Popular Vanguard Has High Exposure to Bad Market Conditions.

AMEX:VYM   Vanguard High Dividend Yield ETF
Vanguard funds have substantial exposure to bad market conditions. Investors will usually find their investment weighted towards the most popular stocks - and these can be the most volatile ones. Although the portfolios can own many different stocks, a large share of these is usually condensed in a small percentage of them. Meaning there is more risk on certain assets and correlated asset than some Vanguard investors may think.

This fund has performed very well recently, but herein lies the potential problem. It has gained a lot of ground by having a lot of exposure to volatility . So far so good on the direction of volatility for investors, but if this switches and price starts to fall, prices can fall over three times as far as they have risen.

The popularity this fund has gained adds to the risks for investors. Many people invested in the same assets may lead to liquidity problems if a lot of them panic and want to make similar moves at similar times. This herd sort of reaction in common in markets. This could increase the downside volatility , making this a more unstable asset.

From a technical viewpoint, when using a 1.61 projection from the last big fall in this, there is an obvious reaction when price meets this level. After making this reaction it has went higher, but this could turn into a false breakout. Using reduced risk to sell at current prices gives good RR. If this comes down and back under the 1.61 projection level, this becomes a strong sell.

An interesting footnote on Vanguard, in one of their own documents it is disclosed that Vanguard employees have around $6.5 billion invested in Vanguard products. Vanguard's portfolio managers have $560,000 (or less), and this is held between two people. The rest have nothing invested. When the people making the tea have more at stake than those at the wheel, might not be good.

Swing Trade : Sell VYM 94.78. Stop Loss 97.90. Target 34.

If this move starts to happen, I will post additional short term trades to follow the momentum through days/weeks

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