# Tech ETF exposure



## clovis8

I'm currently invested in ZQQ which is the BMO NASDAQ 100 hedged ETF.

Is this the best ETF at the moment for exposure to the tech industry. I dont want to invest in individual tech stock but want some dispersed exposure.


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## Belguy

It's what I have in my portfolio and certainly better than XIT!!


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## Sherlock

The problem with XIT is that it only holds Canadian tech companies and Canada's tech sector is just too small for an investor to use only Canadian tech companies for the tech portion of his portfolio.


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## Soils4Peace

I hold a little ZQQ in my TFSA, to get USA with low dividends.


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## james4beach

I'm not endorsing a sector-specific bet, but just observing: Canadian tech (XIT) has been performing spectacularly well: 
http://performance.morningstar.com/funds/etf/total-returns.action?t=XIT&region=CAN&culture=en_US

5 year return: 21% annualized
10 year return: 10%
15 year return: 11%

Beware however that most of that outperformance has only happened in the last few years, so it has not consistently performed this well. It was a poorly performing sector for a long time.

This leads to another, bigger question for those of us designing our own portfolios. How do we know whether a TSX sector is a flash in the pan, or something worth investing in? In my own Five Pack, and all the various other X-packs around here, we choose which sectors we want. *Most of us exclude tech*. But what if Canada's economy turns into a tech-based one, and these stocks become a big part of future TSX performance?

I'm sure investors were asking themselves the same question in the 1990s. The investors who continued excluding tech from their portfolios benefited when tech turned out to be a dud. But what happens if technology really does start becoming a significant part of the TSX performance going forward?

I think it could happen. The Kitchener-Waterloo-Cambridge region and Ottawa are both very tech-heavy, and there is talk of expanding BC's tech sector as well.


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## Jimmy

ZQQ is good but there is some issue though w its high concentration in the FAANG stocks. They make up ~45% of the index now. There are a few other funds that are a little more diversified and even weighted that were also recommended by some investment and ETF analysts who write for the Gobe or on BNN. FHQ First Trust Alphadex US Tech Sector based on a multifactor approach 79 stocks , or TXF First Asset Tech Giants covered call ( has 12 % in the FAANGS) ~ 54 holdings.

Or a US fund SMH VanEck Vectors Semiconductors Index

Some more ideas.

https://www.theglobeandmail.com/glo...h-tech-with-these-niche-etfs/article37946168/


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## james4beach

But Jimmy what about the Canadian tech sector, what are your thoughts? It's such a small part of the TSX Composite, but has performed extremely well.


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## Jimmy

james4beach said:


> But Jimmy what about the Canadian tech sector, what are your thoughts? It's such a small part of the TSX Composite, but has performed extremely well.


I'm sure it is quite good too. I was just noting how much the US Nasdaq ETFs have become about a small group of stocks. I'm sure XIT is more diversified too. I may look at some tech sector ETFS - I think it is reasonably maybe a little over valued but not as bad as the S&P. 

Have tech in some general funds like DQD and XMS.


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## Blisken

There's a few good options. I own IVW from iShares and have also looked in to QQQ from Powershares. I'm not a fan of hedged funds. 

IVW is a growth ETF that does contain a lot of big name techy companies. I find it a good balance.


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## james4beach

Belguy said:


> It's what I have in my portfolio and certainly better than XIT!!


I wanted to point out performance since Belguy posted this on 2012-08-11. In fact, the Canadian tech sector has been outperforming. In the approx 7 years, annualized performance is

XIT 24.7% per year
ZQQ 17.4% per year

Canadian tech sector wins, even beating NASDAQ (hedged) performance. Who would have predicted this? Not me! XIT had been a useless fund for a very long time.

There's just about no way to predict when a sector will turn hot. Unfortunately, most of us have been underweight tech during this enormous rally.


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## Shaun8030

VGT the best pure tech ETF the Nasdaq 100 contains non tech stocks as well ie dollar tree Walgreens etc


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## james4beach

What the _heck_ is going on with the Canadian tech sector recently? Here's a chart of XIT in lime green against the US benchmark QQQ, in black. They track each other pretty closely until the start of this year, and then XIT starts going absolutely nuts.

I hold a couple of the major holdings (Constellation & CGI Group) in my high risk growth portfolio, but generally have little exposure otherwise.

Link to chart, and attached the image.


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## cainvest

One of their major holdings (25%) is on a real run, SHOP.


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## MarcoE

What is the reason to invest in a tech ETF when you can gain tech exposure via a broad-market ETF, such as XIC?


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## cainvest

MarcoE said:


> What is the reason to invest in a tech ETF when you can gain tech exposure via a broad-market ETF, such as XIC?


You'd invest in it because you think that sector is going to provide better returns.


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## humble_pie

james4beach said:


> What the _heck_ is going on with the Canadian tech sector recently? Here's a chart of XIT in lime green against the US benchmark QQQ, in black. They track each other pretty closely until the start of this year, and then XIT starts going absolutely nuts.
> 
> I hold a couple of the major holdings (Constellation & CGI Group) in my high risk growth portfolio, but generally have little exposure otherwise.
> 
> Link to chart, and attached the image.
> 
> View attachment 19536




hmmmn i'm intrigued but have no explanation. Jas4 since you are the party who authored the chart, perhaps you could take ownership of the question why canadian tech suddenly took off & get back to us?

looks like everybody is dissing QQQ these days. I've posted about the big green's new global tech ETF. Here in this video the TD manager describes why the Nasdaq index is too generalized & old-fashioned to truly be considered tech today. It even contains Pepsi, for crying out loud.

https://www.moneytalkgo.com/video/td-launches-td-global-technology-leaders-index-etf/


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## james4beach

cainvest said:


> One of their major holdings (25%) is on a real run, SHOP.


I think that's what's going on. The outlandishly high return of SHOP (a big weight in XIT) seems to be driving the whole move.

