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Title:The 3 Best ETFs to Buy for 2023
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
It has been a very odd year for investors. Ironically, it doesn’t matter what one is invested in, as almost all asset classes have been on the move. Bonds, currencies, equities, cryptocurrencies — it doesn’t matter! That has us wondering what are the best assets, and thus the best ETFs, to buy for 2023.
The stock market has been decimated, with the S&P 500 suffering a peak-to-trough decline of 24.5%. Bonds have had one of their worst years on record, with the 10-year Treasury logging its worst decline (down 13%) since 1900. Previously, the worst one-year decline for the 10-year was an 8% loss in 1994.
So, what are we going to do about some of these dreadful performances?
The good news is, markets generally favor the upside. A recent study showed that over the last 80 years, the S&P 500 has produced a gain about 80% of the time. Whether that’s over the last 20, 30, 40, 50 or 80 years, that observation remains true.
Accordingly, let’s look for the best ETFs to play for a rebound next year.
VTI Vanguard Total Stock Market Index Fund ETF $199.90
TLT iShares 20 Plus Year Treasury Bond ETF $108.16
LQD iShares iBoxx Investment Grade Corporate Bond ETF $109.77
Vanguard Total Stock Market Index Fund ETF (VTI)
Source: kenary820 / Shutterstock
The 60/40 portfolio — which has 60% of its funds allocated to stocks and 40% to bonds — has become extremely popular in finance. It’s become a popular way for investors to still have exposure to equities, while also gaining stability from bonds.
However, this year bonds have been very unstable. As a result, the 60/40 portfolio has had one of its worst years on record. Since 1900, the worst 10 years for the portfolio have returns ranging from down 8% to down 31%.
Of those years, just one year — 1931 — generated a loss in the following year, when it fell another 31% after falling 14% in the year before. Keep in mind, this was during the great depression. For the other nine years, the following year generated a double-digit return all but once — rallying just 5% in 1932 — while generating an average and a median return of 13% and 17%, respectively.
With the 60/40 portfolio currently down 13% year to date, odds favor a rebound in 2023.
This portfolio style is more popular within the mutual fund picks, but for investors who want a simple way to play this using the best ETFs out there, they could simply allocate 60% of their desired funds to the Vanguard Total Stock Market Index Fund ETF (NYSEARCA:VTI), and allocate the other 40% to the Vanguard Total Bond Market Index Fund ETF (NYSEARCA:BND) or the iShares Core US Aggregate Bond ETF (NYSEARCA:AGG).
iShares 20 Plus Year Treasury Bond ETF (TLT)
Source: Maxx-Studio / Shutterstock
Earlier, I mentioned that the 10-year Treasury bond is set for its worst annual performance since 1900. This has been a bad year but…that bad?
Given the rapid rise of interest rates and the immense fluctuations in the US dollar, it’s no surprise that bonds haven’t been the typical safe-haven asset that investors have become accustomed too.
Investors seeking less volatility can look for different and more specific Treasury bond ETFs. However, the most popular, liquid and heavily-traded one is the iShares 20 Plus Year Treasury Bond ETF (NASDAQ:TLT).
The TLT is down “just” 27.5%, which would still make for its worst one-year performance ever. At this year’s low though, the TLT was down just over 38%.
Investors who do not feel comfortable with the TLT can always opt for a shorter-term ETF (like 7-10 year Treasuries). However, it seems like longer-dated Treasury bonds are set for a rebound next year. Thus, this exchange trade fund makes this list of best ETFs for long-term investors seeking an excellent entry point to a traditionally stable investment category.
iShares iBoxx Investment Grade Corporate Bond ETF (LQD)
Source: SWKStock / Shutterstock
The only year that’s been worse than 2022 for the iShares iBoxx Investment Grade Corporate Bond ETF (NYSEARCA:LQD) was 2008. But that’s only when we’re talking about peak-to-trough declines.
In 2008, the LQD ETF fell 27.5% at the year-to-date low vs. a fall of 25.75% in 2022. However, the ETF ended the year down just 3% in 2008. So far, shares are still down more than 17% for 2022. Also, let’s keep in mind just how bad 2008 was for the global economy.
Performance aside, the LQD is just another alternative to playing a rebound in bonds for 2023. While I do prefer Treasury bonds, corporate bonds can have their place in investor portfolios as well. The driving catalysts here are two-fold.
First, the Fed has been on a rate-hiking spree all year long, which is set to taper off quite a bit in 2023. Admittedly, that’s just a forecast and that can certainly change. But as it stands, the Fed is closer to the end of its rate-hiking cycle than the beginning.
Second, fears of a global recession are both palpable and realistic. Should a recession arrive, it’s going to force investors into safe-haven assets like bonds. While Treasuries are the safest of the safe, investment grade debt may also become attractive to investors.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
The post The 3 Best ETFs to Buy for 2023 appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:3 ETFs That Are All You Need for Retirement
Diversification is essential to your success as an investor. You don't want your retirement to hinge on the fortunes of a single company or industry.
But you don't need to choose dozens of stocks to diversify your investment portfolio. Investing in exchange-traded funds (ETFs) allows you to automatically diversify, because ETFs invest your money across hundreds or even thousands of companies. If you're looking for investments that can bankroll your retirement, look no further than these three ETFs.
Image source: Getty Images.
1. Vanguard S&P 500 ETF
There are no guarantees in investing. But an S&P 500 index fund is about as close as you can get -- provided that you have the patience to ignore the short-term ups and downs of the stock market and keep your money invested for the long haul. Your money gets invested in 500 of the largest publicly traded companies in the U.S. Over a 20-year holding period, investing in the S&P 500 index has always produced positive returns.
The Vanguard S&P 500 ETF (NYSEMKT: VOO) is a smart choice because it has a super cheap expense ratio of 0.03%. That means just $3 of a $10,000 investment goes toward fees. Since its inception in 2010, the fund has averaged annual returns of 13.15% -- almost identical to the 13.19% produced by the S&P 500, its benchmark index.
2. Vanguard Total International Stock ETF
While an S&P 500 index fund is the ideal backbone for your retirement portfolio, it's also smart to diversify beyond U.S. stocks. Though U.S. stocks have outperformed international stocks in recent years, that hasn't always been the case. For example, the 2001-2010 decade is often referred to as a "lost decade" for domestic stocks, with U.S. stocks delivering average annualized returns of only 1.4%.
But during that same decade, international developed markets had average annualized returns of 3.5%, according to Charles Schwab research. And emerging market stocks were the star performers, with average annualized returns of 15.9%.
The Vanguard Total International Stock ETF (NASDAQ: VXUS) is a great option if you're seeking exposure to foreign markets. The fund tracks the FTSE Global All Cap ex US Index, an index of more than 7,000 stocks outside the U.S. About 75% of the fund's holdings are in developed markets, with its heaviest concentrations in Japan, the United Kingdom, and Canada. The remaining 25% of its holdings are in emerging markets, which are risky compared to developed markets. But they also offer the potential for high growth, given that about 85% of the world's population lives in emerging-market countries.
The fund has an expense ratio of 0.07%. That makes it a bargain, considering that similar funds have an average expense ratio of 0.91%.
3. iShares Core U.S. Aggregate Bond ETF
Rising interest rates have made 2022 a terrible year for the bond market. But in normal times, bonds provide stability compared to stocks, which is why you should have a small percentage of your portfolio invested in bonds.
The iShares Core U.S. Aggregate Bond ETF (NYSEMKT: AGG) offers broad exposure to U.S. bonds. Its benchmark index is the Bloomberg US Aggregate Bond Index, which represents the overwhelming majority of the investable U.S. bond market. With an expense ratio of just 0.04%, the fees are about as low as you can get.
This fund won't be a major driver of growth in your portfolio. But it can also reduce its long-term volatility while also providing regular income. That's especially true in years like 2022, since bond prices and yields are inversely related. As of Nov. 29, 2022, the fund had a 30-day Securities and Exchange Commission (SEC) yield of 4.08%.
How to invest in ETFs
Investing in ETFs is easy. You buy them and sell them on stock exchanges, just as you would with individual securities. Simply open and fund a brokerage account, and you can start investing in ETFs.
Building a retirement portfolio doesn't have to be complicated. A handful of ETFs is all you need to create a substantial nest egg.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Robin Hartill, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Index Funds-Vanguard S&p 500 ETF and Vanguard Star Funds-Vanguard Total International Stock ETF. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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doc_00003
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Title:Todd Rosenbluth Gets Active on Yahoo Finance
VettaFi's head of research Todd Rosenbluth got active on Yahoo Finance to discuss tech's ongoing slide, leveraged and inverse ETFs, and the performance of active funds, particularly on the fixed income side of the ledger.
“This year, which we’ve had a down year for the equity markets [and] growth investing… investors are willing to take that risk on,” @Vetta_Fi Head of Research @ToddRosenbluth says on ETFs. Full comments: pic.twitter.com/X1qP2Wslsa
— Yahoo Finance (@YahooFinance) November 16, 2022
Tech's Fall Garnering Leveraged and Inverse Interest
With many traders betting against tech, valuations are starting to look attractive to some.
"We've seen a lot of money going in and a lot of interest in the short version of QQQ," Rosenbluth said, continuing, "there's a lot of pessimism about the technology and growth-orientated sectors." Though funds shorting QQQ, such as the ProShares UltraPro Short QQQ (SQQQ), have been popular of late, Rosenbluth pointed out that the ProShares UltraPro QQQ (TQQQ) is also gathering investor interest.
According to Rosenbluth, "on our VettaFi platform, there's interest in getting to know these products." It has been a down year for equities and growth investing, opening up long and short opportunities. Nodding to a previous segment covering semiconductors, Rosenbluth said, "a lot of people are willing to bet – and that's the key word here, 'bet,' on the short term price movements of the semiconductor industry both long and short this year."
Speaking to the risks in inverse and leveraged ETFs, Rosenbluth said, "these are intended for a short-term time horizon. The longer you are there, the greater risk."
Active's Rise
Active Management has been gaining traction all year. He noted that active funds such as the JPMorgan Equity Premium Income ETF (JEPI) allow investors to benefit from the stock-picking expertise of a management team instead of rolling the dice with a leveraged or inverse fund.
"JEPI has held up better than the current marketplace because of that income component," Rosenbluth noted in discussing how the fund works and gears itself toward income.
Asked about active and passive funds, Rosenbluth noted that active had had a big year in both equity and fixed income, with many active fixed income funds outperforming the broader iShares Core U.S. Aggregate Bond ETF (AGG). He noted strong interest in funds like the Fidelity Total Bond ETF (FBND) and the SPDR DoubleLine Total Return Tactical ETF (TOTL) are also attracting much attention. "You can make money through an actively managed fixed income ETF, get the benefits of security selection, without having to take on the same level of risk."
Spot Bitcoin ETF Shot Down Again
"The SEC continues to have concerns about risks related to bitcoin from a fraud perspective," Rosenbluth noted. He sees a spot bitcoin ETF as unlikely until next year or later but pointed out that the ProShares Bitcoin Strategy ETF (BITO) still presents investors with a futures-based option for Bitcoin exposure.
For more news, information, and strategy, visit VettaFi.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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doc_00004
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Title:Don’t Get AGG-ravated, Expand Your Fixed Income Toolset
While 2022 is not finished, two things are quite likely to be a fact in early 2023. We will have had the worst calendar year for the iShares Core Aggregate Bond ETF (AGG) in its 19-year history, and approximately one thousand financial advisors coming to the Exchange conference in early February 2023 in Miami, Florida, will be looking for an alternative to the index-based ETF.
The popular core bond strategy declined 16% as of November 7, due in part to the negative impact of a hawkish Federal Reserve's rate hikes that has pushed the yield on the 10-year Treasury bond sharply higher in 2022. Given AGG's average duration of 6.3 years, the fund has suffered.
However, advisors are expected to maintain a healthy stake in fixed income in hopes of providing ballast and income to offset equity exposure. They typically attend ETF conferences like Exchange to learn about other tools available to help clients navigate the challenging bond market. The following strategies are worthy of consideration either as core replacements or to complement a broad market, index-based ETF, even as they charge higher fees than the 0.03% for AGG.
Actively-Managed Core Fixed Income ETFs
The Fidelity Total Bond ETF (FBND) and SPDR DoubleLine Total Return Tactical ETF (TOTL) are examples of active ETFs that, as of November 7, had held up better than AGG. Actively managed ETFs can adjust duration to limit the impact of rising rates, to sort through the universe of new issuance to choose investment-grade bonds with strong risk-reward potential, and own speculative grade bonds that have low default risk. FBND and TOTL charge expense ratios of 0.36% and 0.55%, respectively.
Senior Loan ETFs
The Invesco Senior Loan ETF (BKLN) and SPDR Blackstone Senior Loan ETF (SRLN) invest in securities not found within the investment-grade focused AGG. Senior loans are the unsecured claims against an issuer that receive priority in the event of bankruptcy and are typically rated below-investment grade. However, senior loans can help protect against interest-rate risk as they have an extremely short average of approximately three months. While BKLN tracks an index, SRLN is actively managed. Both ETFs declined significantly less than AGG thus far in 2022, even as BKLN and SRLN charge expense ratios of 0.65% and 0.70%, respectively.
Low Duration Investment-Grade ETFs
The iShares 1-5 Year Investment Grade Corporate Bond ETF (IGSB) and the PIMCO Enhanced Low Duration Active ETF (LDUR) are more suitable alternatives for more risk-averse end clients than senior loan products. Both funds incur lower interest rate risk than AGG, with an average duration of under three years, but also hold investment-grade bonds. IGSB is index-based and concentrates on corporate bonds from issuers like Bank of America and CVS Health, while LDUR is actively managed and holds a mix of U.S government-related securities and credit. IGSB and LDUR charge fees of 0.06% and 0.53%, respectively.
The Federal Reserve may begin to shift its hawkish stance in early 2023 to let the U.S. economy attempt to reflect the successive rate hikes in the second half of 2022. While this would help AGG bounce back from the worst year, many investors will want something different in the fixed income sleeve of their portfolios for 2023. Advisors would be wise to learn more about the range of ETF products available with similar liquidity and ease of use. If they make it to the Exchange conference in February, there will be lots of smart people to learn from – maybe portfolio managers of these funds!
To receive more of Todd's research, reports, and commentary on a regular basis, please subscribe here.
For more news, information, and strategy, visit the ETF Education Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:The 10-Year Treasury Yield Just Topped 4%: What It Means for You
The bear market in stocks has made portfolio values drop sharply so far in 2022. But for many investors, the bigger surprise this year has come from the terrible performance of the bond market, which has seen its worst losses in decades. Many had turned to bonds as a more conservative investment than stocks, and so the steep declines even in what are considered to be ultra-safe Treasury bonds have been especially painful.
Inflation has prompted the Federal Reserve to boost short-term interest rates aggressively, and that has had an impact on many longer-term bonds as well. On Wednesday morning, the yield on the 10-year Treasury briefly moved above 4% for the first time since 2008. That has significant implications for both stocks and bonds that investors need to consider in making investment decisions.
Image source: Getty Images.
The big rise in Treasury rates
The most difficult aspect of what's happened in the bond market is that the rise in rates has come so fast. Near the beginning of the COVID-19 pandemic in early 2020, the Fed sharply cut interest rates, sending 10-year Treasury yields down to around 0.5%. Even as the economy started to rebound, yields remained below 2% for a prolonged period of time. Just a year ago, the yield was at 1.5%.
^TNX data by YCharts. NOTE WELL: Index values represent the yield in percentage points multiplied by 10.
It was only once inflation reared up in early 2022 that bond investors started to lose their nerve, and the brief move above 4% represented yields that were 2.5 times where they started the year.
Rising yields mean falling prices for bonds, and the damage has been severe. Even ordinary bond index ETFs have seen massive losses, with the popular iShares Core U.S. Aggregate Bond (NYSEMKT: AGG) and Vanguard Total Bond Market (NASDAQ: BND) both down 15% year to date. Bond funds with a bias toward longer-maturity bonds have seen even bigger declines, with iShares 20+ Year Treasury (NASDAQ: TLT) down nearly 30%. Even bonds that were supposed to protect against inflationary pressures have seen price declines, with iShares TIPS Bond (NYSEMKT: TIP) down 18% from where it started 2022.
What consumers and investors should expect
Already, the impact of higher Treasury yields is working its way through the broader economy. Mortgage rates tend to correlate with 10-year yields, so rates on 30-year mortgages have also hit new highs above 6.5% recently. That is making homes less affordable for would-be homebuyers, as monthly payments on new mortgages for a given amount of debt are far higher than they were earlier this year.
Nor can stock investors entirely ignore the impact of yield increases. Many companies raised their debt levels when interest rates were lower, taking advantage of cheap financing to bolster their growth efforts. Those companies that can pay back that debt as it matures should be in good shape, but those that had hoped to refinance their debt to delay having to pay it back face the prospect of sharply higher interest payments in the future. Given that the companies most likely to want to refinance are also often the ones that are least able to afford higher financing costs, investors need to watch closely to ensure that the companies whose stocks they own aren't facing potential problems.
Higher rates do have a silver lining, though. For those with cash who want to lock in a certain return, buying individual Treasury bonds now will give them interest payments at a level they haven't been able to get in years. Admittedly, 4% isn't enough to make a wholesale shift out of stocks. But for those who have found that the stock market volatility of the past year has made them uncomfortable with their asset allocation strategy, higher yields make now a better opportunity to invest in bonds than investors have seen in a long time.
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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Total Bond Market ETF. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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doc_00006
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Title:BND Just Became the Largest Bond ETF
The Vanguard Total Bond Market ETF (BND) became the largest individual bond ETF in the U.S. at the end of last week, nudging ahead of the long-time leader, the iShares Core Aggregate Bond ETF (AGG). As of August 5, BND had $83.710 billion in assets and AGG had $83.707 billion, according to FactSet data used by VettaFi. Despite BND’s success, iShares remains the largest ETF provider more than 20 years after launching the first products, and it manages the most fixed income ETF assets.
When we wrote about this likelihood on July 19, there was an approximately $400 million gap between the two broad market, investment-grade bond ETFs. While AGG has pulled in $838 million since then, BND was even more popular, gathering almost $1.3 billion of net inflows.
Year-to-date through August 5, BND’s $7.7 billion cash haul was impressive compared to AGG, which incurred $501 million of net redemptions.
The two core bond ETF heavyweights charge identical fees, with 0.03% expense ratios, though they have slightly different short-term performance records. For example, AGG’s 8.5% year-to-date loss was fractionally narrower than BND’s 8.7% decline.
The relative success for BND is likely tied to the growing usage of bond ETFs by retail investors and advisors that have historically preferred actively managed bond mutual funds, even as they shifted from active equity mutual funds to lower-cost, index-based equity ETFs.
For eight consecutive months dating back into December 2021, investors have redeemed money from bond mutual funds, according to the Investment Company Institute's data, with more than $340 billion exiting these products. Investors long showed loyalty to bond mutual funds with the asset category generating monthly inflows between April 2020 and November 2021. In 2022, we believe there’s been a trend to tax-loss harvest away from more expensive bond mutual funds as losses have persisted. Vanguard has been a greater beneficiary of this, given its strong brand with mutual fund investors and their advisors.
Meanwhile, AGG has been a popular choice for institutional investors that favor the firm’s broad suite of bond ETFs including the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) and the iShares 20+ Year Treasury Bond ETF (TLT) as well as AGG’s historically strong liquidity. Institutions are shifting away from owning individual bonds and replacing them with bond ETFs.
