ETF Articles & Reports
Written by Dani, May 11th, 2012
(This is a summary of our exclusive live teleseminar with Doug Fabian on May 8th, 2012. If you’d like to hear the audio recording of the teleseminar, please click here.)
The Global “Big Picture”
If you listen to our podcast and read our blog regularly, you know the market forces that concern us: market volatility, uncertainty in Europe, public debts and deficits, slowing global growth.
Here’s a glimpse at those concerns and the big picture, region by region:
Europe: Belgium, Germany and the Netherlands are the only countries in the EU which are currently trading above their 200-day moving average. Eleven countries in the European Union are in recession, while Greece and Spain are in a depression. We are also seeing other countries start to contract – which means less tax revenue, less growth, more unemployment and more unrest in Europe. Remember that this news is important because the EU represents 24% of the trading of the world.
China: also trading below its 200-day moving average. Slowing economic growth and some news of political change there as well. China is not in serious trouble, but is contracting slightly with global trends.
Japan: also trading below 200-day moving average. Japan had a serious setback last year with the earthquake and tsunami, and they aren’t out of the woods yet. They just shut down all 54 of their nuclear power plants for safety reasons, which is causing an energy shortage, and Japan already has massive public debt to deal with as well. Japan is the third largest economy in the world, (right behind the US and China).
Emerging markets: Also trading below 200-day moving average. Their success is tied to established markets and they are export driven, meaning that contractions in the markets effect them heavily. You may have noticed that oil prices have been falling, and the emerging markets are very focused on commodities – so this global slowdown really impacts the emerging markets.
In all, global growth looks suspect and vulnerable to any shocks. Panic in the markets, bank problems or another crisis in Europe seems like the most likely place we can expect a shock to come from. However, in Europe’s case, it might also be a solution to this global growth problem as well.
If the Germans decide to borrow more money and step up to back the other countries in the European Union, this would be a positive for EU and the rest of the world. In that case, we would expect markets to come back and volatility to ease considerably. However, right now Germany seems set on austerity, and while we are watching closely for any changes, we also have to be knowledgeable and realistic about the current global situation.
In the United States, we are spending $1.40 for every $1 we bring in. This is creating a 9% budget deficit, which is unnaturally high and a bit disconcerting. However, the world doesn’t seem to care about the U.S. debt and deficit and we have been able to finance the debt so far, so its been a safe haven for the rest of the world.
Also in the U.S., the federal stimulus plan is currently in place, keeping the economy growing at about 2.2%. Despite the United States’ safe haven status and relative security, we believe that Investors have been lulled into complacency, which we think will be very dangerous. Risk is still at play in the financial markets, and the slowing global growth will influence the US markets fairly soon.
Because of these factors, we think it’s essential to have a game plan and an exit strategy for your investments. We believe that there’s a 70% chance that we’ve already seen the high in the US stock markets this year. The only caveat is that if Germany decides to fund the EU’s debt crisis, the markets could kick back into gear – which is why Europe and the debt crisis there is so important to watch.
Fiscal cliff: January 2013
There are four laws that are going into effect in January 2013. We are calling this a “fiscal cliff” and we think they will have serious implications for your investments. These can only be changed by an act of Congress and the President’s signature – so they need to be taken seriously – as of right now, this isn’t just political theater.
- Bush/Obama tax cuts will expire in January 2013
- Employees are not paying social security (payroll tax) which equates to approximately $45/pay period. This will kick back in to play in January 2013
- Obamacare taxes on investors January 2013
- Automatic spending cuts to discretionary and defense spending in January 2013
Between the November election and January 2013, there’s a very small window to change these laws, and these new taxes, and the political gridlock that may be unable to change them, means that a US recession is a very real possibility.
As we watch the markets – with all of these uncertainties in the US and abroad – remember that we want to invest during a “sale”. We want to get a good deal, and we think that capitalizing on sell-off, panics and sectors that no one else is buying is the way to do so.
Favorite Growth Strategies
Emerging Markets: Observe on the chart that during the 2008 decline, the emerging markets went down significantly. Emerging markets are very susceptible to panics and crisis. The main message to remember is that we need to buy them when everyone else is panicking and they have dropped out of favor. Emerging markets are developing countries – they don’t have entitlement programs, they are embracing technology and they are very likely to grow without all of the weight that developed countries face.
Check our exclusive ETF list for more details on emerging market opportunities.
