Category Archives: stocks

Inside JPMorgan U.S. Mid Cap ETF

The broader U.S. market has been in a tight spot since the beginning of 2016 due to a host of global issues and uncertainty about the rate hike. Amid these concerns, mid-cap funds offer the best of both worlds, growth and stability when compared to small-cap and large-cap counterparts. Mid-cap funds are believed to provide higher returns than their large-cap counterparts, while witnessing a lower level of volatility than small-cap ones. Given the swings in the broader market segment so far this year, mid-cap funds have garnered a lot of attention as they are not very susceptible to volatility (read: 5 Mid Cap Value ETFs Are Top Picks Now–Here is Why ). Recently, one of the renowned ETF issuers, JPMorgan, introduced a product in the U.S. targeting the mid-cap space. The new product – JPMorgan Diversified Return U.S. Mid Cap Equity ETF (NYSEARCA: JPME ) – hit the market on May 11. Below, we highlight the product in detail: JPME in Focus The fund seeks to track the performance of the Russell Midcap Diversified Factor Index. JPME does not seek to outperform the underlying index nor does it seek temporary defensive positions when markets decline or appear overvalued. Its sole intention is to replicate the constituent securities of the underlying index as closely as possible. JPME is a well-diversified fund, where Westar Energy Inc. (NYSE: WR ) takes the top spot with 0.61% weight. Other stocks in the fund have less than 0.60% exposure individually. In total, the fund holds about 602 stocks. Sector-wise, Consumer Goods gets the highest exposure with 15.5% of the portfolio. Utilities, Financials, Consumer Services, Health Care, Industrials and Technology also get double-digit exposure in the basket. The fund has an expense ratio of 0.34%. How Does it Fit in a Portfolio? The fund is a good choice for investors seeking high return potential that comes with lower risk than their small-cap counterparts. With the tone of the minutes from the April FOMC meeting, released last week, being more hawkish than expected, chances of a rate hike in the June meeting have gone up. This could be due to a series of recently released upbeat U.S. economic data (read more: Fed to Hike in June? Expected ETF Moves ). Meanwhile, global growth worries are still at large. So, mid-cap stocks with higher exposure to the U.S. markets than their large-cap counterparts look attractive at this point. Thus, the launch of the new ETF targeting the U.S. mid-cap market seems well timed. ETF Competition The newly launched ETF will have to face competition from mid cap-focused ETFs like the iShares Core S&P Mid-Cap ETF (NYSEARCA: IJH ) . IJH is one of the most popular ETFs in the space with an asset base of $26.3 billion and average trading volume of 1.3 million shares. The fund tracks the S&P MidCap 400 index and charges 12 basis points as fees which is much lower than the aforementioned product. The SPDR S&P MidCap 400 ETF (NYSEARCA: MDY ) is another popular fund in the space with an asset base of $15.3 billion and trades in a good volume of more than 2.1 million shares a day. The fund tracks the S&P MidCap 400 Index. The fund charges 25 basis points as fees. Apart from these, JPME could also face competition from the iShares Russell Mid-Cap ETF (NYSEARCA: IWR ) tracking the Russell MidCap Index. The fund has an asset base of $12 billion and volume of almost 359,000 shares a day. It has an expense ratio of 20 bps. Thus, the newly launched fund is costlier than the popular ETFs in the space. So, the path ahead can be challenging for JPME. Link to the original post on Zacks.com

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.