We believe there is significant room for growth of both BND and AGG in the years to come as more advisors turn to bond ETFs. These core bond ETFs can and do serve as building blocks in a broad asset allocation strategy, with more narrowly focused Treasury, investment-grade, and high yield ETFs providing satellite positions.
To see more of Todd’s research, reports, and commentary on a regular basis, please subscribe here.
For more news, information, and strategy, visit the Fixed Income Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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doc_00007
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Title:A New Bond ETF King?
There’s about to be a new bond ETF king. Indeed, there might be a new one by the time you read this article. The Vanguard Total Bond Market ETF (BND) had $81.1 billion as of July 15, according Factset data used by VettaFi, a mere $400 million less than the current bond ETF leader, the iShares Core Aggregate Bond ETF (AGG). Despite this, iShares remains the industry leader across all ETFs, as well as fixed income ETFs, as of mid-July.
According to Athanasios Psarofagis, an ETF analyst with Bloomberg Intelligence, there was a $22 billion gap between the two core fixed income ETFs in March 2020. However, since then Vanguard’s offering has been the more popular ETF. Since the beginning of April, BND raked in $42.1 billion of new money, including $6.4 billion in 2022 alone, according to our data. In contrast, AGG gathered half the new money since April 2022 ($21.1 billion) and has suffered $1.3 billion of net redemptions.
The two core bond ETF heavyweights charge identical fees with 0.03% expense ratios, though they have slightly different short-term performance records. For example, AGG’s 9.8% year-to-date loss was fractionally narrower than BND’s 10.0% decline.
The relative success for BND is likely tied to the growing usage of bond ETFs by retail investors and advisors that have historically preferred actively managed bond mutual funds, even as they shifted from active equity mutual funds to lower-cost, index-based equity ETFs. In addition, unlike with AGG, Vanguard shareholders can shift from using a mutual fund share class to an ETF share class easily. We believe that some of BND's ETF inflows have stemmed from such activity.
For seven consecutive months dating back into December 2021, investors have redeemed money from bond mutual funds totaling $305 billion, according to the Investment Company Institute's data. This is in stark contrast to the monthly inflows for the asset category dating back to April 2020. In 2022, we believe there’s been a trend to tax-loss harvest away from more expensive bond mutual funds as losses have persisted. Vanguard has been a greater beneficiary of this due to its strong brand with mutual fund investors and their advisors.
However, we would expect AGG and BND to continue to grow larger as a wide range of investors take advantage of the liquidity and tax efficiency benefits of bond ETFs. Advisors are increasingly using such products to support asset allocation objectives, and institutional investors are tapping into the liquidity of bond ETFs instead of sourcing individual bonds.
To see more of Todd’s research, reports, and commentary on a regular basis, please subscribe here.
For more news, information, and strategy, visit the Fixed Income Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Advisors Turn to ETFs While Bond Mutual Funds Bleed Assets
It was a brutal first five months of 2022 for bond investments, with the Bloomberg Aggregate Bond Index down 9%. Advisors have long built asset allocation strategies with a healthy dose of fixed income exposure. Historically, bonds provided total return through income and stability even when equities decline in value. However, 2022 has been different due partly to recent and likely pending interest rate hikes by the Federal Reserve that caused many bonds to decline in value.
With the losses, there has been money in motion within the asset management space. Year-to-date through May 25 (latest available), bond mutual funds incurred significant redemptions, totaling an estimated $242 billion based on Investment Company Institute (ICI) data. While bond mutual fund outflows accelerated to more than $90 billion in May, bond ETFs pulled in $34 billion of new money over the whole month, more than the category gathered in the first four months of the year, according to FactSet data.
Indeed, while there are only two bond ETFs among the 10 most popular for the year, there were five bond ETFs among the 10 highest industry-wide net inflows in May. The iShares National Muni Bond ETF (MUB) led the charge last month with $3.9 billion of net inflows, followed by the Vanguard Short-Term Bond ETF (BSV) and the SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). While BSV and BIL incur minimal risk, investors also shifted $2 billion-plus in new money into the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) and the iShares 20+ Year Treasury ETF (TLT), which sport higher yields in exchange for taking on more credit or interest rate risk.
Domestic equity mutual funds have been bleeding assets for years as advisors and end-investors moved toward equity ETFs, yet bond mutual fund investors traditionally were more loyal. There are likely several long-term drivers of this trend, including a generational shift, growing adoption of bond ETFs by advisors and institutional investors, tax-loss harvesting, and a preference to pay lower fees establishing when losses are being incurred.
According to Morningstar, the average intermediate core bond fund declined 9.0% in the first five months of 2022, essentially in line with the losses incurred by the iShares Core Aggregate Bond ETF (AGG) and the Vanguard Total Bond Index ETF (BND). Returns were similarly poor for bond mutual funds that incur additional credit risk; the average core plus bond fund fell 8.9%.
Although most bond mutual funds are actively managed and most bond ETFs track an index, in recent years asset managers have launched a variety of actively managed bond ETFs. In 2022, the Capital Group Core Plus Income ETF (CGCP), the Fidelity Total Bond ETF (FBND), and the JPMorgan Core Plus Bond ETF (JCPB) are some of the active core or core-plus with net inflows.
As losses are likely to pile up this year for bond mutual funds, we expect more advisors and end clients to shift allocations toward ETFs.
To receive more of Todd's research, reports, and commentary on a regular basis, please subscribe here.
For more news, information, and strategy, visit VettaFi.com.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:What the Hedge? How Are These Bond ETFs Holding Up So Well?
With the yield on the 10-year Treasury bond spiking approximately 150 basis points in 2022, advisors experienced double-digit declines in the value of some extremely popular fixed income ETFs.
For example, the $82 billion iShares Core Aggregate Bond ETF (AGG) dropped 10% year-to-date through May 9, while the $33 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) fell 16%. While both ETFs own investment-grade bonds, the funds were hurt by the interest rate sensitivity of these securities. In particular, LQD’s average duration of 8.7 years provides elevated risk as the Federal Reserve is in the midst of its rate-hiking program. When interest rates rise, bond prices inside an ETF decline in value, particularly when the duration is high.
As we previously noted, some advisors looking for alternatives within the fixed income ETF universe in 2022 have turned to short-duration or floating-rate ETFs such as the WisdomTree Floating Rate Treasury Fund (USFR) and the SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN). However, there are funds sporting more compelling yields alongside similar investment-grade credit exposure to AGG and LQD.
The WisdomTree Interest Rate Hedged U.S. Aggregate Bond Fund (AGZD) was down just 1.0% year-to-date through May 9, outperforming the unhedged AGG by 900 basis points. While AGZD has pulled in approximately $150 million in assets, the ETF still has less than $400 million in assets overall.
The iShares Interest Rate Hedged Corporate Bond ETF (LQDH) declined 4.4%, which was more than 1,200 basis points less than LQD. While LQDH is larger than some might realize, with $1.2 billion in assets, it has only pulled in $195 million so far this year.
These ETFs use futures contracts so the underlying portfolio shows a near-zero duration. By hedging away the interest rate risk, advisors can focus on the underlying bonds to maintain income generation and potentially benefit from tightening credit spreads. If the U.S. economy avoids a recession, corporate bond prices could climb higher in 2022.
There are also interest rate-hedged ETFs focused on the speculative-grade bond market, such as the iShares Interest Rate Hedged High Yield Bond ETF (HYGH) and the ProShares High Yield Interest-Rate Hedged ETF (HYHG). While high yield bonds tend to be less rate-sensitive than investment-grade-focused products, advisors can avoid the concern with such products.
Rather than forgoing yield or even shifting away from fixed income ETFs as the Fed continues to hike rates over the next 12 months, funds like AGZD and LQDH can support asset allocation strategies.
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For more news, information, and strategy, visit ETF Trends.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:These Bond ETFs Are Floating Around Rate Hike Risks
Even before the Federal Reserve hiked interest rates by 50 basis points last week and set the stage for more moves in the coming months, investors were looking to less rate-sensitive products.
In April, the WisdomTree Floating Rate Treasury Fund (USFR) pulled in $1.1 billion of new money, including $167 million on the last trading day of the month. The cash haul is impressive as this fixed income ETF only manages $4.4 billion in assets.
Meanwhile, the iShares Floating Rate Bond ETF (FLOT) and the SPDR Bloomberg Investment Grade Floating Rate ETF (FLRN) pulled in approximately $400 million and $350 million, respectively, last month.
Demand for floating-rate ETFs should remain high, with the Fed poised to continue raising rates throughout 2022. Unlike ETFs that invest in fixed-rate bonds, funds focused on floating rate bonds are less sensitive to increases in rates because they pay a variable coupon rate based on the prevailing short-term market rates plus a fixed spread.
As a result of the quarterly coupon resets, the duration profile is historically and structurally low compared to the broader Aggregate bond index. Indeed, FLOT, FLRN, and USFR have an average duration of less than 0.1 years, significantly less than the 6.6 years for the iShares Core Aggregate Bond ETF (AGG).
“This floating rate profile leads to a significantly more attractive yield-per-unit of duration versus other short-term exposures that could be considered to trim duration,“ wrote Matt Barolini, head of SPDR Americas Research, in his second quarter bond compass outlook.
FLOT and FLRN sport 30-day SEC yields of 0.78% and 0.73%, respectively, while USFR’s yield is 0.49%. Unlike USFR, which invests in relatively risk-free U.S. government securities, FLOT and FLRN invest in corporate bonds issued by investment-grade rated financial institutions such as Goldman Sachs and Morgan Stanley.
While senior loan ETFs, such as the SPDR Blackstone Senior Loan ETF (SRLN) and the Invesco Senior Loan ETF (BKLN), also benefit from floating rate attributes, these ETFs incur greater credit risk by owning loans from BB- and B- rated issuers.
Year-to-date through May 4, while AGG was down 9.1%, FLOT and FLRN were down less than 0.3%, and USFR was up 0.4%. For many advisors, fixed income ETFs are supposed to provide downside protection in client portfolios during times of uncertainty. These high-quality floating rate ETFs are doing that and then some.
“As the Fed hikes more, the yields on these bonds will increase,” noted Karen Veraa, Head of U.S. iShares Fixed Income Strategy at BlackRock. “Investors can use floating rate securities to shorten portfolio duration, put cash to work or as a tactical investment during a rising rate cycle.”
Other floating rate ETFs available include the iShares Treasury Floating Rate Bond ETF (TFLO) and the VanEck Investment Grade Floating Rate ETF (FLTR).
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:BlackRock Sets Stage for Own Active Senior Loan ETF
Demand for actively managed senior loan ETFs has skyrocketed in the past year, helping State Street Global Advisors and First Trust fill their coffers. Indeed, the two firms have pulled nearly $9 billion combined into these less interest rate-sensitive, yet higher-yielding fixed income securities. However, they may soon have to compete with BlackRock, the leading provider of fixed income ETFs, based on an analysis of recently published and favorable commentary on the investment merits for the fixed income subcategory.
Bank loans are typically issued to smaller companies with below investment-grade (or junk) credit ratings. Yet, unlike high-yield corporate bonds, bank loans offer floating rates that rise along with the Fed funds rate or related benchmarks like Libor (the London interbank offered rate). This attribute has historically helped bank loans outperform broad U.S. fixed income and investment-grade bonds in periods similar to today when interest rates are rising.
Seven years ago, BlackRock CEO Larry Fink told investors that the firm will not do a bank loan ETF. Soon after, the global head of iShares at the time, Mark Wiedman, told the Wall Street Journal that the company had decided not to offer a bank loan ETF, in large part because bank loans are illiquid and a stress to the credit market could lead to a different outcome than what investors expect. Furthermore, investors could unknowingly sell their ETFs at a massive discount to their underlying value.
While that might indeed occur, recent data suggests that ETF investors are buying or selling at a fair price. The SPDR Blackstone Senior Loan ETF (SRLN), which has $11 billion in assets thanks to $6.6 billion of net inflows in the past year, closed every day since the beginning of 2021 within 100 basis points of its net asset value (NAV). The widest gap was a discount of 80 basis points in mid-March 2022, but a mere three trading days later, the differential had turned into a slight premium.
The First Trust Senior Loan Fund (FTSL), which pulled in $2 billion in the past year to double in size to $3.8 billion, never closed at more than a 41 basis point discount in the last 15-plus months.
While these are currently favorable times for senior loan ETFs, as BlackRock now explains, the market is different than it used to be. James Keenan, CIO and global head of credit, and Carly Wison, portfolio manager for bank loans and global long/short credit strategies, write that the annual secondary trading volume of bank loans grew by roughly one-third over the past five years and hit a record $780 billion in 2021.
Keenan and Wilson further believe that high turnover of bank loans affords ETF managers, and others, more opportunities to move in and out of positions efficiently.
With BlackRock’s views on senior loans having evolved in response to the bond market, we expect that the firm will soon launch a related ETF product. While many of the firm’s largest fixed income ETFs track an index, like the iShares Core Aggregate Bond Index (AGG) and the iShares $iBoxx High Yield Corporate Bond ETF (HYG), the trend has been moving toward actively managed senior loan ETFs.
Indeed, while FTSL and SRLN have been raking in the cash in the past year, the index-based Invesco Senior Loan ETF (BKLN) has seen nearly $700 million of net outflows.
Meanwhile, FTSL and SRLN rose 2.2% and 2.0%, respectively in the past year, ahead of the 0.80% gain for BKLN, highlighting that active management can add value in this fixed income sub-category.
Indeed, Keenan and Wilson argue that actively managed strategies in the bank loan market can provide investors with both the skill of navigating risks in all market and liquidity conditions and the potential advantage of security selection.
Start the clock on when BlackRock has an active senior loan ETF trading under the ticker ISLN or something similar.
For more news, information, and strategy, visit ETF Trends.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Don’t Give Up on High-Yield ETFs
Investors are selling out of high-yield bond ETFs in 2022, due in part to the combination of rising interest rates and the geopolitical concerns tied to Russia’s invasion of Ukraine shifting risk tolerance levels. In addition, some fear that if earnings from corporate issuers slow due to a weakening global economic environment, their ability to meet debt obligations could lessen.
Despite representing a small slice of the overall ETF asset base, three high-yield ETFs were among the 10 funds with the highest net outflows year-to-date through March 25 while others incurred meaningful redemptions.
The iShares iBoxx $High Yield Corporate Bond ETF (HYG) remains the largest of the funds in the fixed income sub-category with $14 billion in assets, but the ETF has incurred $5.8 billion of redemptions since the beginning of the year, equal to 27% of its year-end 2021 assets. HYG’s outflows in 2022 were second only industry-wide to the SPDR S&P 500 ETF (SPY), which shed $21 billion but still had $411 billion in assets.
Meanwhile, the SPDR Bloomberg High Yield Bond ETF (JNK) had $2.2 billion of net outflows, shrinking its asset base to $6.9 billion. But unlike SPY, which lost assets in part as advisors shifted to lower-cost alternatives like the Vanguard S&P 500 ETF (VOO) and the iShares Core S&P 500 ETF (IVV), the cheaper high-yield ETFs have also been out of favor in 2022.
The Xtrackers USD High Yield Corporate Bond ETF (HYLB) and the iShares Broad USD High Yield Corporate Bond ETF (USHY) also had a combined $3.1 billion in redemptions year-to-date. HYLB and USHY charge modest 0.15% expense ratios compared to 0.48% and 0.40% for HYG and JNK, respectively. Even the short-term-oriented iShares 0-5 Year High Yield Corporate Bond ETF (SHYG), which has a lower duration than HYG, had nearly $400 million of net outflows.
When building and maintaining asset allocation strategies, advisors often target a portion of their fixed income exposure to high-yield corporate bonds. The percentage allocated may depend on the risk tolerance of the investor and/or their age. For example, people in their 60s might have less exposure than their kids or grandkids. High-yield investments typically offer more reward potential but also incur more risk and volatility than investment-grade-rated corporate bonds and government securities.
To compensate for the credit risk, HYG currently sports a 5.4% 30-day SEC yield, more than 3.5% for the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), and 2.3% for the iShares Core Aggregate Bond ETF (AGG). AGG primarily has a mix of investment-grade corporate bonds and Treasuries.
Meanwhile, rather than directly owning individual bonds issued by American Airlines or Ford Motor, ETFs provide advisors and end clients diversification across sectors and credit ratings with bonds from hundreds of issuers. For example, HYG owns more than 1,300 positions and has 54% of assets in BB, 34% in B, and most of the small remainder in CCC-rated securities to limit the risk of issuers defaulting on their debt.
Even as the Federal Reserve hikes interest rates further in 2022, high-yield bond ETFs can continue to play a key role within a portfolio. Indeed, HYG’s effective duration of four years is less than half that of LQD, indicating that it should hold up better amid rising rates.
It is understandable why high-yield bond ETFs have declined to start 2022 and why some investors have rotated away in an effort to reduce risk profiles. However, before considering heading for the exits, understand what makes these funds different than other bond ETFs or owning bonds directly. In a well-diversified portfolio, high-yield bond ETFs provide attributes that ETFs tied to other investment styles cannot.
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For more news, information, and strategy, visit ETF Trends.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Bond ETFs Suffer First Monthly Outflows in Years
Fixed income exchange traded funds experienced their first monthly outflows in more than five years over January, excluding a one-off instance at the start of the pandemic.
Investors dumped $1.5 billion in global fixed income ETFs over January, compared to the $27.3 billion in inflows over December, the Financial Times reports.
Bond investors are scrambling to reposition their fixed income portfolios ahead of a more hawkish Federal Reserve monetary policy outlook, with multiple interest rate hikes for 2022 amid a surge in inflation.
Beyond the outflows at the height of the COVID-19 pandemic-induced crash in March 2020 that was fully resolved a month later, January 2022 was the first monthly outflow since the $800 million in outflows over November 2016 after Donald Trump’s presidential election victory triggered a surge in U.S. Treasury yields on expectations of higher inflation in response to greater government spending and tax cuts.
The recent selling “is not completely unexpected because of the volatility we have seen with the repricing in the rates market in both the US and Europe,” Karim Chedid, head of investment strategy for BlackRock’s iShares arm in the EMEA region, told the Financial Times.
Most of the selling was from a record $7.6 billion in redemptions among U.S.-listed high-yield, speculative-grade bond ETFs.
Moreover, despite elevated inflationary pressures, inflation-linked bond ETFs also saw net outflows of $1.7 billion, with U.S.-listed ETFs taking the greater part of the hit. In comparison, Eurozone linkers saw a modest $200 million in net inflows.
“While they still look interesting from the point of view of inflation hedging, they still have duration exposure. Just as we have seen selling from duration in the nominal bonds market, we also see that in inflation-linked,” Chedid added.
Elisabeth Kashner, director of global fund analytics at FactSet, also argued that outflows from “narrow bond market segments” were “not surprising, as investors are using specialized bond ETFs to express short-term views.”
Kashner, though, was surprised that investors yanked $200 million from investment-grade bond ETFs.
“What’s more interesting is the slackening of the pace of inflows to the broad-based investment-grade bond funds that serve as core holdings,” Kashner said, highlighting the iShares Core US Aggregate Bond Fund (AGG) and the Vanguard Total Bond Market ETF (BND).
“Had core fixed income flows held steady, we might well have seen positive fixed income flows overall in January. The likeliest explanation is portfolio rebalancing, as the pullback in equities drove equity allocations below target for strategic portfolios,” Kashner added.
