Tag Archives: consumer

The WisdomTree Europe Dividend Growth ETF: Timing Is Everything

The fund is heavily weighted with best in class European companies. The fund is dividend weighted with a defensive bias. The poor performance seems to be a result of coming to market at the wrong time. Europe seems to have a split personality, at times somewhat fractious and recalcitrant and at other times cooperative and harmonious. The moribund Medieval Period was followed by a lively Renaissance. Centuries of religious wars were followed by an enlightened scientific revolution. In the 20th century, Europe engaged in decades of warfare not witnessed in all of human history. In the wake of that 20th century dark age, Europe determinedly embarked towards a second enlightenment. The basis for this hopeful new age is founded on equality, solidarity and prosperity, achieved through a unified economy. Europe has created an equitable, cooperative capitalism: carefully regulated and open. This new age has led to the creation of a sizable economy of well founded, well established global companies. An opportunity to participate in the potential growth of these companies may be had through the WisdomTree Europe Dividend Growth ETF (NYSEARCA: EUDG ). According to WisdomTree : … WisdomTree Europe Quality Dividend Growth Fund seeks to track the investment results of dividend-paying companies with growth characteristics in the European equity market … The tracking index is WisdomTree’s own proprietary index [DEFA]: … The Index is comprised of 300 companies from the eligible universe based on their combined ranking of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid. .. It seems that WisdomTree’s approach to dividend weighting results in a more conservative passive methodology than weighting by market price. An interesting description written by Mr. Jeremy D. Schwartz, titled “Dividends of a Dividend Approach ” , details the reasoning of the approach and the results. For example, it specifically takes into account, the importance of dividends in determining a stock’s price; the fact that dividends historically have provided the majority of the stock markets real return; dividends are an objective measure; dividends reflect management’s shareholder interest and lastly, the demand for income among baby boomers in retirement. The fund itself is a relative newcomer to the industry, incepted in May of 2014. If the fund is weighted by dividends and the quality of earnings, the top weightings should give a good indication of the risk to the investor. (click to enlarge) First it should be noted that the fund has about 200 holdings as of mid-October, however, just over 50% of the funds weighting is concentrated in its top holdings. There is something to point out in those top holdings. There seems to be a repetition of companies held. For example Roche Holdings ADRs on the OTC are assigned the symbol OTCQX:RHHBY . On the “Swiss-6” exchange, it’s ROG.VTX and on another Swiss exchange it’s Ro.SW. They all represent the same company and the same class of stock, hence Roche Holdings has a combined 8.31% weighting in the fund’s holdings. Similarly, Unilever is listed as UL on the NYSE, on the London exchange UNA, on the Amsterdam exchange as UNC as well as others. The point being that in the fund’s top holdings, Unilever holds a combined 3.98877% weighting and Roche 8.31% in the top fund’s holdings. By combining those ,means that the top 50% is really contained in the top 19 holdings, i.e., 9.5% of the fund. The top 50% of the fund is more heavily weighted in Consumer Staples, Health Care and Telecom Service than the entire fund. On the other hand, the top 50% is ‘lighter’ in Consumer Discretionary, Industrials, IT. Lastly the top half contains neither a Financial nor Material Sector allocation. It then appears that the more defensive sectors comprise the heaviest dividend weights. The more cyclical sectors are less weighted and more