Tag Archives: zacks funds

Want To Stay Away From Puerto Rico? Bet On These Muni ETFs

The present rocky investing backdrop has made muni bond ETFs winners along with Treasury bonds. Most of the muni bond ETFs are in the green in the year-to-date frame, and many have hit a 52-week high in the last few days. But do these deserve such love given Puerto Rico’s debt crisis? It is widespread news in the muni bonds investing world that Puerto Rico – a big issuer of muni bonds – runs a high risk of default. In early May, Puerto Rico defaulted on $367 million in debt . Buried under recession for years, the island now bears a huge debt load of $72 billion and requires restructuring . A year ago, Charles Schwab’s data revealed that Puerto Rico’s debt obligation reached as high as 95% of its economic output. This was surprisingly higher than 2.4% of the median debt load for the 50 U.S. states. Needless to say, investing in Puerto Rico muni bonds or ETFs that are heavy on these bonds require a strong risk appetite. This does not mean that investors should shy away from entire array of muni bond ETFs. After all, munis are safer bets than corporate bonds and yield better than Treasuries. Notably, the yield on the 10-year Treasury note has slid 48 bps to 1.76%, and the yield on the long-term 30-year bonds has seen a 39 bps plunge to 2.59% this year (as of May 17, 2016). Usually, the interest income from munis is free from federal tax and occasionally even state taxes, making them particularly intriguing to investors falling in the high tax cohort looking to cut their tax burden. With the Fed still having a patient attitude on the rate hike issue this year, the higher yield nature of the munis should quench the thirst for current income. So, risk-averse investors can definitely play muni bond ETFs that are devoid of Puerto Rico exposure. Below, we highlight a few such options. Notably, all the below mentioned ETFs hit a 52-week high on May 17, 2016. iShares National AMT-Free Muni Bond ETF (NYSEARCA: MUB ) MUB has a trailing 12-month yield of 2.33%. The product provides access to more than 3000 municipal bonds with higher credit quality. It has a Zacks ETF Rank #3 (Hold) with a High risk outlook. SPDR Nuveen Barclays Municipal Bond ETF (NYSEARCA: TFI ) The $1.90 billion ETF holds 882 bonds in its portfolio. The fund charges 23 bps in fees and yields 1.85% annually (as of May 17, 2016). Moreover, this fund houses higher investment-grade bonds. TFI has a Zacks ETF Rank #3 with a Medium risk outlook. VanEck Vectors AMT-Free Long Municipal Index ETF (NYSEARCA: MLN ) Devoid of any meaningful exposure to Puerto Rico, the top priorities of this fund are California (18.8%) and New York (13%). It yields 3.16% annually (as of May 17, 2016). More than half of the portfolio is high-quality in nature. MLN has a Zacks ETF Rank #3 with a High risk outlook. VanEck Vectors AMT-Free Intermediate Municipal Index ETF (NYSEARCA: ITM ) The fund replicates the performance of the medium-duration bonds. New York (16.4%), California (15.5%) and Texas (10.3%) have a double-digit exposure in the fund. ITM yields 2.22% annually (as of May 17, 2016). Investment-grade bonds make up a major share of the fund. It has a Zacks ETF Rank #3 with a High risk outlook. Original Post

