ETF Articles & Reports
Written by David, January 25th, 2012
Apple’s blockbuster earnings announcement late yesterday showed that consumers still have a voracious appetite for the newest gadgets. To take advantage of that trend, consider the Technology Select Sector SPDR Fund (XLK).
Thanks in large part to the sale of 37 million iPhones in the fourth quarter of 2011, Apple today became the world’s largest company, based on market capitalization. Apple’s intraday high price today put its market value at $423.7 billion, up 8% from $391.9 billion yesterday, surpassing Exxon Mobil’s market value of $416.5 billion achieved when it reached its high in today’s trading.
With more than $97.6 billion in cash on its balance sheet, Apple is well positioned to pay a significant dividend or buy back some of its own shares later this year. With those prospects in mind, the Technology SPDR ETF XLK could be a good addition to your portfolio. If you think the lift Apple is giving to technology sector ETFs is ending, I want to point out that Goldman Sachs analyst Bill Shope raised his 12-month forecast on the company’s shares to $600 from $550. As of this writing Apple was trading around $445.
Here is a bit of additional detail about the Technology Select Sector SPDR Fund. Before expenses, the fund seeks to closely match the returns and characteristics of the Technology Select Sector Index. The largest component of XLK, without question, is Apple, accounting for 14.79%. IBM is a distant second with 8.56%. Other top holdings include Microsoft, 8.31%; AT&T Inc, 6.75%; Google, 5.55%; and Intel, 4.42%.
When deciding to own an ETF that has Apple as a major component, keep in mind the following. The ETF likely will underperform, compared to the meteoric rise of owning just Apple shares. On the flipside, your portfolio should be less volatile, since you are holding a basket of stocks rather than just one.
Written by David, January 18th, 2012
Halfhearted optimism could be the phrase that best describes how investors are feeling, as we’ve seen a nice rally during the past two weeks of trading. With few, if any, of the major headwinds having been resolved yet, we also can expect the market to be susceptible to significant volatility in 2012. Fortunately for cautious investors, PowerShares recently launched two new exchange-traded funds (ETFs) that focus on low-volatility stocks: the PowerShares S&P Emerging Markets Low Volatility Portfolio (EELV) and the PowerShares S&P 500 Low Volatility Portfolio (SPLV).
The rationale behind the launch of these new funds is simple. There are plenty of opportunities for investors in the developed and emerging markets, but rocky conditions can wreak havoc on an otherwise diversified portfolio that features good investments.
For EELV, its top holdings include: Global X FTSE Colombia 20 ETF, 4.10%; Cathay No 1. REIT, 1.34%; Maxis Bhd, 1.18%; Public Bank Bhd, 1.16%; Nestle (Malaysia) Bhd, 0.97%; Taiwan Secom Co., 0.93%; Redefine Properties, 0.83%; Chunghwa Telecom Co. 0.80%; UMW Holdings Bhd, 0.76%; and Malyan Banking Bhd., 0.75%.
As for SPLV, its top holdings, including consumer staples and health-care companies that performed remarkably well in 2011, are: Southern Co, 1.62%; Kellogg Co., 1.43%; Procter & Gamble Co., 1.42%; Kimberly-Clark Corp., 1.42%; Kraft Foods Inc., 1.34%; Consolidated Edison Inc., 1.29%; Duke Energy Corp., 1.29%; McDonald’s Corp., 1.24%; Progress Energy Inc., 1.23%; and Xcel Energy Inc., 1.23%.
As we continue into the new year, the first half likely will be the most volatile as Europe forges debt-relief plans, as trading volume stays fairly low and as reduced growth expectations are factored into the share prices of European and U.S. stocks. While the biggest market-moving events are difficult to predict, low volatility ETFs such as EELV and SPLV could offer ways to stabilize your portfolio’s performance in 2012.
Written by David, January 11th, 2012
A diversified approach to investing has proven to be a wise strategy to deal with market volatility, especially during the past six months. Dividend-paying stocks also have proven their worth during that time as the market’s direction varied going into 2012. One of the best ways to enhance your portfolio with both diversification and dividend- paying stocks is the SPDR S&P Dividend ETF (SDY).
The SPDR S&P Dividend ETF seeks to match the returns and characteristics, before expenses, of the S&P High Yield Dividend Aristocrats Index. The fund’s strategy is designed to provide you with low portfolio turnover, accurate tracking, and limited costs.