As for tech exposure, there's already plenty of it in the S&P 500. I have no intention to add more tech myself, especially since it correlates very strongly with my employment.


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## Jimmy

To me the Nasdaq was getting too weighted to the FANG stocks and isn't just technology. 

One pure technology ETF I like is the First Trust Alphadex Tech Sector FHQ.F ( hedged) which has far better performance over the past 3 yrs - up 123% vs 65% for ZQQ. This is a well designed, diversified, broad based ETF using a methodology to factor and rank 100 stocks from the Russell 1000 and weight them based on their factor value scores. Has a nice mix of SW , HW, services, electronics, peripherals etc . Had a nice run and might be a little pricey now though. 

https://web.tmxmoney.com/charting.php?qm_page=66338&qm_symbol=FHQ

https://www.firsttrust.ca/Retail/Etf/EtfSummary.aspx?Ticker=FHQ


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## james4beach

The sector fund, XIT, continues to blow away any other Canadian sector. XIT's trailing 1 year performance is +63%

XIT annualized return was 32% over the last 3 years

... and SHOP up 9% today alone. Just crazy!


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## MrMatt

james4beach said:


> The sector fund, XIT, continues to blow away any other Canadian sector. XIT's trailing 1 year performance is +63%
> 
> XIT annualized return was 32% over the last 3 years
> 
> ... and SHOP up 9% today alone. Just crazy!


Lots of big gains.
I was going to sell off some AMBA last week, glad I didn't.

Having seen what shopify offers customers I really should have considered it.
They could have competition from others, but they seem to have really figured out how to make it easy.
It's pretty much the default choice, in a growing market.


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## james4beach

Tech hitting new highs, with XIT now at a new all time high. Its American cousin, QQQ, is just a few % from a new all time high.

And contrary to popular belief, this is not just a Shopify thing. Many tech stocks are close to new all time highs, including Canada's CSU and DSG.

Pretty wild! Huge divergence between tech stocks and everything else.


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## Thal81

Aye, it makes sense since tech has been saving our collective bacon during the corona apocalypse...


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## MarcoE

Why not just buy broad indexes like S&P and TSX? You'll get plenty of tech companies in those.


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## james4beach

I opened a small position in XIT.

I want to experiment with a trend-following method where I chase the hottest Canadian sector. As I've done with other experimental strategies, I'm putting some real money into it (so that I take it seriously and am motivated to track it). It's a small amount of money, and pretty inconsequential at 0.7% of total investments.,

But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:








Historically, the above selections (using the same technical analysis criteria as I'm now using) were good selections for their day. And you can see the market theme shifting over the years. The historical performance would have been 14.5% CAGR, compared to 6.9% for XIU though if you strip out the recent XIT years, the two returns become much more similar.

@MrBlackhill will likely ask, if this worked so well, why did I just post elsewhere that you probably can't achieve such high returns? That's a good question, and something I wonder about too. Many of these techniques seem great, on paper. But when you do it in real life, you just don't get those great returns.

It's likely due to hindsight bias. In hindsight, you can always craft the winning method but that doesn't mean this will work going forward. Another 10 years from now, there will be some other method -- something not obvious to us right now -- that is clearly the winning method.

A second issue is the problem of stamina and patience. My back test with this sector-chasing method showed some pretty long periods of disappointing results. The method is really about getting into the right position that captures the occasional, but HUGE, return of a sector that's on fire. XEG had huge returns in 2004 and 2005. But then, nothing too exciting happened from 2006 - 2011. When strength resumed, XFN gave some big results, but less dramatically so. More waiting through 2014-2016, until XIT started going ballistic.

So a big problem with this method is that I might have to wait around for years, seemingly in "dead money" before capturing a giant bull market. And I might be entering at such a bad, local peak, that I could see horrible results for the next ~ 8 years... which is probably long enough to make me give up on the method. Meaning that I miss out on the next bull theme.


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## james4beach

Quick additional note: I run these experiments to test out strategies I'm interested in, as real, forward-tests. Including this new sector-chasing method, I am now running 5 different experimental strategies. So far, I have not abandoned any since starting them a few years ago. This also gives me plenty to do, and is lots of fun.

All of this fits within my asset allocation plan. It just means that some of my equity holdings are not purely indexed, but invested in the strategies. For example, some are in the 5-pack, some are in a growth/momentum portfolio, etc.


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## MrBlackhill

james4beach said:


> But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:


Is this based on annual returns or it's another kind of analysis? Based on annual returns, the trend was not so obvious, that's why I'm wondering and I'm relating to your post about alternating between US Stock Market & Gold where the strategy was based on annual returns (but one could use 2-year returns or anything else).

From 2002 to 2010, the best annual performer was alternating between XEG and XIT, then XFN was the best in 2011 & 2012, then XIT from 2013 to 2020 except for 2016.


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## james4beach

MrBlackhill said:


> Is this based on annual returns or it's another kind of analysis? Based on annual returns, the trend was not so obvious, that's why I'm wondering and I'm relating to your post about alternating between US Stock Market & Gold where the strategy was based on annual returns (but one could use 2-year returns or anything else).


It's based on trailing X month return of each asset, similar to what I posted for stocks & gold. The reason I went with this one (sectors) is that all choices are equities, so this fits within my asset allocation.

I can show you something very similar using Portfolio Visualizer's "momentum" model. Here's a link to an equivalent using US tickers (XLE, XLF, XLK) because there's longer history with those. This applies a performance test quarterly (trailing 36 months) and chooses the best. My parameters are only a bit different, so this is a pretty good reflection of what I'm doing.

Link to Market Timing Model and see the description of the method right under 'Market Timing Results'

The method has worked equally well in US and Canada. At that link, you can see the momentum model gave 14.38% compared to 7.82% for S&P 500. I think it's a delightful result for only a bit of work. The Canadian version of this looks very similar (just replace the tickers and benchmark) and you'll see the performance numbers are identical to what I posted in #24 above.

