Tag Archives: radio

You’ll Never Guess The Top-Performing Income Strategies Of 2016

There’s been a lot of drama surrounding financial markets during the first four months of 2016. By some measures, it was the worst start to the year ever for U.S. stocks. This was followed by a surprisingly robust recovery. But for all the painful turmoil, the S&P 500 is trading pretty much where it started the year. This flat performance also means many income strategies are outperforming stocks by a wide margin in 2016. Of course, income investments come in all shapes and sizes. You can invest in high-dividend stocks (both domestic and international), high-yield bonds, Real Estate Investment Trusts (REITs), Business Development Companies (BDCs), Master Limited Partnerships (MLPs) or even strategies that generate income by selling call options against the S&P 500. Over the long term, a mixture of these strategies is most prudent. After all, every strategy has its day. What works today won’t necessarily work tomorrow. Just ask any investor in MLPs, which have been hit unusually hard by the collapse of the energy sector. Looking across today’s landscape of income investments, there’s a new, hot sector in income-generating strategies. And I bet it’s one that you have not looked at in years. As I surveyed the top-performing, income-oriented investments for 2016, I was surprised to find that it was the much-derided international stock markets – or more specifically, emerging markets – that accounted for three out of the five top-performing income investment strategies that I track. The top-performing strategy invested in REITs, but it did so across the globe. With that, here are the… Top Performing Income ETFs in 2016 Global X Super Dividend REIT ETF (NASDAQ: SRET ) – 15.72% Gain The Global X SuperDividend REIT ETF invests in 30 of the highest dividend-yielding REITs globally. SRET invests in REITs from around the globe, which diversifies both geographic and interest rate exposure. Global REITs are having their day in the sun because housing shortages – exacerbated by lagging construction after the 2008 financial crisis – have combined with a recovering economy to boost demand for real estate. SRET yields a whopping 9.09% yield. SRET makes distributions on a monthly basis, providing a regular source of income for a portfolio. The fund’s total expense ratio is 0.58%. SRET has risen 12.34% so far this year. With dividends, SRET has generated a total return of 15.72% year to date. A word of warning: The total assets of this REIT are a mere $5.6 million, so you may run into wide bid-ask spreads or even liquidity issues with this one. ALPS Emerging Sector Dividend Dogs ETF (NYSEARCA: EDOG ) – 14.19% Gain The ALPS Emerging Sector Dividend Dogs ETF tracks a proprietary index comprised of the 500 largest stocks from middle-income emerging market countries. It then invests in the five highest-yielding securities (based on regular cash dividends) in each of the 10 Global Industry Classification Standard (GICS) sectors. EDOG yields 3.79%, and makes distributions on a quarterly basis. The fund’s total expense ratio is 0.60%. EDOG has risen 13.58% so far this year. With dividends, it has generated a total return of 14.19% year to date. Pimco Municipal Income Fund II (NYSE: PML ) – 12.29% Gain The PIMCO Municipal Income Fund II is an actively managed, highly leveraged municipal fund. The fund typically generates its large distribution by venturing down the credit spectrum into non-rated and junk-rated muni debt, focusing on the intermediate and long portions of the yield curve, then leveraging its holdings. Say the words “invest in municipal bonds,” and most investors can barely stifle a yawn. Yet, returns on municipal bonds have beaten the broader stock market in 2015 and are among the best-performing income investments over the past five years. That’s a surprise. After all, in 2012, major cities in the United States such as Detroit and San Bernardino, California, went bankrupt. Analyst Meredith Whitney grabbed headlines with her prediction that there would be between 50 and 100 “significant” municipal bond defaults in 2011, totaling “hundreds of billions” of dollars. Very little of this doom and gloom came to pass. PML yields 6.12%. PML has maintained a level income-only monthly distribution of $0.065 per share since 2007. PML has logged returns of an annualized 13.46% over the past five years. The fund’s total expense ratio is a relatively high 1.16%. PML has risen 9.99% so far this year and, with dividends, it has generated a total return of 12.29% year to date. EGShares Low Volatility Emerging Markets Dividend ETF (NYSEARCA: HILO ) – 9.49% Gain The EGShares Low Volatility Emerging Markets Dividend ETF tracks the EGAI Emerging Markets Quality Dividend Index. This is an equal-weighted index designed to represent a portfolio of approximately 50 companies in developing markets, each of which has a higher dividend yield than the average dividend yield in the EGAI Developing Markets Universe. The fund also seeks to capture dividend quality by screening for factors such as return on equity, positive earnings growth, maximum dividend yield and three-year dividend payment consistency. HILO yields 2.89%. HILO makes distributions on a quarterly basis. The fund’s total expense ratio is a relatively high 0.85%. HILO has risen 8.72% so far this year and, with dividends, it has generated a total return of 9.49% year to date. Global X SuperDividend Emerging Markets ETF (NYSEARCA: SDEM ) – 9.12% Gain The Global X SuperDividend Emerging Markets ETF invests in 50 of the highest dividend-yielding equities in emerging markets. Investing in high dividend-yielding securities in the emerging market space combines a value-oriented investment approach with exposure to markets that are expected to grow at a faster pace than developed markets. SDEM yields 6.89%. SDEM makes distributions on a monthly basis, providing a regular source of income for a portfolio. The fund’s total expense ratio is 0.65%. SDEM has risen 6.92% so far this year. With dividends, it has generated a total return of 9.12% year to date.