With more than 62 holdings and a current dividend yield of 3.19%, SDY can provide investors with exposure to a basket of sectors, including consumer staples, financials, industrials, utilities, consumer discretionary, materials and healthcare. All of these sectors have an allocation ranging between 19% and 10%. The fund’s top 10 holdings, as of Jan. 10, were: Pitney Bowes Inc, 3.99%; AT&T Inc., 3.33%; Cincinnati Finl Corp, 2.89%; HCP Inc., 2.89%; Leggett & Platt Inc., 2.74%; Old Rep Intl Corp., 2.34%; Consolidated Edison Inc., 2.20%; Kimberly Clark Corp., 2.18%; Nucor Corp., 2.12%; and Sysco Corp. 2.12%.
Naturally, uncertainty causes investors to become wary about putting their hard-earned cash into the market. But such times can provide the best opportunities to find real value, if you are good at separating the winners from the losers. Doing your homework and finding solid performers amid volatility can pay off, especially when markets become highly correlated. Diversification and buying dividend-paying stocks are time-tested ways to build a successful investment portfolio, no matter which way the market is heading at a particular time. ETFs such as SDY let you invest by using a strategic approach that many professional investors and institutions follow themselves.
Written by David, January 04th, 2012
Our farming communities remain a vital sector of the U.S. economy. If you are a part of this community, there is no doubt that you are one of the more knowledgeable people in the country when it comes to the commodity markets. Corn, soybeans and wheat can be seen growing across America and each of those commodities plays an important role in the prices we pay for food and fuel. One way to invest in these commodities is through the iPath Dow Jones-UBS Agriculture Subindex Total Return ETN (JJA).
The exchange-traded note (ETN) is a sub-index of the Dow Jones-UBS Commodity Index Total Return. The ETN reflects the returns that potentially are available through an unleveraged investment in the futures contracts on physical commodities comprising the Index, plus the rate of interest that could be earned on cash collateral invested in specified Treasury Bills. The Index is composed of seven futures contracts on agricultural commodities that are traded on U.S. exchanges.
Now is a good time to highlight commodities, since the important USDA Annual Crop Production Report will be released on Jan. 12. That day will be an important one for the corn and wheat markets, in particular, with the release of information in the report about corn stocks and wheat seeding
Many analysts are predicting that a number of trends that took hold in 2011 will continue. As of now, the data suggests record supply and low inflation rates for food prices going into 2012. With record availability for feed, livestock farmers also are expected to increase their supplies of beef and pork in 2012. We potentially could see commodity prices stabilize or even decline in the coming year.
In any case, JJA could be a solid ETN if you have a feel for the commodity markets and believe the current depressed prices could signal a buying opportunity. Finally, keep in mind that ETNs differ from ETFs, particularly in your tax liability. You would want to do a bit of additional research before investing in any particular ETN or ETF to understand what you are buying.
Written by David, December 07th, 2011
Although it hasn’t been a very prosperous year for most investors, it has been a great year for the ETF industry. In 2011, the industry introduced 188 new funds, and those funds have thus far gathered a combined $5.7 billion in new assets.
Here’s a short list of some of the best and brightest of this year’s new offerings:
iShares High Dividend Equity Fund (HDV). This fund has captured $650 million in assets, trades 186,000 shares per day on average, and offers exposure to large-cap dividend paying equities.
PowerShares S&P 500 Low Volatility (SPLV). The fund has $650 million in assets, trades 600,000 shares per day, and offers exposure to the 100 lowest volatility companies in the S&P 500 Index.
PowerShares Senior Loan Portfolio (BKLN). At $170 million in assets and 90,000 shares traded per day, this is the smallest on our list of new ETFs. What’s interesting here is that the fund is the first of its kind in the senior loan ETF space. It also boasts an attractive current yield of 5%.
Vanguard Total International Stock Index (VXUS). The fund has captured $440 million in assets, and trades 130,000 shares per day. It tracks the stocks in the All Country World Index, which excludes the U.S. market.
WisdomTree Asia Local Debt (ALD). This bond fund has $417 million in assets, trades 167,000 shares per day, and invests in local debt denominated in Asian countries such as Indonesia, Malaysia, Singapore, South Korea and Thailand.
WisdomTree Managed Futures Strategies (WDTI). The fund holds $260 million in assets and trades 68,000 shares per day. It’s the first ETF of its kind to give you exposure to the managed futures market, a sector that typically only hedge funds dabble in.