widely distributed among the fund’s 200 holdings. Below is a summary table of the top 50%, containing 19 companies with a relevant few metrics. Company Fund Weighting Yield Cash Flow Multiple Payout Ratio ROI/ROE Price/Earnings Price/Book Sector Roche [RHHBY] 8.31031% 3.06% 18.10 73.94% 20.07/48.00 23.37 10.96 Health Care British American Tobacco ( OTCPK:BTAFF ) 4.19366% 3.98% 14.71 46.50% 22.57/70.15 17.50 11.74 Consumer Non-Cyclical Anheuser-Busch (NYSE: BUD ) 4.02124% 3.11% 26.58 29.15% 10.25/19.29 19.38 3.77 Consumer Non-Cyclical Unilever [UL] 3.98877% 3.14% 17.37 41.40% 17.63/33.21 22.16 7.00 Consumer Non-Cyclical Novo Nordisk (NYSE: NVO ) 3.16913% 1.39% 21.09 41.30% 75.61/82.48 29.94 23.78 Health Care Bayer ( OTCPK:BAYRY ) 3.09927% 1.95% 14.14 53.35% 7.40/16.71 26.38 4.13 Health Care SAP (NYSE: SAP ) 2.35035% 1.79% 17.35 42.76% 11.82/16.66 23.46 3.47 IT Daimler ( OTCPK:DDAIF ) 2.32166% 3.41% 5.63 32.51% 6.82/17.81 9.62 1.98 Consumer Cyclical Diageo (NYSE: DEO ) 2.18663% 2.99% 15.88 59.43% 13.56/32.63 19.30 5.91 Consumer Non-Cyclical Telefonktiebolasget Ercsso [ERIC] 1.95709% 3.72% 13.59 109.29% 5.73/7.55 27.43 2.07 Telecom Service Inditex ( OTCPK:IDEXY ) 1.79386% 1.67% 26.14 29.56% 26.31/29.39 35.37 9.78 Consumer Cyclical Louis Vuitton ( OTCPK:LVMUY ) 1.73739% 1.92% 15.88 46.08% 9.29/12.71 24.76 3.02 Consumer Cyclical Hennes & Mauritz ( OTCPK:HNNMY ) 1.6948% 3.14% 16.43 *51.54% 41.57/44.71 23.82 9.98 Consumer Cyclical L’Oreal ( OTCPK:LRLCY ) 1.6825% 1.65% 23.28 *37.86% 11.80/12.90 31.27 3.99 Consumer Non-Cyclical Reckitt Benckiser ( OTCPK:RBGLY ) 1.66167% 2.14% 24.96 59.49% 16.66/24.90 28.23 6.90 Consumer Non-Cyclical ABB LTD (NYSE: ABB ) 1.62665% 3.12% 11.23 72.54% 9.54/15.73 16.94 2.90 Industrials Schneider Electric ( OTCPK:SBGSY ) 1.44748% 3.61% 11.19 *40.34% 6.20/9.03 17.64 1.50 Industrials Airbus Group ( OTCPK:EADSY ) 1.4196% 2.08% 9.04 *18.83% 5.61/32.83 16.54 7.94 Industrials Syngenta (NYSE: SYT ) 1.41046% 3.57% 14.77 *52.75% 10.39/15.68 20.92 3.42 Industrials Totals/Averages 50.07% 2.707368% 16.731 49.40% *estimated % of cash flow per share 17.30/28.55 22.84 22.84 The returns are anything but stellar, however, there’s an important reason for this. Returns 1 Month 3 Months 1 Year Since 5/7/2014 Inception WTEDG Index -2.87% -6.18% -6.28 -8.76 EUDG Fund -2.49% -6.56 -5.96 -9.21 The fund is not currency hedged. A comparison with the Euro vs the U.S. Dollar tells the story. (click to enlarge) The fund came to market precisely on the same day the Euro peaked in this time interval at $1.37 per Euro. From there it steadily trended lower to its current $1.12; just over an 18% decline. The fund closed its first day of trading at about $25.25. An 18.25% decline of the shares from that point works out to $20.64, just above its September 29 low of $20.05. Hence, when translated back to USD dollars, the value of the fund ‘shrank’ even though the top line companies continued to perform well. The currency translation is a very important point for the investor to keep in mind. When the European currencies weaken vs the U.S. Dollar, the NAV will decline, even if the companies in the fund are doing well . Hence, purchasing when the U.S. Dollar is strong is like purchasing the fund at a discount. Eventually, Europe will regain its economic footing and European currencies will appreciate against the U.S. Dollar, hence the potential for capital appreciation on a ‘dollar cost averaged’ investment. The same is true of European denominated dividends and distributions. The whole point of the matter is that for investors with risk capital, and the willingness to be patient while gradually accumulating a position knowing that the top 50% of the fund has an average yield of over 2.7% and the fund is defensively allocated, then it’s reasonable to assume that over a longer time horizon the future returns will outweigh current risk. The current poor returns are a matter of having a good idea, but extraordinarily bad timing.

