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New ETF Provides Pure-Play Exposure To The Growth Of Dividends

By DailyAlts Staff It sounds like a great plan: Save up a few million bucks, buy dividend-paying stocks, and live off the income. How much do you need? Two million dollars invested in dividend-paying stocks yielding an average of 3% would provide $60,000 in annual income. That’s not bad, but a 3% decline in the market value of the portfolio can quickly wipe out your income for the year. Furthermore, if you don’t have $2 million, or you want to earn more than $60,000, the plan isn’t so great. A new and innovate product from Reality Shares can help bring the retirement fantasy above one step closer to reality. The Reality Shares DIVS ETF (NYSEARCA: DIVY ) provides “pure play” exposure to growth rate of dividend increases, without the volatility of the underlying stock’s price movements. While this is an approach already used by institutional investors, it’s the first product of its kind to package the strategy and make it available to retail investor more broadly. DIVY isolates the underlying dividend of Large Cap Securities included in the S&P 500 and NASDAQ-100 indexes from the stock price, and seeks to deliver the dividend growth of the underlying index constituents, not stock price. When retirement investors purchase dividend-paying stocks, they count on them for current income. In order for such investors to not lose ground to inflation, companies must grow their dividends over time. The Reality Shares DIVS ETF doesn’t provide current income, instead it provides isolated exposure to the growth rate of dividends. In this way, the fund is better suited for investors accumulating wealth than those already enjoying retirement and seeking income. The Reality Shares DIVS ETF uses a rules-based methodology to select its investments. It doesn’t hold the shares of dividend-paying stocks, but instead it “seeks to produce returns based on increases in the expected dividend values of these securities, independent of price performance and dividend yield.” In pursuit of this objective, the fund uses a variety of investment strategies, investing primarily in a series of index-option combinations designed to “capture expected dividend exposure.” ETF.com’s Paul Britt refers to this as a “synthetic dividend.” In a statement announcing the new fund’s launch, Ryan Ballantyne, Reality Shares Executive VP of Sales and Trading, said that his firm’s research indicates high historical correlation “between expected dividend values and the aggregate value of actual dividend payments on large cap securities.” He added that Reality Shares is “excited to offer this innovative investment choice to investors seeking long-term returns that are not directly correlated to broad equity market or fixed income price movements.” Are you Bullish or Bearish on ? Bullish Bearish Results for ( ) Thanks for sharing your thoughts. Submit & View Results Skip to results » Share this article with a colleague