And see this link for an example of the weakness of this method. Unfortunately from 2008-2018, the winning ETF kept changing (see 'Timing Periods' tab) and you'll see that the performance in this 10 year span was same as the benchmark. But in my view, matching the benchmark isn't too bad a failure! So I like that a failure probably just matches the benchmark, but if you are lucky enough to hit serious strength, performance improves.


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## MrBlackhill

(Deleted, see below)








TDDI can't keep up with euphoria?


This is the second time this happened in the last few days. TDDI is down, can't log in. It happened a few days ago and they posted a note apologizing, saying they normally only do maintenance overnight but had to do this during the day. Currently down again. Market soaring, NASDAQ soaring like...




www.canadianmoneyforum.com


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## depassp

james4beach said:


> I want to experiment with a trend-following method where I chase the hottest Canadian sector. ...
> 
> Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector.


Can you expand? Which technical analysis are you using? How do you determine which sector is the "hottest"?

Also... Why only these 3 sectors? What about XUT (Utilities), XMA (Materials), CEW (Banc & Lifeco, I can understand ignoring this since it's a subset of XFN), XST (Consumer Staples)?

Consumer Staples had a nice run from Apr 2016 through Sep 2017, leading to a 24.57% CAGR (source)


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## james4beach

depassp said:


> Can you expand? Which technical analysis are you using? How do you determine which sector is the "hottest"?


See post #27. I'm just measuring trailing 36 month performance, and choosing the sector with the highest total return. Nothing fancy. You can click the Link to Market Timing Model above, and you'll see quite a bit of detail there in how the performance test is done. Basically you choose the ETF with the highest performance, and it means you occasionally hop from one sector to the other.


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## depassp

james4beach said:


> See post #27. I'm just measuring trailing 36 month performance, and choosing the sector with the highest total return. Nothing fancy. You can click the Link to Market Timing Model above, and you'll see quite a bit of detail there in how the performance test is done. Basically you choose the ETF with the highest performance, and it means you occasionally hop from one sector to the other.


Got it, thanks!

I edited my post with a second question but not fast enough 

Why only these 3 sectors? What about XUT (Utilities), XMA (Materials), CEW (Banc & Lifeco, I can understand ignoring this since it's a subset of XFN), XST (Consumer Staples)?

Consumer Staples had a nice run from Apr 2016 through Sep 2017, leading to a 24.57% CAGR (source)


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## james4beach

depassp said:


> Got it, thanks!
> 
> I edited my post with a second question but not fast enough
> 
> Why only these 3 sectors? What about XUT (Utilities), XMA (Materials), CEW (Banc & Lifeco, I can understand ignoring this since it's a subset of XFN), XST (Consumer Staples)?
> 
> Consumer Staples had a nice run from Apr 2016 through Sep 2017, leading to a 24.57% CAGR (source)


I wanted to have enough data, so I went with the largest Canadian sector ETFs that have the most history. But a more important reason is that these ones (XFN, XEG, XIT) are the largest sector ETFs by funds under mgmt, meaning (I think) that most investment $ goes into these particular sectors. I believe that makes these "themes" more powerful than other ones as they are dominant forces in the market. You can list all iShares sector ETFs by size, to see what I mean.

The only other big one I excluded was XGD but I deliberately left it out because that muddies my asset allocation, since I invest in gold separately. Adding it wouldn't work for me because then I'd be way too overweight gold, overall. But if you add that one, you can see it works as well because XGD is also a heavy weight sector. A major theme, at times.

You also have to be careful to not choose between too many alternatives. I think ideally, you want to choose just 2 or 3 theme alternatives, each of which (when it occurs) is really powerful.


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## james4beach

james4beach said:


> I opened a small position in XIT.
> 
> I want to experiment with a trend-following method where I chase the hottest Canadian sector. As I've done with other experimental strategies, I'm putting some real money into it (so that I take it seriously and am motivated to track it).


XIT just hit a new all time high today. As I posted earlier, I'm holding it because it's the strongest Canadian sector (technical trend-chasing). I'll stick with this method for a few years and see what happens.

The technical strategy is illustrated in this back-test using similar US ETFs


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## james4beach

XIT has been getting a boost lately from the insane rise of Blackberry

This has been an incredible couple of years for XIT, performing far better than QQQ and American tech.

Here's a chart of XIT in green, and QQQ in black, both in CAD. You can see that Canadian tech has been performing much better than the American sector.


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## MrBlackhill

james4beach said:


> XIT has been getting a boost lately from the insane rise of Blackberry
> 
> This has been an incredible couple of years for XIT, performing far better than QQQ and American tech.
> 
> Here's a chart of XIT in green, and QQQ in black, both in CAD. You can see that Canadian tech has been performing much better than the American sector.
> 
> View attachment 21172


QQQ is not pure tech, so you should compare to XLK instead.

XIT.TO performed well in 2018 and 2019 after two years of underperformance in 2016 and 2017. Then 2020 wasn't any special.

Over 3 years, XIT.TO did well due to 2018 and 2019, but over 5 years XIT.TO did no more than almost as good as XLK.


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## james4beach

MrBlackhill said:


> over 5 years XIT.TO did no more than almost as good as XLK.


The numbers show that XIT.TO did significantly better than XLK.

Over 5 years, stockcharts shows XLK valued in CAD cumulatively up 222% or 26.4% CAGR
Whereas XIT is up 295% or 31.6% CAGR

Pretty significant outperformance of XIT versus XLK. Over 5 years, Canadian tech has outperformed by an extra 5% CAGR


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## MrBlackhill

james4beach said:


> valued in CAD


Even if you want to add the currency performance to the sector performance, you should note that XIT outperformed no more than the last 3 years, as my point remains that it doesn't go further.