ETF Stats For September 2015 – Assets Back Below $2 Trillion

Thirty new ETFs and ETNs came to market in September, putting this year’s launch total at 214. Closures numbered 11 and now stand at 89 for the year. Assets fell by 2.2% during the month, which puts them back below $2 trillion and down 1.3% for the year. As the month came to a close, there were 1,787 products (1,592 ETFs and 195 ETNs) listed for trading with industry assets totaling $1.97 trillion. One of the most widely covered ETF stories of the month was the “entry” of Goldman Sachs (NYSE: GS ) into the ETF business. The word entry is in quotes because nearly every article failed to mention the other attempts made by Goldman Sachs to enter the ETF arena. Below are the two existing and four closed ETFs and ETNs the firm was involved with: GS Connect S&P GSCI Enhanced Commodity ETN (NYSEARCA: GSC ), issued by Goldman Sachs and launched in July 2006, has about $124 million in assets. GSC became a broken product on June 9, 2015 when Goldman Sachs discontinued issuing new shares. Claymore CEF Index GS Connect ETN (NYSEARCA: GCE ), issued by Goldman Sachs and launched in December 2007, has about $7 million in assets. When Guggenheim acquired Claymore, this product was not included in the transaction. Adding to the embarrassment, Goldman does not maintain a website for its GS Connect products. Four ETFs tracking Goldman Sachs’ smart beta indexes were launched in December 2012. The four ETFs in the ALPS | Goldman Sachs Index Series closed less than two years later in August 2014 due to lack of assets. Apparently, Goldman Sachs was not willing to put any client money into these ETFs. This is Goldman’s fourth attempt, and this time it looks like they are taking it more seriously by being the sponsor, the index provider, and offering aggressive pricing. Although the new ETFs are called ActiveBeta, investors need to understand these are not actively managed funds. Instead, each will track a multi-factor index that updates its constituents on a quarterly basis. AccuShares have been nothing short of an unmitigated disaster since their arrival on May 19, 2015. Their launch was accompanied by a heap of praise because they were designed to track the “spot” price of the CBOE Volatility Index instead of tracking VIX futures like existing volatility ETFs and ETNs do. However, as I noted, the teeter-totter structure was akin to that used by MacroShares , another product set that was doomed to failure from the start. The AccuShares Spot CBOE VIX Fund Up (NASDAQ: VXUP ) and AccuShares Spot CBOE VIX Fund Down (NASDAQ: VXDN ), which even went so far as to include “spot” in their names, make “normal” distributions, “special” distributions, and “corrective” distributions in a feeble attempt to keep the ETFs tracking their index. These distributions caused the funds to gush cash, and now both are trading at less than $8 per share after being launched at split-adjusted prices of $100 or more just five months ago. In September, rather than doing a cash distribution, the firm decided to do something novel – it made a distribution of the opposite ETFs to each shareholder. Those holding “Up” shares received “Down” shares and vice versa . It was the last thing that everyone making a bet on the direction of volatility wanted – offsetting shares. These products will be put on ETF Deathwatch as soon as possible. September 2015 Month End ETFs ETNs Total Currently Listed U.S. 1,592 195 1,787 Listed as of 12/31/2014 1,451 211 1,662 New Introductions for Month 29 1 30 Delistings/Closures for Month 11 0 11 Net Change for Month +18 +1 +19 New Introductions 6 Months 151 3 154 New Introductions YTD 208 6 214 Delistings/Closures YTD 67 22 89 Net Change YTD +141 -16 +125 Assets Under Mgmt ($ billion) $1,952 $22.1 $1,974 % Change in Assets for Month -2.1% -12.6% -2.2% % Change in Assets YTD -1.0% -17.9% -1.3% Qty AUM > $10 Billion 50 0 50 Qty AUM > $1 Billion 242 5 247 Qty AUM > $100 Million 757 33 790 % with AUM > $100 Million 47.6% 16.9% 44.2% Monthly $ Volume ($ billion) $1,768 $87.6 $1,855 % Change in Monthly $ Volume -13.3% +8.4% -12.5% Avg Daily $ Volume > $1 Billion 12 1 13 Avg Daily $ Volume > $100 Million 92 5 97 Avg Daily $ Volume > $10 Million 314 13 327 Actively Managed ETF Count (w/ change) 134 +1 mth +9 ytd Actively Managed AUM ($ billion) $21.6 +1.5% mth +25.0% ytd Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge. New products launched in September (sorted by launch date): EGShares EM Core ex-China ETF (NYSEARCA: XCEM ) , launched 9/2/15, is designed to deliver the performance of up to 700 emerging market companies, excluding those domiciled in China and Hong Kong. Countries representing more than 10% of the ETF include South Korea (18.3%), Taiwan (15.8%), and Brazil (13.6%). XCEM has an estimated yield of 2.4%. The expense ratio will be capped at 