For more news, information, and strategy, visit the Fixed Income Channel.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Why 2022 Could Be an Even Better Year for Fixed Income Active ETFs
Last year was a record year for ETFs, with net inflows of $910 billion into U.S.-listed ETFs, and it set a benchmark that will be hard to beat in 2022. Equity ETFs brought in the lion’s share of flows for the year at $692 billion, which is no surprise given the number of record closes for the major U.S. exchanges last year.
However, with the tide shifting in the latter half of the year, active ETFs saw an increase in flows, and the trend is expected to continue into 2022, particularly within the fixed income space, believes Todd Rosenbluth, head of ETF and mutual fund research at CFRA.
Fixed income ETFs garnered $207 billion in flows in 2021, nearly the same amount as 2020. Given the inflationary pressures in the latter half of the year and a Fed that turned very hawkish at the end of the year, inflows holding steady within a space experiencing a variety of pressures isn’t something to shrug at.
Despite losses within bond investment, actively managed fixed income ETFs were able to navigate the downturn with greater success than the broad indexed bond funds. Many of the major fixed income ETFs were able to hold losses at less than 1% for the entire year, while the major passive fixed income ETFs such as the iShares Core Aggregate Bond ETF (AGG) lost 1.93% in 2021, with others reflecting losses greater than 2%.
Active management fixed income ETFs also ended the year with 11% of the total assets within the fixed income ETF space but brought in 14% of the inflows. This is a reflection of an increasing pivot by investors to active management in inflationary times and with looming interest rate increases at the forefront of bond investors’ minds.
“We think investors will further embrace active ETFs in 2022 ahead of a more hawkish Federal Reserve,” Rosenbluth predicts in a communication to investors.
Active management firm T. Rowe Price offers several ETF options within the bond space, including the T. Rowe Price Total Return ETF (TOTR), the T. Rowe Price QM U.S. Bond ETF (TAGG), and the T. Rowe Price Ultra Short-Term Bond ETF (TBUX).
The firm brings a bevy of experience and research to its products, with portfolio managers averaging over 20 years in investing each, as well as over 400 investment professionals dedicated to researching companies within ETFs.
For more news, information, and strategy, visit the Active ETF Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Balancing Portfolio Risk And Reward: Asset Allocation for New Graduates
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Editor’s Note: This article is a part of a series on investing advice for recent college graduates, drawing on expertise from financial professionals, university faculty and of course, InvestorPlace’s very own analysts and writers. Read more “Money Moves for Recent Grads” here and check out Top Grad Stocks 2021 for our best stocks to buy for new graduates.
Source: f11photo/Shutterstock.com
New graduates just starting to invest probably have a lot of questions about the stock market. Where do you start? What should you invest in, and how much?
These are questions your parents probably asked themselves at the start of their careers. But in 2021, as the world begins to recover from the novel coronavirus pandemic, young investors are entering a market that feels more volatile than ever. The rush of Reddit-fueled short squeezes and 1,000% gains in cryptocurrencies this year has given investors young and old serious FOMO, and even tempted some into trying to “diamond hand” their way to wealth.
Certainly that has worked for some, but while it’s better to be lucky than smart, you can only control one of those things. Yet that doesn’t mean you need to be scared of risky investments. In fact, young investors have the potential to bank huge gains in their portfolios early on, with a little portfolio management and an eye on asset allocation.
8 Best Utility Stocks to Buy for Downside Protection
Time Is On Your Side
For 20-somethings, investing early in life is important. And if you’re reading this article, you know that leaving your money in a savings account isn’t the answer. Over time, inflation will outpace your savings’ interest rates, yielding a negative return on investment. Luckily, there’s good news to counter the bad.
The first piece of good news is that time is on your side. If you’re investing for more than 20 years, you can not only be more aggressive in your investment strategy, you can ride out the ups and downs of the stock market. The more you invest in now, the better off you’ll be later.
The second piece of good news is that you don’t need a financial advisor. Investing in your 20s is very different from saving for retirement. Because young investors have a longer time frame for investing, they can be more aggressive about how they allocate their investments. This difference is a good reason for taking a hands-on approach to asset allocation than a more balanced fund allows.
Young investors typically have a relatively small portfolio size, so they should focus more on increasing the rate at which they can save and invest, as opposed to choosing the best advisor or mutual fund. At this early age, increasing savings, making some good early long-term stock picks, and minimizing fees will take your money a lot further than a possible extra percent or two in return.
Of course, investing in any individual stock or bond leaves you vulnerable to the risk that the particular investment will decline in value, Diversifying your investments will reduce this risk and give you the opportunity to make money with one asset class while another declines.
Rising Inflation Means A More Aggressive Equity Portfolio
Inflation has been double the rate of general inflation over the past decade. Current yields tend to be a good indicator of future bond returns and the iShares Core U.S. Aggregate Bond ETF (NYSE:AGG), which serves as a broad bond market benchmark, is currently yielding 2.06%. At the same time, the April increase in The Consumer Price Index was the sharpest since September 2008. That means young investors looking to grow their wealth will have to adopt more aggressive asset allocations plans.
The first step is to define an asset allocation strategy to ensure your portfolio is both diversified and aggressive enough to meet your savings needs without unnecessary risk. Think of asset allocation as a grocery shopping basket: you’ll want to throw in a mix of various asset categories. These assets are index funds, mutual funds, bonds, cryptocurrency and of course, equities.
Not only are the categories important, so is the weighting. For young investors, this weighting will differ from older folks nearing retirement. The is to create an ideal mix of investments that gives you the greatest potential for long-term gains at a tolerable risk-level.
Source: InvestorPlace (Dream Stafford/Vivian Medithi)
Equities (50%): Focus on Technology, Growth and Innovation
As an aggressive investor, putting 50% of your investment into stocks (domestic AND international) is a good way to capitalize on economic and technology shifts at home while also investing in younger economies growing faster than the U.S. Investing directly in stocks gives you exposure to a growing economy, disruptive technologies/innovations and long term secular trends. The long-term returns on equities tend to be better than returns from cash or fixed-income investments. By diversifying your equity investment across different sectors, you’ll get exposure to both cyclical trends and secular long-term trends. Another benefit: you’ll lose less if a particular sector tanks.
Here are the important sectors to invest in, with weighting recommendations for your equity portfolio:
Technology (30%): Spanning both large-cap tech titans and small-cap growth stocks, young investors shouldn’t miss out on the chance to invest early on in secular long-term trends. Key themes include Cloud computing, software, semiconductors, IoT (Internet of Things), electric vehicles, solar technology and 5G. Some of our favorite ideas include Palo Alto Networks (NYSE:PANW) in 5G and cybersecurity, Splunk Software (NASDAQ:SPLK) in IoT, Li Auto (NASDAQ:LI) in electric vehicles, MP Materials (NYSE:MP) in battery technology, and Enphase Energy (NASDAQ:ENPH) in solar energy.
Healthcare (20%):The intersection of rising healthcare costs and an aging global population make for a potent combination that shouldn’t be overlooked by young investors. While healthcare stocks aren’t the first to take off when the economy charges higher, valuations are generally inexpensive right now. Investing here offers exposure to global growth and stocks with high dividend-yields. Key sub-segments to look at include pharmaceuticals, biotech, health technology companies, medical device manufacturers, health insurance companies and healthcare IT. Favorite names include AbbVie (NYSE:ABBV) and Zomedica (NASDAQ:ZOM) in biopharmaceuticals and Intuitive Surgical (NASDAQ:ISRG), a leader in robotic-assisted surgeries. Pharmaceuticals and companies focused on physician-administered therapies and vaccines are also good places to look.
Consumer Discretionary (10%): These stocks include durable goods, high-end apparel, entertainment and leisure activities. They tend to lead a stock market recovery, since consumers have more disposable income to spend when the economy is growing. Names to consider are those that track consumer spending trends, like e-commerce giants Ebay (NASDAQ:EBAY) and Etsy (NASDAQ:ETSY) and EV supplier Tesla (NASDAQ:TSLA). There are also some new trends to play here, like cannabis stock Cronos Group (NASDAQ:CRON) and video streaming supplier Roku (NASDAQ:ROKU).
Communications Services (10%): This sector, which comprises roughly 10% of the S&P 500, includes media, internet, satellite and phone services companies that span the range from stable dividend payers to more volatile growth names. With remote work, streaming, and gaming becoming a standard part of everyday life, the providers of this critical infrastructure are long-term growth investments. 5G technology is also a key catalyst for growth in the sector. Names to consider here include Verizon (NYSE:VZ), the largest wireless carrier in the U.S., American Tower (NYSE:AMT), the largest cell tower operator, and Comcast (NASDAQ:CMCSA), the largest pay-TV and home internet service provider.
Financials (8%): This segment includes investment banks and brokerage firms as well as emerging fintech stocks. The social investing movement has also opened up new business models in lending and online banking. Favorite names here are disruptive fintechs, including digital payment players Square (NYSE:SQ), Affirm (NASDAQ:AFRM), and Paypal (NASDAQ:PYPL). Also look at traditional credit card networks like Mastercard (NYSE:MA), which are poised for near-term recovery as international travel resumes.
Consumer Staples (5%): These non-cyclical stocks, which comprise roughly 70% of the GNP (Gross National Product), include food and beverages, household goods and hygiene products. They are also impervious to business cycles and offer a more defensive strategy in a contracting economy. As we look to a post-pandemic economy, the best names to choose short-term may not be these “stay at home” names that sell household necessities. But there are some good long term plays, like Costco Wholesale (NASDAQ:COST), whose bare-bones wholesaling approach has defied the retail downtrend. Other names to consider are those with strong brand portfolios, like Nestle (OTCMKTS:NSRGY), and Energizer Holdings (NYSE:ENR). Cosmetic companies like Estee Lauder (NYSE:EL) are also good long-term plays, benefiting from an increase in makeup sales.
REITs (5%): REITs (Real Estate Investment Trusts) own or manage income-producing commercial real estate. These provide diversification and lower risk as a counterbalance to other equity investments, as well as high-yield dividends, paying out 90% of taxable income to shareholders. With COVID-19 having impacted many of these landlords’ tenants, plenty of these names are currently trading at bargain prices. some good places to start include e-commerce warehouse REITs, healthcare REITs and telecom REITs. Some recession-proof REITs to consider include data center supplier Equinix (NASDAQ:EQIX), food industry REIT Americold Realty Trust (NASDAQ:COLD) and Life Storage (NYSE:LSI) in self-storage.
Industrials (5%): Machinery, manufacturing, construction, defense and aerospace are poised for growth as more industrial development is brought back into the U.S. Some of the fastest growers in this space include Ingersoll Rand (NYSE:IR), which manufactures flow control equipment, Amerco (NASDAQ:UHAL), a diversified holding company which owns U-Haul, and Middleby (NASDAQ:MIDD) in cooking and food prep equipment.
Energy (5%): Rising demand plus rising prices equals continued investment in transportation, exploration and production. Integrated oil and gas companies provide value and dividends, pipeline operators and MLPs (Master Limited Partnerships) offer steady income payments, and more disruptive oil and gas explorers can deliver big returns for those willing to take on the risk. Magellan Midstream Partners (NYSE:MMP) and Enviva Partners LP (NYSE:EVA) are trading at yields above 10%. Alternative energy and biofuels are also important growth areas. Examples here include Clean Energy Fuels (NASDAQ:CLNE), First Solar (NASDAQ:FSLR), and Enphase Energy.
Materials (2%): These cyclical stocks include precious metals, oil, wood and raw chemicals and offer broad-based exposure to a growing economy. Examples of recession-proof names with strong balance sheets and diversified portfolios include International Paper (NYSE:IP) in packaging, pulp and paper, and LyondellBasell (NYSE:LYB) in plastics and chemicals.
Index and Mutual Funds: Diversified exposure to ride out volatility
Mutual Funds (20%): Mutual funds are managed portfolios that give investors reduced-risk exposure to a diversified set of market sectors. Young investors should choose funds weighted toward small-cap growth stocks. At this early stage of investing, bond-based mutual funds are too defensive and low-growth in nature. Investors should be on the lookout for low costs (sales commissions) and low expense ratios. Some of the best performing mutual funds this year include Bridgeway Ultra-Small Company Market Fund (NASDAQ:BRSIX) and DFA US Small Cap Value I (NASDAQ:DFSVX).
Index Funds (5%): Early in their careers, new grads don’t need the safety of passive index funds when they have a long-time frame for investing. There are newer, more specific ETFs that track particular sectors that young investors may find attractive, such as electric vehicles, space, and alternative energy. Examples include the Global X Cloud Computing ETF (NASDAQ:CLOU), SPDR S&P Software & Services ETF (NYSE:XSW), Global X Cybersecurity ETF (NASDAQ:BUG) and iShares Global Clean Energy ETF (NASDAQ:ICLN).
Bonds (5%): A strong defense isn’t important right now
Bonds tend to be less volatile than stocks, and when held to maturity can offer more stable returns. For young investors, recommended exposure is low given a long time-frame for investing. That said, building a small early position offers some insulation against the volatility of the stock market. The corporate bond market is seeing a new wave of supply, with Amazon (NASDAQ:AMZN) and T-Mobile (NASDAQ:TMUS) recently issuing debt.
Cryptocurrency (20%): Because it’s here to stay
With mainstream support for cryptocurrencies rapidly escalating, young investors shouldn’t overlook this space. Now totaling over 7,000 publicly traded cryptocurrencies with a consolidated market capitalization of around $1.9 trillion, crypto has the potential to become a scarce asset that increases in value as fiat currencies depreciate. It could also gain extensive use as a digital form of cash, with the potential to become the first truly global currency. Already, digital payment platforms Square and PayPal, which also owns transfer app Venmo, allow customers to use cryptos. Favorite names include the number one and two by market cap — Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD). But, considering the run-up in these names, investors should also consider other emerging names with strong retail support, including Dogecoin (CCC:DOGE-USD), Ripple (CCC:XRP-USD) and blockchain platform Cardano (CCC:ADA-USD). My InvestorPlace colleague Tezcan Gecgil believes Litecoin (CCC:LTC-USD) will be the big altcoin winner. Many of these cryptocurrencies are trading below $2. That means for $2,000 you can buy up to 1,000 coins or tokens.
Disclosure: On the date of publication, Joanna Makris held long positions in TSLA, DOGE-USD, AMZN, MMP, EQIX, MA, PANW, SPLK, BTC-USD, PYPL and ETSY. She did not have (either directly or indirectly) positions in any of the other securities mentioned in this article.
Joanna Makris is a Market Analyst at InvestorPlace.com. A strategic thinker and fundamental public equity investor, Joanna leverages over 20 years of experience on Wall Street covering various segments of the Technology, Media, and Telecom sectors at several global investment banks, including Mizuho Securities and Canaccord Genuity.
The post Balancing Portfolio Risk And Reward: Asset Allocation for New Graduates appeared first on InvestorPlace.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Australia shares trade flat as tech slide offsets commodity gains
By Arpit Nayak
Feb 23 (Reuters) - Australian shares traded little changed on Tuesday as gains in miners and energy firms on stronger commodity prices countered losses in tech stocks following a weak lead from U.S. peers.
The S&P/ASX 200 index .AXJO was nearly unchanged at 6,779.5 by 0000 GMT, after swinging between positive and negative territory for much of the early part of the session.
Tech stocks .AXIJ were the biggest drags on the benchmark, tracking losses in U.S. peers that have come under pressure from an uptick in bond yields and concerns over higher inflation affecting valuations. .N
"Steadily rising real yields should reflect better growth prospects for equities but if they rise suddenly, pushed higher by flows from rapid repositioning, then we think the impact of a higher discount rate will pull equities lower," analysts at UBS said in a note.
Buy-now-pay-later giant Afterpay APT.AX shed 7.8% to lead losses among local tech companies which were set for their worst session since Jan. 28.
Investors will watch closely for any changes to the U.S. Federal Reserve's dovish outlook from Chairman Jerome Powell when he speaks before the Senate Banking Committee later in the day.
Energy stocks .AXEJ gained up to 4.1% and were on track to post their best session since Jan. 13, lifted by a jump in oil prices as investors anticipate a slow recovery in U.S. crude output following a cold snap in the state of Texas. Oil Search OSH.AX climbed 8.6% after posting a surprise underlying profit. O/R
Newcrest Mining NCM.AX and AngloGold Ashanti AGG.AX led gains among gold miners .AXGD, which climbed 5.6%, as worries over rising inflation and a weaker U.S. dollar pushed the metal higher. GOL/
Firmer bullion and copper prices supported a more than 1% rise in heavyweight miners .AXMM, which hit their highest since Jan. 8. Copper prices breached the $9,000 mark for the first time since 2011 on indications of tight supply. MET/L
New Zealand's benchmark S&P/NZX 50 index .NZ50 declined 0.6% to 12,356.68 and was on track for a fourth straight session of falls.
(Reporting by Arpit Nayak in Bengaluru; Editing by Subhranshu Sahu)
((Arpit.Nayak@thomsonreuters.com; Twitter: @arpit_nayak18;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:ETFGI Reaches New ETF Record of $5.52 Trillion In Invested Assets
On Tuesday, ETFGI, a leading independent research and consultancy firm covering trends in the global ETFs and ETPs ecosystem, reported that assets invested in ETFs and ETPs listed in the United States reached a new record of $5.52 trillion at the end of January.
$57.23 billion in net inflows was gathered in January, the second-largest net inflows, which is greater than the $41.90 billion in net inflows gathered in 2019 but less than the $75.96 billion gathered in January 2018. Assets increased by 1.1%, from $5.47 trillion at the end of December to $5.52 trillion at the end of January, according to ETFGI's January 2021 US ETFs and ETPs industry landscape insights report, the monthly report which is part of an annual paid-for research subscription service.
“The S&P 500 posted a loss of 1% for January due to the sell-off during the last week of the month. Small and mid-cap stocks outperformed in January, with the S&P Mid-Cap 400 and the S&P SmallCap 600 up 2% and 6%, respectively. Slower-than-expected COVID-19 vaccine distribution affected global impacted equities globally. The Developed markets ex- the U.S. ended the month down 1% while emerging markets were up 3% for the month," according to Deborah Fuhr, managing partner, founder, and owner of ETFGI.
Growth in US ETF and ETP assets as of the end of January 2021
The ETFs and ETPs industry in the United States had 2,439 products, assets of $5.52 Trillion, from 180 providers listed on 3 exchanges at the end of January.
In January 2021, ETFs/ETPs gathered net inflows of $57.23 Bn. Equity ETFs/ETPs listed in the US reported net inflows of $26.45 Bn in January, bringing YTD net inflows for 2021 to $26.45 billion, more than the $19.91 Bn in net inflows equity products attracted in January 2020. Fixed income ETFs/ETPs listed in US reported net inflows of $14.70 Bn during January, which is more than the $13.60 Bn in net inflows fixed income products attracted in January 2020. Commodity ETFs/ETPs accumulated net inflows of $461 Mn in January, which is less than the $1.88 Bn gathered in January 2020.
Active ETFs/ETPs saw net inflows of $15.13 Bn during January, significantly more than the net inflows of $5.01 Bn in January 2020.
Substantial inflows can be attributed to the top 20 ETFs by net new assets, which collectively gathered $41.96 Bn during January. The Financial Select Sector SPDR Fund (XLF US) gathered 4.15 Bn.