Tell me what was the performance of XIT compared to XLK for the two years from 2016-01-01 to 2017-12-31. Tell me which one did significantly better at that time.

Canadian tech and US tech have been taking turns every 1-3 years for at least the past 20 years.

I wouldn't bet too much on XIT to outperform XLK this year.


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## MrBlackhill

james4beach said:


> XIT has been getting a boost lately from the insane rise of Blackberry


I hope XIT will become more evenly distributed at some point in the future.

XIT is mainly just tracking the performance of its top 4 holdings that makes 75% of its weight. The remaining 25% is shared by 13 holdings. It's taking so long for other stocks to move above OTEX and GIB-A.

Same thing goes for XLK having 40% of its weight in only 2 stocks, then the remaining 60% being shared by 73 stocks.

So many sectors have overweights in their holdings... Tech, communication, consumer discretionary and energy.


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## Covariance

For public company investing I don’t understand the logic of a fund focusing on technology companies in one country. Technology business is international (both in supply chain and customer opportunity). Without a doubt Canada has some terrific technology companies but they would be better placed in a diversified technology portfolio as opposed to mixed in with all (good and bad) technology companies that happen to be located in one country.


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## james4beach

Covariance said:


> For public company investing I don’t understand the logic of a fund focusing on technology companies in one country. Technology business is international (both in supply chain and customer opportunity). Without a doubt Canada has some terrific technology companies but they would be better placed in a diversified technology portfolio as opposed to mixed in with all (good and bad) technology companies that happen to be located in one country


And perhaps broad index investing is the best way to tackle this anyway.

The S&P 500 has a large weighting of large tech companies. Even the TSX Composite contains tech companies.

So maybe the right thing to do is just stick with index investing and get our tech exposure through those holdings. And there are plenty. XAW for example has nearly 1% in TSMC... one of the world's best tech stocks.


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## MrBlackhill

Covariance said:


> For public company investing I don’t understand the logic of a fund focusing on technology companies in one country. Technology business is international (both in supply chain and customer opportunity). Without a doubt Canada has some terrific technology companies but they would be better placed in a diversified technology portfolio as opposed to mixed in with all (good and bad) technology companies that happen to be located in one country.


If you want global exposure but sector play in tech so you can weight your tech exposure as you wish, then there's TEC.TO or IXN for instance.


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## Covariance

Something else to keep in mind. Some companies many consider to be "tech" are not in Information Technology but in other sector classifications. TSLA and AMZN are consumer discretionary, GOOGL, FB, NFLX are communications services. None of these would be in IXN as a consequence (but it does have AAPL, MSFT...)


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## MrBlackhill

Covariance said:


> Something else to keep in mind. Some companies many consider to be "tech" are not in Information Technology but in other sector classifications. TSLA and AMZN are consumer discretionary, GOOGL, FB, NFLX are communications services. None of these would be in IXN as a consequence (but it does have AAPL, MSFT...)


Buy TEC.TO and you'll have that exposure to "tech" stocks which are not part of the tech sector. They invest in tech-*related* stocks.


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## Ponderling

a little off topic, but I use IYW for my technology focused USD denominated ETF. I do not feel Canadian tech is broad based enough. I have in the past owned DSC and OTEX and CSU in the past, and BB at times (No BB currently) But I actually like to put 6-7 solid companies in sub indicies and I just could not do that in Canada in a way that left me feeling somewhat diversfied. I view Canada health care stocks the same way, but here jnj, mrk, pfz and abbv the four largest by market cap US stocks fill in these holes


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## james4beach

Ponderling said:


> I do not feel Canadian tech is broad based enough


The Canadian tech sector has improved from a decade or two ago. There was a time when holding Canadian tech only meant Nortel or RIM, but it's much better today.

Here are the % weights of the top holdings in XIT: 25%, 22%, 16%, 11%
For comparison, here are the top weights in XEG: 25%, 24%, 13%

Both of these are pretty reasonably diversified for a sector ETF. For example if you look at something like XLY (US consumer discretionary) you will see some similar high % weights of their top holdings. And if you look at XLE (energy multinationals) it's no better diversified either, with two massive holdings similar to what's seen above. That's despite XLE being a $14 billion fund of US energy giants.

My point is that Canadian tech, XIT, is actually pretty well diversified


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## MrBlackhill

james4beach said:


> My point is that Canadian tech, XIT, is actually pretty well diversified


I wasn't expecting that conclusion from you. XIT has 16 stocks, with its top 5 accounting for 80% of the ETF.

Most of the well-known sector ETFs are overweighted in their top holdings.

Market-cap indexing feels broken to me. It takes so long to take over the bigger caps; the ETFs aren't reactive, they're very slow. ENGH and DSG have been outperforming OTEX and GIB-A for the past 10-15 years. Yet OTEX and GIB-A make for more than 25% of the ETF, whereas ENGH and DSG are still only at 6% only because they are still much smaller caps. Only CSU and SHOP were able to make their way... because they had insane growth. And then you also have BB still in the top holdings after over 10 years of underperformance. If SHOP suddenly starts going sideways for the next 10 years, how long to you think it'll take before it makes less than 10% of the ETF? Forever.

Anyways. Maybe that's why I like factor investing, like momentum ETFs. But there isn't a big offer yet and there's some bad implementations. For instance, MTUM is beating VTI and SPY, but it can't even beat QQQ from which is should pick all the momentum. There's still place for improvement. Though, so far, ZGQ is an example of a great implementation of quality factor.


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## james4beach

MrBlackhill said:


> I wasn't expecting that conclusion from you. XIT has 16 stocks, with its top 5 accounting for 80% of the ETF.


Look at XLE, a very legit, major ETF. The top 5 account for 60% of the ETF. And for XEG, the top 5 account for 77% of the ETF.

