended bear markets. One happened in 1974 when the market was down nearly 50% from its peak in 1973. The other occurred in 2002 during the collapse of the tech boom.

Next month we also have the December effect. The charts show a tendency for markets to rise in December. It’s otherwise known as the Christmas rally.

There are vested interests supporting markets at the end of each year. This goes beyond the question of a possible cyclic effect.

US funds are mark-to-market and profits are calculated at the end of the year. A fund manager’s bonus is based on the level of the fund’s profitability. The higher the market goes, the bigger the bonus.

The vast majority of fund managers were traditionally stock pickers. They sought to outperform each other through their ability to select stocks that would deliver higher returns. Many fund managers failed to outperform an index.

Nearly 20 years after the S&P 500 index was formed, Vanguard introduced the first retail index fund. The Vanguard First Index Investment Trust was created on 31 August 1976.

It was formed to track the S&P 500 index. For the first time, it allowed individual investors to gain exposure to the broad market with a single investment.

Managed index funds like this have limitations. They may require minimum investments and redemptions. They’re generally only priced at the end of the trading day.

Boston-based asset manager State Street Global Advisors removed these limitations. It launched the Standard and Poor’s Depository Receipts (SPDR) ETF on 22 January, 1993. It’s now called the SPDR S&P 500 ETF Trust [NYSE ARCA:SPY].

It came about after more than three years of planning by State Street and the American Exchange, which was later acquired by the New York Stock Exchange.

Unlike other funds, it was listed on an exchange and trades just like any stock.

This provides investors with price disclosure throughout the trading day rather than after the market closes. There’s no minimum investment. Investors can buy a single share or as many as there are on offer.

The SPDR S&P 500 ETF was the first US-listed ETF. It’s still the biggest with net assets of US$253 billion.

Let’s bring up the daily chart over the last year:

chart image

Source: Optuma
Click to enlarge

The ETF closely mirrors movements in the S&P 500 Index.

State Street crossed the Pacific and created Australia’s first ETF. It launched the SPDR S&P/ASX 200 Fund [ASX:STW] on 24 August 2001.

It’s designed to closely match the returns of the S&P/ASX 200 Index.

STW remains the largest ETF in Australia with $3.5 billion in assets under management. It’s also our most heavily-traded ETF, offering good liquidity with tight bid/offer spreads.

Here’s the daily chart over the last year:

chart image

Source: Optuma
Click to enlarge

These ETFs offer investors with broad exposure to respective markets in the US and Australia.

They’re flexible to trade. You can use your own array of tools just like you would with any other stock.

A broadly-based ETF removes stock-specific risk associated with a single company. Any stock can fall due to a shock announcement when the wider market is rising. An index-based ETF is designed to follow the broad market.

Good trading,
Terence Duffy

Finally, here’s the latest on Australia’s Nanny State from The Australian Tribune:

‘Nanny State Under Fire Over Absurd Law’

There are real crimes. And then there are actions — or inactions — that are technically illegal, but not really criminal at all.

One such inaction is deciding not to wear a helmet when you go for a pedal on your bicycle.

Outside of the Northern Territory, the Nanny State has decided that failure to do so constitutes a crime.

Victoria became the first…’

If you’re fed up with sanitised, politically correct dogma cut and pasted from one mainstream source to another then The Australian Tribune is for you.

And it’s absolutely free.

Sign up here to get The Australian Tribune delivered free to your inbox five days per week.

You can visit our website at to read the complete article above now.