Category Archives: etf

2 Rising ETFs With 5% Yield

With global growth issues flexing muscles and corporate earnings falling flat, risk-on sentiments are finding it tough to sail smooth this year. Safe harbors like Treasury bonds are in demand, resulting in a decline in yields. As of May 16, 2016, yields on the 10-year U.S. Treasury note were 1.75%. As a matter of fact, the 10-year U.S. Treasury note did not see 2% or more yield after January 28, 2016. A dovish Fed, which lowered its number of rate hike estimates for 2016 from four to two in its March meeting citing global growth worries and moderation in U.S. growth, was also behind the decline in bond yields. Even Goldman Sachs cut its forecast for 10-year U.S. Treasury bond yields over the coming few years. Goldman Sachs now expects its year-end 10-year yield to be 2.4%, down from the 2.75% it projected in the first quarter. It does not expect the 10-year yield to rise above 3% to close out a year before 2018 (read: Time for Investment Grade Corporate Bond ETFs? ). Needless to say, this is a difficult situation for income investors that forced many to try out almost every high-yielding investing option. But higher yields sometimes come with higher risks. So, it is better to bet on investing areas that are better positioned from the return perspective and also offer a solid yield. One such option is preferred ETF. What is a Preferred Stock? A preferred stock is a hybrid security that has characteristics of both debt and equity. These do not have voting rights but a higher claim on assets than common stock ( Complete Guide to Preferred Stock ETF Investing ). That means that dividends to preferred stock holders must be paid before any dividend is paid to the common stock holders. And in the event of bankruptcy, preferred stock holders’ claims are senior to common stockholders’ claims, but junior to the claims of bondholders. The preferred stocks pay stockholders a fixed, agreed-upon dividend at regular intervals, like bonds. Most preferred dividends have the same tax advantage that the common stock dividends currently have. However, while the companies have the obligation to pay interest on the bonds that they issue, the dividend on a preferred stock can be suspended or deferred by the vote of the board. Preferred stocks generally have a low correlation with other income generating segments of the market like REITs, MLPs, corporate bonds and TIPs. However, unlike bond prices, these are also sensitive to downward changes in interest rates. If interest rates fall, issuers have the option to call shares and reissue them at lower rates. Investors should note that preferred ETFs have hit 52-week highs. Below we highlight two such options that are rising and also offer more than 5% yield. PowerShares Preferred Portfolio ETF (NYSEARCA: PGX ) The fund holds a portfolio of 237 preferred stocks in its basket, tracking the BofA Merrill Lynch Core Plus Fixed Rate Preferred Securities Index. It charges 50 bps in fees. Financials (85.1%) dominates this fund followed by utilities (6.5%). With the 30-day SEC payout yield of 5.72%, the fund is a solid income destination. The fund advanced 6.3% in the last three months (as of May 16, 2016). SPDR Wells Fargo Preferred Stock ETF (NYSEARCA: PSK ) The 151-securities portfolio invests 79% of the basket in the financial sector. The 30-Day SEC yield is 5.18% (as of May 13, 2016). The fund charges 45 bps in fees and added 5.7% in the last three months (as of May 16, 2016). Link to the original post on Zacks.com

How To Invest In A Flat Stock Market

Tim Maverick, Senior Correspondent As The Wall Street Journal recently pointed out, both the S&P 500 Index and the Dow Industrial Average have not hit a new high in over a year. In fact, the stock market averages are little changed from the levels of late 2014 – not a shock, considering U.S. companies have been in an earnings recession for almost the same length of time. Investors are beginning to lose their patience with this stagnant stock market. Through the week of May 11, 2016, they’ve pulled $67.7 billion from U.S. equity mutual funds and exchange-traded funds (ETFs) in 2016, alone. For a market observer, like myself, this stuck-in-the-mud market status doesn’t come as a surprise. Just look at the history behind these dangerous stagnant periods. Muddy Market History According to the Bespoke Investment Group, this will mark the 21st time, since 1930, that the market has gone a year without making a new high. This is one of those dirty little secrets kept under lock and key by brokers and CNBC, alike. The stock market, on occasion, has gone through long periods without making any headway: Thanks to the Great Depression, the market levels of 1929 were not seen again until 1954. The 1970s were no picnic, either, thanks to the oil shock and rampant inflation. In January 1966, the Dow hit the 990 mark, a level that it did not re-visit until 1982. More recently, the Nasdaq hit a closing record of 5048.62 on March 10, 2000. It took another 15 years, in April 2015, for the market to surpass those numbers. While I don’t expect a long-term drought like these earlier periods for the current stock market, history proves that, in times like these, the S&P 500 Index funds are not a reliable path along which to set your hard-earned money. Can you afford to have your money just lying around for a decade or more, only to come up earning nothing? The only reason these funds’ recent history looks remotely positive is due to the flood of central bank liquidity since the financial crisis has floated big-cap boats. Even a casual examination of global markets shows that the central bank actions are losing their punch. And, despite all the liquidity, big cap stocks have been merely treading water since late 2014. Staying Afloat So what can investors do? It’s crucial to find the right investments – as shelter from the storm of earnings recession and rich valuations well above the 10-year average – that still offer some upside and keep your money working. The best place for earnings continues to be the bond market. An undeniable fact is: Thanks to zany central bank policies, there are, globally, nearly $10 trillion in government bonds that trade with a negative yield. That fact will – despite whatever the Fed may or may not do – keep a firm bid under U.S. Treasuries. With my forecast of a 1% yield on 10-year Treasuries within a year, the iShares 20+Year Treasury Bond ETF (NYSEARCA: TLT ) looks very appealing. Further, with the European Central Bank starting its corporate bond buying binge later this month, the Powershares International Corporate Bond Portfolio ETF (NYSEARCA: PICB ) also looks like a winner. This ETF has more than a 50% exposure to European corporate bonds. It’s also important to note that periods of poor stock market returns tend to coincide with strong performances in gold and silver. As pointed out by my Wall Street Daily colleague, Jonathan Rodriguez: gold seems to have broken out on a technical basis. I would play gold through the VanEck Merk Gold Trust ETF (NYSEARCA: OUNZ ), which allows investors to actually convert their holdings into physical gold, if they wish. Thus, this investment can become tangible and, therefore, even more reliable. However, the best way to play stocks, currently, is to stick with the dividend payers. One ETF to grab dividends globally is the WisdomTree Global Equity Income ETF (NYSEARCA: DEW ), which is up about 3% this year in addition to paying quarterly dividends. U.S. stocks make up roughly 55% of the portfolio, led by well-known names like General Electric Company (NYSE: GE ), Exxon Mobil Corporation (NYSE: XOM ) and Johnson & Johnson (NYSE: JNJ ). The returns from the funds I’ve mentioned project steady gains and I believe they will easily outpace stagnant S&P 500 funds.