0.35% until 8/11/17 ( XCEM overview ). iShares iBonds Dec 2021 AMT-Free Muni Bond ETF (IBMJ) , launched 9/3/15, adds to the iShares Muni Bond line with investment grade municipal bonds that mature in 2021. The estimated yield to maturity comes in at about 1.6%. The ETF’s expense ratio is 0.18% ( IBMJ overview ). iShares iBonds Dec 2022 AMT-Free Muni Bond ETF (IBMK) , launched 9/3/15, targets investment grade bonds maturing in 2022. Investors can expect an estimated yield to maturity of 1.8% and an expense ratio of 0.18% ( IBMK overview ). Cambria Value and Momentum ETF (NYSEARCA: VAMO ) , launched 9/9/15, is an actively managed fund that will hold 100 US stocks with market caps greater than $200 million. Selections will be made using a quantitative approach, factoring in both value and momentum. The fund managers can also tactically hedge the portfolio up to its full value. VAMO sports an expense ratio of 0.59% ( VAMO overview ). ProShares MSCI Europe Dividend Growers ETF (NYSEARCA: EUDV ) , launched 9/10/15, selects European equities that have seen year-over-year dividend growth during the past 10 consecutive years. The ETF will hold at least 25 stocks equally weighted, although it currently holds 51. Each sector’s exposure will be limited to 30% of the portfolio and countries to 50%. The UK is already pushing the latter limit at 49.5%. Expenses will be capped at 0.55% until 9/30/16 ( EUDV overview ). SPDR MSCI International Dividend Currency Hedged ETF (NYSEARCA: HDWX ) , launched 9/15/15, invests in the 100 highest dividend-yielding stocks in the international market (excluding the US). To be included, stocks must have a market cap of at least $600 million for developed market stocks and $300 million for emerging market stocks, daily volume greater than $5 million, and three years of positive earnings growth and profitability. The fund will hedge against changes in value between the US dollar and constituent currencies by employing a one-month forward rate. The yield is estimated at 5.8%. The expense ratio will be capped at 0.48% until 1/31/17 ( HDWX overview ). SPDR MSCI International Real Estate Currency Hedged ETF (NYSEARCA: HREX ) , launched 9/15/15, will invest in companies outside the US that are engaged in the ownership, development, and management of various real estate property in industrial, office, retail, residential, health care, hotel and resort, data centers, and storage. To be selected, a company must derive at least 75% of its revenues from real estate activities related to those core property types. The fund will hedge against fluctuations in exchange rates between the underlying currencies and the US dollar with one-month currency forwards. Investors will pay 0.48% annually to own this ETF ( HREX overview ). Direxion Daily Cyber Security Bear 2X Shares (NYSEARCA: HAKD ) , launched 9/16/15, seeks daily, leveraged investment results of -200% (inverse) of the performance of the ISE Cyber Security Index. The index is comprised of domestic and foreign companies who generate key revenue from providing cyber security services or infrastructure (hardware/software developers). The expense ratio will be capped at 0.80% until 9/1/17 ( HAKD overview ). Direxion Daily Cyber Security Bull 2X Shares (NYSEARCA: HAKK ) , launched 9/16/15, is designed to return a leveraged daily return of 200% performance of the ISE Cyber Security Index. The index constituents are companies in both domestic and foreign markets who generate key revenue from providing cyber security services or infrastructure (hardware/software developers). Expenses will be capped at 0.80% until 9/1/17 ( HAKK overview ). Direxion Daily Pharmaceutical & Medical Bear 2X Shares (PILS) , launched 9/16/15, seeks daily, leveraged investment results of -200% (inverse) of the performance of the Dynamic Pharmaceutical Intellidex Index. The index is comprised of US pharmaceutical companies involved in various aspects of the industry such as research, manufacture, distribution, and testing. The expense ratio will be capped at 0.80% until 9/1/17 ( PILS overview ). Direxion Daily Pharmaceutical & Medical Bull 2X Shares (PILL) , launched 9/16/15, is designed to give investors a leveraged daily return of 200% performance of the Dynamic Pharmaceutical Intellidex Index. The index constituents are US companies involved in various aspects of the pharmaceutical industry such as development, sales, and facilitating regulatory approval. Expenses will be capped at 0.80% until 9/1/17 ( PILL overview ). iShares MSCI Saudi Arabia Capped ETF (NYSEARCA: KSA ) , launched 9/17/15, provides exposure to the Saudi Arabian stock market, which is an emerging market in the MSCI classification methodology. It currently holds 58 equities, with Financials representing about 55% of the ETF and Materials about 30%. The largest holding is Saudi Basic Industries