Top 20 ETFs by net new assets January 2021: US
Name
Ticker
Assets
(US$ Mn)
Jan-21
NNA
(US$ Mn)
YTD-21
NNA
(US$ Mn)
Jan-21
Financial Select Sector SPDR Fund
XLF US
28,331.47
4,149.58
4,149.58
iShares Core Total USD Bond Market ETF
IUSB US
9,692.85
3,713.58
3,713.58
iShares MSCI EAFE Value ETF
EFV US
10,300.21
3,272.99
3,272.99
iShares Core MSCI Emerging Markets ETF
IEMG US
73,723.65
3,156.00
3,156.00
ARK Innovation ETF
ARKK US
22,609.04
3,097.15
3,097.15
Vanguard Total Stock Market ETF
VTI US
202,732.92
2,824.17
2,824.17
Vanguard Total Bond Market ETF
BND US
70,221.98
2,745.86
2,745.86
ARK Genomic Revolution Multi-Sector ETF
ARKG US
10,699.23
2,435.05
2,435.05
iShares Global Clean Energy ETF
ICLN US
6,538.74
1,657.33
1,657.33
iShares Core U.S. Aggregate Bond ETF
AGG US
86,266.80
1,594.07
1,594.07
Vanguard Intermediate-Term Corporate Bond ETF
VCIT US
43,754.05
1,567.31
1,567.31
Vanguard S&P 500 ETF
VOO US
177,910.66
1,558.20
1,558.20
Vanguard Total International Bond ETF
BNDX US
38,400.91
1,404.03
1,404.03
JPMorgan BetaBuilders Developed Asia EX-Japan ETF
BBAX US
3,076.13
1,336.48
1,336.48
Vanguard Short-Term Bond ETF
BSV US
30,812.70
1,298.87
1,298.87
Vanguard Small-Cap ETF
VB US
39,541.92
1,291.66
1,291.66
JPMorgan BetaBuilders Japan ETF
BBJP US
7,456.86
1,282.46
1,282.46
Energy Select Sector SPDR Fund
XLE US
15,393.63
1,229.03
1,229.03
SPDR Dow Jones Industrial Average ETF
DIA US
24,986.09
1,173.08
1,173.08
Vanguard Value ETF
VTV US
62,137.88
1,171.41
1,171.41
The top 10 ETPs by net new assets collectively gathered $2.23 Bn during January. The iShares Silver Trust (SLV US) gathered $1.18 Bn.
Top 10 ETPs by net new assets January 2021: US
Name
Ticker
Assets
(US$ Mn)
Jan-21
NNA
(US$ Mn)
YTD-21
NNA
(US$ Mn)
Jan-21
iShares Silver Trust
SLV US
16,496.27
1,181.76
1,181.76
ProShares Ultra VIX Short-Term Futures
UVXY US
22,45.30
273.75
273.75
SPDR Gold MiniShares Trust
GLDM US
41,44.47
186.45
186.45
iPath Series B S&P 500 VIX Short-Term Futures ETN
VXX US
1,421.30
172.83
172.83
iShares Gold Trust
IAU US
31,561.48
117.32
117.32
ProShares VIX Short-Term Futures ETF
VIXY US
483.78
81.98
81.98
Aberdeen Standard Physical Silver Shares
SIVR US
975.87
74.67
74.67
iShares S&P GSCI Commodity-Indexed Trust
GSG US
922.35
55.32
55.32
iPath Shiller CAPE ETN
CAPE US
315.75
42.83
42.83
Invesco DB Agriculture Fund
DBA US
700.87
42.25
42.25
Investors have tended to invest in Equity ETFs/ETPs during January.
Register now for the ETFGI Global ETFs Global Summit on ESG and Active ETFs Trends, March 24th & 25th Register Here.
For more market trends, visit ETF Trends.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:This VanEck ETF Has Investors Seeing Green
Environmental, social, and governance (ESG) investing isn't just relegated to equities. Bond investors can get in on the ESG action with ETFs like the VanEck Vectors Green Bond ETF (GRNB).
GRNB seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the S&P Green Bond U.S. Dollar Select Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The index is comprised of bonds issued for qualified 'green' purposes and seeks to measure the performance of U.S. dollar denominated 'green'-labeled bonds issued globally. GRNB is slightly ahead of the iShares Core US Aggregate Bond (AGG), a popular broad-based ETF.
Overall, GRNB gives investors:
Access to bonds issued to finance projects that have a positive impact on the environment
An ESG solution for a core bond portfolio
An index that includes only U.S. dollar-denominated bonds designated as 'green' by the Climate Bonds Initiative
Access to green bonds at a low 0.20% expense ratio, 21 basis points lower than its categorical average
Record Growth for Green Bonds in 2020
As Covid-19 racked the capital markets in 2020, a move to safe haven assets like government and investment-grade debt helped to fuel niche-based green bonds. Per a Reuters article, "global green bond issuance reached a record high of $269.5 billion by the end of last year and could reach $400-$450 billion this year, a report by the Climate Bonds Initiative (CBI)" said.
"Green bonds are a growing category of fixed-income securities that raise capital for projects with environmental benefits, such as renewable energy or low-carbon transport," the article said further. "Although issuance reached a new record in 2020, the figure was just above 2019’s total of $266.5 billion as issuance slowed in the second quarter due to the effects of the coronavirus crisis before rebounding in the third quarter."
“The impact of COVID-19 in 2020 proved a huge economic and social negative. In that context, the resilience of green finance markets led to a record year of issuance,” the report said.
With a new year underway, look for green bonds to continue to gain popularity in 2021. U.S. President Joe Biden's support for clean energy policy could also help fuel an interest in green bonds.
For more news and information, visit the Tactical Allocation Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:3 iShares ETFs Flexing Safe Haven Bond Strength
A flight to safe haven assets and a backstop from the Federal Reserve saw bonds rise to new heights in 2020. That doesn't mean bonds are no longer in play, as they still have their place in a portfolio today. Investors can start with ETF provider BlackRock.
At the top is a tried-and-true fund that's been the go-to for broad bond exposure: the iShares Core U.S. Aggregate Bond ETF (AGG). The fund offers broad-based exposure to investment grade U.S. bonds, making AGG a building block for any investor constructing a balanced long-term portfolio, as well as a potentially attractive safe haven for investors pulling money out of equity markets. While AGG can potentially be a one stop shop for fixed income exposure, a close look at the composition of this fund is advised.
Another fund with broad exposure to U.S. bonds is the iShares Core Total US Bond Market ETF (IUSB). IUSB seeks to track the investment results of the Bloomberg Barclays U.S. Universal Index.
The fund generally will invest most of its assets in the component securities of the index and may also invest in certain futures, options and swap contracts, cash and cash equivalents, including shares of money market funds advised by BFA or its affiliates, as well as in securities not included in the underlying index, but which BFA believes will help the fund track the underlying index.
Is inflation on the rise in 2021? If so, bond investors may want to look at the iShares TIPS Bond ETF (TIP), which seeks to track the investment results of Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) which composed of inflation-protected U.S. Treasury bonds.
The fund generally invests at least 90% of its assets in the bonds of the underlying index and at least 95% of its assets in U.S. government bonds. It may invest up to 10% of its assets in U.S. government bonds not included in the underlying index, but which BFA believes will help the fund track the underlying index, and may also invest up to 5% of its assets in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents.
TIP gives investors:
Exposure to U.S. TIPS, which are government bonds whose face value rises with inflation.
Access to the domestic TIPS market in a single fund.
Protection against intermediate-term inflation.
For more news and information, visit the Equity ETF Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:5 iShares ETFs Starting Strong in 2021
Small cap equities, emerging markets, and bonds are a few themes that are grabbing attention to start the new year. iShares offers an impressive suite of ETFs to check all these boxes and more.
iShares Russell 2000 ETF (IWM): IWM seeks to track the investment results of the Russell 2000® Index, which measures the performance of the small-capitalization sector of the U.S. equity market. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. It may invest the remainder of its assets in certain futures, options and swap contracts, cash and cash equivalents, as well as in securities not included in the underlying index, but which the advisor believes will help the fund track the underlying index. IWM has a relatively low 0.19% expense ratio.
iShares Core MSCI Emerging Markets ETF (NYSEArca: IEMG): IEMG seeks to track the investment results of the MSCI Emerging Markets Investable Market Index. The index is designed to measure large-, mid- and small-cap equity market performance in the global emerging markets.
iShares Global Clean Energy ETF (ICLN): seeks to track the S&P Global Clean Energy Index. The index is designed to track the performance of approximately 30 clean energy-related companies.
iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG): AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index. The index measures the performance of the total U.S. investment-grade bond market. The fund generally invests at least 90% of its net assets in component securities of its underlying index and in investments that have economic characteristics that are substantially identical to the economic characteristics of the component securities of its underlying index.
iShares TIPS Bond ETF (TIP): seeks to track the investment results of Bloomberg Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L), which is composed of inflation-protected U.S. Treasury bonds. While the Federal Reserve appears unflinching when it comes to its stance to keep interest rates low, what will it do if inflation starts to rise? With the increased flows into TIPS to start 2021, investors and traders alike might be sensing that a healing economy will translate into higher inflation in the new year.
For more news and information, visit the Equity ETF Channel.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:3 ETFs to Build a Diversified Core Investment Portfolio
As the new year approaches, investors can look to cheap index-based exchange traded fund strategies to create a well-rounded, diversified investment portfolio for 2021.
"Diversification helps investors to navigate fast-changing markets and stay the course to pursue their financial goals. This year offered a masterclass in how diversification through index-based ETFs could have helped the average investor avoid losing in a winning, albeit volatile, market," Daniel Prince, Head of iShares product consulting for BlackRock’s U.S. Wealth Advisory Business and U.S. Head of iShares Core ETFs, said in a research note.
Prince argued that index funds can help all investors diversify at the single-stock and portfolio level.
"The point is that successfully timing the market with individual securities — buying and selling at just the right times — is difficult even for the most experienced investor. Some index ETFs can hold the whole market, a strategy which helps shield investors from sharp declines of a few stocks," Prince said.
As investors look to rebalance their portfolios, Prince highlighted a number of iShares Core ETFs to build a low-cost, diversified portfolio in pursuit of one's long-term investing goals. For starters, the iShares Core S&P Total U.S. Stock Market ETF (ITOT), which tracks the S&P Total Market Index, provides low-cost and convenient access to the total U.S. stock market in a single fund, ranging from some of the smallest to largest companies.
The iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which tracks the Bloomberg Barclays U.S. Aggregate Bond Index, provides broad exposure to U.S. investment-grade bonds and is a low-cost easy way to diversify a portfolio using fixed income.
Additionally, the iShares Core Growth Allocation ETF (AOR), which tracks the S&P Target Risk Growth Index, is a simple way to build a diversified core portfolio focused on growth using one low-cost fund. The fund is composed of a portfolio of underlying equity and fixed income funds intended to represent a growth allocation target risk strategy. Investors can use AOR to establish a long-term, balanced portfolio and combine it with other funds for particular needs like income.
For more market trends, visit ETF Trends.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:The ETF Industry Continues to Thrive Despite Pandemic
It's been a memorable year for exchange-traded funds (ETFs) in 2020, but despite the pandemic, certain sectors within the industry will continue to thrive. A CNBC report discussed three themes that were going on in the ETF space--namely fixed income, ESG, and risk-based strategies, according to Armando Senra, head of iShares Americas at BlackRock, during an interview on CNBC’s “ETF Edge.”
As the report noted, the "first is the flight to fixed income ETFs, on which BlackRock has been capitalizing for several years. The second is sustainable investing, which Senra said now represents 20% of iShares’ flows and has seen 'very strong growth.'"
As far as ETFs go, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG) has been the go-to fund for investors who want that core bond exposure since 2003. AGG seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index, which measures the performance of the total U.S. investment-grade bond market.
Additionally, fixed income investors may want to get exposure to debt with a twist via funds like the VanEck Vectors Fallen Angel High Yield Bond ETF (BATS: ANGL). ANGL seeks to replicate as closely as possible the price and yield performance of the ICE BofAML US Fallen Angel High Yield Index, which is comprised of below investment grade corporate bonds denominated in U.S. dollars that were rated investment grade at the time of issuance.
ANGL essentially focuses on debt that has fallen out of investment-grade favor and is now repurposed for high yield returns with the downgraded-to-junk status. Buying household corporate bond ETFs was to be expected by the Fed when they implemented their bond purchasing program earlier this year, but they mixed up their moves nicely with high yield debt purchases like ANGL.
ANGL data by YCharts
As for other trends, the article also noted that "investors have been making calculations on risk for the better part of 2020, Senra said." Specifically, playing commodities and the movement of inflation.
“We’ve seen investors becoming more aware and concerned about inflation, and you’ve seen flows into commodity ETFs” and Treasury inflation-protected securities (TIPS) noted Senra.
Senra also pointed out that more investors are heading to opportunities overseas.
“Now, with the weaker dollar and also the underweight positions that most investors have to international, you’re beginning to see flows back into international,” Senra said. “So, I would say those are the main themes: fixed income ETFs, the growth of sustainable investing, and what you’ve seen this year in terms of risk-on and risk-off and how investors have played that out.”
For more market trends, visit ETF Trends.
Read more on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:12 Bond Mutual Funds and ETFs to Buy for Protection
As the stock market continues to take a beating, nervous investors look to bond mutual funds and exchange-traded funds (ETFs) for protection and sanity. After all, fixed income typically provides regular cash and lower volatility when markets hit turbulence.
And the markets are absolutely hitting turbulence. For instance, between Feb. 19 and March 10, not only did the S&P 500 experience a historically rapid loss of 14.8% - it experienced a dramatic rise in volatility, too, hitting its highest level on that front since 2011, says Jodie Gunzberg, chief investment strategist at New York-based Graystone Consulting, a Morgan Stanley business. The index's losses and volatility have escalated even more since then.
Bonds offer ballast - "not only downside protection but also moderate upside potential as investors tend to seek out the safety of U.S. government and investment-grade corporate bonds amid stock market uncertainty" - says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA, a New York-basedinvestment researchcompany.
Bond prices often are uncorrelated to equities. Stocks typically do well in periods of economic growth, whereas bonds typically do well in periods of declining economic activity, Gunzberg says.
"Even though the current 30-day correlation has risen between stocks and bonds, the correlation between the S&P 500 and the S&P U.S. Aggregate Bond Index is still negative," she says. "Bonds are strong diversifiers, with the exception of high yield (junk), when added to a portfolio of equities throughout different economic scenarios." Indeed, junk debt has been punished severely of late.
Here are 12 bond mutual funds and bond ETFs to buy. These funds offer diversified portfolios of hundreds if not thousands of bonds, and most primarily rely on debt such as Treasuries and other investment-grade bonds. Just remember: This is an unprecedented environment, and even the bond market is acting unusually in some areas, so be especially mindful of your own risk tolerance.
SEE ALSO: The 25 Best Low-Fee Mutual Funds to Buy in 2020
iShares Core U.S. Aggregate Bond ETF
Assets under management: $71.0 billion
SEC yield: 1.8%
Expenses: 0.05%
Just like S&P 500 trackers such as the iShares Core S&P 500 ETF (IVV) are how you invest in "the market," the iShares Core U.S. Aggregate Bond ETF (AGG, $110.79) is effectively the way to invest in "the bond market."
AGG is an index fund that tracks the Bloomberg Barclays U.S. Aggregate Bond Index, or the "Agg," which is the standard benchmark for most bond funds. This portfolio of more than 7,600 bonds is heaviest in Treasuries, at a 42% weight, but also has significant exposure to mortgage-backed securities (MBSes, 28%) and corporate debt (24%), as well as sprinklings of agency, sovereign, local authority and other bonds.
This is an extremely high-credit-quality portfolio that has nearly 75% of its assets in AAA debt, the highest rating possible. The rest is invested in other levels of investment-grade bonds. That makes AGG one of the best bond ETFs if you're looking for something simple, cheap and relatively stable compared to stocks.
Learn more about AGG at the iShares provider site.
SEE ALSO: The 12 Best ETFs to Battle a Bear Market
Vanguard Total Bond Market ETF
Assets under management: $50.7 billion
SEC yield: 1.9%
Expenses: 0.035%
The Vanguard Total Bond Market ETF (BND, $82.85) is another name in broad-exposure bond funds. It targets U.S. investment-grade bonds and is geared for investors with medium- or long-term goals.
"Total" bond ETFs like BND incorporate a wide spectrum of fixed-income investments in a passively managed vehicle, says Mike Loewengart, managing director of investment strategy at online brokerage firm E*Trade Financial.
"Fixed-income investments can add ballast to your portfolio, especially during wild market swings," he says. "Investors leverage bonds because they are more predictable than equity investments, albeit a bit more boring, which turns off some investors."
BND holds roughly 9,200 bonds, with about 44% of those holdings in Treasury and other agency debt, 27% in investment-grade corporates, 24% in MBSes and the rest sprinkled across bonds such as sovereign debt and asset-backed securities (ABSes). It's also available as a mutual fund (VBTLX).
Learn more about BND at the Vanguard provider site.
SEE ALSO: The 10 Best Vanguard Funds for 2020
iShares Core Total USD Bond Market ETF
Assets under management: $4.6 billion
SEC yield: 2.1%
Expenses: 0.06%, or $6 on a $10,000 investment*
The iShares Core Total USD Bond Market ETF (IUSB, $50.56) is a another strong core bond fund that provides a blend of primarily investment-grade debt, but it also has some exposure to higher-yield bonds that AGG doesn't.
IUSB's portfolio, which includes more than 9,300 bonds, is most heavily weighted in Treasuries, at nearly 36% of the fund's assets. Another quarter of IUSB's assets are invested in investment-grade corporate debt from the likes of AT&T (T) and JPMorgan Chase (JPM), and another quarter is in mortgage-backed securities (MBSes). The rest is sprinkled among agency bonds, international sovereign debt and other types of bonds.
This indexed ETF does have a "slight exposure to high-yield bonds, which tend to do better in a risk-on environment," CFRA's Rosenbluth says. But otherwise, nearly 93% of this bond ETF's holdings are investment-grade, including a 63% slug in AAA-rated bonds.
The yield, at 2%, is about on par with the S&P 500 right now. But IUSB has been far, far less volatile than the blue-chip stock index, losing 4.5% over the past month versus the S&P's 25%.
* Includes a 1-basis-point fee waiver. (A basis point is one one-hundredth of a percent.)
Learn more about IUSB at the iShares provider site.
SEE ALSO: 9 Municipal Bond Funds for Tax-Free Income
iShares U.S. Treasury Bond ETF
Assets under management: $16.5 billion
SEC yield: 0.9%
Expenses: 0.15%
If you're looking to focus more on stability than potential for returns or high yield, one place to look is U.S. Treasuries, which are among the highest-rated bonds on the planet and have weathered the downturn beautifully so far.
Bond ETFs like the iShares U.S. Treasury Bond ETF (GOVT, $27.25) give investors direct exposure to U.S. Treasuries. GOVT's holdings range from less than one year to maturity to more than 20 years. Roughly half of the fund is invested in bonds with one to five years left to maturity, another 28% is in bonds with five to 10 years left, and most of the rest is in Treasuries with 20 or more years remaining.
Over the past month, GOVT has actually produced a 3% gain as investors hunker down in safety plays. Just note that an already low yield, as well as little room for yields to go further south, really limit the upside price potential in this bond ETF. But it still might be an ideal place for investors looking for stability and just a little bit of income.
Learn more about GOVT at the iShares provider site.
SEE ALSO: 5 Dividend Mutual Funds Yielding 3% or More
SPDR Bloomberg Barclays 1-3 Month T-Bill ETF
Assets under management: $15.3 billion
SEC yield: 1.2%
Expenses: 0.136%
This is a tricky time to be buying bonds since "yields are in a race toward zero," says Charles Sizemore, a portfolio manager for Interactive Advisors, an RIA based in Boston.