As the ETF universe continues to grow, look for 2012 to be another banner year for the industry—and that increased choice represents a win for investors.
Written by David, November 30th, 2011
The new iShares International Preferred Stock Index Fund (IPFF) is a unique exchange-traded fund (ETF) that allows investors access to international preferred shares that trade on foreign exchanges. IPFF, which launched on Nov. 15, gives investors a way to access preferred shares primarily in the financial sector, but also includes smaller positions in energy, utilities, consumer discretionary and telecom.
IPFF seeks investment results that correspond generally to the price and yield performance, before expenses and fees, of the S&P International Preferred Stock Index. The underlying index measures the performance of approximately 50 preferred stocks trading on non-U.S. developed market exchanges, as defined by S&P Indices.
Most of the S&P International Preferred Stock Index is focused on foreign financials, but they are predominantly in stable, non-emerging market countries such as commodity-rich Canada. Indeed, 73.74% of the ETF’s holdings currently are in Canada. The top 10 holdings of IPFF are: Swedbank AB-PRF, 4.41%; Kiwi Capital Securities, 3.94%; Quayside Holdings, 3.87%; TransCanada Corp, 2.77%; Manulife Financial Corp, 2.29%; Canadian Imperial Bank, 2.20%; Royal Bank of Canada RY 6/ 1/4, 2.11%; Toronto-Dominion Bank, 2.10%; Bank of Montreal BMO, 2.08%; and Royal Bank of Canada, 2.02%.
In case you are unfamiliar with preferred stocks, I will describe them briefly for you. They pay a specified dividend to the owners of such shares before any dividends can be paid to those who hold common shares. Preferred shares also take precedence over common shares if a company is liquidated, so they are senior to common stock in the pecking order of distributing what is left of a failed company.
The flipside of preferred shares is that they are non-voting, and trade more like fixed-income investments than equity shares. That means they don’t have as extreme a risk-reward profile as common shares. Understanding the key differences between common and preferred shares is important before determining if an ETF such as IPFF is right for you.
Written by David, November 02nd, 2011
A recurring theme of our features about ETFs in the last few weeks has revolved around trying to find the last bastions of safe investing in a market where uncertainty and fear prevail. In this week’s ETF Talk, we focus on PowerShares Dynamic Food & Beverage ETF (PBJ), yet another fund that offers you a measure of protection from a weak economy.
The ETF seeks investment results that generally correspond (before fees and expenses) to the price and yield of the Dynamic Food & Beverage Intellidex Index. The fund normally invests at least 80% of total assets in common stocks of food and beverage companies. The fund generally will invest at least 90% of its total assets in common stocks that comprise the Underlying Intellidex. The Intellidex consists of stocks of 30 U.S. food and beverage companies that manufacture, sell or distribute food and beverage products, agricultural products and products related to the development of new food technologies.
This sector-specific ETF gives you a chance to invest in the relatively stable performance of companies that provide food, a basic necessity for our survival. PBJ lets you to take advantage of a very specific safe-haven sector. Even while consumers tighten their belts, food is something that we can’t take out of our budgets. While we may cut back on trips to restaurants or skip filet mignon in favor of hamburger, visits to the grocery store will continue. PBJ gives us a way to profit from the basics.
PBJ’s top 10 holdings include: Mead Johnson Nutrition Company, 5.09%; H.J. Heinz Company, 5.08%; McDonald’s Corporation, 5.04%; Kraft Foods Inc, 5.06%; Archer-Daniels Midland Company, 4.92%; The Kroger Co, 4.89%; The Coca-Cola Co, 4.83%; B&G Foods Inc., 3.28%; Fresh Market Inc. 3.17%; and Domino’s Pizza Inc., 3.15%. In October, PBJ posted a gain of 6.55%. The fund now is up 13.27% for the past year through the end of October.
As news reports continue to reflect uncertainty about the economic climate in Europe and elsewhere, people still are buying bread, butter and milk.
Written by David, October 26th, 2011
One of the newest exchange-traded funds (ETFs) currently available to investors is the Schwab U.S. Divided ETF (SCHD). The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow Jones U.S. Dividend 100 Index.
