Tag Archives: nysearcatip

This ETF Will Tell You A Lot About Inflation Expectations

Summary Inflation is a scary word, as it generally presages effects like rising interest rates, higher costs of living, and climbing commodity prices. Based on widely accepted measures such as the Consumer Price Index (CPI), inflation has been kept in check or steadily trending downward over the last several years. Another way to gauge inflation expectation is by taking the temperature of the fixed-income markets. Inflation is a scary word, as it generally presages effects like rising interest rates, higher costs of living, and climbing commodity prices. This has been one of the expected outcomes from the Fed’s implementation of quantitative easing during the course of the last half decade. Yet, despite their best efforts, inflation has been a non-event in the economic recovery from the 2009 lows. Based on widely accepted measures such as the Consumer Price Index ((NYSEARCA: CPI )), inflation has been kept in check or steadily trending downward over the last several years. Obviously the decline in traditional commodity and agriculture prices has helped keep input costs in check, which have in turn carried forward to products and services we consume. Another way to gauge inflation expectation is by taking the temperature of the fixed-income markets. One of my preferred methods for this task is monitoring the price trend of the iShares TIPS ETF (NYSEARCA: TIP ). This ETF has $13.5 billion dedicated to a portfolio of 39 Treasury Inflation Protected Securities. TIP has an expense ratio of 0.20% and an average duration of 7.71 years. Most investors incorrectly assume that something with “inflation protection” in the name must mean it works well in a rising interest rate environment. However, TIPs function by readjusting their coupon payments based on the movement in CPI. Essentially they offer an insurance component that makes them attractive to own when inflation measures are on the move higher. A look at the chart of TIP below shows how fixed-income investors perceive the likelihood of true inflationary pressures creeping up. Not only is the price of TIP trending lower, but the short and long-term moving averages are also sloping down as well. Of course, it’s important to consider the price trend of TIP in context of the wider bond market as well. When you compare this index against a basket of traditional intermediate-term Treasury bonds, it makes the divergence even more pronounced. Below is a 1-year performance comparison between TIP and the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ). The spread between these two indexes shows a big separation since mid-July, when the talk about the Fed raising interest rates really started to gain some traction. So what does this mean for your portfolio? The primary reason for owning TIPs is to gain a hedge against inflationary pressures. Right now there isn’t any evidence to support this thesis. One day that will probably change, but for the time being I am avoiding any significant ownership of this sector. It makes more sense to stay focused on areas of the bond market that offer higher yields, solid trends, or a compelling advantage for your specific portfolio . One such fund that I own for clients in my Strategic Income Portfolio is the SPDR DoubleLine Total Return Tactical ETF (NYSEARCA: TOTL ). This actively managed ETF owns a variety of quality and credit securities across multiple attractive sectors of the bond market. TOTL eschews any TIPs exposure for greater focus on mortgage backed securities, emerging market bonds, and a mix of corporates. This ETF has a 30-day SEC yield of 3.18%, average duration of 4.25 years, and charges an expense ratio of 0.55%. The Bottom Line TIP is a solid index to monitor for a sense of where the market perceives inflation to be headed over the short and intermediate-term time frames. However, I would prefer to own this ETF in the midst of a strong price trend and more supportive fundamentals for inflationary statistics.

Ivy Portfolio August Update

The Ivy Portfolio spreadsheet tracks the 10-month moving average signals for two portfolios listed in Mebane Faber’s book, The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets . Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks both the 5 and 10 ETF portfolios listed in Faber’s book. When a security is trading below its 10-month simple moving average, the position is listed as “Cash”. When the security is trading above its 10-month simple moving average, the positions is listed as “Invested”. The spreadsheet’s signals update once daily (typically in the late evening) using the dividend/split adjusted closing price from Yahoo Finance. The 10-month simple moving average is based on the most recent 10 months, including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10-month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10-month SMA. This could also potentially impact whether an ETF is above or below its 10-month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on July 31st’s adjusted closing prices are below. This month the Vanguard Total Bond Market ETF (NYSEARCA: BND ), the SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ), the Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ), the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ), the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ), the Vanguard REIT Index ETF (NYSEARCA: VNQ ) and the iShares TIPS Bond ETF (NYSEARCA: TIP ) are below their 10-month moving average. The spreadsheet also provides quarterly, half yearly, and yearly return data courtesy of Finviz. The return data is useful for those interested in overlaying a momentum strategy with the 10-month SMA strategy: (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10-month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker. Below are the 10-month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosure: None

Ivy Portfolio July Update

The Ivy Portfolio spreadsheet track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets . Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term moving averages. The Ivy Portfolio spreadsheet tracks both the 5 and 10 ETF Portfolios listed in Faber’s book. When a security is trading below its 10 month simple moving average, the position is listed as “Cash”. When the security is trading above its 10 month simple moving average the positions is listed as “Invested”. The spreadsheet’s signals update once daily (typically in the late evening) using dividend/split adjusted closing price from Yahoo Finance. The 10 month simple moving average is based on the most recent 10 months including the current month’s most recent daily closing price. Even though the signals update daily, it is not an endorsement to check signals daily or trade based on daily updates. It simply gives the spreadsheet more versatility for users to check at his or her leisure. The page also displays the percentage each ETF within the Ivy 10 and Ivy 5 Portfolio is above or below the current 10 month simple moving average, using both adjusted and unadjusted data. If an ETF has paid a dividend or split within the past 10 months, then when comparing the adjusted/unadjusted data you will see differences in the percent an ETF is above/below the 10 month SMA. This could also potentially impact whether an ETF is above or below its 10 month SMA. Regardless of whether you prefer the adjusted or unadjusted data, it is important to remain consistent in your approach. My preference is to use adjusted data when evaluating signals. The current signals based on June 30th’s adjusted closing prices are below. As of the close May 29, the PowerShares DB Commodity Index Tracking ETF (NYSEARCA: DBC ) , the iShares S&P GSCI Commodity-Indexed Trust ETF (NYSEARCA: GSG ), the Vanguard REIT Index ETF (NYSEARCA: VNQ ) and the iShares TIPS Bond ETF (NYSEARCA: TIP ) were below their 10 month moving average. This month those 4 ETFs remain below their moving average. In addition, the Vanguard Total Bond Market ETF (NYSEARCA: BND ), the SPDR Dow Jones International Real Estate ETF (NYSEARCA: RWX ), TIP and the Vanguard FTSE Emerging Markets ETF (VWO ) are now also below their 10 month moving average. The spreadsheet also provides quarterly, half year, and yearly return data courtesy of Finviz . The return data is useful for those interested in overlaying a momentum strategy with the 10 month SMA strategy: (click to enlarge) (click to enlarge) I also provide a “Commission-Free” Ivy Portfolio spreadsheet as an added bonus. This document tracks the 10 month moving averages for four different portfolios designed for TD Ameritrade, Fidelity, Charles Schwab, and Vanguard commission-free ETF offers. Not all ETFs in each portfolio are commission free, as each broker limits the selection of commission-free ETFs and viable ETFs may not exist in each asset class. Other restrictions and limitations may apply depending on each broker. Below are the 10 month moving average signals (using adjusted price data) for the commission-free portfolios: (click to enlarge) (click to enlarge) Disclosures: None