You can't really say XIT is any different than XEG, when it comes to concentrations.

Not sure how you are concluding that cap weight indexing is broken when XIT has done a phenomenal job adapting over the years. At one point it was nearly entirely Nortel, at another time RIM. Those concentrations were so heavy that people complained that they can't invest in XIT because it's basically like holding one stock (that's what I used to think too). But really, all these years, the index has proved that it adapts to market conditions and the leader of the day.

I think XIT doesn't get enough appreciation. It's performed at 8% CAGR since inception, with an inception date almost exactly at the dot com bubble peak when Nortel was its main holding. Entering at a bubble peak and still getting 8% long term is awfully good.

For full disclosure I should add that for many years (early 2000s), I made money repeatedly by short selling XIT every time it rallied  Although that was easy money, the irony is that I would have been better off if I just bought it back then and held on, long term.


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## MrBlackhill

james4beach said:


> Not sure how you are concluding that cap weight indexing is broken when XIT has done a phenomenal job adapting over the years.


Let's say we are in January 2010. You are looking at tech stocks. XIT basically holds 5 stocks, 2 of them are GIB-A and OTEX. They've been doing good lately so you buy them 50% / 50%. You invest $1000/month in that portfolio of two stocks until the end of 2019. Your friend decides to buy XIT instead and invest $1000/month. A few years later, your friend tells you about the amazing rise of CSU (starting end of 2012) and then the insane rise of SHOP (starting mid 2017) in his XIT holding. By the end of 2019, he's laughing at your OTEX and GIB-A lagging.

What's your final value after that decade? $363,085
What about your friend? $350,578

So, how fast is XIT adapting?





__





Backtest Portfolio Asset Allocation


Analyze and view backtested portfolio returns, risk characteristics, standard deviation, annual returns and rolling returns



www.portfoliovisualizer.com







james4beach said:


> Look at XLE, a very legit, major ETF. The top 5 account for 60% of the ETF.


Yup. Too much. The two top stocks make 45% of the ETF. I thought the goal of ETFs was to diversify the exposure.


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## james4beach

MrBlackhill said:


> Yup. Too much. The two top stocks make 45% of the ETF. I thought the goal of ETFs was to diversify the exposure.


They do diversify. Instead of holding one stock, you're holding many. But clearly, the broad indexes have far superior diversification.

High single stock concentrations seem to just be the nature of sector ETFs. Take a look at XLK for another great example. It's a huge ETF in a huge tech market, and yet, the top two holdings (AAPL and MSFT) are 42% of the fund!

I guess the matter of debate is whether a sector ETF is better than hand-picking stocks. I would say yes, as you are outsourcing the portfolio management. I doubt that I could have managed a Canadian tech stock portfolio as well as XIT has. And when you look at high risk stuff like XEG, it's a dangerous job to pick and choose which stocks are likely to survive the tough business environment.


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## MrBlackhill

james4beach said:


> They do diversify. Instead of holding one stock, you're holding many. But clearly, the broad indexes have far superior diversification.
> 
> High single stock concentrations seem to just be the nature of sector ETFs. Take a look at XLK for another great example. It's a huge ETF in a huge tech market, and yet, the top two holdings (AAPL and MSFT) are 42% of the fund!
> 
> I guess the matter of debate is whether a sector ETF is better than hand-picking stocks. I would say yes, as you are outsourcing the portfolio management. I doubt that I could have managed a Canadian tech stock portfolio as well as XIT has. And when you look at high risk stuff like XEG, it's a dangerous job to pick and choose which stocks are likely to survive the tough business environment.


To me, holding XLE means holding 24% XOM, 22% CVX and then 54% of a diversified Energy exposure.
Holding XLK means holding 24% AAPL, 20% MSFT and then 56% of a diversified Tech exposure.

RYT is a truly diversified Tech exposure for risk mitigation. But that's just because it's an equal-weight.

I don't know why XIT.TO is called "capped" when it has holdings of more than 20% weight. It should have a limit of something more like 10% or 15% maybe.

People buying ETFs want to mitigate risk through diversification, but where's the risk mitigation when it has 25% weight in some stocks? Think of that ETF as your whole portfolio. Would have 25% weight in a single stock? If you like concentration, sure. If you like diversification, no. And the goal of most index ETFs is diversification.

Considering a bubble, which one would you prefer holding? Equal weighted or market cap weighted? If SHOP tanks -50%, will you be happy with XIT? I'll take your words of wisdom to remind that we are in a bull market. That market cap weight is good during a bull market, but it has led to overweight. What will happen when the market turns bearish for a few months or years?

If SHOP continues growing fast, leading to that first place in XIT, but then lags for the next 10 years, you won't be able to dump it since you hold it in XIT and since it has a big market cap, it'll drag XIT for a long time until some smaller caps currently outperforming takes over to boost XIT.

You should recall that the best performing stocks historically are small caps. It's pretty new that large caps are good performers. They are just meant to be stable, but slow growers. With market cap weighting, your main exposure goes to the slow growers and there's nothing left for the small caps. Equal-weight doesn't have that issue.

Yet, I don't want to start a debate about market cap weighting vs equal weighting in ETFs, it's just an illustration about the effect of overweighting in an ETF meant to be diversified to mitigate risk. I think to best ETF diversification is not equal weight, but not overweighted. Something in-between.


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## MrBlackhill

james4beach said:


> XIT has been getting a boost lately from the insane rise of Blackberry


How's that boost doing today? That game with BB and such stocks just added so much volatility. Anyways, today's drop still leaves us higher than a month ago, so, yeah, we still got that boost. But who knows where BB will be next week.


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## Covariance

One aspect of tech is the consolidation effect. In enterprise and vertical market software serial acquirers have grown by buying up smaller fish. In consumer tech it's a winner takes all category - three smartphone companies own the market, there are only a couple of social media companies.