HSBC, Custodian Of GLD’s Gold, Is Closing 7 London Vaults

Summary HSBC, custodian for the SPDR Gold Trust’s gold, is closing its 7 gold vaults. SPDR Gold Trust investors should be aware that their gold might be on the move and that they are not necessarily protected if it is lost or stolen en route. Traders might consider shares in the iShares Gold Trust for the time being as an alternative without this added risk. Longer-term investors in gold are encouraged to invest in funds that specify the location of their gold and who’s in charge of guarding it. My readers might recall a couple of articles I wrote in 2013, in which I suggested that gold investors consider alternatives to the SPDR Gold Trust (NYSEARCA: GLD ), namely the Central Gold-Trust (NYSEMKT: GTU ) or the Sprott Physical Gold Trust (NYSEARCA: PHYS ). There were (and still are) several reasons why long-term gold investors should choose these funds over the SPDR Gold Trust (although I conceded that the SPDR Gold Trust was a better trading vehicle, given its liquidity and superior gold price tracking), but one that stood out in particular was custodianship. The SPDR Gold Trust has HSBC (NYSE: HSBC ) as its custodian, but HSBC doesn’t specify where it keeps its gold. Furthermore, HSBC doesn’t have to retain its custodian status of the fund’s gold. If it chooses to – and SPDR Gold Trust shareholders have no say in this – HSBC can call on sub-custodians to hold the fund’s gold. The only stipulation is that HSBC deems that the institution is suitable as a custodian of the fund’s gold although the stipulation in the prospectus is extremely vague. Furthermore, HSBC is not responsible in the event that a sub-custodian loses the fund’s gold so long as it can prove in court that it was acting in the best interest of the fund’s shareholders. I never stipulated that there was any sort of fraud, but it seemed that the language was broad enough so that it wasn’t impossible. Considering that there are other funds that offer exposure to gold, and considering that these funds’ prospectuses are very clear regarding the custodianship of their respective gold hoards, it seemed fairly straightforward to go ahead with one of these two other funds. What’s Happened Since? Just recently, there has been a development in this situation that has prompted me to issue a cautionary note to shareholders of the SPDR Gold Trust. HSBC is closing each of its 7 London gold vaults. Now, there is no evidence that SPDR Gold Trust gold is found in any of these vaults, because HSBC doesn’t have to disclose the location of the fund’s gold. After all, HSBC is a massive international banking conglomerate with other gold vaults, including in, say, New York. Furthermore, we don’t even know whether HSBC is acting as the trust’s custodian, because, as we’ve seen, it can hire a sub-custodian to do the work. But if we look at the simple facts, it is clear that the trust’s counterparty risk will rise as a result of this, and the trust’s shareholders need to at least consider them should they choose to continue to hold on to the shares. If the trust’s gold is held in one or more of these London vaults, then when they close in a couple of months, the gold will inevitably have to be moved. Whether it is to a sub-custodian’s vault or to another HSBC vault, there is added counterparty risk in the fact that this gold will have to be shipped. This means it will come into contact with numerous people, and it might even be shipped over water where a ship could sink or a plane could crash, thereby leading to a loss of the gold. Again, let me remind investors that HSBC is not responsible for losses so long as it can prove that its actions are in the best interest of trust holders in court. This means that if HSBC puts some gold on a plane and it crashes into the ocean, then this gold is gone and the shareholders will suffer, not HSBC. What Investors Should Do Announcements such as this should remind investors to study very carefully what it is exactly that they own when they own an ETF, especially one that is supposed to own a physical commodity such as gold. This gold will sometimes need to be handled and shipped, and this means risk to the fund’s shareholders. So in the past, I have suggested investors look at the other gold funds although short-term traders would be fine in the SPDR Gold Trust. Given the upcoming vault closures and the added counterparty risk – as minute as it might be – I think gold traders would be wise to suspend trading activities in the SPDR Gold Trust. There are alternatives. The iShares Gold Trust (NYSEARCA: IAU ) will not be impacted by this. This is an $11.25/share issue that trades several million shares per day, meaning that there should be plenty of liquidity for most traders reading this article. Options are less liquid for this fund relative to the SPDR Gold Trust, so that could be an issue. I also think investors would be wise to at least consider the less liquid Central Gold-Trust as a trading vehicle, which keeps its gold in Canada and which currently trades at an incredible 7.8% discount to its NAV. This is a $40/share issue that trades nearly 50,000 shares daily, so there is nearly $2 million in daily volume. Most retail investors should have no liquidity issues, and the fund is therefore an acceptable trading vehicle for the time being unless you are looking for very short-term intraday trades. The Bottom Line Maybe I’m being a bit paranoid in my warning, but I really do think there is a risk here. While it is probably a remote one and while it is impossible to quantify, those who trade the SPDR Gold Trust should have it in mind and watch out for more news on this front over the next few months. Finally, I want to reiterate that I think knowing where your gold is and who is in charge of protecting it is important, and for this reason, I think the Central Gold-Trust and the Sprott Physical Gold Trust both offer investors with better, safer opportunities. This statement is especially true when we consider that part of the justification for holding gold in your portfolio is that it is a safe asset that comes with limited counterparty risk. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