"Buying longer-term bonds at these prices exposes you to interest-rate risk. If yields bounce off of these historic lows, bond prices will fall," he says. "Given that yields are modest across the bond universe, it makes sense to focus on safety rather than reach for a slightly higher yield that won't really move the needle that much anyway."
In an environment like this, Sizemore believes it makes sense to stay in bonds with shorter-term maturity. The SPDR Bloomberg Barclays 1-3 Month T-Bill ETF (BIL, $91.63) is a liquid way to get access to the short end of the yield curve. It invests in an extremely tight portfolio of just 15 bond issues with thin maturities of between one and three months - good for the truly risk-averse. BIL hardly moves in good markets and in bad. Over the past month, for instance, BIL has gained 0.2%, with a chart that looks like a straight line compared to most major bond and stock market indices alike.
"The yield is a moving target and may approach zero soon due the Federal Reserve slashing rates," Sizemore says. "But you have essentially no interest-rate risk and you're parked in the safest corner of the bond market."
Learn more about BIL at the SPDR provider site.
SEE ALSO: 11 Defensive Dividend Stocks for Riding Out the Storm
PIMCO Enhanced Short Maturity Active ETF
Assets under management: $13.9 billion
SEC yield: 1.9%
Expenses: 0.36%
If you prefer to have a human overseeing your short-term bond investments, you can look to actively managed ETFs such as PIMCO Enhanced Short Maturity Active ETF (MINT, $100.10).
Like BIL, MINT is among the more conservative bond ETFs you can buy. The fund currently has more than 840 holdings, with a stated goal of "capital preservation, liquidity and stronger return potential relative to traditional cash investments."
The trade-off? A little bit more risk than, say, a savings account or money-market fund - but far less risk than most other bond funds. The ETF's 840-plus holdings are 93% invested in bonds with less than a year to maturity, with the remaining 7% invested in debt with no more than three years left. More than 75% of the fund's bonds have investment-grade credit ratings - the majority of that is investment-grade corporate debt, though it also includes Treasuries and other bonds.
MINT offers a "relatively attractive yield given its minimal interest-rate risk and can be a stronger alternative to sitting on the sidelines," CFRA's Rosenbluth says.
Learn more about MINT at the PIMCO provider site.
SEE ALSO: 10 Low-Volatility ETFs for This Roller-Coaster Market
Vanguard Short-Term Corporate Bond Index Fund ETF
Assets under management: $23.2 billion
SEC yield: 1.9%
Expenses: 0.05%
Another way to invest in short-term debt is the Vanguard Short-Term Corporate Bond Index Fund ETF Shares (VCSH, $76.77).
Given the financial damage happening to even good publicly traded companies, corporate bond funds - even ones that hold investment-grade debt - are hardly bulletproof. Thus, it's worth pointing out that 90% of the bonds in VCSH are in the A or BBB range, the lower of the four investment-grade tiers.
"But given that the holdings are investment grade bonds with only five years or less to maturity, your risk is tolerably low," Sizemore says. Indeed, the average maturity of bonds in the fund is just under three years.
The yield of 1.9% is decent, albeit unspectacular. However, relative stability and an uber-cheap expense ratio make VCSH a decent place to wait out the volatility. If you prefer mutual funds, Vanguard offers an Admiral-class version (VSCSX).
Learn more about VCSH at the Vanguard provider site.
SEE ALSO: 8 Great Vanguard ETFs for a Low-Cost Core
Vanguard Intermediate-Term Bond ETF
Assets under management: $12.7 billion
SEC yield: 1.6%
Expenses: 0.07%
The Vanguard Intermediate-Term Bond ETF (BIV, $87.25) is an "in the middle fund" that invests exclusively in intermediate-term, investment-grade debt.
It's another index fund, this time investing in bonds with maturities between five and 10 years. More than half the fund is invested in Treasuries and other U.S. government bonds, with another 40% in investment-grade corporates, and most of the rest in foreign sovereigns.
The idea here is to provide more yield than in similarly constructed funds, though at the moment, BIV's yield is actually lower than many shorter-term funds. Year-to-date, however, it's essentially trading flat versus a 1%-plus decline for the "Agg" benchmark. It also has a mutual fund version (VBILX).
Learn more about BIV at the Vanguard provider site.
SEE ALSO: 11 Best Stocks to Ride Out the Coronavirus Outbreak
Vanguard Long-Term Bond ETF
Assets under management: $5.1 billion
SEC yield: 2.6%
Expenses: 0.07%
If you do want to roll the dice on longer-term investments for a little more yield, bond ETFs such as the Vanguard Long-Term Bond ETF (BLV, $100.44) can get the job done.
The roughly 2,500-bond portfolio is heaviest in investment-grade corporate debt (48%), followed by Treasury/agency bonds (44%). Almost all of the rest of BLV's assets are used to hold investment-grade international sovereign debt.
The added risk comes in the form of longer maturity. Three-quarters of the fund is invested in bonds maturing in 20 to 30 years, 22% is in the 10-to-20 range, 3% is in bonds with 30-plus years remaining, and the rest is in the five-to-10 range. Because there's more of a chance these bonds won't get paid off than bonds that expire, say, a year from now, that means this fund can rise and fall a lot more than funds like MINT that deal in short-term debt.
But the higher yield might be tempting to some investors.
"With interest rates compressing and the 10-year Treasury at an all-time low, investors might consider adding a long-term bond fund to their portfolio like Vanguard's Long-Term Bond Fund," says Daren Blonski, managing principal of Sonoma Wealth Advisors in California. "Unless you see interest rates rising in the near future, owning a long-term bond fund can provide substantially more income to your portfolio. If interest rates do rise, a long term bond fund would underperform."
Like many other Vanguard bond ETFs, BLV trades as a mutual fund, too (VBLAX).
Learn more about BLV at the Vanguard provider site.
SEE ALSO: Every Warren Buffett Stock Ranked: The Berkshire Hathaway Portfolio
DoubleLine Total Return Bond Fund Class N
Assets under management: $55.3 billion
SEC yield: 2.99%
Expenses: 0.73%
Managed by well-known bond portfolio manager Jeffrey Gundlach, the DoubleLine Total Return Bond Fund Class N (DLTNX, $10.71) acts as a "nice diversifier to core fixed income while providing current income without overstretching in quality for higher yield and strong risk-adjusted returns in varying market and interest-rate environments," says Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management, a San Francisco-based financial planning firm.
While DLTNX is a "total return" fund, its primary vehicle is mortgage-backed securities. More than 80% of the bond mutual fund's assets are invested in these right now, with the rest sprinkled among debt such as Treasuries and other asset-backed securities, as well as cash.
"In today's persistent low-yield environment, many investors had been drifting away from safer core bond holdings toward riskier, high-yield credit given the more attractive yields they offer," Tanenbaum says. "While it may be tempting to reach for these higher yields to generate more income, it is critical for investors to fully understand the underlying credit quality of the bonds they are choosing to receive that higher yield."
The retail-class N shares we list here require a $2,000 minimum investment in normal accounts or $500 in an IRA. You can invest in the lower-expense institutional-class shares (DBLTX, 0.48% annual fees) with a $100,000 minimum investment in normal accounts, or a $5,000 minimum investment in an IRA.
Learn more about DLTNX at the DoubleLine provider site.
SEE ALSO: Kip ETF 20: The Best Cheap ETFs You Can Buy
BlackRock Strategic Income Opportunities Investor A
Assets under management: $31 billion
SEC yield: 2.4%
Expenses: 1.10%
The BlackRock Strategic Income Opportunities Investor A (BASIX, $9.45) is an actively managed bond mutual fund that should complement core bond exposure to increase your risk-adjusted returns. Managers Rick Reider, Bob Miller and David Rogal have been with the fund for varying amounts of time, with Reider boasting the longest tenure in BASIX at roughly a decade.
This isn't your garden-variety bond fund. A little more than 20% of BASIX's assets are invested in "interest-rate derivatives" - hedges that institutional investors use against movements in interest rates. Another 19% is invested in emerging-market bonds, and the rest is split among debt such as junk bonds, Treasuries, collateralized loan obligations and more.
Performance is a mixed bag against the "Agg" bond index, though it's far less volatile than both the market and even the Nontraditional Bond category. But one thing weighing down its performance is high costs - not just a 1.1% expense ratio, but also a 4% maximum sales charge. But you can get around this if you have access to the Institutional shares (BSIIX), which have no sales charge and a 0.62% annual fee.
While an individual using a regular account would need to scrape together a whopping $2 million minimum initial investment, investors whose assets are managed by independent financial advisors might be able to access this share class for a far more reasonable minimum investment. You also might be able to access BSIIX via your 401(k) or other employer-sponsored retirement plan.
SEE ALSO: Why Did the Fed Cut Rates to Near Zero?
AlphaCentric Income Opportunities Fund A
Assets under management: $3.6 billion
SEC yield: 4.4%
Expenses: 1.74%
Investors who are looking for a bond fund with a bit more income, but are willing to take on more risk, should consider the AlphaCentric Income Opportunities Fund A (IOFAX, $12.32). This fund consists of non-agency residential mortgage-backed securities.
Bond mutual funds can help balance out volatile equity investments, Sonoma Wealth Advisors' Blonski says. IOFAX currently yields more than 4%, but this higher yield "doesn't come without risk as it specializes in trading in thinly traded residential mortgages."
Like BASIX, this is another specialized fund that's more suited for experienced investors who are willing to take on more risk. Also like BASIX, this is a fund best bought through a different grade of shares, given a high 1.74% expense ratio and a maximum 4.75% sales charge. Investors who have independent financial advisors manage their assets might be able to access the I shares (IOFIX), which have no sales charge and a slightly cheaper 1.49% expense ratio - at a $2,500 minimum investment, no less. Also check to see if IOFIX is available via your 401(k), 403(b) or other plans.
Learn more about IOFAX at the AlphaCentric provider site.
SEE ALSO: 64 Dividend Stocks You Can Count On in 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Investors Pour $51B Into ETFs In January
Cinthia Murphy, Managing Editor, ETF.com
The ETF market is starting 2020 strong, attracting $51 billion in net creations in January—the strongest start to the year since $68 billion found its way into U.S.-listed ETFs two years ago. The number also stands in stark contrast to asset flows this time last year, when U.S.-listed ETFs actually bled assets to start 2019.
January saw several elements spook markets across the board: coronavirus headlines, concerns about geopolitical risk, and uncertainty linked to a presidential election year in the U.S. Still, U.S. equity ETFs gathered a net of $17.4 billion last month, while international equity ETFs saw net inflows of nearly $12 billion. Spooked or not, investors have continued to put their money to work in the ETF space.
The Vanguard Total Stock Market ETF (VTI) and the iShares Core MSCI EAFE ETF (IEFA) led the month’s list of top gainers—both well-established, highly liquid and broadly diversified portfolios.
Out of favor, however, were small cap stocks. The iShares Russell 2000 ETF (IWM)—the largest and most liquid ETF in this segment—saw the month’s biggest net outflows: $2.6 billion. That amounts to redemptions totaling about 6% of IWM’s total assets under management.
U.S. fixed income ETFs also saw strong demand as yields slid during the month—the 10-year Treasury dropped 41 basis points to 1.51% during January. The Vanguard Total Bond Market ETF (BND) and the iShares Core U.S. Aggregate Bond ETF (AGG) were among the month’s most popular bond ETFs, attracting more than $2 billion each. In all, the asset class took in some $15 billion in fresh net assets in January.
More on ETF.com
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The Month In ETFs: January 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:ETF Asset Growth Beats 2018 Pace
Cinthia Murphy, Managing Editor, ETF.com
As we enter the last month of the 2019 calendar, the ETF market is on pace to see its strongest growth in about a decade.
So far this year, investors have poured $264 billion into U.S.-listed ETFs, a pace of creations that now exceeds 2018’s totals for this time of year. Net inflows and market performance have pushed total U.S.-listed ETF assets up more than 23% this year, to $4.284 trillion.
A look at the numbers shows that one of the biggest themes in the ETF space in 2019 continues to be record-breaking demand for fixed income vehicles, which have now taken in $138 billion this year. That’s more than half of the year’s total net inflows.
Asset Classes (Year-to-Date)
In the past week alone, ETFs attracted $13.8 billion in net inflows, and several fixed income funds were found among the week’s biggest creations, including the iShares Core U.S. Aggregate Bond ETF (AGG), the iShares iBoxx USD High Yield Corporate Bond ETF (HYG), the iShares Core International Aggregate Bond ETF (IAGG) and the Vanguard Total Bond Market ETF (BND).
Top 10 Creations (All ETFs)
More on ETF.com
Coming Soon: New Twist To Active ETFs
Schwab/TDA Deal: Honey Badger Don’t Care
The Ever-Changing ETF Globe
Live Chat: 5 Key Trends For 2020
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:The 7 Best Bond Funds to Buy for a Shift in Interest Rates
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Now that the Federal Reserve is moderating its monetary policy, and the yield curve has turned negative for the first time since 2007, the best bond funds to buy are also beginning to shift.
As recently as the third quarter of 2018, it appeared as if the Fed would hike interest rates two or three times in 2019. By the beginning of 2019, the Fed's tone and outlook began to signal that one or two interest rate bumps during the year were the best bet. As of a few days ago, the Fed indicated it may not raise rates at all in 2019 but may possibly hike rates just once in 2020.
What this means for bonds is that yields will moderate along with the Fed's policy. Moderating yields will in turn provide support, or even a lift, to bond prices. Translation: Now may be a good time to increase your exposure to bond funds.
7 Reasons to Buy Housing Stocks in 2019
With that backdrop in mind, here are the best bond funds to buy for a shifting interest rate environment:
Best Bond Funds to Buy: iShares Core U.S. Aggregate Bond (AGG)
Expenses: 0.05%, or $5 for every $10,000 invested
Smart investors know, especially after the past year, that the interest rate environment is difficult to predict. This uncertainty makes a broadly diversified bond fund like iShares Core U.S. Aggregate Bond (NYSEARCA: AGG ) a wise choice.
AGG tracks the Bloomberg Barclays U.S. Aggregate Bond index, which covers the entire U.S. bond market of more than 7,000 bonds. Although the portfolio has a broad range of maturities and credit quality, the average weighted maturity is just under eight years and the average ratings are investment grade.
This means that investors can reap the benefits of reduced market risk through diversification but also the potential price gains coming for a moderating rate environment.
Vanguard Intermediate-Term Corporate Bond (VCIT)
Source: Shutterstock
Expenses: 0.07%
As bonds come back into favor, corporate bonds typically outperform Treasury bonds and municipal bonds. This makes Vanguard Intermediate-Term Corporate Bond (NYSE: VCIT ) a smart choice now.
Treasury bonds and municipal bonds typically have lower yields than corporate bonds. They also generally have lower annualized returns, especially when investing for longer than one year.
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Unless you are investing in a taxable brokerage account and need tax-free income, a low-cost corporate bond fund like VCIT is a great fund to hold now and in the long run.
SPDR Nuveen Barclays Municipal Bond Index (TFI)
Expenses: 0.23%
Investors needing tax-free income at the Federal level should consider a low-cost, diversified bond fund like SPDR Nuveen Barclays Municipal Bond Index (NYSE: TFI ).
If you want to increase your exposure to bond funds to take advantage of moderating or falling interest rates, you'll need to be cautious about the tax implications. If you're investing in a taxable account and your top Federal tax rate is 32% or higher, a municipal bond fund like TFI can be a smart idea.
Although municipal bonds typically have lower yields than corporate bonds, the tax-equivalent yield of municipal bonds (the yield a taxable fund would need in order to equal the tax-free yield of a municipal bond fund) can make sense.
The SEC yield for TFI is a solid 2.1% and the tax-equivalent yield is 3.5%.
PIMCO 25+ Year Zero Coupon U.S. Treasury Index (ZROZ)
Expenses: 0.15%
If you're not afraid of taking extra risk, a highly interest-rate-sensitive bond fund like PIMCO 25+ Year Zero Coupon U.S. Treasury Index (NYSEARCA: ZROZ ) may be your best bet for out-sized returns.
When interest rates are flattening and expected to fall, the bonds and bond funds with the greatest interest rate sensitivity typically see the biggest price gains. Bonds with long maturities will see bigger price gains than those with shorter maturities. Also zero-coupon bonds have greater interest rate sensitivity because they pay the investor zero interest until maturity.
7 Beaten-Up Stocks to Buy as They Reverse Course
Enter ZROZ. This ETF holds long-term zero-coupon bonds and will likely see the biggest jumps in price, assuming the interest rates remain flat and begin to decline in 2020 (or sooner).
Vanguard Total Bond Market Index Admiral Shares (VBTLX)
Source: Shutterstock
Expenses: 0.05%
Minimum Investment: $3,000
For a low-cost, diversified bond mutual fund, it's tough to beat Vanguard Total Bond Market Index Admiral Shares (MUTF: VBTLX ).
Vanguard recently closed most of their Investor Shares mutual funds and made their lower-cost Admiral Shares available to investors with the same $3,000 minimum initial investment. This makes many of their mutual funds as cheap as the cheapest ETFs on the market.
To get broad exposure to bonds without taking on too much interest-rate risk, VBTLX is an outstanding choice. The portfolio tracks the Bloomberg Barclays U.S. Aggregate Bond index, which consists of over 7,000 bonds, providing exposure to the entire U.S. bond market.
Vanguard Long-Term Bond Index (VBLTX)
Source: Shutterstock
Expenses: 0.15%
Minimum Investment: $3,000
The best low-cost long-term bond mutual fund is arguably Vanguard Long-Term Bond Index (MUTF: VBLTX ).
As the Fed puts a hold on rate hikes, and the potential increases for rate cuts, long-term bond funds like VBLTX can be a smart move. This is because long-term bonds tend to have greater price increases than short- and intermediate-term bonds as interest rates begin to fall.
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VBLTX tracks the Bloomberg Barclays U.S. Long Government/Credit Float Adjusted Index, which consists of more than 2,000 U.S. long-term bonds. In addition to potential for greater gain potential, the 3.8% trailing-12-month yield may be attractive to investors looking for income.
Loomis Sayles Bond Retail (LSBRX)
Source: Shutterstock
Expenses: 0.91%
If you're looking for a well-managed go-anywhere bond fund to compliment your core bond funds, Loomis Sayles Bond Retail (MUTF: LSBRX ) can be a fine choice.
The bond market is arguably more complex and more difficult to forecast than the stock market. This makes a solid case for investing in either a passively managed index fund or an actively managed fund with an outstanding manager at the helm. Some investors may choose to have the best of both and use a total market index fund for a core holding and a fund like LSBRX as a compliment.
Diversification is especially important in uncertain interest rate environments, as is the case in 2019.
LSBRX is managed by Dan Fuss, who has been at the helm of the fund for nearly 30 years and has been managing fixed income portfolios for over 50 years. The LSBRX portfolio consists of a wide range of maturities and credit quality. About two-thirds of the bonds are U.S. and the other one-third is non-U.S. bonds.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities, although he held AGG and VBTLX in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.
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The post The 7 Best Bond Funds to Buy for a Shift in Interest Rates appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Are Your Bonds Doing Their Job for Your Nest Egg?