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## james4beach

MrBlackhill said:


> How's that boost doing today?


Well thankfully, XIT is diversified across many holdings. You get what the sector, more or less, is doing.


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## MrBlackhill

james4beach said:


> Well thankfully, XIT is diversified across many holdings. You get what the sector, more or less, is doing.


So well diversified that while the whole tech sector is up by at least +0.40%, XIT is down by more than -2% due to a single stock, even though XIT's top 3 holdings representing 60% weight are up by +2.60%, +4.03% and +4.35%.


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## james4beach

MrBlackhill said:


> So well diversified that while the whole tech sector is up by at least +0.40%, XIT is down by more than -2% due to a single stock, even though XIT's top holdings representing 60% weight are up by +2.60%, +4.03% and +4.35%.


I don't understand what you're seeing. Did the Canadian tech sector not move by the amount XIT moved by?

Are you saying XIT is not tracking its underlying?


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## MrBlackhill

james4beach said:


> I don't understand what you're seeing. Did the Canadian tech sector not move by the amount XIT moved by?
> 
> Are you saying XIT is not tracking its underlying?


I'm saying XIT is not diversified enough, too much overweighted and not enough representative of Canadian tech sector. Because of that, a -40% drop in a single stock (BB) make the whole ETF go down -2% while it should've been in the green otherwise.

Did it capture CDAY? Market cap $18B, up +1.60%
Did it capture NVEI? Market cap $9B, up +1.80%
Did it capture MAXR? Market cap $3.4B, up +1.65%
Did it capture DND? Market cap $2.7B, up +9.14%

And what are the rules for a tech stock to be part of the index? For instance, why PHO (market cap $235M) is part of the index, but TCS (market cap $821M) is not part of the index? And TCS isn't a new stock.

The index holds less than 2/3 of all the TSX tech stocks with a market cap over $200M. And it doesn't hold the biggest market caps, even though it's market cap weighted.


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## james4beach

Note for anyone holding iShares XIT

There was a huge reinvested distribution at year end. You must make sure you increase your Adjusted Cost Base with 2.55091 per share as shown in these iShares tax characteristics details. TDDI has correctly calculated this and already adjusted the Cost Basis in the account holdings.

Basically it's an extra 6% added to the fund value. Perhaps (some of?) it comes from the Constellation spin-out.


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## Fisherman30

No one's mentioned it yet, so I figured I'd chime in on this one. I like VGT on the NYSE....US tech ETF's are where it's at in my humble opinion.


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## james4beach

I hold a smallish position in XIT. Is anyone buying more here? (same story with QQQ)

This seems to be one of the rare corrections down to its 200 day moving average. What do you think @MrBlackhill and others... time to buy more tech?

Does the bull market continue, or is this finally the end of the 10 year tech bull run?


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## Jimmy

james4beach said:


> I hold a smallish position in XIT. Is anyone buying more here? (same story with QQQ)
> 
> This seems to be one of the rare corrections down to its 200 day moving average. What do you think @MrBlackhill and others... time to buy more tech?
> 
> Does the bull market continue, or is this finally the end of the 10 year tech bull run?
> 
> View attachment 21680


The run ended in 2020 actually. Tech fell ~ 78% w covid in 2020. Just had another bear market or correction of~ 50% too. Regardless, just add on the dips or low RSI, cross of 200MA etc.XIT and tech in general have a nice upward trajectory.


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## MrBlackhill

james4beach said:


> I hold a smallish position in XIT. Is anyone buying more here? (same story with QQQ)
> 
> This seems to be one of the rare corrections down to its 200 day moving average. What do you think @MrBlackhill and others... time to buy more tech?
> 
> Does the bull market continue, or is this finally the end of the 10 year tech bull run?
> 
> View attachment 21680


If you want to continue investing in tech for the long term with recurrent contributions, it's always good to buy the dips.

If you want to invest a lump sum once in a while for a long term investment, you could wait as tech is still pretty hot on larger time scales and I believe it could still go down in the next few months. I'm expecting this year or next year to look like 2018.

If you want to play the short time rebound, the probabilities should be on your side at the moment.

But anyways, this is timing the market... the general advice is just to buy the dips and add money on a regular basis.


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## james4beach

MrBlackhill said:


> But anyways, this is timing the market... the general advice is just to buy the dips and add money on a regular basis.


Fair enough, and I do have a strategy around this, but on any correction like this one always wonders if the bull run is over. Nobody has answers to that of course.

My XIT position is a Canadian sector return-chasing experiment. Currently I still evaluate tech to be the hottest sector, and remain invested there.


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## Covariance

XIT is 24 % Shopify and 25 % constellation if I read it correctly. CGI and Opentext make up the next 28%. Seems ones point of view on those four would be the determining factor.


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## MrBlackhill

james4beach said:


> Fair enough, and I do have a strategy around this, but on any correction like this one always wonders if the bull run is over. Nobody has answers to that of course.
> 
> My XIT position is a Canadian sector return-chasing experiment. Currently I still evaluate tech to be the hottest sector, and remain invested there.


My opinion about XIT is pretty similar to NASDAQ. It'll go nowhere during 2021. But that doesn't mean you shouldn't buy. It may be a good time to slowly start to accumulate before the next move.


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## james4beach

Covariance said:


> XIT is 24 % Shopify and 25 % constellation if I read it correctly. CGI and Opentext make up the next 28%. Seems ones point of view on those four would be the determining factor.


Makes no difference. Exact same question for XLK and QQQ as the chart is identical if you convert them to CAD. It's just a question about tech in general.


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## Covariance

james4beach said:


> Makes no difference. Exact same question for XLK and QQQ as the chart is identical if you convert them to CAD. It's just a question about tech in general.


Got it. Re the general question then; I've been holding off adding tech as I expect more volatility with economic news. Expecting some bumps in the weeks ahead.


