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By Scott Burns | 02-12-2010 02:37 PM

Employment as a Buy Signal

Tracking the monthly jobs report can help identify sectors ready to rise, as well as those due for a fall, says Astor Financial's Rob Stein.

Scott Burns: An actively-managed mutual fund with an ETF twist. Hi, there. I'm Scott Burns, director of ETF research. Joining me today is Rob Stein, portfolio manager of the Astor Long Short ETF mutual fund. And the ticker on that fund is ASTIX. Rob, thanks for joining me.

Rob Stein: Thank you, Scott.

Burns: I think one of the most growing trends right now in the mutual fund world is actually mutual fund managers buying ETFs and generally using more of a sector theme or a macro theme. Talk to me a little bit about the Astor Long/Short ETF Fund.

Stein: Sure. And as you mentioned, we only buy ETFs. We think for our philosophy, which is an economic-based philosophy, selecting sectors that have a high probability of appreciating is much easier for us than selecting a stock and predicting a price target.

Burns: So it's easier than a stock, perhaps, but what's the secret? How do we understand? What's your method for figuring out what's the ETF that's going to appreciate?

Stein: Sure. As an economist starting my career at the Federal Reserve under the Volcker administration, we notice that employment trends and output trends really drive economic activity. What we essentially do is we look at the employment trends, and we buy the ETF that lines up with the sector that is adding the most jobs.

Burns: Wow. It seems pretty simple.

Stein: Sure. And then we check the GDP, the output trends. And if a sector was adding jobs and increasing its output, we gave it a buy rating, so to speak. And then we'd create a portfolio of the least-correlating ETFs that meet that criteria.

Burns: OK. So what do you mean by least-correlated? Maybe explain that a little bit.

Stein: Sure. If two things are moving up and down at a very similar rate, we consider that redundant exposure. Also, additional risk.

So we try to look for sectors that don't move lockstep with one another, but are experiencing the same economic fundamentals that we would consider ripe for appreciation.

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