Now that the dust has settled on the fourth-quarter 2018 market mayhem, it's time for fixed-income investors to review the instant replay. Did your core bond funds hold their ground, or even advance a little, as stocks stumbled? Or did they retreat, leaving you with red ink in every part of your portfolio?
SEE ALSO: 5 Tips to Deal With Market Volatility
If your answer is the former, you're likely on the right track with your bond holdings. If it's the latter, it's time to rethink your selection of core bond funds and the role that bonds play in your portfolio.
For retirees, bond funds should generally act as ballast, helping you withstand market volatility and giving you stable assets to tap when your stock holdings are down. But all too often, investors accept a lot of extra risk in exchange for slightly higher-yielding bond holdings, choosing funds that dabble in lower-quality debt and behave too much like stocks, says Allan Roth, a financial planner at Wealth Logic , in Colorado Springs, Colo. "Take your risks with equities," he says. "Have your bonds be the most boring part of your portfolio."
The reasons become all too clear when markets go into a tailspin. In 2008, the average intermediate-term bond fund lost about 5%. That doesn't sound bad compared with stocks' 37% decline, but it was painful for retirees who didn't have any solid ground in their portfolios and were forced to sell holdings at a loss to cover living expenses. Some high-quality, plain-vanilla bond funds, however, were standouts in an otherwise abysmal year. The iShares Core U.S. Aggregate Bond exchange-traded fund (symbol AGG ), for example, which tracks the Bloomberg Barclays U.S. Aggregate Bond Index, gained nearly 6%.
Fast-forward to the fourth quarter of 2018, when Standard & Poor's 500-stock index fell 13.5%. The average intermediate-term bond fund gained about 0.9%, and straightforward index-trackers again stood out: The iShares ETF gained 1.6%. But not all intermediate-term bond funds avoided losses. Invesco Core Plus Bond Fund, which has a significant stake in lower-quality "junk" bonds, lost nearly 1% in the fourth quarter and finished the year down nearly 3%. Loomis Sayles Investment Grade Bond, which can invest up to 15% of assets in below-investment-grade bonds, lost 0.7% in the fourth quarter and 0.6% for the year.
Those aren't massive losses, but investors should take note when their bond funds are "moving in the same direction as what you're seeing in the equity and risk markets, and not providing a lot of ballast," says Sarah Bush, director of the manager research team for fixed-income strategies at Morningstar .
Look at Bond Funds' Credit Quality
Investors looking for core bond funds that will help them stay afloat when stocks sink should pay attention to the credit quality of fund holdings. A junk-bond stake above the low single digits could be a red flag, Bush says. And steer clear of the highest-yielding funds, which are venturing into riskier territory to boost their income.
Solid options include Vanguard Total Bond Market Index ( VBTLX ). This fund tracks a version of the Bloomberg Barclays Aggregate Index, which excludes junk bonds, and charges fees of just 0.05%. American Funds Bond Fund of America ( BFAFX ) has a minimal junk bond stake and gained 1.5% during the fourth-quarter market slide. Buy the fund's commission-free F-1 share class through online broker ages such as Fidelity and Schwab.
While such higher-quality funds should hold up well during times of stock-market stress, they won't necessarily protect you from rising interest rates. (When rates rise, bond prices fall.) One option: Consider high-quality bond funds that keep interest-rate risk well below the category norm, such as Fidelity Intermediate Bond ( FTHRX ). Its duration is 3.8 years, versus 5.5 for the average intermediate-term bond fund, according to Morningstar. Funds with longer duration will fluctuate more when rates change.
SEE ALSO: The 7 Best Bond Funds for Retirement Savers in 2019
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:The Best Bond Funds for 2019 and Beyond
Most investors give the bulk of their attention to the stock market, because that's where the big growth is. However, stocks can be extremely volatile, and most investors need other types of investment assets in their portfolios to balance their exposure to the financial markets and to meet shorter-term needs. For those investors, adding bonds to their holdings can act as a counterbalance to their stock exposure.
Individual bonds are available to buy and sell through most brokers, but most investors choose to invest in bond funds, rather than picking individual bonds. With hundreds of different bond funds to choose from, it can be challenging to decide which one is best for you. Below, we'll give you all the information you need to understand what a bond fund is and how you can identify the funds that will best serve your financial goals.
What is a bond?
A bond is an investment that's tied to a loan between the bond's issuer and the purchaser. Under the terms of the bond, the initial bond purchaser pays a set amount of money -- usually $1,000 or $5,000 per bond -- to the issuing entity. The issuer gets to keep that money for its own use. In exchange, the issuer agrees to pay interest to the bondholder at set intervals, commonly every six months, until the bond "matures." Once the bond reaches maturity, the issuer pays the bondholder the principal amount back. A bond's maturity date is set before the bond is issued, so investors know up front when they can expect to get their principal back.
There are many different types of bonds, and they are generally sorted into a few different categories. These categories include:
Treasury, municipal, and corporate bonds, depending on whether the issuer is the federal government, a state or local government entity, or a private business.
Short-, intermediate-, and long-term bonds, depending on the length of time between when the bond is issued and when it matures.
Investment-grade and high-yield bonds, depending on whether the issuer's financial condition makes it more likely or less likely to repay the bond at maturity. Generally, the greater the risk that an issuer will fail to repay its bondholders, the higher the yield on its bonds, so most investment-grade bonds have lower yields than most high-yield bonds.
Inflation-adjusted bonds, whose issuers pay an amount at maturity that accounts for changes in the purchasing power of money since the bond was issued, rather than a fixed amount.
Bonds typically fall into more than one of these categories. For instance, Treasuries, municipal bonds, and corporate bonds can all be short-, intermediate-, or long-term. Some Treasury bonds are inflation-adjusted, and you can find municipal and corporate bonds that are either investment-grade or high-yield.
The most important feature of a bond is that the stream of payments investors receive when they own the bond is scheduled in advance. For instance, with a 10-year Treasury bond worth $1,000 paying 3%, you know that you'll receive $15 every six months for the next 10 years, and then get your $1,000 back. So long as you hold on to the bond until it matures, there's no possibility of getting more than that, but unless something goes dramatically wrong with the issuer, there's little risk of getting less than that, either.
What's a bond fund?
Bond funds are pools of investments in which large numbers of investors can contribute money toward a commonly held portfolio of bonds. Typically, the bond funds that are available to most investors are either mutual funds or exchange-traded funds .
The way bond funds operate depends on what type of fund is involved. With a bond mutual fund, the fund company accepts orders to buy or sell shares on a daily basis, with all transactions occurring after the end of the trading day. The mutual fund can issue new shares or redeem existing shares at will, and you're always guaranteed to get the net asset value of all of the investments held by the fund when you buy or sell shares.
With bond exchange-traded funds , the mechanisms for trading are a bit different. You can buy or sell bond ETFs at any point when stock exchanges are open for trading, and the price at any given point is determined not by the value of the underlying assets in the ETF, but rather by the market price determined by how much buyers are willing to pay and how much sellers are willing to accept for shares.
Regardless of the type, though, bond funds allow you to invest in a diversified portfolio of hundreds or even thousands of different bonds, even if you have only a modest amount of money to invest. By grouping together a vast array of investors, bond funds are able to invest in a wide swath of bonds efficiently and economically.
Why would I want to invest in bonds?
Investing at least some of your savings in bonds makes sense for most investors. Even for those with long time horizons, the risks of an all-stock portfolio can make some investors uncomfortable. It's true that with stocks, there's theoretically no limit to how much money you can make from a successful investment. If you're one of the first to identify a small upstart that turns out to be the leader of a fast-growing industry, for example, you can earn life-changing wealth. Pick wrong, though, and you can lose everything.
Bonds don't typically have that all-or-nothing nature. Most of the time, the bond will work out exactly the way you expect, with the bondholder receiving interest payments as scheduled and then receiving the agreed-upon payoff at maturity. Although the interest rates that most bonds pay don't match up to the long-term historical returns of the stock market, the relative stability that they offer provides a solid foundation for an investment portfolio.
What are the pros and cons of bond funds?
Bond funds are useful for investors because the minimum investments required to invest directly in individual bonds are usually sizable. For instance, putting together a relatively diversified portfolio of 20 different municipal bonds would likely cost you $100,000 or more. Bond funds, by contrast, often let their shareholders start investing with as little as $100, and you can still get the same diversification.
In addition, the bond market is a lot different from the stock market when it comes to individual investor participation. With stocks, all you have to do is get an online broker age account, and you can typically buy or sell shares at extremely low commissions. With direct access to exchanges, your stock trade executes in a fraction of a second, and beforehand, you can easily tell what the prevailing market price is and predict quite well what your final trade price will end up being.
However, the bond market is geared much more toward professional traders, with financial institutions maintaining tight control over the market. It's hard for ordinary investors even to get up-to-date bond prices, let alone find resources and tools similar to the ones that so many brokers provide to their stock-trading clients to help them with their investing. By investing through a bond fund, you turn over the responsibility for finding and buying actual bonds to the manager of the fund, and the trading and pricing of the fund shares is much simpler and more transparent.
However, bond funds do have some downsides. The most important is that bond funds charge fees for their management and investment services. All bond funds pass through their expenses to fund shareholders through what's known as the expense ratio , taking a small percentage of shareholders' assets to cover costs. Expense ratios can run from 0.05% to 1% or more on an annualized basis. The greater the ratio, the more money you'll lose to fees. However, because the expense ratio is typically taken from the income produced by the bonds in the fund's portfolio, you won't actually see the amount you're paying on your financial statement; you'll just get a slightly smaller income distribution from the fund, because the fees have been deducted from the payout. Some bond mutual funds also charge up-front sales fees that can amount to several percent of your initial investment. These sales loads aren't worth paying, as the money goes straight to the investment professional selling you the mutual fund shares, and none of it goes to the fund itself.
Another risk to be aware of is that bond fund prices can fluctuate dramatically over time, and unlike individual bonds, bond funds offer no guarantee that you'll eventually be able to cash out at a fixed price. Remember that new bonds are continuously coming to market, and the prices of existing individual bonds tend to move when prevailing interest rates in the market change. When rates on new bonds go up, the value of previously issued individual bonds falls, because the older bonds' lower rates mean they pay investors less interest than newer bonds. When prevailing interest rates fall, conversely, an individual bond's price typically rises, because the interest rate on the existing bond now looks more attractive than what newer bonds are offering. However, none of those rate changes affect the bond's terms, and no matter what happens to the market price of a bond, you can always hold on until maturity and receive the predefined payout.
Bond funds generally don't have a maturity date. Instead, they continually buy and sell bonds to serve their investment objective. For example, a long-term bond fund usually concentrates on bonds that mature in 10 years or more. When the maturity date of a given bond hits the eight- or nine-year mark, the bond fund will usually sell it, taking the proceeds and purchasing a new long-term bond to replace it. As a result, if rising rates cause the total value of a bond fund's portfolio to drop, the fact that the fund won't hold its bonds to maturity means that investors might never see the bond fund's price recover. Of course, that can work the other way as well: Rate decreases offer permanent benefits to bond fund shareholders that individual bondholders won't get.
How can I tell which bond funds are the best?
In a universe of hundreds of bond funds, it's important to separate the best from the rest. The top bond funds have the following characteristics:
Low expense ratios that minimize the amount of bond income lost to pay for fund management.
Large amounts of assets under management. This will spread the fund's costs across a broader set of investors and give the fund more clout within the bond market to purchase attractive bonds at the best possible price.
For ETFs, high levels of daily trading volume, which makes it easier for investors to buy or sell shares at any time the market is open.
Higher income yields than other bond funds in the same category . That last distinction is crucial, because yields tend to be higher in some bond fund categories than in others, therefore it's important to look at funds with similar investment objectives and portfolios when comparing yields.
An investment objective that matches up with your needs. For instance, some investors choose only investment-grade bonds, because they want to minimize the risk that the issuer won't be able to pay them back. However, others like high-yield bonds, because the greater amount of income they generate can more than compensate for the potential losses -- if you're willing to take on the risk of the issuer's default.
Special features that appeal to you. For example, income from all municipal bonds is exempt from federal taxes, and if you purchase a municipal bond issued in your state of residence, then your interest payments will be exempt from both federal and state taxes. Meanwhile, inflation-adjusted bonds offer protection against the loss of purchasing power involved with traditional bonds. However, both of these benefits usually come at a cost -- namely, a lower yield -- so the trade-off may or may not be worth it to you depending on your goals.
The top bond funds for 2019 and beyond
Data source: Fund providers. *Inflation-adjusted yield.
Why these bond funds are the best
With so many different types of bond funds available, it would be impractical to assemble a list that covered every possible combination of characteristics a bond investor might want. However, these five bond funds give investors broad-based exposure to popular types of bonds, and that's a big reason why they have attracted such huge sums of investor money.
The first two funds on the list, iShares Core U.S. Aggregate Bond and Vanguard Total Bond Market, have very similar investment objectives: to provide exposure to the entire universe of U.S. investment-grade bonds. As you can see in the table above, both have low expense ratios of just 0.05%, and both have attractive yields. Their average bond maturities are around 8 years. Both have roughly 40% to 45% of their assets invested in Treasury bonds and securities issued by federal government agencies. Mortgage-backed securities make up another 20% to 30% of their holdings, while about 25% is invested in corporate bonds, and about 5% goes toward specialized types of bonds from foreign issuers.
However, the funds aren't identical. The iShares fund has a bias toward mortgage-backed securities that the Vanguard fund lacks, especially on the government-issued side of the market. Vanguard has a slight preference for Treasury and federal government agency debt, making up for the smaller allocation to mortgage-backed securities. In addition, the Vanguard fund has a slightly smaller percentage of its assets invested in top-rated bonds, which explains its slightly higher current yield. Regardless, for those seeking broad-based exposure to the bond market, either of these funds is a good start.
More specialized exposure
The other three bond funds on the list have features that distinguish them from the most broad-based bond funds. As its name suggests, the iShares iBoxx Investment Grade Corporate Bond ETF invests exclusively in bonds issued by corporate issuers . There's plenty of diversification within the fund, though, as issuers in the banking sector make up just over a quarter of fund holdings, while consumer companies make up another 25%, and communications, energy, and technology companies each account for roughly 10%. That results in average credit quality that's considerably lower than any other fund on this list: 90% of the fund's holdings are in the two weakest categories of investment-grade bonds. Nevertheless, that greater risk comes with a yield that's more than a percentage point higher than its broader-based peers, appealing to those seeking maximum income.
Vanguard Short-Term Bond is a more conservative choice that's geared toward those with a shorter time horizon for their bond investing. The average maturity is less than three years, and the credit quality is comparable to the broader-based bond funds on this list, with roughly two-thirds of the portfolio invested in Treasury and agency securities and the remainder in corporates. The bond fund's price isn't as sensitive to interest rate changes as that of the other funds on the list, but investors must accept a slightly lower yield as a result. Currently, that difference in yield is relatively small, but there have been times when the disparity has been wider due to conditions in the bond market.
Finally, iShares TIPS Bond invests entirely in Treasury Inflation-Protected Securities , known as TIPS for short. The value of TIPS is adjusted for inflation over time. Because TIPS provide protection against the erosion of purchasing power that inflation causes, investors are willing to accept a lower interest rate on them. Yet from a total return standpoint, you have to add the inflation rate back in to get a true sense of how they compare with other bond funds. For instance, with consumer prices rising roughly 2% per year, adding that inflation rate to the 1.3% yield on iShares TIPS Bond gives a total of 3.3% -- very close to what you see from the broader-based funds above.
Be smart about your bond funds
Bond funds can play an extremely useful role in helping you put together an investment portfolio that balances the growth potential of stocks with the lower volatility and clearer risk-reward balance of bonds. If you think bonds deserve a place in your portfolio, then the five bond ETFs above will do a good job of giving you broad exposure to the bond market and the many advantages of investing in bonds.
10 stocks we like better than iShares Barclays Aggregate Bond Fund
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*Stock Advisor returns as of November 14, 2018
Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:How to Pick the Best ETFs and Mutual Funds
(1: 10 ) - What Factors Are Important When Picking An ETF or Mutual Fund?
(6: 45 ) - How To Choose Between An ETF and Mutual Fund?
(11: 10 ) - Do Actively Managed ETFs or Mutual Funds Perform More Consistently?
(14: 30 ) - How Can Smart Beta ETFs Benefit Your Portfolio?
(17: 00 ) - Top Picks When Building Your Core Portfolio
On this episode of ETF Spotlight, I talk with Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. CFRA had acquired S&P Global's equity and fund research business in 2016.
First off, we discuss fund fee wars that have been heating up of late. Fidelity recently launched four zero fee index funds. As investors become more cost-conscious, major providers have been slashing their fees.
How important are expense ratios in evaluating ETFs and mutual funds? How should investors choose the right fund for their portfolio? Which other factors should they consider?
Todd pointed out what's inside the portfolio is also very important. For example, the Vanguard FTSE Emerging Markets ETF ( VWO ) and the iShares Core MSCI Emerging Markets ETF ( IEMG ) have the same expense ratio but their exposure is different, resulting in difference in performance, as VWO does not include South Korea.
We discuss other factors that investors should consider when evaluating funds. Further, in case of mutual funds, the track record of the manager is also important.
ETFs have been gaining in popularity against mutual funds over the past few years. While ETFs are not a lot different from passively managed index funds, they do offer better transparency, intra-day tradability and tax efficiency. When should investors pick an ETF over a similar mutual fund? Find out on the podcast.
While most of the new money is flowing into the cheapest funds, we still see a lot of money invested in traditional active funds. Todd explained that many investors are just comfortable with what they own or they are not aware of cheaper or better alternatives available. At times, there are tax implications too.
Actively managed bond ETFs have been punching above their weight this year. We discuss whether active management produces better results in fixed income. Todd pointed out that in recent years, many actively managed bond funds have beaten the Bloomberg Barclays US Aggregate Bond index, in part by taking on more credit risk.
Smart beta ETFs that lie at the intersection of active and passive management, are gaining in popularity. How should these strategies be used in a portfolio?
As ETFs provide access to a diversified basket of hundreds and sometimes thousands of securities in a single trade, they are frequently being used as building blocks of a low-cost portfolio. ETFs like the iShares Core S&P Total U.S. Stock Market ETF ( ITOT ), the Vanguard Total Stock Market ETF ( VTI ), the SPDR Portfolio Total Stock Market ETF ( SPTM ) and the Schwab U.S. Broad Market ETF ( SCHB ) provide comprehensive exposure to the US stock market and have expense ratios of just 3-4 basis points.
The IShares Core U.S. Aggregate Bond ETF ( AGG ), the Vanguard Total Bond Market ETF ( BND ), the SPDR Portfolio Aggregate Bond ETF ( SPAB ) and the Schwab U.S. Aggregate Bond ETF ( SCHZ ) are among the cheapest ETFs that provide exposure to the entire US investment-grade bond market.
Todd recommends that for broad asset allocation, investors should try to stay within the same fund family as firms usually follow different approaches in defining asset classes.
You can follow Todd on Twitter @ToddCFRA and also visit CFRA website to learn more about their research.
Make sure to be on the lookout for the next edition of the ETF Spotlight and remember to subscribe! If you have any comments or questions, please email podcast@zacks.com .