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## MrBlackhill

Funny thing I just noticed while recalling that everybody was talking about the amazing tech bull run since the bottom of the crash on March 23, 2020...

Since that date until today...

XLK (tech) has a total return of 91.77%
XLC (comm) has a total return of 92.12%
XLY (consumer discretionary) has a total return of 96.58%
XLI (industrials) has a total return of 107.91%
XLB (materials) has a total return of 123.74%
I was actually trying to see how the sector rotation unfolded since the crash but I just noticed that all of those 5 sectors simply had a nice smooth recovery.

On the other hand, XLV (healthcare) was actually the first to jump back up once everybody understood that it was a health issue.

XLP is defensive so it barely crashed and it recovered during the summer but there isn't big gains to make in that sector. Similar comment for XLU.

XLF (financials) and XLE (energy) started their run once the first vaccine results were announced in November.

XLRE waited for the beginning of 2021 to finish its recovery.


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## afulldeck

MrBlackhill said:


> My opinion about XIT is pretty similar to NASDAQ. It'll go nowhere during 2021. But that doesn't mean you shouldn't buy. It may be a good time to slowly start to accumulate before the next move.


I think it will go nowhere until 2031 or later...this decade will be about SCV....


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## Covariance

afulldeck said:


> I think it will go nowhere until 2031 or later...this decade will be about SCV....


SCV = small cap value?


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## afulldeck

Covariance said:


> SCV = small cap value?


Yup...


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## Covariance

afulldeck said:


> Yup...


Interesting. US, Canada, any difference?


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## afulldeck

Covariance said:


> Interesting. US, Canada, any difference?


From a tech perspective I don't think so. Canada's XIT is a concentrated bet when compared with the QQQ....


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## MrBlackhill

XIT is so concentrated, there's no point to buying it unless it's commission-free during the accumulation or for small portfolios. I had XIT and decided to dump it. Better buy the top 4 stocks individually to avoid the MER fees and keep an eye every year to see if there's a new rising star.

For a regular investor that has access to commission-free ETF purchases, I'd suggest to put your monthly contributions into XIT until you reach something like $10,000 in XIT, then dump it and buy XIT's top 4 stocks representing 80% of XIT.

If you fear missing out on a rising star because you didn't buy the ETF, mind this : if 96% of the ETF rises +25% while the little rising star worth 4% of the ETF rises +50%, the ETF value will rise overall +26%. Not that big of a deal.

The other reason to buy XIT would be to have a better control on tech exposure for small portfolios. I mean, if your portfolio is worth $30,000 and you don't want more than 10% exposure to Canadian tech, it'll be a bit sketch to try buying individually CSU ($1,700) and SHOP ($1,350) and then wanting to buying GIB-A and OTEX, all that with only $3,000 (10% of $30,000).


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## Ponderling

I do my tech sector exposure in IYW, a usd denominated ETF, and then spice it up in old school tech with some Raytheon. Wife bought 5k of AMAZ in her tfsa about 10 years ago, and it is still there.


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## james4beach

james4beach said:


> But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:


@MrBlackhill in case you're interested, I am continuing with this trade, and am still in XIT because it's still the hottest sector.

When XEG or XFN becomes the hottest sector, I will switch to one of those.


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## MrBlackhill

james4beach said:


> @MrBlackhill in case you're interested, I am continuing with this trade, and am still in XIT because it's still the hottest sector.
> 
> When XEG or XFN becomes the hottest sector, I will switch to one of those.


How do you determine the hottest sector? Because XEG had a better performance than XIT since the 2020 crash.


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## james4beach

MrBlackhill said:


> How do you determine the hottest sector? Because XEG had a better performance than XIT since the 2020 crash.


I'm using the trailing multi-year performance (I like using 3 years and 4 years). You can find something similar to this implemented at Portfolio Visualizer, under the market timing section. It's a momentum method.

Here's a link to an example. It does not always beat the index, but I think it's interesting enough that I'm giving it a shot.

Here's a longer back test using US equivalents. Might this be a hindsight exercise of data mining? Yes absolutely. I don't take it too seriously, but I have some money invested in this idea (just like I have some money in my stock picks).

I hold XIT due to this ^ strategy. It will obviously be painful when market conditions change and XIT turns into a loser. It may take me a couple years to realize that it's a loser, but that's OK.


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## MrBlackhill

james4beach said:


> I'm using the trailing multi-year performance (I like using 3 years and 4 years). You can find something similar to this implemented at Portfolio Visualizer, under the market timing section. It's a momentum method.
> 
> Here's a link to an example. It does not always beat the index, but I think it's interesting enough that I'm giving it a shot.
> 
> Here's a longer back test using US equivalents. Might this be a hindsight exercise of data mining? Yes absolutely. I don't take it too seriously, but I have some money invested in this idea (just like I have some money in my stock picks).
> 
> I hold XIT due to this ^ strategy. It will obviously be painful when market conditions change and XIT turns into a loser. It may take me a couple years to realize that it's a loser, but that's OK.


Ok got it, at least you are aware of the flaws.


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## james4beach

james4beach said:


> I'm using the trailing multi-year performance (I like using 3 years and 4 years). You can find something similar to this implemented at Portfolio Visualizer, under the market timing section. It's a momentum method.
> 
> Here's a link to an example. It does not always beat the index, but I think it's interesting enough that I'm giving it a shot.
> 
> Here's a longer back test using US equivalents. Might this be a hindsight exercise of data mining? Yes absolutely. I don't take it too seriously, but I have some money invested in this idea (just like I have some money in my stock picks).
> 
> I hold XIT due to this ^ strategy. It will obviously be painful when market conditions change and XIT turns into a loser. It may take me a couple years to realize that it's a loser, but that's OK.


@MrBlackhill and others who do technical trading might be interested...