Millennials: Here’s Your Best 2016 Investment Portfolio

Congratulations! Here you are. A successful millennial. For the sake of argument, we are going to put you in the middle of this group, generally described as being born roughly between 1980 and 2000. We’ll stipulate that you are born in 1990, so graduated college in 2012 and are now four years into your working career. At 26 years of age, you have a long and bright working future ahead of you. You are clever enough to know that you should start investing now. At the same time, you are not all about money. You don’t want to be a slave to your investments, you want your investments to be a slave to you, and give you both the time and freedom to devote to the things that are important to you. Click to enlarge I’ll cut right to the chase. There are a ton of investment strategies from which you can choose. Here is the one I would suggest. First, open a brokerage account at Fidelity Investments. Second, buy these six ETFs, in the weightings shown: 45% – iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA: ITOT ) 10% – iShares Core High Dividend ETF (NYSEARCA: HDV ) 30% – iShares Core MSCI EAFE ETF (NYSEARCA: IEFA ) 5% – iShares Core MSCI Emerging Markets ETF (NYSEARCA: IEMG ) 5% – iShares Core U.S. Aggregate Bond ETF (NYSEARCA: AGG ) 5% – iShares TIPS Bond ETF (NYSEARCA: TIP ) Third, set up a schedule to rebalance regularly back to these weightings. That’s it. We’re done. I told you I would keep this brief. You can simply stop right here and implement the plan that I suggest. I’m guessing, though, that you won’t. You’d like to know a little more. OK, then. Feel free to read as little or much of what comes next as you wish. I’ll share a few basic thoughts, and then provide some links to yet further reading if you so desire. What’s So Great About This Portfolio? Simplicity: Containing only six ETFs, this portfolio will be extremely simple to both maintain and track. However, simple does not mean simplistic. I’ll talk about this a little more in the “diversification” section below. Low Costs: The cost, or overhead, is extremely small. Simply put, the greater the expenses your portfolio incurs, the less that makes it into your pocket. If you follow the links to the ETFs I provided above, you will notice that they sport expense ratios of between .03% and .20%. At the allocations I suggest, I calculate that your overall weighted expense ratio comes out to .0835%. That’s right. About eight hundredths of one percent. The rest? Into your pockets, to compound and grow. Zero Commissions: This is an important one. Likely, you will want to set up a regular investment plan, investing small incremental amounts on a regular basis. While ETFs are a great investment vehicle, if you have to pay $8-10 for every transaction, you lose the benefits very quickly. The ETFs I suggest are included in the 70 iShares ETFs that Fidelity allows you to trade commission-free. Diversification: Within the portfolio, you will gain exposure to both domestic and foreign stocks (including a modest allocation to emerging markets), bonds, and TIPS (Treasury Inflation Protected Securities). The weightings I suggest are relatively aggressive; appropriate for someone in their mid-20s to approximately 30. At the same time, I am including an element of defensiveness in the portfolio by including a small weighting directed at quality, dividend-paying stocks, as well as bonds and TIPS. These selections will both generate a little income that you can reinvest over time as well as offer a measure of protection should the market experience a steep decline; allowing you to rebalance the portfolio. Background and Further Reading Finally, let me share a little background information regarding how I came to this specific recommendation, as well as links to some further reading. Late last year, as part of my work as a contributor for Seeking Alpha, I researched the 2016 investment outlooks of several respected investment houses. Using that research as a guide, I created The ETF Monkey 2016 Model Portfolio . Next, I set up and tracked three iterations of the portfolio: Vanguard , Fidelity , and Charles Schwab . While, as I will explain below, I chose to feature Fidelity, you could follow the basic principles set out in this article and set up your portfolio at either Vanguard or Charles Schwab. The key, of course, would be to select ETFs that you could trade commission-free in each case. When I set up the portfolio, I must admit that my initial bias was in favor of Vanguard. Vanguard is a legendary provider, and offers a large selection of ETFs with some of the most competitive expense ratios in the marketplace. However, as I reported in my Q1 update , the Fidelity implementation was actually the top performer of the three. This slight outperformance has continued as of the date I sat down to write this article. Therefore, I decided to use Fidelity as my provider of choice. Finally, here is a little more detail on some recent changes to the iShares Core S&P Total U.S. Stock Market ETF , the largest component of my recommended portfolio, as well as some thoughts on portfolio rebalancing . I hope this brief article has offered a helpful starting point. Feel free to drop your questions and comments below, and I will do my best to answer them. Disclosure: I am not a registered investment advisor or broker/dealer. Readers are cautioned that the material contained herein should be used solely for informational purposes, and are encouraged to consult with their financial and/or tax advisor respecting the applicability of this information to their personal circumstances. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.