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SCHWAB-US BR MK (SCHB): ETF Research Reports
VANGD-FTSE EM (VWO): ETF Research Reports
ISHARS-CR US AG (AGG): ETF Research Reports
VIPERS-TOT STK (VTI): ETF Research Reports
ISHARS-1500 IDX (ITOT): ETF Research Reports
SCHWAB-US AG BD (SCHZ): ETF Research Reports
VANGD-TOT BOND (BND): ETF Research Reports
SPDR-PRT AGG (SPAB): ETF Research Reports
ISHARS-CR MS EM (IEMG): ETF Research Reports
SPDR-PRT TSM (SPTM): ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Sizing Up Demand For ETFs From Assets To Launches
Cinthia Murphy, Managing Editor, ETF.com
The latest tally of investor demand for ETFs show that so far in 2018 investors have poured almost $150 billion of fresh net money into various pockets of the ETF market.
Even though market pundits are now busy pointing out that the U.S. stock market is about to break a record for longest running bull market, investors continue to buy into U.S. equity ETFs—the segment is the year’s most popular, raking in about $52.8 billion in net assets.
In July alone, U.S. equity ETFs led the month’s asset flows to total $27 billion. Funds like the Vanguard Value ETF (VTV), the SPDR S&P Dividend ETF (SDY) and the Health Care Select Sector SPDR Fund (XLV) were among the month’s most in-demand strategies.
Not far behind is the appetite for U.S. fixed income, which, as a segment, has now seen net creations near $50 billion year-to-date. Funds like iShares Short Treasury Bond ETF (SHV) and the massive $55 billion iShares Core U.S. Aggregate Bond ETF (AGG) are among the year’s most popular, with net inflows totaling $7 billion and $4.5 billion, respectively.
In all, the U.S. ETF market now has $3.628 trillion in total assets.
Top Gainers (Year-to-Date)
Asset Classes (Year-to-Date)
Another interesting tally of U.S.-listed ETFs shows that the market could be about to set new records this year for both new ETF launches as well as ETF closures.
Through the end of July, 2018 ETF closures and launches are outpacing levels seen in 2017 levels, which was an impressive year to begin with.
We’ve already seen 97 exchange-traded products close so far in 2018, a number that includes the unusual closure of 50 Barclays iPath ETNs in April.
On the flip side, issuers have brought to market 143 new ETFs this year—up from 127 year-earlier figures. A new record is in sight for 2018 launches if this pace continues. The most successful ETF launch of the year has been the JPMorgan BetaBuilders Japan ETF (BBJP), which is nearing $1.8 billion in total assets in just over a month.
More on ETF.com
Wall St. Whale Makes ETF Splash
Facebook & The Perils Of Market Cap ETFs
Fixed Income ETFs Lead Weekly Inflows
ETF Week: FANG, Income Products Debut
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Buffett Backs Great Rotation: 4 Value Stocks & ETFs to Buy
The Oracle of Omaha recently reaffirmed his liking for the concept of great rotation - a shift to equities from bonds. Warren Buffett believes long-term investors should go for stocks over bonds as in most cases the former is likely to outperform the latter.
The arguments hold good in today's environment. Treasury yields have been on an uptrend since the start of the year, thanks to inflationary pressures and prospects of rising bond supply to fund Donald Trump's tax overhaul plan. This has pushed the benchmark bond yields to a four-year high (read: Short These Sector ETFs on Rising Rate Concerns ).
Buffett Said "as an investor's investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds , assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates."
Buffett believes that investing in stable companies whose products are strong sales-generating are better long-term bets than a " get-rich-quick approach." Buffett is known to follow the Benjamin Graham school of value investing . Buffett doesn't seek capital gains but ownership in quality companies that are able to generate earnings.
This leads us to believe that choosing a value investment is a great idea over the long term. Below we highlight three value ETFs and stocks that produced at least 50% returns in the last five years (as of Feb 26, 2018).
This is in stark contrast to iShares 20+ Year Treasury Bond ETFTLT that yields around 2.61% and generated about 3% in the last five years (as of Feb 26, 2018). Total bond market iShares Core US Aggregate Bond ETFAGG , which yields about 2.40% annually, lost about 2.8% in the last five years (as of Feb 26, 2018).
ETF Picks
Below we highlight three value ETFs that generated more than 60% returns in the last five years.
Guggenheim S&P 500 Pure ValueRPV - Up 69.9%
The fund holds about 114 stocks and charges 35 bps in fees. No stock accounts for more than 2.58% of the fund (read: Value ETFs & Stocks to Enrich Your Portfolio Amid Volatility ).
First Trust Large Cap Value AlphaDEX FundFTA - Up 64.3%
The 188-stock fund has double-digit weights in Financials, Consumer Discretionary and Utilities. The fund charges 62 bps in fees.
PowerShares Russell Top 200 Pure Value Portfolio ETFPXLV - Up 61%
The 69-stock fund is heavy on Financials, followed by Utilities and Energy.
Stock Picks
Below we highlight three stocks that have a Zacks Rank #1 (Strong Buy) and a Value Score of A. These stocks generated solid returns over the last five-year frame (as of Feb 26, 2018).
HCA Holdings, Inc. HCA - Up 172.9%
This non-governmental hospital in the U.S. providing health care and related services belongs to a top-ranked industry (top 12%). It has a VGM Score of A.
United States Steel Corporation X - Up 123.8%
This integrated steel producer too comes from a top-ranked Zacks industry (top 29%) and has a VGM Score of A.
Super Micro Computer Inc. SMCI - Up 63.1%
It manufactures and sells energy-efficient, application optimized server solutions based on the x86 architecture. It belongs to a top-ranked industry (top 34%) and has a VGM Score of A.
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Zacks' free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>
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Super Micro Computer, Inc. (SMCI): Free Stock Analysis Report
ISHARS-20+YTB (TLT): ETF Research Reports
PWRSH-FP LG VL (PXLV): ETF Research Reports
ISHARS-CR US AG (AGG): ETF Research Reports
GUGG-SP 500 PV (RPV): ETF Research Reports
FT-LRG CAP VAL (FTA): ETF Research Reports
HCA Holdings, Inc. (HCA): Free Stock Analysis Report
United States Steel Corporation (X): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:After Monday’s Bloodbath, It’s Time to Think About Risk
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
I've been writing for months to be careful about this market and to carefully consider your risk profile, as sooner or later we would have a stock market correction. The past few days have probably felt more like a market crash, especially if you listen to the financial media.
Hopefully, you also have learned something about risk, because risk is everything . Most investors take far too much risk, and on days like Monday, they suddenly realized it and made rash emotional decisions.
So if this was your first real mini market crash, I hope you understand a bit more about why I preach about having a long-term diversified portfolio with a sizable position in non-correlated investments. The Liberty Portfolio , my stock advisory newsletter, which takes this exact approach was down only 2% on Monday versus the market's 4.1%.
10 High-Risk, High-Reward Stocks to Buy as the Market Shudders
So how did you feel on Monday during this quasi crash? Did you just go about your day and shrug at the stock market correction? Chances are your risk profile is about right, and you understand the importance of investing for the long term.
Were you panicked? Concerned? Glued to CNBC? Did you fear a true market crash was about to happen? Then chances are you do not have the risk profile you thought you did and are probably overinvested in short-term stocks.
So here's what you need to do, and it's what The Liberty Portfolio is built to do.
First, you must have at least a ten-year time horizon if you are investing money in the markets. There is only one ten-year-rolling period where the Dow Jones Industrial Average lost ground, and that was during The Great Depression. If you look at rolling 20- and 30-year periods, the Dow has always delivered positive returns.
If your horizon isn't that long, the markets are not for you.
If you do have that time horizon, the next move is to realize that everything you've been told about the rate of inflation is wrong. It is not 3%. It is closer to 10%. That means, in order to maintain your standard of living, your portfolio must return 10% annually. But that means nothing in a vacuum, if there is no factoring in risk.
The next move is to realize that everything you've been told about market risk is wrong. Investing in the market with some arbitrary allocation of X% stocks and Y% bonds means nothing. For starters, it's arbitrary. Investing isn't one-size-fits-all. Most of all, it tells you nothing specific about risk.
Risk is evaluated by determining the standard deviation of an investment. That data is available for some securities, like ETFs, but not all. I won't bore you with details, but your portfolio should aim to have an average annual return of 10%, and standard deviation of no more than 8. That's what The Liberty Portfolio aims for, and I accomplish it using non-correlated investments - investments that do not move in lock-step with the overall market.
Here's how a portfolio of 50% stocks invested in the S&P 500 via the SPDR S&P 500 ETF (NYESARCA: SPY ) and 50% invested in the iShares Core US Aggregate Bond ETF (NYSEARCA: AGG ) has performed over the past ten years. The SPY has had an average annual return of 9.7% … but a standard deviation of 15. The AGG has an average annual return of 3.6% with a standard deviation of 3.3.
What this means is that, in any given year, that "model portfolio" has a 95% certainty of returning between -18% and 25%-plus.
Do you consider that portfolio to be "safe"? Look at the huge range it could have? And this is just the probability. What if your portfolio lost 18% two years in a row? You'd be down 36% and very unhappy.
However, a portfolio like what The Liberty Portfolio aims for has a 95% certainty of returning between -6% and 26%-plus. Which portfolio would you prefer?
Let's parse it out further. Let's suppose you have a million dollars, and each portfolio falls by the maximum amount two years in a row. The "model portfolio" would be down to $672,000 after two years. How would you feel about that?
The other portfolio would be down to $884,000. How would you feel about that?
Then we get two years of maximum upside for each. The "model" portfolio ends at $1.24 million. The other portfolio ends at $1.4 million. Now how do you feel?
3 Stocks to Watch on Tuesday: Cirrus Logic, Inc. (CRUS), Lululemon Athletica inc. (LULU) and Skyworks Solutions Inc (SWKS)
Hopefully, this gives you food for thought as we ride a suddenly volatile market that may or may not end with a true market crash.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years' experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
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The post After Monday's Bloodbath, It's Time to Think About Risk appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:3 BDCs Yielding 6%-12%: 1 Buy, 1 Wait, 1 RUN!
By Brett Owens
Business development companies (BDCs) are one of the market's top sources of yield. Unfortunately for income hunters, in 2017, this industry also was one of Wall Street's greatest sources of disappointment.
I don't say that to condemn the BDC space. I say that as a warning: While these financiers of small and midsize businesses can occasionally be excellent long-term holdings, there are plenty of landmines to avoid. That's why today, I want to highlight three such funds that have mouthwatering yields of up to 12% - each of which might look attractive at first glance, but only one of which looks like a safe buy right now.
So, how bad was 2017 for BDCs?
2017: You Were Better Off in Bonds Than BDCs
The main exchange-traded fund in the space, the VanEck Vectors BDC Income ETF ( BIZD ) , barely broke even last year, and that's after factoring in more than 8 percentage points' worth of returns from dividends! Forget the broader stock market, which crushed the industry - even investors who ducked for cover in a boring, blended basket of bonds like the iShares Core U.S. Aggregate Bond ETF ( AGG ) came out smelling better than those holding BDC funds.
Some of the problems have been industry-wide, such as an increasingly competitive market more making loans. Some have been more on a case-by-case basis, such as BDCs stretching to provide financing to lower-quality companies than normal.
Whatever the case may be, BDCs aren't a set-it-and-forget-it industry. Investors that want to lasso the magnificent fields in this space have to be discerning, as even some 8%-10% yields haven't been enough to cover losses. So, let's take a look at three BDCs doling out up to 12% in dividends, and separate the traps from the treasures.
BlackRock Capital Investment Corporation ( BKCC )
Dividend Yield: 11.8%
I visited BlackRock Capital Investment Corporation ( BKCC ) just a couple of months ago, but it's worth highlighting once again just because of how alluring this dividend trap looks right now.
BlackRock Capital Investment Corporation is the old BlackRock Kelso Capital Corporation (hence the BKCC ticker), which was founded in 2005 to provide financing to middle-market companies. It typically makes investments of between $10 million and $50 million, primarily via senior secured debt (~60% of portfolio), though it also offers solutions via subordinated/unsecured debt, preferred equity, common equity and "other."
And while BKCC is a diversified operator unafraid of any sector, it does lean heaviest toward financial companies, which comprise 26% of the portfolio. Still, the rest of its holdings run the gamut, from chemicals to defense to healthcare.
It sounds good from 10,000 feet, but BlackRock Capital has been an operational mess that's been in decline for the past four years. In fact, since we panned it in November , it has lost another 10% compared to (and contributing to) a 5% drop for the BIZD.
This isn't a change in sentiment or the market just not realizing BKCC's potential. The company's top line has declined by 21% since 2012, and net investment income has fared even worse, off 27%. That has forced BKCC into a pair of dividend cuts over the past half-decade, including one announced early in 2017.
Yes, the nearly 12% yield is simply mouth-watering, but it's only a byproduct of perpetual decline.
BlackRock Capital Investment Corporation ( BKCC ) Isn't Living Up to the Family Name
TPG Specialty Lending ( TSLX )
Dividend Yield:
TPG Specialty Lending ( TSLX ) is a relatively new BDC that got its start in July 2011 and hit the markets with an initial public offering in 2014, and has been a pleasant surprise ever since.
Like many other BDCs, TPG provides financing to middle-market companies. TPG has a fairly wide target range of $50 million to $1 billion-plus in enterprise value for its portfolio companies, with EBTDA ranging from $10 million to $250 million, in transactions ranging from $15 million to $350 million.
Meanwhile, it operates in a number of industries, from manufacturing to healthcare to business services, with a couple smaller specialties including education and royalty-related businesses. And while TPG has a number of up-and-coming smaller companies in its investment portfolio, it also has provided financing to some well-known companies, such as Eddie Bauer, Sears ( SHLD ), 99 Cent Only Stores and Tangoe.
Net investment income has exploded since 2012, with just a brief hiccup in 2015. Still, NII of $107.3 million last year was several times better than 2012's $28 million, and the company was on pace to crack that ceiling yet again in 2017. Moreover, TPG's nearly 8% yield is fairly safe, with its 39-cent payout representing 82% of NII.
The icing on the cake of this BDC? It introduced a formulaic variable supplemental dividend in 2017, and through three quarters, it had doled out 19 cents per share in these additional payouts. That translates into an additional percentage point of yield, meaning that if the company acts similarly in the future, investors should enjoy a total yield of north of 9%!
Main Street Capital (MAIN)
Dividend Yield: 5.8%
Main Street Capital (MAIN) is a Houston-based operator that provides capital solutions to lower middle market companies, as well as debt financing to middle market companies. And it has, simply put, been one of the best BDCs on the market for some time. Over the past five years, MAIN shares have delivered an 82% total return - roughly four times better than the BIZD.
Main Street Capital (MAIN) Is a Wall Street Darling
Credit an outstanding growth ramp that has seen net investment income just explode in the past half-decade, from $59 million in 2012 to nearly $116 million last year. That has come from a keen eye for success stories throughout MAIN's history, including investments in Quanta Services (PWR) and US Concrete (USCR) during the BDC's nascent years.
However, if there were ever a time to hit the pause button on Main Street Capital, it might be now.
The company announced Jan. 3 that Vince Foster will be stepping down as CEO to executive chairman while COO and President Dwayne L. Hyzak takes over the chief's role - a transition that's expected to take place in Q4 2018. The news sent the stock down by more than 4% in a week, which doesn't sound drastic, but is one of the company's worst such quick moves in the past couple years.
While Hyzak clearly knows Main Street through and through, and Foster still will be providing some input from his executive chairman position, the BDC very well could end up missing Foster in the daily operation of the company.
Caution should be exercised amid any such switch involving such a long-tenured executive, but that goes doubly for Main Street, which has built exceedingly high expectations ... and a gaudy valuation as a result. At 166% of NAV, MAIN's price is the steepest in the BDC space.
The call on MAIN right now is "hold." Main Street itself hasn't shown any signs of slipping, and Foster will be on for a few more quarters. But new money has no business paying a sky-high premium for an executive transition.
Safer 8% Yields Than BDCs: How to Retire on Dividends Alone
Big, fat dividends certainly are part of the formula for a winning retirement portfolio, but if you invest looking at nothing but headline yield, you could end up watching your holdings crumple under the weight of unsustainable payouts and massive capital losses.
That's what happens when you go for broke blindly chasing yield. You go broke.
However, with the right set of holdings, you can build yourself an elite portfolio that will allow you to live comfortably throughout your retirement - and without ever cracking your nest egg. But it takes more than dividend traps like BKCC. It takes the "triple threat" stocks in my 8%-yielding "No Withdrawal" retirement portfolio sure can!
The problem with a 12% yield like BKCC's is that it's not the only number in the equation. You also have to consider the capital losses it keeps suffering because it can't keep its act together. But say you're still netting out 4% gains each year - that sounds nice, but 4% returns on a nest egg of a half a million dollars will only generate $20,000 in annual income.
Do you really think you'll be kicking back and enjoying retirement on $20,00 a year?
My "No Withdrawal" portfolio ensures that you won't have to settle during the most important years of your life. I've put together an all-star portfolio that allows you to collect an 8% yield, whilegrowing your nest egg - an important aspect of retirement investing that most other strategies leave out.
This "ultimate" dividend portfolio provides the three things you need most as you plan out life after work:
No-doubt 6%, 7% even 8% yields - and in a couple of cases, double-digit dividends!
The potential for 7% to 15% in annual capital gains
Robust dividend growth that will keep up with (and beat) inflation
This all-star cluster of stocks features the very best of several high-income assets, from preferred stocks to REITs to closed-end funds and more, that combine for a yield of more than 8%. That means you won't have to scrape by on meager blue-chip returns and Social Security checks.
Live off dividend alone without ever touching your nest egg. I can show you how. Click here and I'll provide you with THREE special reports that show you how to build this "No Withdrawal" portfolio. You'll get the names, tickers, buy prices and full analysis of their wealth-building potential - and it's absolutely FREE!
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Best ETFs for 2018: The Energy Select Sector SPDR (ETF) Will Power Ahead
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
This article is a part of InvestorPlace's Best ETFs for 2018 contest. Kent Thune's pick for the contest is the Energy Select Sector SPDR (NYSEARCA: XLE ).
The process of narrowing down the best exchange-traded funds for 2018 to just a few picks can be challenging, to say the least, but picking just one ETF to dominate the year is much more difficult (and potentially dangerous).
Source: Shutterstock
Smart investors will have a diversified portfolio of funds that will consist of what some investment advisers label as a core and satellite structure, which is just as it sounds - one or two core holdings that will receive the highest allocation in the portfolio and a handful of satellite holdings to complete a diverse mix.
So, a solid portfolio of ETFs would likely include a broad market S&P 500 index fund, such as iShares Core S&P 500 ETF (NYSEARCA: IVV ) and iShares Core U.S. Aggregate Bond ETF (NYSEARCA: AGG ), along with funds from other diverse categories, such as small-cap stock, international stock and a few choice sector funds.
In this core and satellite structure, the core holdings are solid long-term holdings, whereas the satellites are higher in relative market risk, which will make them either the best or worst performers in your portfolio during any given year.
For this reason, the best ETFs in 2018 will likely be sector bets that concentrate holdings on one market segment.
The energy sector was a big laggard in 2017 but it stands a good shot at being a leader in 2018, which makes the Energy Select Sector SPDR (NYSEARCA: XLE ) one of the best ETFs to hold during the year. Its expense ratio is a low 0.14%, or $14 for every $10,000 invested.
XLE tracks the Energy Select Sector Index, which consists of 25 stocks of companies in the oil and gas industries, as well as energy equipment and services.
This means shareholders of XLE get a healthy dose of high-quality energy sector stocks like Exxon Mobil Corporation (NYSE: XOM ), Chevron Corporation (NYSE: CVX ) and Schlumberger Limited. (NYSE: SLB ).