Corp, which is a member of the Materials sector, at a significant 18.8%. KSA sports a 0.74% expense ratio ( KSA overview ). Goldman Sachs ActiveBeta U.S. Large Cap Equity ETF (NYSEARCA: GSLC ) , launched 9/21/15, is passively managed to an index and is designed to deliver diversified exposure to equity securities of large-cap US issuers, currently with 432 holdings. Positions are selected based on the following factors: value, momentum, quality, and low volatility. The expense ratio is capped at 0.09% until 9/14/16 ( GSLC overview ). FlexShares Credit-Scored US Long Corporate Bond Index Fund (NASDAQ: LKOR ) , launched 9/23/15, seeks to provide investors the benefits of longer maturity corporate bonds while adding in a credit evaluation process and improved liquidity. The index starts with a universe that includes liquid issuers and then utilizes its own proprietary model for credit scoring. The strategy then optimizes the constituents to maximize the credit score while keeping duration and other characteristics similar to the universe. The estimated yield is 4.8% with an effective duration of 13.2 years. Investors will pay 0.22% annually to own this ETF ( LKOR overview ). FlexShares US Quality Large Cap Index Fund (NASDAQ: QLC ) , launched 9/23/15, invests in a selection of US large-cap securities, which are ranked and selected based on perceived characteristics of better quality, attractive valuation, and positive momentum. It currently has 120 holdings, with Information Technology leading the sector allocations at 21.2%. QLC’s expense ratio is 0.32% ( QLC overview ). ProShares S&P 500 Ex-Energy ETF (NYSEARCA: SPXE ) , launched 9/24/15, is a product for investors wishing to achieve the broad exposure of the S&P 500 Index while avoiding the Energy sector. The ETF holds 462 of the 500 securities in the index, all except those relating to natural gas, oil, and petroleum industries. The ETF has an expense ratio of 0.27% ( SPXE overview ). ProShares S&P 500 Ex-Financials ETF (NYSEARCA: SPXN ) , launched 9/24/15, invests in all of the securities in the S&P 500 Index, with the exception of those in the Financials sector. SPXN holds 414 securities, and the ETF sports an expense ratio of 0.27% ( SPXN overview ). ProShares S&P 500 Ex-Health Care ETF (NYSEARCA: SPXV ) , launched 9/24/15, provides an option to invest in the S&P 500 Index while steering clear of the Health Care sector. Instead of tracking all 500 index stocks, SPXV does not hold the 54 that are in the Health Care sector. Investors will pay 0.27% annually to own this fund ( SPXV overview ). ProShares S&P 500 Ex-Technology ETF (NYSEARCA: SPXT ) , launched 9/24/15, is designed to give investors all of the exposure of the S&P 500 Index except for the stocks designated as Technology and Telecommunications. The ETF holds 428 of the 500 equities in the S&P 500. As with the other ProShares ETFs with this theme, the expense ratio is 0.27% ( SPXT overview ). Reaves Utilities ETF (NASDAQ: UTES ) , launched 9/24/15, is an actively managed ETF selecting its holdings from the Utilities sector. It employs both qualitative analysis (management interviews, field research, and macro factors) and quantitative processes (modeling, valuation, and technicals) in its selection methodology. The ETF is concentrated with only 21 holdings. The expense ratio is 0.95% ( UTES overview ). Goldman Sachs ActiveBeta Emerging Markets Equity ETF (NYSEARCA: GEM ) , launched 9/29/15, invests in equities of emerging market companies. The underlying index uses value, momentum, quality, and low volatility factors when selecting holdings. The expense ratio will be capped at 0.45% until 9/14/16 ( GEM overview ). John Hancock Multifactor Consumer Discretionary ETF (NYSEARCA: JHMC ) , launched 9/29/15, targets the US Consumer Discretionary sector. The strategy utilizes a multi-factor approach that emphasizes smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.50% until 8/31/17 ( JHMC overview ). John Hancock Multifactor Financials ETF (NYSEARCA: JHMF ) , launched 9/29/15, invests in a wide range of domestic Financial stocks. The underlying index utilizes a multi-factor approach that emphasizes smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.50% until 8/31/17 ( JHMF overview ). John Hancock Multifactor Healthcare ETF (NYSEARCA: JHMH ) , launched 9/29/15, aims its multi-factor strategy at US Health Care stocks. Holdings are selected based on factors that emphasize smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.50% until 8/31/17 ( JHMH overview ). John Hancock Multifactor Large Cap ETF (NYSEARCA: JHML ) , launched 9/29/15, targets a wide variety of US large-cap stocks with over 770 holdings. The index-based strategy utilizes a multi-factor approach that emphasizes smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.35% until 8/31/17 ( JHML overview ). John Hancock Multifactor Mid Cap ETF (NYSEARCA: JHMM ) , launched 9/29/15, invests in domestic mid-cap stocks and holds over 650 positions. The underlying index utilizes a multi-factor approach that emphasizes smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.45% until 8/31/17 ( JHMM overview ). John Hancock Multifactor Technology ETF (NYSEARCA: JHMT ) , launched 9/29/15, aims its index-based strategy at US Technology stocks. Holdings are selected based on a multi-factor approach that emphasizes smaller capitalization, lower relative price, and higher profitability. The expense ratio will be capped at 0.50% until 8/31/17 ( JHMT overview ). CS X-Links Multi-Asset High Income ETN (NYSEARCA: MLTI ) , launched 9/30/15, is an exchange-traded note designed to provide exposure to an index that is made up of a diversified mix of up to 120 high-dividend paying securities. Index constituents include other exchange-traded products, such as iShares iBoxx $ High Yield Corporate Bond Fund (NYSEARCA: HYG ) at 8.5%, iShares US Preferred Stock ETF (NYSEARCA: PFF ) at 8.1%, and iShares JPMorgan USD Emerging Market Bond ETF (NYSEARCA: EMB ) at 6.7%. Currently, the estimated yield is 7.1%, and dividends are expected to be paid monthly. Investors will pay 0.84% annually to own this ETN ( MLTI overview ). IQ Leaders GTAA Tracker ETF (NYSEARCA: QGTA ) , launched 9/30/15, is designed to track the performance and risk characteristics of what it defines as the 10 leading global allocation mutual funds. The 10 leaders are selected based on size, returns, consistency of long-term performance, quality of short-term performance, and other factors. Instead of investing in those 10 funds, actual index components are selected so that their combination reflects the risk-return characteristics of the 10 leaders. The fund is typically 120% long and 20% short, although the prospectus allows up to a 130/30 long/short split. The current top holdings are Vanguard FTSE Developed Markets (NYSEARCA: VEA ) at 21.2%, Vanguard Total Bond Market (NYSEARCA: BND ) at 15.7%, and iShares Core U.S. Aggregate Bond (NYSEARCA: AGG ) at 15.6%. The ETF has an expense ratio of 0.60% ( QGTA overview ). JPMorgan Diversified Return U.S. Equity ETF (NYSEARCA: JPUS ) , launched 9/30/15, invests in large- and mid-cap US equities that are chosen based on relative valuation, price momentum, and quality. It currently has 561 holdings, and up to 20% of its assets can be invested in futures. Expenses will be capped at 0.29% until 2/27/17 ( JPUS overview ). Product closures/delistings in September : iShares iBonds Sep 2015 AMT-Free Muni Bond (NYSEARCA: IBMD ) Deutsche X-trackers Regulated Utilities (NYSEARCA: UTLT ) Deutsche X-trackers Solactive Investment Grade Subordinated Debt (NYSEARCA: SUBD ) ProShares UltraShort Telecommunications (NYSEARCA: TLL ) Market Vectors MSCI Emerging Markets Quality (NYSEARCA: QEM ) Market Vectors MSCI Emerging Markets Quality Dividend (NYSEARCA: QDEM ) Market Vectors MSCI International Quality (NYSEARCA: QXUS ) Market Vectors MSCI International Quality Dividend (NYSEARCA: QDXU ) PIMCO 3-7 Year U.S. Treasury Index ETF (NYSEARCA: FIVZ ) PIMCO 7-15 Year U.S. Treasury Index ETF (NYSEARCA: TENZ ) PIMCO Foreign Currency Strategy Active (NYSEARCA: FORX ) Product changes in September: The iShares MSCI USA ETF (NYSEARCA: EUSA ), a capitalization-weighted fund, underwent an extreme makeover on September 1, becoming the iShares MSCI USA Equal Weighted ETF ( EUSA ). The iShares Japan large-Cap ETF (NYSEARCA: ITF ), based on the S&P/TOPIX 150 Index, underwent an extreme makeover on September 4, becoming the iShares JPX-Nikkei 400 ETF (NYSEARCA: JPXN ). State Street performed forward splits on ten of its SPDR industry ETFs effective September 10. VelocityShares 3x Long Crude Oil ETN (NYSEARCA: UWTI ) had a 1-for-10 reverse split and VelocityShares 3x Long Natural Gas ETN (NYSEARCA: UGAZ ) had a 1-for-5 reverse split effective September 10 . Owners of AccuShares Spot CBOE VIX Up ( VXUP ) received a ” corrective distribution ” of one share of AccuShares Spot CBOE VIX Down ( VXDN ) for each share held effective September 16. Meanwhile, the owners of AccuShares Spot CBOE VIX Down ( VXDN ) received a “corrective distribution” of one share of AccuShares Spot CBOE VIX Up ( VXUP ) plus a regular distribution of $0.470145. PowerShares S&P 500 High Dividend (NYSEARCA: SPHD ) was renamed PowerShares S&P 500 High Dividend Low Volatility ( SPHD ), effective September 25, to better reflect its existing strategy. AccuShares Spot CBOE VIX Up ( VXUP ) and AccuShares Spot CBOE VIX Down ( VXDN ) had 1-for-10 reverse splits effective September 25. Announced Product Changes for Coming Months: Direxion performed reverse splits on six of its leveraged ETFs effective October 1 (originally scheduled for September 10). Market Vectors Emerging Markets Local Currency Bond ETF (NYSEARCA: EMLC ) was renamed Market Vectors JPMorgan EM Local Currency Bond ETF ( EMLC ) effective October 1, 2015. AdvisorShares Pring Turner Business Cycle ETF (NYSEARCA: DBIZ ) closed with October 2 being its last day of trading. EGShares Blue Chip ETF (NYSEARCA: BCHP ) and EGShares Brazil Infrastructure ETF (NYSEARCA: BRXX ) will close with their last day of trading on October 30. Van Eck Global plans to acquire Yorkville MLP ETFs ( press release ) and hopes to close the transaction in the fourth quarter. Previous monthly ETF statistics reports are available here . Disclosure covering writer: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