A Distinctly Canadian View Of Emerging Markets

Figuring out whether developed equity markets will outperform emerging market stocks has been no easy task, even if the choices couldn’t be any starker. By now, we are all familiar with the potential benefits of emerging markets: They have grown at a faster pace than developed economies, their population is younger , and they will soon be expected to aspire to consume many of the things people in the developed world take for granted. Sounds pretty good, right? Not so fast. These seeming positives have been in place for many years, and yet emerging markets have pretty consistently underperformed most developed markets since 2011. A combination of falling commodity prices, heightened political risk, slower (but still relatively brisk) economic growth, rampant corruption, a stalled reform agenda and limited earnings growth have all weighed on performance to one degree or another across the emerging world over this time period. So while emerging markets appear inexpensive, they are not unambiguously cheap. For Canadian investors, it’s even less clear if emerging markets will prove to be a winning destination for investment capital. As I’ll show, the loonie has tended to move with EM currencies, correlations between EM and Canadian equities have been high, and the sector composition was reasonably similar for a long time. That said, some of these factors are changing and even boosting the allure of holding EM equities in a portfolio. Currency Since the January lows, emerging market stocks have posted sizeable returns in US dollars, but the results are much less impressive in Canadian dollar terms, thanks to strength in the loonie. Some of the same factors lifting emerging market stocks, bonds and currencies also support the Canadian dollar and Canadian stocks: a rebound in commodity prices, a more patient Federal Reserve and less dire news about the global economy, especially out of China. This result shouldn’t seem all that surprising; the Canadian dollar has closely tracked emerging market currencies since 2010 (see the chart below). Consequently, Canadian investors don’t get as much of a boost to performance from appreciating EM currencies when risk appetites are growing and the global economy is accelerating, because the Canadian dollar is typically rising too. That said, EM currencies could potentially appreciate against the loonie given how far they’ve fallen. Click to enlarge Correlation Assets that exhibit a high positive correlation have more muted diversification benefits. If emerging market currencies and the Canadian dollar tend to appreciate together, then what about the correlation between EM and Canadian stocks? Here again, there’s another tight fit and another reason for Canadians to be apprehensive about the diversification benefits of owning emerging market equities. Looking at the chart below, Canadian equities have been much more positively correlated to EM equities since 2005 than to US or other international developed stock markets (represented by MSCI EAFE). That said, we should note that the high positive correlation of EM and Canadian equities have declined in recent years, boosting the diversification benefit. Click to enlarge Composition One reason correlations were this high – and the diversification benefits for Canadian investors this low – may have something to do with the similarity of industry exposures: the energy, materials and financials sectors made up more than half of the market cap of both Canadian and emerging market stocks. In the past five years, however, something interesting has happened. Thanks to the initial public offerings of many high-tech companies, the information technology sector has grown to more than a fifth of the emerging market equity index (see the chart below), whereas it’s less than 3% of the MSCI Canada index. As a result, EM may begin to deviate more from Canadian equities because of shifting sector exposures. The expansion of the tech sector is both a sign of, and offers investors exposure to, the convergence of emerging markets to developed economies. Click to enlarge Although not without risks, we’re warming up to emerging market equities and continue to believe in the possibility of improved investment returns based on better demography, faster growth and pent-up consumer demand. For Canadian investors, we see room for EM currency appreciation versus the loonie and better portfolio diversification benefits over time than has historically been the case. Source: BlackRock Investment Institute and Bloomberg. This post originally appeared on the BlackRock Blog.