This ETF tracks high-yielding dividend stocks that are a favorite of many investors. If you are intrigued, you should know that the fund is designed to give you both income and capital appreciation. SCHD, which began trading just last week on Oct. 20, gives you access to the newest Dow Jones benchmark. The Dow Jones U.S. Dividend 100 Index is built to measure the performance of high-dividend yielding companies with strong fundamentals and a long history of dividend payments.
One of the biggest differences between the Dow Jones U.S. Dividend 100 Index and other indexes is its method for selecting stocks. Each company in the index is heavily scrutinized by its cash flow to debt ratio, five-year dividend growth rate, return on equity and dividend yield. These stocks must also have a dividend history of 10 consecutive years. Putting it simply, after Dow Jones ranks them, only the highest companies in those four categories are accepted into the index. Furthermore, each stock can only have a maximum weight of 5% in the index, and each sector is capped at 25%. So, this index is intended to hold a highly diversified group of 100 stocks with the strongest set of credentials.
The top 10 holdings of SCHD are considered some of the most stable investment plays available, and are all blue-chip stocks such as: Intel Corp., 4.9%; IBM, 4.7%; Exxon Mobil, 4.7%; Chevron Corp., 4.6%; Procter and Gamble, 4.4%; Johnson & Johnson, 4.2%; Coca-Cola, 4.0%; Wal-Mart Stores, 3.8%; PepsiCo Inc., 3.7% and McDonald’s, 3.6%.
With the investing community looking for safe havens, and desperately searching for both high yield and low risk, it is a perfect time for Schwab to be rolling out SCHD. Its launch has come with considerable media attention since last week. SCHD just adds to the lineup of dividend ETFs that currently are available to investors. The fund shares similar characteristics to iShares DJ Select Dividend (DVY) and SPDR S&P Dividend (SDY).
Written by David, October 12th, 2011
With markets undergoing a correction in the past few weeks, now is a good time to evaluate sectors that will outperform if we see a recovery from the near-hysteria about the sovereign debt problems in Europe. To that end, one of the best bellwethers for investor sentiment is the junk bond market. In light of the high level of risk inherent in junk bonds, improving conditions often are accompanied by a strengthening in that sector.
The iShares iBoxx $ High Yield Corporate Bond Fund is an exchange-traded fund (ETF) that lets you invest in the looming recovery of junk bonds. The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid High Yield Index, a corporate bond market index compiled by the International Index Company Limited.
HYG consists of liquid, dollar-denominated high yield corporate bonds for sale in the United States. As of Oct. 11, HYG had amassed total net assets of $8.5 billion in high yield bonds that ranged in quality from BBB+/Baa1 to CC/Ca. The fund also has produced a 30-day Securities and Exchange Commission (SEC) yield of 8.54%. In addition, HYG is very well diversified, with more than 470 different bond holdings. For example, CIT Group is HYG’s largest component, yet it only makes up 1.17% of the fund’s net assets.
The stock market’s continued volatility has led many long-term investors to look for ways to protect their capital, while still producing a good return that is fueled by an enticing yield. With the treasury market generating yields of nearly zero and the equity market still volatile, the corporate bond market is a sector that provides attractive returns from dividend payments and offers the potential for capital appreciation. While high-grade corporate bonds are a safer investment than the high-yield junk bonds, there is considerably more upside for ETFs such as HYG as the market recovers. While it may be a bit early to invest in HYG, it is an ETF to watch closely for signs that the market is stabilizing and starting to advance in earnest.
Written by David, October 12th, 2011
We all know by now that the third quarter was a dismal one for equities. And while the selling was fierce in the broad market, it was even more intense in many sector and individual country exchange-traded funds (ETFs).
Which ETFs suffered the worst declines last quarter, and which funds held their own?
Finding out is easy with our newly updated Fabian Q3 ETF Report.
Last quarter, the tally of ETF grew to 1,148, with more than $1 trillion in assets. There were 35 new ETFs added to the mix in Q3, including interesting funds such as the First Trust Cloud Computing ETF (SKYY), the first ETF that invests in companies closely involved in cloud computing technologies.
There’s also the Market Vectors CEF Municipal Bond Fund (XMPT), a “fund of funds” that invests in municipal bond closed-end funds. Another interesting new offering is the Guggenheim Yuan Bond ETF (RMB), the first ETF that gives investors access to Chinese yuan-denominated bond market.
It’s time to get your knowledge on, and it’s time to get up to speed on all of the latest ETF data. That means now is the time to get your red-hot Fabian Q3 ETF Report.