This Is One Heck Of A Great Bond ETF

Summary The Vanguard Long-Term Bond ETF does everything right. If investors could only hold one bond ETF, this one would be a very strong contender for that spot. The fund offers solid income, a low expense ratio, and negative correlation to most major equity classes. If you don’t like this ETF, tell me why, because I do not see a single weakness here. This is a great ETF. There are only a few ETFs that really catch my eye as I’m researching them. This is one that immediately stands out for being absolutely exceptional. It has pretty much everything an investor could want for a bond ETF. I’ve shown a strong preference for funds that I can trade without commissions from my Schwab account because it makes frequent rebalancing more appealing. I would love to see this fund show up on there, but I don’t expect Vanguard funds to show up on the Schwab list at any point. For investors that have access to free trading on Vanguard ETFs, look into using the Vanguard Long-Term Bond ETF (NYSEARCA: BLV ). This ETF comes with everything I want (except free trading) and nothing I don’t want. Let’s go through the fund. Expense Ratio The expense ratio is only .10%. That is beautiful. Just try to find a way to complain about a long term bond fund with over 2000 different holdings and an expense ratio of .10%. This is ideal. Characteristics The fund is offering a fairly respectable yield to maturity of 4.2%. In the last decade investors may have scoffed at the idea of 4.2%, but in the new normal this is great. Some investors may expect yields to increase, but I doubt the Federal Reserve can pull that rabbit out of the hat when other countries have lower rates. An increase in domestic rates would result in a surge of cash inflows to the U.S. as foreign investors would seek dollars to buy up the higher yielding treasury securities. The resulting appreciation of the dollar would slam domestic employment and contradict one of the two dual mandates of the Federal Reserve. Until we see some major changes in the world economy, 4.2% is a fairly reasonable yield. Types of Bonds The Vanguard Long-Term Bond ETF is structured precisely how I would want it to be structured. The holdings include some foreign exposure without a very large allocation and a mix between industrial bonds and treasury bonds. Despite a strong allocation to treasury securities, there are no Agency MBS or Commercial MBS. Investors wanting access to those securities can acquire them on leveraged basis at a substantial discount to book value by buying mREITs. I see no reason to pay book value, but I would like a long term bond ETF with a heavy emphasis on high quality debts. Credit Quality The holdings are all solid. This is investment grade debt with a significant portion being treasury debt. This is a very solid ETF to have in your portfolio if the market starts tanking. I put together a demonstration of the role BLV plays in a sample portfolio. Building the Portfolio The sample portfolio I ran for this assessment is one that came out feeling a bit awkward. I’ve had some requests to include biotechnology ETFs and I decided it would be wise to also include a the related field of health care for a comparison. Since I wanted to create quite a bit of diversification, I put in 9 ETFs plus the S&P 500. The resulting portfolio is one that I think turned out to be too risky for most investors and certainly too risky for older investors. Despite that weakness, I opted to go with highlighting these ETFs in this manner because I think it is useful to show investors what it looks like when the allocations result in a suboptimal allocation. The weightings for each ETF in the portfolio are a simple 10% which results in 20% of the portfolio going to the combined Health Care and Biotechnology sectors. Outside of that we have one spot each for REITs, high yield bonds, TIPS, emerging market consumer staples, domestic consumer staples, foreign large capitalization firms, and long term bonds. The first thing I want to point out about these allocations are that for any older investor, running only 30% in bonds with 10% of that being high yield bonds is putting