European Funds See Inflows For 6-Consecutive Weeks

Stock funds attracted $8.4 billion for the week ending Mar 4, according to data from Lipper. This was the biggest inflow since late December. Of these, $6.9 billion was invested in non-U.S. stock funds. U.S.-focused stock funds added $1.5 billion. This came just a week after the U.S. investors had poured the most money into non-domestic stock funds since 2013. Jeff Tjornehoj, head of Lipper Americas Research said: I think those investors are expecting a rally in European stocks after the ECB opens the QE (quantitative easing) spigots next week. As for the broader markets, it has been a mixed week so far. Optimism that the U.S. economy was gradually picking up the pace had boosted benchmarks to record highs on Monday. Nasdaq had closed above the 5k mark for the first time since Mar 2000 boosted by a new deal in the technology sector. However, markets then dropped for two consecutive days, dragged down by dismal monthly car sales and a drop in private-sector employment gains in February, among other factors. Markets rebounded on Thursday, somewhat boosted by the ECB announcing a trillion-dollar stimulus plan that will kick off on Monday. Till close of markets on Mar 5, the Dow and Nasdaq are up just 0.02% and 0.07%, while the S&P 500 is down 0.2%. Funds Flow Data As mentioned, while $6.9 billion was poured into non-U.S. stock funds, U.S.-focused stock funds added $1.5 billion. U.S.-focused stock funds were able to witness inflows, after it lost $3.1 billion in outflows in the prior week. This was the biggest outflow in three weeks. Coming back to this week, U.S.-based European stock funds witnessed inflows for the sixth-consecutive week, adding $708 million for week ending Mar 4. Inflows into these funds may have been due to investors’ expectation of a rally as the ECB begins the bond repurchase plan. Emerging market stock funds added $1.4 billion, the most since Jun 2014. Separately, Taxable bond funds and high-yield “junk” bond funds registered their ninth and sixth consecutive week of inflows, respectively. While taxable bond funds added $170 million, the latter attracted $309 million. U.S. Treasuries funds had the biggest outflows since Jun 2014, losing out on $2.8 billion. On the other hand, the Investment Company Institute reported total money market fund assets were $2.67 trillion for the week ended Mar 4, down by $18.60 billion. Markets and Key Developments This Week On Monday, Nasdaq closed above the 5000 mark for the first time since Mar 2000 boosted by a new deal in technology sector. The Dow and the S&P 500 also touched record highs as the U.S. economy is seen to be gradually picking up the pace. Markets ended in the green, despite reports of a slowdown in manufacturing activity and consumer spending. Meanwhile, interest cuts in China also drove benchmarks higher on Monday. The S&P 500 and Dow closed at a record high for the fifth and fourth time this year, respectively. Dismal monthly car sales report dragged benchmarks down from their record highs in light volume trade on Tuesday. Profit taking also retreated Nasdaq from its key 5K level. Also affecting the markets was Israeli Prime Minister Benjamin Netanyahu’s criticism of White House and Iran’s attempts of a nuclear deal. Markets ended in the red for the second consecutive day on Wednesday, handing the Dow and S&P 500 their worst closing levels since Feb 19. Some opined there was no real panic in the markets. Private-sector employment gains in February were lower than prior month. Separately, ISM services index showed modest improvement. Markets snapped a two-day losing streak on Thursday, somewhat boosted by the ECB announcing a trillion-dollar stimulus plan that will kick off on Monday. Higher-than-expected initial claims numbers had offset some gains on Thursday. It was the year’s second lightest trading session, as investors refrained from betting big bucks ahead of Friday’s nonfarm payroll report. The jobs number may influence the timing of the rate hike decision. ECB Stimulus : The European Central Bank (ECB) announced a 1 trillion euro ($1.1 trillion) bond-buying program. The repurchase is due to start from coming Monday, Mar 9. As announced in January, ECB will buy government bonds worth 60 billion euros a month through a quantitative easing program. The QE program will continue till Sep 2016. ECB President Mario Draghi said this time that ECB would purchase these bonds even if they have a negative yield. However, the negative yield should not cross -0.2%, as they need to be within the level of ECB’s deposit rate. The bank also increased growth and inflation targets. Growth estimates were revised up to 1.5%, 1.9% and 2.1% for 2015, 2016 and 2017 respectively. Draghi said: The substantial, additional easing of our monetary policy stands, supports and reinforces the emergence of more favorable developments of the euro area economy, financial market conditions and the cost of external finance for the private economy have eased further. Borrowing conditions for firms and households have improved considerably. Obamacare in Court : Another key event of this week has been the commencement of the third hearing on Obamacare in the U.S. Supreme Court. King v. Burwell is the biggest challenge Obamacare has had to deal with till now and threatens to derail President Obama’s signature policy measure. 3 Mutual Funds to Buy Given the continued inflows into the non-US stock funds and particularly in the U.S.-based European stock funds, we would suggest 3 Non-US Equity funds, that are likely to see further upside. These funds carry either a Zacks Mutual Fund Rank #1 (Strong Buy) or Zacks Mutual Fund Rank #2 (Buy). Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance, but the likely future success of the fund. Also, the funds have high total return over the last four weeks, carry no sales load and have low expense ratio. The minimum initial investment in these funds is $5000. Henderson European Focus Fund (MUTF: HFEIX ) seeks capital growth over the long term. The fund invests a majority of its net assets in equities of European firms. The fund has no limits regarding geographic asset distribution within Europe. It may invest in one country or limited number of countries. HFEIX carries a Zacks Mutual Fund Rank #2. It has returned 8.1% over the last four weeks. It carries an expense ratio of 1.11% as compared to category average of 1.50%. Ivy International Core Equity Fund (MUTF: ICEIX ) invests a lion’s share of its assets, and borrowings, in equities that are mostly traded in developed European and Asian/Pacific Basin markets. To boost return, the fund may also invest in those issuers who are either located or operate in emerging market countries. ICEIX carries a Zacks Mutual Fund Rank #1. It has returned 5.5% over the last four weeks. It carries an expense ratio of 1.04% as compared to category average of 1.19%. VY T. Rowe Price International Stock Portfolio (MUTF: IMASX ) seeks capital appreciation over the long term. The fund invests a majority of its assets in stocks of companies located outside the U.S. For diversification, the fund invests in among developed and emerging countries. The fund emphasizes large-cap companies, and to an extent also invests in mid-cap firms. However, the fund may invest in companies of all sizes. IMASX carries a Zacks Mutual Fund Rank #2. It has returned 5.5% over the last four weeks. It carries an expense ratio of 0.77% as compared to category average of 1.37%.