Tag Archives: house

Managing ETF Liquidity

Over the years, certain ETFs have had problems with pricing in the face of extreme market events. If you use ETFs, then you should read the article to better understand the potential drawbacks to using ETFs; but there are also drawbacks to traditional funds as well as individual issues. A fundamental building block for how I view just about everything is to try to give myself as many options as possible, and it relates here. By Roger Nusbaum, AdvisorShares ETF Strategist ETF.com had a detailed post titled ” How Illiquid Are Bond ETFs, Really? ” Over the years, certain ETFs have had problems with pricing in the face of extreme market events. This first came to the fore in the fall of 2008 for fixed income funds, when the bond market didn’t function correctly for a short while (subjectively you may think a long while, as the markets for commercial paper and floating-rate preferreds were devastated). Since then, there have been a couple of other instances where ETFs “didn’t work” for a very short period. Part of the equation, as we learned in 2008, was that ETFs trade more regularly than the things they track. However, this can be true for fixed income markets, for example, but typically not for domestic equities, which is a point Dave Nadig explores in great detail in the above-linked article. If you use ETFs, then you should read the article to better understand the potential drawbacks to using ETFs; but there are also drawbacks to traditional funds as well as individual issues. One solution is to not invest at all, which I am not dismissive of, but the drawback there would be the need for a much higher savings rate. It has been three months since that 1000-point down open for the Dow, when a lot of these ETF issues popped up again in conjunction with investors and advisors getting whipsawed badly as stop order selected based on an inefficient open where funds traded at very wide discounts. As an “oh by the way,” if you missed it, the NYSE and Nasdaq will no longer accept stop orders. The idea that investment products have drawbacks is not a new one as far as this blog is concerned, but maybe it is correct to that the drawbacks are evolving, or we are learning more about them at least as far as ETFs are concerned. Where there is risk that ETFs may not price correctly or efficiently, it makes sense to position yourself where you are not subject to the risk, specifically being in the position where you must sell when one of these extreme market events is under way. This is not a comment about timing the market, but more like “Ok, the market just fell 8% in ten minutes, it’s probably not a good time to sell for the monthly withdrawal or rebalance.” (Assuming speculating on an extreme market event is not part of the investment strategy.) I also think this is an argument against an all-something (ETF, traditional fund, individual issue) portfolio, as opposed to having various types of products. It is also about cash management. Most advisors will tell you not put money into the stock market that you might or will need within five years, like a down payment for a house or college tuition, with the idea being that five years may not be enough time to recover from a large market decline. While keeping five years of cash on hand as part of an investment strategy in retirement is not ideal, it makes sense to stay ahead of the regular withdrawal need by a couple of months or so. That way, an intention to sell on the morning of August 24th can be pushed back to avoid participating in temporarily extreme trading. Emergency needs can also be mitigated. We talked about this before, but in addition to regular spending, there are one-off events that can be budgeted for very easily, and that do seem to come up semi-regularly. Examples of this includes new tires, vet bills (one of our dogs tore her cruciate in October), something with the house and so on. I am a fan of segregating several months of emergency funding, maybe assuming $1000/month, and all the better if not all of it gets spent, but it is another way of not selling today because you have today to pay for something. A fundamental building block for how I view just about everything is to try to give myself as many options as possible, and it relates here. ETFs offer access and ease of diversification, so instead of avoiding them, understand the drawbacks, insulate against those drawbacks and use different types of products. It doesn’t really matter if an ETF traded at a 20% discount to its IIV for 40 minutes on August 24th, except to the person who sold in the middle of that because he “had to.”

