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Ron Ryan says there’s a problem with bond indexes that are tracked by exchange traded funds (ETFs). In fact, the CEO of Ryan ALM says that there are several problems and he’s out to fix them.
Continue reading "Bond Indexes Are Broke, and He Says His ETFs Can Fix It" »
Are municipal bonds the next growth spot within the fixed-income exchange traded funds (ETFs) area?
In the last year, the fixed-income ETF market has ballooned. In 2007, there were fewer than 12 such funds. Today, there are 58. Municipal bond funds have expanded their ranks, as well, and several providers now offer them.
Jesse Emspak for Investor's Business Daily reports that muni-bond ETFs are still a small portion of total ETF assets, making up about $1.2 billion of the $636 billion total. Analysts say that the growth will be in single-state munis with varying durations. Tax treatment of munis is different from state to state, giving more incentive to offer more states and offer tax-free returns to more investors.
Vallejo, California's, recent bankruptcy shows some of the risks of municipal bonds, however. Even though they're among the safest investments one can make, there's still a risk of default.
Among the many municipal bond ETFs available are:
The economic downturn has hit some municipalities, illustrating the risks of municipal bonds and exchange traded funds (ETFs) that hold them. But it also highlights the opportunities for investors willing to take on risk.
The city of Vallejo in Northern California has voted to declare Chapter 9 bankruptcy, which allows municipalities to continue to deliver services while adjusting or refinancing debts.
Vallejo is the largest city in California to declare bankruptcy, reports Carolyn Jones for the San Francisco Chronicle.
Municipal bonds are considered among the safest investments one can make, after U.S. Treasury bonds. Unlike with corporate bonds, municipalities and the government can draw
money from plenty of other sources when they get into a bind - raising
taxes, for example. This ability to generate money on a whim makes it
significantly less likely that the bond issuer is going to default.
Unlike a corporation, Vallejo can't simply shut down and sell off its assets. But it can take a lesson from Orange County, a now-thriving area that declared bankruptcy in 1994: it issued municipal bonds that allowed the county to emerge from Chapter 9 a few years later.
Municipal bonds haven't been an active area for "distressed investing," say Nicholas Kajon and Lee E. Buchwald for Mondaq. But such bonds would give opportunistic investors a chance to get in at low prices. Recovery rates for these municipal bonds are greater than those of corporates.
Vallejo and other municipalities can take a hit in rocky economic times because they're often reliant on volatile revenue streams such as property taxes and real-estate transaction taxes, reports Liz Gunnison for Portfolio. Add in a housing crisis, and you've got a mess.
A default is rare, but it's never good news, Glenn Smith at Van Eck told us last month. "When it does happen, it can throw markets out of whack because people get jittery." According to NPR, it's only happened in the United States 32 times since 1980.
Hey, NASCAR star Jeff Gordon is from Vallejo. Maybe he wants to kick in a few bucks to help out?
ProShares wins the race to be the first inverse bond exchange traded fund (ETF) in the world. Deutsche Bank was hot on their heels, after announcing plans a day earlier to issue a new ETF in Europe that short Eurobonds, says Murray Coleman for Index Universe.
The two new ETFs to hit American markets are:
Both ETFs are set up to measure the inverse of their daily performance of their underlying index. Remember, with a bond fund, the interest earned on cash and financial instruments figures into the overall performance results. Many investors are looking to ProShares' inverse bond ETFs to neutralize market valuations and as portfolio protection against price fluctuations.
One advantage of a fund that automatically shorts an index is that investors can only lose what they put in. By taking short positions in long ETFs, the losses can go unchecked.
To learn more about long/short ETFs, check out our interview with ProFunds' CEO Michael Sapir.
Asset allocation is an important factor within a portfolio, and now Invesco PowerShares offers this strategy all wrapped up in an exchange traded fund (ETF). Their latest ETFs are designed to give investors access to long-term, core asset allocation strategies.
The newest portfolios are based on three distinct risk profiles, targeting a specific percentage of an investment in equity and fixed-income securities. Balanced, balanced growth and growth are set for a May 15 debut on the NYSE Amex, according to PowerShares.
Asset allocation is an important consideration for any investor - it helps one maintain their desired risk/reward profile. Depending on your desired level of risk and long-term goals, investments are spread over several types of asset classes, including equities, fixed-income and non-equity correlated assets.
The anticipated fund names and ticker symbols are:
Rising interest rates within the bond market are signaling a change within investor sentiment that could possibly boost stocks and exchange traded funds (ETFs) in the coming months. It appears that the financial sector may be ready to rebound, and equities may start to head in the right direction.
This change in sentiment comes just in time for the Federal Reserve's meeting today and tomorrow. The public had been awaiting another rate cut of around one-half a point. Now, the feeling that one-fourth a point cut may do, and be the last in a two-year series, explains Carl Gutierrez for Forbes.
The market may not feel that the economy is dropping so much as before, and money is beginning to flow more steadily. Friday's global bond selloff was triggered by inflation in Japan reaching a 10-year high, in tandem with better-than-anticipated first quarter earnings reports in the United States.
As yields around the world stabilize, one analyst says that it removes the incentive for investors to take money out of the United States, leading to stabilization.
SPDR Lehman International Treasury Bond (BWX) is up 5.2% year-to-date and has a 3.83% yield. iShares Lehman 7-10 Year Treasury Bond (IEF) is up 3% year-to-date and has a 4.05% yield.