yourself in a fairly dangerous position. I will be highlighting the individual ETFs, but I would not endorse this portfolio as a whole. The portfolio assumes frequent rebalancing which would be a problem for short term trading outside of tax advantaged accounts unless the investor was going to rebalance by adding to their positions on a regular basis and allocating the majority of the capital towards whichever portions of the portfolio had been underperforming recently. Because a substantial portion of the yield from this portfolio comes from REITs and interest, I would favor this portfolio as a tax exempt strategy even if the investor was frequently rebalancing by adding new capital. The portfolio allocations can be seen below along with the dividend yields from each investment. Name Ticker Portfolio Weight Yield SPDR S&P 500 Trust ETF SPY 10.00% 2.11% Health Care Select Sect SPDR ETF XLV 10.00% 1.40% SPDR Biotech ETF XBI 10.00% 1.54% iShares U.S. Real Estate ETF IYR 10.00% 3.83% PowerShares Fundamental High Yield Corporate Bond Portfolio ETF PHB 10.00% 4.51% FlexShares iBoxx 3-Year Target Duration TIPS Index ETF TDTT 10.00% 0.16% EGShares Emerging Markets Consumer ETF ECON 10.00% 1.34% Fidelity MSCI Consumer Staples Index ETF FSTA 10.00% 2.99% iShares MSCI EAFE ETF EFA 10.00% 2.89% Vanguard Long-Term Bond ETF BLV 10.00% 4.02% Portfolio 100.00% 2.48% The next chart shows the annualized volatility and beta of the portfolio since October of 2013. (click to enlarge) Risk Contribution The risk contribution category demonstrates the amount of the portfolio’s volatility that can be attributed to that position. You can see immediately since this is a simple “equal weight” portfolio that XBI is by far the most risky ETF from the perspective of what it does to the portfolio’s volatility. You can also see that BLV has a negative total risk impact on the portfolio. When you see negative risk contributions in this kind of assessment it generally means that there will be significantly negative correlations with other asset classes in the portfolio. The position in TDTT is also unique for having a risk contribution of almost nothing. Unfortunately, it also provides a weak yield and weak return with little opportunity for that to change unless yields on TIPS improve substantially. If that happened, it would create a significant loss before the position would start generating meaningful levels of income. A quick rundown of the portfolio I put together the following chart that really simplifies the role of each investment: Name Ticker Role in Portfolio SPDR S&P 500 Trust ETF SPY Core of Portfolio Health Care Select Sect SPDR ETF XLV Hedge Risk of Higher Costs SPDR Biotech ETF XBI Increase Expected Return iShares U.S. Real Estate ETF IYR Diversify Domestic Risk PowerShares Fundamental High Yield Corporate Bond Portfolio ETF PHB Strong Yields on Bond Investments FlexShares iBoxx 3-Year Target Duration TIPS Index ETF TDTT Very Low Volatility EGShares Emerging Markets Consumer ETF ECON Enhance Foreign Exposure Fidelity MSCI Consumer Staples Index ETF FSTA Reduce Portfolio Risk iShares MSCI EAFE ETF EFA Enhance Foreign Exposure Vanguard Long-Term Bond ETF BLV Negative Correlation, Strong Yield Correlation The chart below shows the correlation of each ETF with each other ETF in the portfolio. Blue boxes indicate positive correlations and tan box indicate negative correlations. Generally speaking lower levels of correlation are highly desirable and high levels of correlation substantially reduce the benefits from diversification. (click to enlarge) Conclusion BLV offers a clear negative correlation with each asset except for short term TIPS (no surprise, high credit quality) and equity REITs. The equity REITs in IYR have a slight positive correlation with BLV which is caused at least in part by the fact that BLV is holding some high credit quality non-Agency debt. Since a substantial portion of the debt is still corporate in origin, it has a higher correlation with equity REITs than it would if it were pure treasuries. Despite that, the ETF still has a very clear negative correlation with other equity assets classes. Normally that kind of negative correlation requires midterm or longer treasury securities, but most of those funds have very limited yields. That isn’t any surprise either since the demand for extremely high quality debt (treasury securities) has pushed the yields to extremely low levels. By incorporating investment grade corporate debt the total portfolio for BLV is able to offer a respectable return so that the fund offers investors a material amount of income along with a negative correlation that results in total portfolio risk being materially reduced. This is what a bond fund should look like. Vanguard is known for high quality and low cost funds, but this fund is downright exceptional.