Energy: Energy is a great long-term theme and it has yet to flourish in the markets this year. Big oil stocks are down, but we believe that natural gas is the big story for the future. New developments in how we discover and access natural gas have brought the price down, and this is presenting an excellent opportunity for investors.
Natural gas in Europe is $15/BTU, in Japan $17/BTU. Here in the U.S., natural gas is $2/BTU. This is actually creating a manufacturing boom in the U.S. and is a great opportunity for job growth and economic stimulation.
Natural gas infrastructure is not well-established in the United States. This will take some development and will also be a great opportunity for investors. Five years from now, we think it will be fairly easy to convert cars to natural gas and this will drive the price higher as more people start to use it. We are now benefiting from low natural gas prices and the infrastructure does not exist yet – so this is going to be a great investment opportunity. IEZ, XOP and FRAK are the three best ETFs for natural gas investment in our opinion. Right now, price trends on natural gas are down – we don’t have these in our portfolios today, but we are watching them for our opportunity.
As we look at energy opportunities, owning traditional oil might be a good move too, if it “goes on sale”. China is still developing and will continue to need oil, so if the economy stabilizes, then oil will probably be a good investment.
Precious metals: Gold is setting up for a nice move to the upside. Why? Because of inflation and deflation.
- Deflation: Reduction of the general level of prices in an economy. Deflation is what the banks are worried about, why we borrow money, why we bail out banks, etc. Jobs are lost during deflation and politicians don’t want that.
- Inflation: A general increase in prices and fall in the purchasing value of money. Money has less value during inflationary times.
If any kind of crisis occurs, the Federal Reserve will step in and try to stabilize the economy, which means more debt and deficit, and more inflation. The reason gold has risen in value is because people know this, and they are concerned about the value of money and the effects inflation and deflation will have on their investments.
Also, because the United States economy is still struggling in some ways (2.2% growth isn’t exactly stellar, and jobs numbers are still lagging) this is a concern for many people. If we continue to see debt and deficits around the world, gold will continue to be a strong bid.
The other part of the precious metals equation is the emerging markets. In many areas of the world, gold is one of the few stable investments, so there is some competition to bid the price up.
The big story in the precious metals opportunity is in gold stocks. Gold mining ETFs are down, and pairing investments in precious metals as well as gold mining could be a smart move for growth investors. Again, this is not a “buy now” signal, but we are watching these for investment opportunities when gold prices stabilize.
All three of these growth strategies will be great opportunities – perhaps even in the very short term. Our philosophy is to buy when they present great value, when they are depressed in price. We will be talking about these a lot on our podcast and blogs, and you can always call for more information.
Action Items and Questions to Ask Yourself and Your Advisor
Prepare yourself for the next stock market decline. Be prepared for more European crisis, the fiscal cliff in the U.S. in 2013, and educate yourself on how to preserve your capital and survive this market volatility.
How are you going to take advantage of the buying opportunities in the three key areas we mentioned earlier? Are you monitoring these changes closely or do you have someone watching this for you?
What does your portfolio look like, and does it line up with your goals and objectives?
As always, here at Fabian Wealth Strategies we are available to discuss your portfolio and help you make these decisions in the best way possible. Call us at 800-391-1118 for your free portfolio review.
Note: The information expressed in this seminar is for educational purposes only and should not be construed as a recommendation to buy, sell, or hold any investment security. Doug Fabian is a registered investment advisor representative. The opinions expressed in the seminar are not considered personal investment advice. Consider the risks, fees, and expenses before making any change to your investment portfolio.
Written by Dani, May 02nd, 2012
As many of you know, we have a comprehensive list of ETFs on our website. Our latest edition of the Fabian ETF report recently came out, summarizing 1200 funds and highlighting 100 new ETFs for 2012. To get a copy of our ETF report, click here.
Another great way to hear our strategies is through our exclusive teleseminars. Our next teleseminar is titled: Strategies for Growth in Uncertain Times, and will be presented by Doug Fabian, on Tuesday May 8th at 1:00 p.m. Pacific (4:00 p.m. Eastern).
If there is one statement we can all agree with – we are living in uncertain economic times. Half of the countries in Europe are in recession, China is feeling the effects of slowing global growth, and the U.S. is struggling with trillion dollar deficits that are needed to keep the economy afloat.
In what will likely be a very challenging summer for the markets, having the right strategies in place to both preserve and grow your capital is absolutely critical to your investment success. Now is the perfect time to decide how you should position your investment dollars to achieve your financial goals for the remainder of 2012.