Best And Worst Q2’16: All Cap Growth ETFs, Mutual Funds And Key Holdings

The All Cap Growth style ranks eighth out of the twelve fund styles as detailed in our Q2’16 Style Ratings for ETFs and Mutual Funds report. Last quarter , the All Cap Growth style ranked seventh. It gets our Neutral rating, which is based on aggregation of ratings of 17 ETFs and 547 mutual funds in the All Cap Growth style. See a recap of our 1Q16 Style Ratings here. Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the style. Not all All Cap Growth style ETFs and mutual funds are created the same. The number of holdings varies widely (from 13 to 2185). This variation creates drastically different investment implications and, therefore, ratings. Investors seeking exposure to the All Cap Growth style should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2. Figure 1: ETFs with the Best & Worst Ratings – Top 5 Click to enlarge * Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings Five ETFs are excluded from Figure 1 because their total net assets are below $100 million and do not meet our liquidity minimums. Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5 Click to enlarge * Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity. Sources: New Constructs, LLC and company filings PNC Large Cap Growth Fund ( PEWIX , PEWCX ) and Catalyst/Lyons Hedged Premium Return Fund (MUTF: CLPFX ) are excluded from Figure 2 because their total net assets are below $100 million and do not meet our liquidity minimums. iShares Core US Growth ETF (NYSEARCA: IUSG ) is the top-rated All Cap Growth ETF and Eaton Vance Atlanta Capital Select Equity Fund (MUTF: ESEIX ) is the top-rated All Cap Growth mutual fund. IUSG earns an Attractive rating and ESEIX earns a Very Attractive rating. Calamos Focus Growth ETF (NASDAQ: CFGE ) is the worst rated All Cap Growth ETF and ACM Dynamic Opportunity Fund (MUTF: ADOAX ) is the worst rated All Cap Growth mutual fund. CFGE earns a Neutral rating and ADOAX earns a Very Dangerous rating.. Gilead Sciences (NASDAQ: GILD ) is one of our favorite stocks held by MNNYX and earns a Very Attractive rating. Gilead has grown after-tax profit ( NOPAT ) by 39% compounded annually since 2005. Over the same time, Gilead has increased its return on invested capital ( ROIC ) from 37% in 2005 to a top-quintile 88% in 2015. Over the past five years, Gilead has generated a cumulative $26 billion in free cash flow . Despite the operational successes, GILD remains undervalued. At its current price of $88/share, GILD has a price-to-economic book value ( PEBV ) ratio of 0.6. This ratio means that the market expects Gilead’s NOPAT to permanently decline by 40%. However, if Gilead can grow NOPAT by just 4% compounded annually for the next five years , the stock is worth $183/share today – a 107% upside. DexCom (NASDAQ: DXCM ) is one of our least favorite stocks held by KAUBX and earns a Dangerous rating. Over the past decade, DexCom’s NOPAT has declined from -$37 million to -$54 million. The company’s ROIC has been negative in every year since IPO and is currently a bottom quintile -28%. Nevertheless, DXCM is priced as though the company will achieve high levels of profitability. To justify its current price of $64/share, DXCM must immediately achieve 5% pre-tax margins (from -13% in 2015) and grow revenue by 31% compounded annually for the next 17 years . We feel it should be clear just how overvalued DXCM is at the current price. Figures 3 and 4 show the rating landscape of all All Cap Growth ETFs and mutual funds. Figure 3: Separating the Best ETFs From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings Figure 4: Separating the Best Mutual Funds From the Worst Funds Click to enlarge Sources: New Constructs, LLC and company filings D isclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.