Feast With These Stocks And ETFs On Thanksgiving

We are barely a few hours away from Thanksgiving Day which kick starts the one month-long holiday season. While most Americans warm up for their annual shopping gala on the fourth Thursday of November every year – which goes by giving thanks for all good things in life – the day mainly calls for celebratory meals with family and friends, at home or outside. This year, savings on gas stations thanks to cheap oil prices, an improving job market and still-contained inflation should lay a copious spread on the Thanksgiving table. How Pricey Are Thanksgiving Meals This Year? The national average cost of a Thanksgiving feast last year tallied $49.41 , as per the American Farm Bureau Federation. Though the Farm Bureau survey indicated that this cost stayed the same or somewhat declined from the prior year and moved along the consumer price index, ‘the average cost of Thanksgiving dinner for 10 people’ will likely cross $50 for the first time in 2015 since the agency started following the data. The spike in the price of turkey, the focus of the dining table, thanks to a supply crunch caused by bird flu is mainly behind the expected rise in cost. But, industry experts also believe that on an inflation-adjusted basis, prices are quite reasonable. Moreover, this year, consumers can also import fruits , vegetables, wines and cheeses at cheaper prices thanks to a soaring greenback. Yields of corn, wheat and soybeans are also abundant. As per USDA ‘s projection in October, all food price index is up 1.7% so far in 2015, below the 20-year historical average of 2.6%. Food away from home inflation is 2.5% this year against the 2.7% historical average while food at home inflation is just 1.1%, drastically lower than the historical average of 2.6%. In any case, restaurant industry sales are projected to peak in 2015 with a record high of $709.2 billion, representing the sixth successive year of real expansion in restaurant sales, per National Restaurant Association. If online sales are considered, Thanksgiving Day is expected to see an 18% year-over-year rise to $1.6 billion. It will be the ‘fastest growing online sales day for the second consecutive year’, per Adobe . So food and beverage companies are pinning their hopes on this Thanksgiving for huge profits. This is a key business-boosting occasion for these stocks and the related ETFs. Let’s take a look at the stocks and ETFs investors can gobble up for some gains throughout the holiday season. Stock Picks B&G Foods Inc. (NYSE: BGS ) The company makes and markets packed and easy-to-store food and household products. Its products basket carries hot cereals, fruit spreads, canned meats and beans, bagel chips, spices, seasonings, hot sauces, wine vinegar, Mexican-style sauces, pickles, peppers, salad dressings, dry soups, puffed corn and rice snacks and many more. The list clearly indicates why the stock should be a hit on Thanksgiving. B&G has a Zacks Rank #1 (Strong Buy) and is up over 23% so far this year (as of November 24, 2015). Constellation Brands Inc. (NYSE: STZ ) The company, along with its subsidiaries, brews and markets beer, wine, and spirits in North America, Mexico, New Zealand and Italy. Wine’s compatibility with turkey at Thanksgiving dinner has put this company in focus. Constellation Brands has a Zacks Rank #2 (Buy) and a Growth score of ‘A’. STZ is up over 44% so far this year. The Kroger Co. (NYSE: KR ) Kroger, with its subsidiaries, operates as a retailer in the U.S. and abroad. It is the manufacturer and processor of food that is sold in its supermarkets. Kroger has a Zacks Rank #2, a Growth score of ‘B’ and a Value Score of ‘B’. KR is up about 16% so far this year. Ruth’s Hospitality Group Inc. (NASDAQ: RUTH ) The restaurateur’s Chris Steak House concept is among the bunch of eateries, which will remain open on Thanksgiving. The Florida-based company has a Zacks Rank #2 and a Value score of ‘A’. The stock is up over 15%. ETF Picks PowerShares Dynamic Food & Beverage Portfolio ETF (NYSEARCA: PBJ ) This product offers exposure to the stocks that are engaged in the manufacture, sale or distribution of food and beverage products, agricultural products and products related to the development of new food technologies. The $244.3-million ETF puts about 5% weight in Starbucks (NASDAQ: SBUX ), PepsiCo (NYSE: PEP ), Kroger, Mondelez (NASDAQ: MDLZ ) and Sysco (NYSE: SYY ) each. PBJ charges 58 bps in fees and is up 7.4% in the year-to-date frame (as of November 24, 2015). PBJ has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook. The Restaurant ETF (NASDAQ: BITE ) This is a new ETF that gives investors access to the ‘food-away-from’ industry. No stock accounts for more than 3.09% weight of the 45-stock portfolio. At present, McDonald’s (NYSE: MCD ) takes the top spot. BITE charges 75 bps in fees. Market Vectors-Agribusiness ETF (NYSEARCA: MOO ) This $963-million ETF gives investors exposure to the overall performance of the global agribusiness industry. The U.S. makes up over half of the basket. Stocks like Monsanto (NYSE: MON ) and Syngenta (NYSE: SYT ) take over 8% each in the fund. MOO charges 57 bps in fees and is down 7.8% so far this year. Consumer Staples Select Sector SPDR ETF (NYSEARCA: XLP ) This is the most popular consumer ETF with about $7.8 billion of assets. The fund charges 14 bps in fees per year from investors. Food & Staples Retailing takes over 24% of the basket followed by beverages with over 21% weight. Food products take about 15.8% of the fund. XLP is up about 2.4% and has a Zacks ETF Rank #3 with a Medium risk outlook. Original Post

Things Won’t Stay The Same

My kids keep growing up, and it continues to surprise me. One who was just learning to stay upright is now a constant chatterbox and a daredevil on her Strider bike. The other seems to have grown a foot this year, and has gone from quiet and reserved to confident ringleader of her friends. But the realization I’ve recently had is that it is so easy for us to assume the current state of affairs will perpetuate into the future. The little baby who was so happy to sit and play with a toy was suddenly gone, whether I was prepared for it or not. Someday soon, both of my girls will be in high school fighting over clothes and car keys. In the moment, that is hard to remember. Whether things are great and everyone in the house is sleeping and happy and playing nicely together or we’re up four times a night and separating a fight every twenty minutes, it is easy to believe that this is how things will always be. In behavioral finance, this effect is known as recency bias . It is our strong tendency to extrapolate recent events forward into the future. And investors do this all the time. I mean all the time . In March 2009, as the stock market was approaching generational lows, the most popular headlines and predictions were that the Dow Jones Industrial Average, having just passed below 7000, would continue to drop as low as 3000. And of course, the most famous example of recency bias is the book Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market . Published near the height of the stock market in 1999, when the DJIA was just above 11,000, the book was wildly wrong. But it was a perfect example of how easy it is for us to see a pattern and project it into the future. We haven’t learned much since the 2008-2009 bear market or the late ’90s tech bubble. Oil prices seem to been in a near free fall for the past few years. So guess what is being predicted? More declines! Goldman Sachs suggested that oil prices could go to $20 a barrel in September. Of course, in 2008, Goldman Sachs also predicted that prices, then over $140 a barrel, would eventually surpass $200 a barrel. Making professional predictions is fairly easy – you take the recent changes and extrapolate them into the future. Tada! And of course, it isn’t just professionals making outlandish predictions that fall prey to recency issues. Individual investors are just as bad. Emerging markets have been dismal for the past several years. Returns have been negative so far in 2015, and emerging market stocks lost money in 3 of the last 4 calendar years. In May 2015, EM stocks started a nasty slide. By September, investors assuming that the recent past would continue indefinitely had had enough, and started pulling money out of these funds. Here’s what flows out of Vanguard’s Emerging Markets ETF looked like this year. Investors love to hear and talk about what is going on in the market “right now.” We love this idea because we assume that “right now” will continue into the future. But what is true today won’t necessarily be true tomorrow. The world is a changing place, and always has been. Don’t be fooled thinking anything else.