In this special one-hour presentation, you will learn:
- Doug’s three favorite growth strategies over the next three years.
- How to stay ahead of inflation with your portfolio.
- A global economic update and how world events can impact your money.
- The latest product innovation in the exchanged traded fund world.
- Plus much, much more
While this teleconference is FREE, attendance is limited, so please be sure to register HERE and reserve your spot today.
Written by David, April 11th, 2012
A new exchange-traded fund (ETF) that has gained my attention for the dual way it can help you profit is the iShares Morningstar Multi-Asset Income Index Fund (IYLD). The fund specifically seeks to replicate the Morningstar Multi-Asset High Income Index, a broadly diversified index that aims to deliver high current income and long-term capital appreciation.
The Index that this fund is designed to track consists of a comprehensive set of iShares ETFs that collectively target equity, fixed income and alternative income sources. The fund’s composition is weighted toward bonds, roughly 55%, but also includes a significant percentage of equities, approximately 20%. Specifically, the holdings on April 9 featured: domestic fixed income, 45.31%; cash and collateral, 25.32%; domestic equities, 14.85%; international fixed income, 9.68%; and international equities, 4.84%. The fund’s diversification also is aided by holding 1,888 different positions.
The top five holdings in IYLD, also as of April 9, were: iShares IBoxx Corporate Bond Fund (HYG), 19.56%; iShares Barclays 20+ Year Treasury Fund (TLT), 15.38%; iShares S&P Preferred Stock Index Fund (PFF), 14.85%; iShares Dow Jones Select Dividend Index Fund (DVY), 14.80%; iShares IBoxx Investment Grade Corporate Bond Fund (LQD), 10.37%. Those funds are some of the largest and best known offered by iShares.
Written by David, March 14th, 2012
With residential real estate showing signs of a budding recovery in certain markets, let’s look at one of my favorite funds in the sector, iShares FTSE NAREIT Residential Plus Capped Index ETF (REZ). REZ offers a way to invest in the recovery of the real estate market. One distinctive characteristic of REZ, compared with many other funds, is that a big chunk of its holdings include apartments.
In fact, nearly half of REZ’s holdings feature apartments, 45.05%. Other sizable portions of the fund feature self storage, 16.9%, and health-care real estate, 36.12%. With home prices in many markets still on the decline, sectors such as apartments and self storage usually do well. The health-care industry typically is fairly stable, regardless of the current economic state of the country. The fund specifically seeks investment results that correspond generally to the price yield performance, before fees and expenses, of the FTSE NAREIT All Residential Capped Index.
According to the National Apartment Association, renter-occupied households account for 30.6% of all U.S. households and generate more than $325 billion in annual rental revenues. With the current spread between mortgage prices and rental rates, many observers consider rental units to be more affordable than buying homes. Furthermore, Default Research, Inc. expects 1.5 million homeowners to lose their houses to foreclosure annually for the next three years. As a result, many apartment complexes around the country are filling up, and demand for apartments still is strong.
REZ’s top five holdings and their weights in the fund, as of March 13, were: Equity Residential, 11.48%; Public Storage, 10.86%; HCP Inc., 10.64%; Ventas Inc., 10.57%; and AvalonBay Communities Inc., 4.57%. At year-end 2011, the fund’s one-year performance reached 15.85%, while its three-year gain hit 22.74%.
Written by David, February 29th, 2012
With all of the recent talk about the economic turmoil in Europe, the growth in emerging market economies could be a bit overlooked. But let’s not overlook this potential opportunity for investors. A quick review of the 2011 performance of country-specific exchange-traded funds (ETFs) reveals one that is doing well but not gaining much attention. That fund is the Market Vectors Vietnam ETF (VNM).
With total retail sales reaching $75 billion for 2012, up 25% from 2009, the economic movement in Vietnam is worth noticing. Furthermore, Vietnam’s 2011 exports reached a record $96 billion, a 33% year-on-year rise, according to the country’s Ministry of Industry and Trade’s Planning Department. Vietnam has become an increasingly business-friendly country, based on a growing number of franchises and an aggressive plan to boost exports in 2012.
With trade relations on the rise in Vietnam, its Asian neighbors are looking to set up operations there. Japanese companies may start investing to build factories in Vietnam, after a recent flooding disaster in Thailand exposed a dramatic need to diversify manufacturing operations.