Bond ETFs To Play If Fed Hikes In June

With the U.S. economy on the mend after a lukewarm Q1, a Fed rate hike possibility in June is back on the table. At least, the latest Fed minutes suggest that. A spate of stronger U.S. economic data in the field of retail, consumer sentiment, inflation and housing must have boosted the Fed’s confidence. The labor market and the manufacturing sector also seem sound. However, the June hike possibilities came as a shock to investors as they grossly shifted back the timeline of a hike in the wake of moderation in U.S. growth. Whatever the case, further Fed rate hikes are likely to bring in changes in investing sentiments. Against this backdrop, those who have started speculating a sooner-than-expected hike in the Fed interest rates must be worrying about the stability of their fixed income holding. Investors should note that yields on short-term bonds started to move higher since the release of the minutes. The yield on three-month bonds was 0.31% on May 19, 2016, up 3 bps from the yield recorded on May 17, 2016. Fixed-income investing has enjoyed a great show so far in 2016, especially in the longer part of the yield curve. However, the prospect of rising rates and risks to capital gains of bond holdings have left investors jittery about the safety of their portfolio. Given the situation, many investors are definitely pulling their money out of the bond market. At a time like this when investors are extremely cautious about rising rate risks and stock market volatility, investments in the below-mentioned bond ETFs can be intriguing bets. WisdomTree BofA Merrill Lynch High Yield Bond Negative Duration ETF (NASDAQ: HYND ) If investors are worrying about interest rate risks, negative duration bonds may come to rescue. Plus, this fund offers substantial yields which can easily beat out the benchmark yield. In addition, risks over junk bond investing are easing now with the ongoing energy sector recovery. This fund tracks the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained, Negative Seven Duration Index. The benchmark is a combination of the long and short portfolio. The long portfolio mirrors the BofA Merrill Lynch 0-5 Year U.S. High Yield Constrained Index, targeting non-investment grade corporate debt securities issued in the U.S. and maturing in five years. The short portfolio holds the short positions in U.S. Treasuries that surpasses the duration of the long portfolio, resulting in a targeted total duration of about negative 7 years. The fund puts heavy focus on junk bonds. It has a fee of 48 bps. The fund yields 4.55% annually (as of May 19, 2016). Sit Rising Rate ETF (NYSEARCA: RISE ) The ETF looks to track the performance of a portfolio comprising exchange-traded futures contracts and options on futures on two-, five- and 10-year U.S. Treasury securities weighted to attain the targeted negative 10-year average effective portfolio duration. Through this method, the ETF would see a 10% price appreciation with a 1% rise in U.S. Treasury yields. SPDR DoubleLine Total Return Tactical ETF (NYSEARCA: TOTL ) TOTL, an actively managed fund, has its foundation based on the principles of the DoubleLine’s sought-after investment research. The product seeks total return, while emphasizing income by investing in a global portfolio of fixed income securities of various maturities and ratings, though more-or-less 10% of the portfolio goes to the international arena. The fund looks to utilize various investment strategies in a broad array of fixed income sectors. It puts about 55% of assets in mortgage-backed securities. The fund charges 55 bps in fees. The fund has a modified adjusted duration of 3.90 years while its current yield stands at 2.58% (as of May 19, 2016). VanEck Vectors Investment Grade Floating Rate ETF (NYSEARCA: FLTR ) Floating rate notes are investment grade bonds that do not pay a fixed rate to investors but have variable coupon rates that are often tied to an underlying index (such as LIBOR) plus a variable spread depending on the credit risk of issuers. Since the coupons of these bonds are adjusted periodically, these are less sensitive to an increase in rates compared to traditional bonds. Investors can thus play the theme with FLTR. Effective duration of the fund is as low as 0.13 years. SPDR Barclays 1-10 Year TIPS ETF (NYSEARCA: TIPX ) The fund looks to track the Barclays 1-10 Year Government Inflation-linked Bond index. Since the inflation picture is improving in the U.S. and a solid inflationary outlook is a prerequisite of the Fed tightening policy, this TIPS ETF can be considered a good bet. The fund has moderate interest rate risk as noted by modified adjusted duration of 4.71 years. SPDR Nuveen Barclays Capital Build America Bond ETF (NYSEARCA: BABS ) Investors should note that the short-term bond ETFs would be under greater pressure if the Fed acts in June. The yield on the 10-year U.S. Treasury note actually fell 2 bps to 1.85% on May 19, 2016 from the earlier day while the yield on three-month treasury notes increased by one basis point. This pattern should help long-term bond investing. For this reason, we chose this muni bond ETF which yields about 3.15% annually (as of May 19, 2016). These bonds are safer than high-yield corporate bonds. Original Post

