Consumers and Tweets

Chris Versace, editor of PowerTrader, sees consumer staples ETFs as a way to play the cash-strapped consumer; he also highlights a private equity stock that offers investors an indirect play on the Twitter IPO.

Steve Halpern: We're here with Chris Versace, ETF expert and editor of PowerTrader. How are you today, Chris?

Chris Versace: I'm fine, Steve, how are you?

Steve Halpern: Very good. This is an opportune time to speak with you, because you recently made some changes in your newsletter. I was wondering if you could tell our listeners a little about what you're now incorporating, beyond just the ETF world.

Chris Versace: Sure, we very recently transitioned to PowerTrader. Originally we started as ETF PowerTrader, where we were using a combination of ETFs and call options to really try and help subscribers double their money; that was my goal and we've done a very good job with that.

I think through June the average call option has returned high double digits, call it, almost 80%, with a holding period of around 33 days. So it's pretty good.

One of the issues I found with just ETFs is, sometimes you identify a strategy that you want to capitalize on, and there is either no good ETF to take that one, for example, if I wanted to invest in the connected home, or the connected car, or obesity for example, it's very hard to find pure plays on that.

At the same time, there are some, many ETFs out there, but very, very few of them are, what I would say, quality ETFs, and by that, I mean they trade, they're liquid. Sometimes when you find an ETF, you may like it, but it may not trade and then it's even harder to find a liquid call option.

For that reason we've decided to go toward a combination of ETFs, stocks, and call options, to really deliver significant performance and a lot of opportunity to my subscribers.

Steve Halpern: Okay, well, maybe we could walk through one of your investment positions; you've recently been recommending the consumer sector. Could you explain your overall attraction to that area?

Chris Versace: Sure, it really plays off, what I call, the cash-strapped consumer. If we look at a lot of the economic data of late, but even going back several months, it's no secret that the consumer is really hurting.

We can take a look at the August employment report, which was dismal on every indicator. We can take a look at some of the data coming out of the commerce department that shows the average household income today is lower than it was four years ago.

We can look at weak retail sales; even though we're coming off of back-to-school spending and the outlook for a lackluster holiday season this 2013.

All of it says to me, again, that the consumer is hurting and I was looking for a way to capitalize on that pain point. In my view, the consumer is going to buy what they need, not necessarily what they want.

That, to me, says they're going to favor inelastic goods over elastic ones, so when you think of the things that we need each and every day, toilet paper, toothpaste, deodorant, shampoo, household cleansers, that sort of thing, that's what brings me into (XLP) and (VDC).

Steve Halpern: Okay, you mentioned XLP; for our listeners that's the Consumer Staples Select Sector SPDR and VDC is the Vanguard Consumer Staples ETF. So you like those two positions for people who are looking at this area.

Chris Versace: Absolutely, I do. The one great thing, particularly about XLP, is it's got what I call the dividend dynamos.

These are companies that increase their dividend almost every year, and it's a lot of household names that you could look around your own house, or the listener's house, and you could see the products in there from PepsiCo, Proctor&Gamble, Clorox, and the like.

Steve Halpern: Now the Vanguard Consumer Staples Fund, is that similar in nature?

Chris Versace: It is similar in nature. I won't say they're indistinguishable, some of their weightings are a little different, and if I had to pick one I would pick XLP over VDC.

Steve Halpern: Okay, in addition, as you mentioned at the beginning of this interview, you're focusing a little more on stocks, beyond just the ETF world. You recently had a fascinating recommendation for a company called GSV Capital, which you're recommending as an indirect play on Twitter's pending IPO. Could you expand on the story behind that?

Chris Versace: Sure, we take a look at companies that are going public and there tends to be a lot of enthusiasm around them. I personally prefer not to invest when a company goes public.

I think having been on the sell side for a number of years, there's a lot of control in the forecast numbers that are used out there so it's very easy for companies to beat, but you have to wonder longer-term about the lockup expiration.

I tend to avoid IPOs, per se, but every so often there's an opportunity to climb into a position before the company goes public, and in this case, that's GSV Capital, which is a venture portfolio company, publicly-traded, ticker symbol (GSVC) and they have about 15% of their holdings in Twitter.

Now these guys are not a new entity, they've been around before, and they've invested pre-IPO on Facebook, pre-IPO on Groupon, so this is part and parcel of their business model.

Right now, they've got about $1.84 million shares of Twitter and a significant number of the preferred class-A shares as well. For people who are looking to kind of get in before the public opportunity for Twitter, GSVC is a great way to do that.

Steve Halpern: We appreciate you sharing your insights today. Thanks for joining us.

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The expert featured in this column, Chris Versace, may or may not own positions in any investment vehicle mentioned here. The views and opinions expressed are his or her own.