The VNM fund normally invests at least 80% of its total assets in securities that comprise the index. The largest holding in the fund is Vincom Jsc (VIC VN), consisting of 8.47% of the ETF’s holdings. The other stocks that form the fund’s top-five holdings and their weighs are: Vietnam Joint-Stock Commercial Bank (CTG VN), 7.85%; Jsc Bank for Foreign Trade of Vietnam (VCB VN), 7.43%; Bao Viet Holdings (BVH VN), 6.6%; and Petrovietnam Fertilizer & Chemicals Corp. (DPM VN), 6.62%. The ETF’s largest sector holdings, as of Jan. 31, featured: financials, 44.4%; energy, 25.4%; industrials, 11.6%; materials, 7.7%; and consumer staples, 4.7%.
Written by David, February 22nd, 2012
If you are hoping to profit from the market’s recent run-up, consider buying an exchange-traded fund (ETF) that gives you exposure to some of the best established companies available. One way to do so is by investing in the SPDR Dow Jones Industrial Average ETF (DIA).
The fund seeks to provide investment results that, before expenses, generally correspond to the price and yield performance of the Dow Jones Industrial Average. Without question, DIA has been on a roll lately, as the following chart shows.
As of Feb. 21, DIA’s top sectors and their respective weightings are: industrials, 22.27%; information technology, 17.6%; consumer staples, 13.53%; energy, 11.37%; and consumer discretionary, 11.02%. As far as the fund’s top five individual holdings and weightings on Feb. 21, they consist of: International Business Machine, 11.28%; Caterpillar Inc., 6.71%; McDonald’s, 5.86%; 3M Co., 5.11%; and Exxon Mobile Corp., 5.05%.
On Feb. 12, DIA closed at $129.23 per share, after paying a dividend of 0.332. The last time the fund topped that level occurred on May 19, 2008, when the fund closed at $130.23 per share. The ETF’s rising share price may have been aided by positive fourth quarter and full-year 2011 results from Home Depot, Inc. (HD) and other companies that are doing well during a weak economy. Indeed, HD is DIA’s 16th largest holding, as of yesterday’s close.
The world’s largest home improvement retailer reported on that day that it notched sales of $16.0 billion for the fourth quarter 2011, a 5.9% increase from the fourth quarter of 2010. Comparable store sales for the fourth quarter of 2011 jumped 5.7%, and comparable sales for U.S. stores alone rose 6.1%. Also impressive is that Home Depot’s 2011 sales reached $70.4 billion, up 3.5% from 2010. In addition, the company’s comparable store sales for 2011 climbed 3.4%, and comparable sales for U.S. stores alone rose 3.0%. It seems apparent that the do-it-yourself market is on the ascent, amid economic weakness in other sectors.
Home Depot also announced on Jan. 20 that it had acquired Redbeacon, an online home services platform that connects consumers with contractors for their home maintenance, repair and remodeling needs. Based in San Mateo, Calif., Redbeacon assists homeowners in connecting with qualified local service professionals, so Home Depot now seems better positioned to compete for the business of online buyers to sustain its sales growth. Since people generally look for ways to save money in a weak economy, Home Depot is an example of a company that can grow in both good and bad times.
With DIA’s diversification, you can benefit from its holdings in stocks such as Home Depot, without risking all of your money on the fortunes of just one company. That is a clear advantage of using ETFs.
Written by David, February 15th, 2012
As many of you know our firm focuses a large portion of our research on income oriented funds and we recently came across an excellent article on Seeking Alpha about different ways to calculate yield in both equity and fixed-income funds. It explains the differences between SEC yield, 12-month yield, distribution yield, and average yield to maturity. We highly recommend that income investors who use ETFs read this post.
Written by David, February 15th, 2012
The biotechnology sector has been rising as quickly as a child’s fever. The key question is whether this suddenly hot sector will slow down or possibly cool off in the coming days and weeks. Part of the answer to that question will depend on the overall movement of the market. With the recent rise in stock prices overall, it understandably leads to doubt that the upward momentum will continue unabated. If you are intrigued enough to buy a biotechnology fund, one that you should consider is SPDR S&P Biotech ETF (XBI).
