Tag Archives: brian-haskin

New ETFs Offer Alternative Approaches To Income And European Equity Markets

By DailyAlts Staff Bond prices have been falling over the past several months as investors are becoming increasingly convinced that the Federal Reserve will hike short-term interest rates in the U.S. later this year for the first time since 2006. Higher short-term borrowing rates will increase the rates of return demanded by investors, and newly issued bonds with higher interest rates will make existing bonds at fixed yields less attractive by comparison – this will be bearish for the bond market. Higher rates are also likely to give the dollar strength, relative to foreign currencies, since higher-yielding currencies are more attractive to foreign investors. These factors make for a challenging environment for investors, but fortunately, new liquid alternative products have been designed to address the challenges of higher interest rates and a volatile foreign exchange market. Two such products – the Global X YieldCo Index ETF (NASDAQ: YLCO ) , offering non-bond investment income; and the PowerShares Europe Currency Hedged Low Volatility Portfolio ETF (NYSEARCA: FXEU ) , providing European equity exposure without the currency risk – both launched in May. YieldCo Index ETF YieldCos are an “emerging asset class of income-generated assets,” according to a statement announcing the launch of the Global X YieldCo Index ETF. Most YieldCos, which are often compared to Master Limited Partnerships (MLPs), are in the renewable energy sector. “YieldCos exhibit three key investment characteristics many investors have been looking for: high current income, lower volatility, and the potential for dividend growth,” according to Jay Jacobs, a research analyst at Global X Funds. YieldCos are typically formed when existing energy companies spin off assets such as wind or solar farms, with long-term contracts designed to return cash to shareholders. Unlike MLPs, YieldCos are set up as traditional corporations and therefore don’t require K-1 tax forms. “We are excited to provide investors with access to a new source of potential alternative income, which has traditionally been limited to MLPs and REITs,” said Mr. Jacobs. “YLCO allows investors to participate in this growing field of yield-generating renewable energy projects.” The expense ratio for YLCO is 0.65%. For more information, visit the ETF’s fund page at globalxfunds.com . Currency-Hedged Low Volatility The PowerShares Europe Currency Hedged Low Volatility Portfolio ETF is based on the S&P Eurozone Low Volatility USD Hedged Index, and aims to provide investors with exposure to European stocks without the currency risk and with dampened volatility. The index is based on a simple methodology: The 80 stocks from the S&P Eurozone BMI Index with the lowest realized volatility over the past 12 months are selected and then weighted inversely according to volatility. The portfolio is then 100% currency-hedged to the U.S. dollar using rolling one-month forward contracts that are adjusted monthly. “International investing is often accompanied by the risks of uncertain stock selection and foreign exchange fluctuations,” said Dan Draper, Managing Director and Head of Invesco PowerShares, in a recent statement. “FXEU allows participation in the European equity market’s potential upside while aiming to protect portfolios from potential market downturns.” The expense ratio for FXEU is 0.25%. For more information, visit the fund’s product page .

QuantShares Launches Long/Short Dividend Income ETF

By DailyAlts Staff Investors looking for high current yield and potential capital appreciation have somewhat limited pickings these days. With the launch of its QuantShares Hedged Dividend Income ETF (NYSEARCA: DIVA ) on January 20, FFCM LLC has made the pickings a little less slim. The QuantShares Hedged Dividend Income ETF is designed to follow the Indxx Hedged Income Index, which has been live since February 2013. In pursuit of its high dividend income objective, the fund invests in 100 stocks with attractive dividend characteristics: high dividend yield, consistent dividend payment, and/or dividend growth. The investments are selected from the 1,000 largest stocks in the Indxx Hedged Income Index and weighted equally. Not Just Another Long-Only Fund But the QuantShares Hedged Dividend Income ETF isn’t a long-only dividend fund. The fund will also short around 200 stocks from the same universe of 1,000 stocks. The stocks selected as short sales have little to no dividend history and low dividend yields. But despite the number of short positions doubling the number of longs, the fund is designed so that the value of the short positions is roughly half that of the longs. “Our exemptive relief with the SEC allows us to hedge and de-risk via an index-based, long-short strategy,” said Bill DeRoche, the fund’s portfolio manager, in a press release announcing the fund’s launch. The QuantShares Hedged Dividend Income ETF rebalances its holdings every month and reconstitutes every quarter. Its investment approach caps net exposure to no more than 12.5% per sector. The fund also pays dividends on a monthly basis, which is an attractive feature for income-oriented investors. The fund’s “monthly dividend payments, hedged portfolio, and ETF structure” offer investors a “transparent, tax efficient, and diversifying alternative” to both low-yield fixed income and higher-risk equity-dividend products, according to Mr. DeRoche. Alternative to Fixed Income Bill Carey, CEO of QuantShares investment advisor FFCM LLC, also says the fund makes a good alternative to fixed income and other equity-dividend products. For investors in corporate bonds, Mr. Carey says the QuantShares Hedged Dividend Income ETF “may offer a higher after-tax yield with similar return and risk characteristics.” The fund also offers “a number of potential advantages over widely used equity-based income-producing products,” due to its “lower risk and volatility relative to that of long-only equity strategies,” in Mr. Carey’s words. The new fund launch is QuantShares’ first since being acquired by Mosaic Investment Partners in May 2013. The firm reportedly required alternative financing at the time. For more information, visit the fund’s page .