Here's how XLE can be the best ETF for 2018:
Prices for energy stocks hit two-year lows in 2017 but now appear to be in full recovery mode.
OPEC's recent decision to maintain production cuts means oil supplies will remain on the low side, while demand looks positive for 2018.
Should unforeseen circumstances bring downward pressure on energy stocks, XLE is full of large-cap names that can maintain better price stability than the riskier small- and mid-cap energy stocks.
In summary, XLE has a strong combination of contrarian bet and momentum play that often makes for the best ETFs during a calendar year.
New Vanguard ETFs Could Mark Paradigm Shift for Indexing Strategy
Just remember that sector funds like XLE can be wisely used as satellite holdings in a diversified portfolio of funds.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However, he holds XLE, IVV, and AGG in some client accounts. Under no circumstances does this information represent a recommendation to buy or sell securities.
More From InvestorPlace
5 ETFs to Buy for the Future of Retail
7 Best Healthcare ETFs for 2018
Vanguard's New CEO Wants Investors to Keep More of Their Own Money
Compare Brokers
The post Best ETFs for 2018: The Energy Select Sector SPDR (ETF) Will Power Ahead appeared first on InvestorPlace .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:ETF Investors Seem Apprehensive About Stock Market Rally
U.S. equities have pushed to new heights in the New Year, with the Dow Jones Industrial Average now trading above 25,000 for the first time. However, despite the record-setting rally, investors are pulling money out of stock exchange traded funds.
Over the past week, the SPDR S&P 500 ETF (NYSEArca: SPY) experienced $2.1 billion in net redemptions, PowerShares QQQ (NasdaqGM: QQQ) saw $1.5 billion in outflows and iShares Russell 2000 ETF (NYSEArca: IWM) lost $1.4 billion, according to XTF data.
On the other hand, the most popular ETF play over the past week was a broad fixed-income related option, the iShares Core U.S. Aggregate Bond ETF (NYSEArca: AGG), which saw $862 million in net inflows.
The disconnect between equity market enthusiasm and the ongoing rally is not anything new as many have described the multi-year move as the most unloved stock rally. With the U.S. stock market extending, more investors may be growing antsy over their equity exposure and could be trimming allocations in anticipation of a potential turn.
According to the Wall Street Journal, survey data has indicated that American stock ownership is on the decline. About 54% of investors on average hold stocks for the current bull market from 2009 to 2017. In contrast, 62% of Americans reported equity investments between the dot-com bubble and the prelude to the global financial downturn.
Nevertheless, if investors are concerned about valuations in a extended bull market environment, one can shift their focus away from high-flying, growth-oriented stocks and look to the value style instead.
Value stocks usually trade at lower prices relative to fundamental measures of value, like earnings and the book value of assets. On the other hand, growth-oriented stocks tend to run at higher valuations since investors expect the rapid growth in those company measures, but more are growing wary of high valuations.
For example, the iShares MSCI USA Value Factor ETF (CBOE: VLUE) has recently become a popular avenue for accessing value stocks while the Vanguard Value ETF (NYSEArca: VTV) is one of the largest smart beta ETFs of any stripe. In fact, several of the largest smart beta ETFs are value funds.
VLUE seeks to track the performance of an index that measures the performance of U.S. large- and mid-capitalization stocks with value characteristics and relatively lower valuations.
VTV follows the CRSP US Large Cap Value Index and is one of the most widely followed value ETFs. CRSP includes sales/price and historical earnings/price ratio as well as 12-month forward earnings/price ratio and dividend yield to form its value indexes.
The iShares Russell 1000 Value ETF (NYSEArca: IWD) is the biggest U.S. large-cap ETF on the market, providing exposure to value stocks taken from the widely observed Russell 1000 Index.
This article was provided courtesy of our partners at etftrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
This article was provided by our partner Tom Lydon of etftrends.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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doc_00036
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Title:Last Year Broke Closures, Flows Records
Heather Bell, Managing Editor ETF.com
2017 was a remarkable year for the ETF industry in many ways, not the least of which was the number of funds that either made their debuts or exited quietly from the stage.
Last year saw a total of 275 ETF launches. While that’s definitely a large number, it’s not a record-breaker. It’s more than last year’s 247 launches and less than the 284 ETFs that rolled out in 2015. However, more than 300 ETFs launched in 2011, which is still the record year for new ETFs.
Closures definitely that represent the more interesting story, with the number hitting yet another record for the second year in a row. The prior year, 2016, saw 128 closures. In 2017, 136 funds shut down or delisted, which ultimately is a sign of health in a corner of the investment industry that is still rapidly expanding in terms of products and assets under management.
Interestingly, at least 20 of the funds that shut down this year were currency-hedged vehicles.
Flows Neared $500 Billion
However, ETF flows really blew away previous records. Flows into exchange-traded funds were going full blast throughout the year and finished on a particularly strong note. A whopping $51 billion in new money came into U.S.-listed ETFs during December, pushing inflows for the year to $476.1 billion. Total assets now top $3.4 trillion.
The data, which comes from FactSet, includes flows for every trading day of 2017. The $476.1 billion figure was far and away a record for annual inflows, blowing past the previous all-time high from last year of $287.5 billion.
US Equity ETFs Led Flows Pack
U.S. equities were the most popular asset class among ETF investors during December. The segment collected $180.2 billion in fresh money during the year, thanks to steady gains in the stock market―the S&P 500 ended the year up by 21.8%―with record low volatility. The passage of the Republican tax bill in December raised hopes the rally could continue in 2018.
The top asset gainer of the year was the iShares Core S&P 500 ETF (IVV), which had inflows of $30.2 billion, bringing its total assets under management to $142.2 billion. IVV is the second ETF in history to surpass the $100 billion AUM mark.
The Vanguard S&P 500 ETF (VOO) and the SPDR S&P 500 ETF Trust (SPY) were the only two other U.S. equity ETFs to make the top 10 inflows list for the year.
Looking Abroad
International equities pulled in $161.6 billion, making it the second-most-popular asset class among ETF investors. In many cases, international equities performed better than their U.S. counterparts.
For example, the iShares Core MSCI Emerging Markets ETF (IEMG) and the Vanguard FTSE Emerging Markets ETF (VWO) both increased by more than 30%. They were also popular among investors, with 2017 inflows of $16.6 billion and $9.3 billion, respectively.
But it was the iShares Core MSCI EAFE ETF (IEFA) that led the inflows for international equities, with creations of $20.9 billion.
Also Of Note
Other funds on the top inflows list include two fixed-income ETFs. The iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) were in the Nos. 7 and 8 spots, taking in $11 billion each.
Meanwhile, the VanEck Vectors Gold Miners ETF (GDX), the WisdomTree Europe Hedged Equity Fund (HEDJ) and the Xtrackers MSCI EAFE Hedged Equity ETF (DBEF) led the outflows for the year, losing between $1.8 billion and $3 billion apiece.
For a full list of the top inflows and outflows for the year, see the tables below:
More on ETF.com
Big Market Predictions For 2018
Swedroe: Don’t Demonize Buybacks
Tax Reform ETF Is Real & Ready To Roll
First Pot ETF In US Starts Trading
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Confluence Wealth Management LLC Buys iShares Intermediate Government/Credit Bond, Schwab ...
Confluence Wealth Management LLC
New Purchases: GVI , VGK , MCN , MCN, MRK,
Added Positions:SCHE, AAPL, VTI, KMB, HD, SCHW, SO, T, VZ, PXD,
Reduced Positions:MDY, IWR, IVV, IWM, EFA, AGG, MUB, EEM, BSV, IJJ,
Sold Out:BSCH, OMC, IWS, EMB, CPB, IBM, VNQ, BND, BHF,
For the details of Confluence Wealth Management LLC's stock buys and sells, go to http://www.gurufocus.com/StockBuy.php?GuruName=Confluence+Wealth+Management+LLC
These are the top 5 holdings of Confluence Wealth Management LLC
iShares Core S&P 500 ( IVV ) - 71,942 shares, 9.6% of the total portfolio. Shares reduced by 5.54%
SPDR MidCap Trust Series I ( MDY ) - 52,261 shares, 9% of the total portfolio. Shares reduced by 10.23%
iShares MSCI EAFE ( EFA ) - 163,583 shares, 5.91% of the total portfolio. Shares reduced by 7.54%
iShares Core U.S. Aggregate Bond ( AGG ) - 101,847 shares, 5.89% of the total portfolio. Shares reduced by 5.05%
SPDR S&P 500 ( SPY ) - 32,611 shares, 4.32% of the total portfolio. Shares reduced by 0.67%
New Purchase: iShares Intermediate Government/Credit Bond (GVI)
Confluence Wealth Management LLC initiated holdings in iShares Intermediate Government/Credit Bond. The purchase prices were between $110.35 and $111.7, with an estimated average price of $111.06. The stock is now traded at around $111.22. The impact to the portfolio due to this purchase was 1.81%. The holdings were 30,854 shares as of 2017-09-30.
New Purchase: Vanguard FTSEEuropean (VGK)
Confluence Wealth Management LLC initiated holdings in Vanguard FTSEEuropean. The purchase prices were between $54.93 and $58.43, with an estimated average price of $56.72. The stock is now traded at around $57.57. The impact to the portfolio due to this purchase was 0.37%. The holdings were 11,949 shares as of 2017-09-30.
New Purchase: Madison Covered Call & Equity Strategy Fund (MCN)
Confluence Wealth Management LLC initiated holdings in Madison Covered Call & Equity Strategy Fund. The purchase prices were between $0 and $7.78, with an estimated average price of $0.74. The stock is now traded at around $7.48. The impact to the portfolio due to this purchase was 0.11%. The holdings were 25,542 shares as of 2017-09-30.
New Purchase: Merck & Co Inc (MRK)
Confluence Wealth Management LLC initiated holdings in Merck & Co Inc. The purchase prices were between $61.49 and $66.16, with an estimated average price of $63.55. The stock is now traded at around $54.99. The impact to the portfolio due to this purchase was 0.11%. The holdings were 3,214 shares as of 2017-09-30.
New Purchase: Madison Covered Call & Equity Strategy Fund (MCN)
Confluence Wealth Management LLC initiated holdings in Madison Covered Call & Equity Strategy Fund. The purchase prices were between $0 and $7.78, with an estimated average price of $0.74. The stock is now traded at around $7.48. The impact to the portfolio due to this purchase was 0.11%. The holdings were 25,542 shares as of 2017-09-30.
Added: Schwab Emerging Markets Equity (SCHE)
Confluence Wealth Management LLC added to the holdings in Schwab Emerging Markets Equity by 177.11%. The purchase prices were between $24.73 and $27.51, with an estimated average price of $26.46. The stock is now traded at around $27.31. The impact to the portfolio due to this purchase was 0.4%. The holdings were 44,645 shares as of 2017-09-30.
Sold Out: Guggenheim BulletShares 2017 Corporate Bond (BSCH)
Confluence Wealth Management LLC sold out the holdings in Guggenheim BulletShares 2017 Corporate Bond. The sale prices were between $22.59 and $22.64, with an estimated average price of $22.61.
Sold Out: iShares Russell Mid-cap Value (IWS)
Confluence Wealth Management LLC sold out the holdings in iShares Russell Mid-cap Value. The sale prices were between $81.79 and $85.31, with an estimated average price of $83.81.
Sold Out: Omnicom Group Inc (OMC)
Confluence Wealth Management LLC sold out the holdings in Omnicom Group Inc. The sale prices were between $71.73 and $83.24, with an estimated average price of $77.21.
Sold Out: iShares J.P. Morgan USD Emerging Markets Bond ETF (EMB)
Confluence Wealth Management LLC sold out the holdings in iShares J.P. Morgan USD Emerging Markets Bond ETF. The sale prices were between $112.83 and $117.26, with an estimated average price of $115.53.
Sold Out: Campbell Soup Co (CPB)
Confluence Wealth Management LLC sold out the holdings in Campbell Soup Co. The sale prices were between $45.13 and $54.19, with an estimated average price of $50.74.
Sold Out: Vanguard Total Bond Market (BND)
Confluence Wealth Management LLC sold out the holdings in Vanguard Total Bond Market. The sale prices were between $81.34 and $82.67, with an estimated average price of $82.03.
Reduced: iShares National Muni Bond (MUB)
Confluence Wealth Management LLC reduced to the holdings in iShares National Muni Bond by 28.87%. The sale prices were between $109.85 and $111.66, with an estimated average price of $110.93. The stock is now traded at around $110.68. The impact to the portfolio due to this sale was -0.29%. Confluence Wealth Management LLC still held 12,623 shares as of 2017-09-30.
Reduced: Walgreens Boots Alliance Inc (WBA)
Confluence Wealth Management LLC reduced to the holdings in Walgreens Boots Alliance Inc by 28.44%. The sale prices were between $77.16 and $82.74, with an estimated average price of $80.15. The stock is now traded at around $70.59. The impact to the portfolio due to this sale was -0.08%. Confluence Wealth Management LLC still held 4,728 shares as of 2017-09-30.
Reduced: General Electric Co (GE)
Confluence Wealth Management LLC reduced to the holdings in General Electric Co by 21.35%. The sale prices were between $23.72 and $27.45, with an estimated average price of $25.26. The stock is now traded at around $17.90. The impact to the portfolio due to this sale was -0.04%. Confluence Wealth Management LLC still held 10,191 shares as of 2017-09-30.
SCHE 15-Year Financial Data
The intrinsic value of SCHE
Peter Lynch Chart of SCHE
Premium Members
This article first appeared on GuruFocus .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:Shocked! Shocked! FOMC Leaves Rates Unchanged
To the surprise of absolutely nobody, by a unanimous vote the Federal Open Market Committee left its federal funds rate unchanged while keeping an increase on the table at the panel's December meeting.
Bloomberg News
The FOMC emphasized the economy's strength "despite hurricane-related disruptions" that caused a drop in nonfarm payrolls in September and boosted gasoline prices. Notwithstanding the spike in energy prices, inflation remains below the Fed's 2% target.
Of course, the Fed is widely expected to have new leadership by 2018 with Fed Chair Janet Yellen likely to be replaced by Fed. Gov. Jerome Powell with numerous vacancies also to be filled by President Donald Trump. But at the Dec. 12-13 confab, the futures market has placed an 87.5% probability for a quarter-point hike from the current federal-funds target range of 15-1.25%.
For the Treasury market, the FOMC announcement was a snoozer with the two- and 10-year notes virtually unchanged at 1.61% and 2.36% respectively. The iShares Core U.S. Aggregate Bond exchange-traded fund (AGG), which tracks the U.S. taxable-bond market, was up less than 0.1% at 2:22 PM EDT, while the iShares 20+ Year Treasury Bond ETF (TLT) has risen 0.4% to $124.70. The Dow Jones Industrial Average has risen 43.16 points, or 0.2%, to 23,420.40.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:World's Biggest ETF (SPY) Tops $250 Billion In Assets
Drew Voros
ETF.com Editor-in-Chief
More than $15 billion entered ETFs during the week ending Thursday, Oct. 19. The bulk of that―$9.5 billion―went into U.S. equity ETFs, including $4.1 billion into one fund alone: the SPDR S&P 500 ETF Trust (SPY).
SPY’s latest inflows, along with the market's ascent, pushed SPY's total assets under management to $250 billion. That's the highest asset total ever for the world's largest ETF.
But even as assets for the fund reach new milestones, SPY curiously still has net outflows for the year as a whole, totaling $6.7 billion. Intense competition from lower-cost rivals such as the iShares Core S&P 500 ETF (IVV) has taken a toll on the behemoth.
Net ETF inflows for all ETFs in 2017 now stand at $369 billion, a new annual record. Total assets in U.S.-listed ETFs are now more than $3.26 trillion.
Top Inflows & Outflows
Taking a look at flows for individual products, SPY easily took the top spot on this week's list, with inflows of $4.1 billion. A distant Nos. 2 and 3 on the weekly inflows list were the iShares Core U.S. Aggregate Bond ETF (AGG) and the iShares Core MSCI Emerging Markets ETF (IEMG), with creations of around $600 million each.
On the outflows side, the iShares 3-7 Year Treasury Bond ETF (IEI), the iShares NASDAQ Biotechnology ETF (IBB) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) were a few notable names to fall out of favor during the week.
Fee War Reignites
State Street Global Advisors made a dramatic move this week in the race to the bottom of ETF fees. It debuted the SPDR Portfolio ETFs, a lineup of 15 existing ETFs repackaged at much lower cost, some the lowest in their class.
These funds—three of which also had their underlying benchmarks replaced by in-house indices, and all of which got new tickers—are now some of the cheapest in their respective segments. They are also all offered commission-free at TD Ameritrade. They are:
Drew Voros can be reached at dvoros@etf.com.
More On ETF.com
Earnings Not Sole Driver Of Stock ETFs Rally
World’s Lowest Cost Portfolio Hits 0.05% Fee
TD Ameritrade Drops Major No-Fee ETFs
Why Do Hedge Funds Exist?
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Title:FC Advisory LLC Buys iShares Core Dividend Growth, Schwab U.S. ...
FC Advisory LLC
New Purchases: DGRO , SCHH , BSCJ ,
Added Positions:SCHP, VCIT, VBK, MUB, VUG, VOT, IJR, FSIC,
Reduced Positions:AGG, VMBS, BND, IWD, RWO, VTV, IJH, JNK, QQQ,
For the details of FC Advisory LLC's stock buys and sells, go to http://www.gurufocus.com/StockBuy.php?GuruName=FC+Advisory+LLC
These are the top 5 holdings of FC Advisory LLC
iShares Core U.S. Aggregate Bond ( AGG ) - 159,373 shares, 13.67% of the total portfolio. Shares reduced by 1.97%
Vanguard Mega Cap Growth ( MGK ) - 144,401 shares, 11.84% of the total portfolio. Shares added by 0.81%
Vanguard FTSE All World Ex US ( VEU ) - 270,469 shares, 11.16% of the total portfolio. Shares added by 0.89%
Vanguard Extended Market ( VXF ) - 123,252 shares, 10.34% of the total portfolio. Shares added by 0.78%
Vanguard Intermediate-Term Bond ( BIV ) - 128,032 shares, 8.49% of the total portfolio. Shares added by 0.93%
New Purchase: iShares Core Dividend Growth (DGRO)
FC Advisory LLC initiated holdings in iShares Core Dividend Growth. The purchase prices were between $31.2 and $32.53, with an estimated average price of $31.8. The stock is now traded at around $32.95. The impact to the portfolio due to this purchase was 3.59%. The holdings were 141,341 shares as of 2017-09-30.
New Purchase: Schwab U.S. REIT (SCHH)
FC Advisory LLC initiated holdings in Schwab U.S. REIT. The purchase prices were between $40.12 and $42.09, with an estimated average price of $41.21. The stock is now traded at around $41.78. The impact to the portfolio due to this purchase was 0.17%. The holdings were 5,243 shares as of 2017-09-30.
New Purchase: Guggenheim BulletShares 2019 Corporate Bond (BSCJ)
FC Advisory LLC initiated holdings in Guggenheim BulletShares 2019 Corporate Bond. The purchase prices were between $21.2 and $21.29, with an estimated average price of $21.26. The stock is now traded at around $0.00. The impact to the portfolio due to this purchase was 0.16%. The holdings were 9,417 shares as of 2017-09-30.
High Yield Dividend Stocks in Gurus' Portfolio
Top dividend stocks of Warren Buffett
Top dividend stocks of George Soros
Premium Members
This article first appeared on GuruFocus .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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