I'm still using this sector-chasing technique with a small part of my portfolio. Currently I'm still in XIT but things might be changing now. When I next evaluate this, it's possible it will switch me into XEG.

As expected from the back test, the transition periods (like today?) are the most painful.

I still like systematic approaches like this one. At the end of the day it's not a question how I feel about energy or tech. The quantitative tests will tell me what to trade.

@Rusty O'Toole if this really is the end of the tech trade you might want to consider that as well, in your TQQQ trading plan. Long tech / leveraged tech has been an extremely popular trade for a long time. But market themes don't last forever.


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## MrBlackhill

james4beach said:


> Currently I'm still in XIT but things might be changing now. When I next evaluate this, it's possible it will switch me into XEG.


Feels late to switch, but I guess it's still not too late though. XEG's momentum can certainly last another 6 months or more!


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## OneSeat

Why would anyone not have sold XIT in the last six months of last year?
I simply do not understand.

5 Year Log Chart of XIT.TO with dividend back adjust per Barchart.com


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## james4beach

MrBlackhill said:


> Feels late to switch, but I guess it's still not too late though. XEG's momentum can certainly last another 6 months or more!


That's why the quantitative approach is needed. Can't do these things based on feeling. You certainly can't sell a sector every time it has a tiny 10% or 20% correction... more robust criteria is needed.

Also if you look at the historical back test you'll see there have been multi-year themes. I'm doing this in the effort to catch a significant long term theme like those that happened in the past.


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## londoncalling

OneSeat said:


> Why would anyone not have sold XIT in the last six months of last year?
> I simply do not understand.
> 
> 5 Year Log Chart of XIT.TO with dividend back adjust per Barchart.com
> View attachment 23097


 
Perhaps now is the time to buy XIT as it has experienced a nice correction?

Advanced Charts | Perform Technical Analysis | TMX Money


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## james4beach

londoncalling said:


> Perhaps now is the time to buy XIT as it has experienced a nice correction?


Well that's the conundrum and why this isn't a simple matter.

XIT has been in a remarkably strong uptrend for many years. Is the current decline marking the end of this trend? It could be an amazing buying opportunity.

Or it could be the death of the tech trade.


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## londoncalling

Perhaps. My guess is somewhere in between an amazing buy and the death of tech.


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## OneSeat

james4beach said:


> That's why the quantitative approach is needed.
> Can't do these things based on feeling
> can't sell every time it has a tiny 10% or 20% correction





james4beach said:


> Well that's the conundrum and why this isn't a simple matter.
> XIT has been in a remarkably strong uptrend for many years.
> It could be an amazing buying opportunity. (OneSeat - or not!)


That is quite a change, James.

Since we often disagree let me explain my approach - or "way of thinking" if you like.

Investing to me is a matter of making a profit

to do that you have to sell at a higher price than you bought
and there is no reason to hold anything if you don't feel that opportunity.

If a holding shows a worthwhile profit consider selling at least some of it - say 25% or 50%

that is personal, not market oriented
does not have to be a maximum price - just make a profit
if the price drops (in several weeks or months) buy back - could make a double profit
if it climbs - just be happy you made some profit - but keep thinking "This, that or something else?"

If you are a DIY investor - keep involved - don't switch off for too long.
I check up every weekday because I check my mail etc every day and 14 ETFs only takes 5 minutes.
Use a website that can easily show graphs and several on each page - graphs are much easier to
digest than simple numbers. I strongly recommend Barchart,com

Now back to my above chart on XIT.

at least three opportunities in last 5 years to make worthwhile profits
first two - buy back more than you sold
June-Dec 2021 - sell for big profit. Then think about next action - don't have to do anything..

I know not everyone will agree with me - but you do have to "feel" what seems right for you.
Numbers will not feel for you.


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## james4beach

james4beach said:


> I'm using the trailing multi-year performance (I like using 3 years and 4 years). You can find something similar to this implemented at Portfolio Visualizer, under the market timing section. It's a momentum method.
> . . .
> 
> I hold XIT due to this ^ strategy. It will obviously be painful when market conditions change and XIT turns into a loser. It may take me a couple years to realize that it's a loser, but that's OK.


An update on this, might interest @MrBlackhill @Covariance

My technical sector chasing strategy has rotated me out of XIT and *into XEG*. As can be expected, at transition points like this these trades don't look so good (an inevitable aspect of momentum) but the hope is to capture a spectacular bull run.

Historically, these sectors get bursts of strength that only last a few months, but occasionally there are multi-year bull markets. So I'm hoping that I might catch one of those periods.

Going back to early this year, I started with a long oil position in HUC and morphed that into XEG (about equivalent). Then I added to the position when I finally sold XIT and bought XEG for this sector-chasing.


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## Covariance

james4beach said:


> An update on this, might interest @MrBlackhill @Covariance
> 
> My technical sector chasing strategy has rotated me out of XIT and *into XEG*. As can be expected, at transition points like this these trades don't look so good (an inevitable aspect of momentum) but the hope is to capture a spectacular bull run.
> 
> Historically, these sectors get bursts of strength that only last a few months, but occasionally there are multi-year bull markets. So I'm hoping that I might catch one of those periods.
> 
> Going back to early this year, I started with a long oil position in HUC and morphed that into XEG (about equivalent). Then I added to the position when I finally sold XIT and bought XEG for this sector-chasing.


Interesting. I took a quick look at XIT as this contradicts some other signals I follow. XIT is 25% SHOP. Thats a very high cap for a capped ETF. I wonder how that is influencing this.


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## londoncalling

I personally would avoid any etf that has a 25% weighting to any one holding. Curious to see how this play works for you @james4beach. I am ready to reassess my energy holdings as we head into the fall. I think a lot of the momentum players have cashed out and now we will see if the energy bull can continue its run based on fundamentals.


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## scorpion_ca

What do guys think of TEC.TO instead of XIT?


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