Confused About Market Trend? Buy These Balanced Funds

A portfolio that offers a mix of both equity and fixed-income investments may be ideal for those who are confused about the market trend in the near future. With the first-quarter earnings season nearing its end and uncertainty over rate hike taking the front seat, investing in balanced mutual funds may prove profitable. Balanced mutual funds that invest 30-50% of their assets in equity securities have registered an average return of 2.2% in the year-to-date frame, the highest among the allocation mutual fund categories, according to Morningstar. Also, this was the best-performing segment among the allocation mutual fund categories over the past one month. So, favorably ranked mutual funds form the above-mentioned category may be lucrative investment propositions. June Hike in the Cards The minutes from the Fed’s policy meeting in April that released yesterday showed several Fed officials’ verdict of a hike next month if the U.S. economy continues to show signs of improvement. The minutes stated: “Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labor markets continued to strengthen, and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June.” Separately, San Francisco Fed President John Williams recently said that following continued moderate growth, two to three rate hikes this year “makes sense.” “The data” he added, “are lining up to make a good case for rate increases in the next few meetings, not just June.” Also, Atlanta Fed President Dennis Lockhart said that the recent “encouraging” inflation data showed a growth in U.S. economy. High-quality global journalism requires investment. He added that “if the data continue to be encouraging” he would “certainly entertain some policy move in June.” Though some of the Fed officials showed concerns over sluggish first-quarter growth and weak global growth conditions, most of pointed to “the steady improvement in the labor market as an indicator that the underlying pace of economic activity had likely not deteriorated.” The significant rise in possibilities of a raise in June led investors to doubt market movement. Oil Price Fluctuations Persist As the first-quarter earnings season is almost over, oil price movement and economic data are likely to set the market trend in coming days. Despite the recent rally, oil prices continued to witness fluctuations as major oil-producing nations failed to reach an agreement on production freeze. Russia’s Energy Minister Alexander Novak’s discouraging comments weighed down on oil prices. Novak recently said that as the global crude surplus remained at 1.5 million barrels per day (bpd), “(the outlook that the market won’t balance until the first half of 2017) is an optimistic forecast as oversupply persists.” However, the recent positive outlook from Goldman Sachs Group, Inc. gave a boost to oil prices. Goldman Sachs said that oil market encountered a deficit in crude output following production disruptions in Nigeria and Canada. Goldman also said that “the oil market has gone from nearing storage saturation to being in deficit much earlier than” it expected. The firm also projected that WTI crude may reach $50 per barrel in the second half of this year and register modest increases in 2017. Thus, uncertainty regarding crude price movement in the coming months also raised doubts over market movement in near future. 4 Balanced Funds to Buy In this scenario, we have highlighted four Balanced Mutual Funds that carry a Zacks Mutual Fund Rank #1 (Strong Buy) and allocate between 30% and 50% of their assets in equity securities. We expect these funds to outperform their peers in the future. 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 also on the likely future success of the fund. Moreover, these funds have encouraging year-to-date, three-year and five-year annualized returns. The minimum initial investment is within $5,000. Also, these funds have a low expense ratio and carry no sales load. Vanguard Wellesley Income Fund Inv (MUTF: VWINX ) invests 60-65% of its assets in investment-grade debt securities issued by corporate, U.S. Treasury, and government agencies. The fund allocates the rest of its assets in common stocks of companies with a solid track record of dividend payments. VWINX has year-to-date, three-year and five-year annualized returns of 4.7%, 5.5% and 7.4%, respectively. Annual expense ratio of 0.23% is significantly lower than the category average of 0.80%. Berwyn Income Fund Inv (MUTF: BERIX ) invests in both equity and fixed-income securities. While the fund invests in fixed-income securities including debt securities of both the U.S. government and corporate entities, and mortgage-backed securities, it also invests in undervalued common stocks of companies that pay dividends. BERIX has year-to-date, three-year and five-year annualized returns of 3.6%, 3.6% and 5.2%, respectively. Annual expense ratio of 0.64% is significantly lower than the category average of 0.80%. American Century One Choice Portfolio Conservative Inv (MUTF: AOCIX ) allocates 45%, 49% and 6% in underlying funds, which in turn invest in stocks, bonds and cash equivalents, respectively. AOCIX has year-to-date, three-year and five-year annualized returns of 2.5%, 3.9% and 5.4%, respectively. Annual expense ratio is 0% compared to the category average of 0.80%. T. Rowe Price Retirement Balanced Fund Adv (MUTF: PARIX ) invests in both stock and bond funds of T. Rowe Price. PARIX created a diversified portfolio by investing 60% in underlying bond funds and the rest of the assets in underlying stock funds. The proportion of asset allocations is considered ideal for investors’ retirement years, according to T. Rowe Price. PARIX has year-to-date, three-year and five-year annualized returns of 2.5%, 2.7% and 4.2%, respectively. Annual expense ratio is 0.25% compared to the category average of 0.80%. 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