This Cat Stays So Cool Loaded Up With Cash

BY MURRAY COLEMAN

INVESTOR'S BUSINESS DAILY

Posted 8/11/2006

Kevin Kennedy, who runs the Coolcat ETF Report, is defensive with 30% of his assets in cash.

That's the highest level since mid-2004 for Kennedy's all-exchange traded funds portfolio. Kennedy's model portfolio, which goes to 2,000 subscribers, is rated by Hulbert Financial Digest as one of the top returners in the past year. Entering August, it was up 32.62% vs. S&P 500's 3.44% rise. Year to date, it's up 14.82% vs. the S&P 500's 2.27%.

Since early February, Kennedy has been scaling back on emerging market holdings.

He's moved heavily into Europe. Last month, he bought iShares MSCI France Index. (EWQ) Last week, he took new positions in iShares MSCI Switzerland (EWL) and iShares MSCI EMU Index, (EZU) which holds stocks in European Union firms.

Few Are Called

"Only 17 ETFs are currently meeting the requirements of our screening process," said Kennedy. "That's down from 51 in April and the lowest amount since last November."

Kennedy ranks ETFs based on relative strength. "We're pretty much using straight performance data," he said. "I'm a big believer that performance is what counts the most."

He whittles down candidates by stressing six-month performance records and volume. "We eliminate the ones that trade less than 100,000 shares per day," he said.

He says a key to trading ETFs is to watch liquidity. "Volume expresses how investors are voting on which ETFs they like the most in any given area," said Kennedy.

That usually cuts his list of potential ETFs to around 100. "We take the remaining ETFs and divide each one's 52-week high by its 52-week low," said Kennedy. "What we're looking for is at least a 1.3-to-1 ratio. That ensures there's some volatility and it has some signs of life behind it."

Cutting Losses

Kennedy sells when ETFs fall 10% or more from their purchase price. "If the market is weak, that's going to show by the fact that the number of ETFs qualifying for our portfolio is fairly low," said Kennedy. "We're big believers in letting the market tell us what to buy and when."

Coolcat is holding on to some emerging market funds, including iShares FTSE/Xinhua China 25 Index, (FXI) iShares MSCI Singapore Index (EWS) and iShares MSCI Mexico Index. (EWW)

Last week, Kennedy started buying iShares Cohen & Steers Realty Majors. (ICF) "If you read about residential markets, it might seem strange to buy a REIT fund right now," he said. "But it's ranked third strongest on our lists and is up around 17% this year."

The real estate ETF is also well-diversified with exposure to a broad variety of sectors, adds Kennedy. "Out of their top 10 holdings, only two are residential," he said. "So they seem to be well-protected against any bubble in

that part of the market."