The fund’s objective, before expenses, is to match the returns and characteristics closely of the S&P Biotechnology Select Industry Index (ticker: SPSIBITR). The exchange-traded fund (ETF) is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
SPDR S&P Biotech ETF held 44 different biotechnology positions as of Feb. 14. Its top 10 holdings, and their respective weights in the fund on the same date, were: Regeneron Pharmaceuticals, 5.56%; Dendreon Corp., 4.74%; Amylin Pharmaceuticals Inc., 4.39%; Medivation Inc., 3.80%; Gilead Sciences Inc., 3.77%; Incyte Corp., 3.62%; Cepheid, 3.52%; Ariad Pharmaceuticals Inc., 3.49%; Alexion Pharmaceuticals Inc., 3.46%; and Vertex Pharmaceuticals Inc., 3.32%.
The pharmaceutical industry is high-risk and high-reward in the development of new treatments for diseases. Big pharmaceutical companies often are enticed to buy smaller companies that is developing promising new drugs to treat conditions that potentially could develop a large and highly profitable customer base. For that reason, biotechnology companies can appreciate in value by developing profitable new drugs, or as takeover candidates.
I am cautious about investing in equities right now, but SPDR S&P Biotech ETF is on my radar screen as a fund to watch in case the market pulls back and offers a better buying opportunity than we have today. The market has produced a big jump in recent weeks, so caution in allocating to new positions seems warranted right now.
Written by David, February 08th, 2012
After the precipitous fall of the emerging markets during the second half of last year, many exchange-traded funds (ETFs) devoted to those countries are coming back twice as fast. India, in particular, is one of the best-performing stock markets in the world so far this year. What also has helped boost prices in India has been an appreciating Indian rupee. The rise of the rupee specifically has fueled the returns of Indian ETFs. For example, WisdomTree India Earnings Fund (EPI) is one of the top-performing ETFs in this country category.
The fund seeks investment results that correspond to the price and yield performance, before fees and expenses, of the WisdomTree India Earnings Index. EPI is the first ETF I have found that invests exclusively in India, one of the world’s fastest-growing economies.
Within this ETF, the financial services sector makes up nearly 25.99% of its holdings. Banking continues to be one of the top growth sectors in India, since many of the people there still do not use banks. As India’s economy continues to expand and its middle class grows, more people will be using banks for the first time. As a result, banking has been a boom sector of late and there still is room to grow. It is clear that India, the home of the most Bengal Tigers in the world, is showing strength so far in 2012 that is worthy of the big cat.
As investors from around the world are watching returns from the developed economies diminish, they are looking toward developing markets such as India. The Indian market can be extremely volatile, though, since it depends heavily on foreign investor interest. So, weigh your potential risks before investing. The large run up in equities to start 2012 is a good reason to consider waiting for a pullback before adding ETFs like EPI to your portfolio.
Written by David, February 01st, 2012
The U.S. economy effectively can be viewed in two parts: the consumer sector and the corporate sector. While the consumer economy is hamstrung by excess debt and a mortgage mess that will take time to heal, the corporate sector appears fairly strong. Indeed, the corporate sector has recovered from the 2008 recession considerably faster than the consumer sector. Corporate balance sheets in the United States, in particular, generally are health, and that means corporate investment grade debt is worth considering as a new addition to your portfolio.
One easy way to invest in corporate bond funds is through the iShares iBoxx Investment Grade Bond ETF (LQD). The exchange-traded fund (ETF) offers an investment vehicle to add income to your portfolio this year. The iShares iBoxx $ Investment Grade Corporate Bond Fund specifically seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the corporate bond market, as defined by the iBoxx $ Liquid Investment Grade Index.
LQD consists of more than 600 different bond issues and over $17 billion in assets. The one-year performance of LQD remains strong at 7.6%, with a 30-Day SEC yield of 3.69% and 12-month yield of 4.33%. As a result, LQD provides a much stronger yield than what you will find in the U.S. Treasury market.
In what basically has become a negative real interest rate environment, it is important to protect our savings, while still producing income. With a willingness to absorb a little risk, you can invest in corporate bond market to boost your income beyond what U.S. Treasuries currently offer. By holding higher-yielding, investment-grade bonds in your portfolio, you can mitigate the Fed’s policy of keeping interest rates at ultra-low levels.
Granted, we have to think about capital preservation in a “risk-on, risk-off” trading environment. This reality means that you can increase your risk prudently by using some higher-yielding debt. The extent that you use this strategy should be determined by your individual investment needs and risk tolerance. Capital preservation will continue to remain a major theme in the investment community going forward. So, at least for 2012, corporate grade debt may be worth checking out to help you shield your portfolio from negative real interest rates.