Fundamental indexes tracked by exchange traded funds (ETFs) are nothing new under the sun. Now the father of fundamental weighting is looking to do the same thing for bonds.
Robb Arnott, chairman of Research Affiliates, says cap-weighting magnifies the overvalued stocks' affect on portfolios. Bonds ETFs are currently weighted similarly - by the amount issued - and Arnott wants to move away from that.
Arnott says fundamental indexing works best when there are a wide ranges between the fair value of a company and the stock or bond. Weighting according to this criteria cuts down on the heft of "fad" stocks, Jesse Emspak for Investor's Business Daily says.
When applying the fundamental indexing principles to bonds, the risk that a bond can't be paid back is taken into account. Among the data Arnott's firm is looking at for weighting country bonds is population, gross domestic product, oil consumption and existing government debt. Taking all of this into account gives a truer picture of fair value.
The firm has not filed with the Securities and Exchange Commission (SEC) yet, and preliminary work is still being done.
Was the first actively managed exchange traded fund (ETF) a good idea after all? Chuck Jaffe doesn't think so.
The Bear Stearns Current Yield (YYY) debuted on March 25, and it's not going to look any better as the active ETF sector grows, Jaffe says. His problem is not with the fund's troubled namesake, though. He questions whether the fund is going to live up to anyone's expectations.
The fund purchases short-term debt to generate its income in the form of government securities, corporate debt, mortgage-backed and asset-backed securities, municipal bonds, foreign debt obligations and so on. The fund comes with an expense ratio of 0.35%, competitive when compared with the average money market fund expense ratio of 0.47%.
But is it going to deliver superior performance? Jaffe and Jeff Ptak at Morningstar think not: making trades in the fund would erode any expense advantage. One researcher says the fund is not much different than holding cash.
The other recent entrants into the actively managed ETF playing field are:
Only time will tell with these funds as they build up track records. Investors are watching for performance over time, and if they deliver, perhaps the market will go for this new breed of ETF.
Bond exchange traded funds (ETFs) can be a solid way to take the hassle out of buying individual bonds, which can be costly and time-consuming for individual investors.
Heather Bell for Index Universe sat down with Ron Ryan, CEO and found of Ryan ALM Inc., an asset management firm. Ryan has been developing fixed-income indexes for years.
Ryan says bond ETFs are like having an instant portfolio in a single fund.
Short duration funds have a relationship with short-term rates, and with the Federal Reserve guiding those rates, short-term rates are at very low levels. Today's yields are around .50 % from the lowest yields in modern history.
In an attempt to measure interest rate risk, there is the Treasury yield curve. This is the best expression of the risk with maturity and duration leading the outcome of risk. If you have a product that is not clear about the risk, then there is a problem. With ETFs, the transparency is great because you can see the risk involved and you know exactly what you are purchasing. Then it is a fair game, as Ryan says.
Ryan also says the average investor overlooks the importance of fixed income. Is it time to think about your retirement? It could be - even if it's 20 years from now, is your portfolio going to be where you want it to be by then?
One way to do the math is with Yahoo's retirement calculator. Then see if bonds have a home in your portfolio. They just might.
Treasury Inflation Protected Securities, or TIPS, have made their way into exchange traded funds (ETFs).
These U.S.-government issued bonds are issued by the Treasury and they are sellable in the "after" market. Designed in terms of 5, 10 and 20 years, their interest rate is determined at auction, and they are sold in increments of $1,000.
The principal is adjusted along with the Consumer Price Index (CPI). If the CPI falls, so does the principal, and vice versa, reports Steven Halpern for Blogging Stocks.
TIPS are a decent investment, with the lowest risk that you can find anywhere. iShares Lehman TIPS (TIP) and SPDR Barclays Capital TIPS (IPE) are two ways an investor can minimize inflation risk.
For full disclosure, some of Tom Lydon's clients own shares of TIP.
Bond exchange traded funds (ETFs) have sparked investor interest across the board. It's largely a by-product of the world we're living in these days, since people turn to bonds during volatile times.
Just look at the numbers: as of February 2008, there were 53 bond index ETFs. In February 2007, there were a measly 14.
As their ranks have grown, so have the assets in them. In the first quarter of this year, assets rose 16% to $40.4 billion, reports Jesse Emspak for Investor's Business Daily. According to iShares, the area isn't going to be slowing down anytime soon, either. Over the next three years, they say, the bond ETF industry could grow by 200%.
In addition to providing a place to go when the markets begin acting up, there are some bond ETFs that give access to areas they previously were unable to get into, such as international bond ETFs.
Don't forget: municipal bonds are currently in the rare circumstance of yielding more than treasuries.
Some of the many types of bond ETFs available are:
For full disclosure, some of Tom Lydon's clients own shares of TIP.
The exchange traded fund (ETF) industry is currently brimming with excitement over a couple of new all-world funds.
But can keeping it too simple be a wise strategy? Gary Gordon for ETF Expert doesn't think so.
An obvious pro to an all-world fund is simplicity of it all. Plus, there are fewer fees and fewer numbers to keep track of. This way you avoid higher fees and the increasing complexity of too many ETFs. Plus, with ETFs you get total flexibility and transparency.
On the flip side, there is the fact that just one ETF is not great for a buy-and-hold investor. Portfolios have to be more dynamic than what one fund can offer and equity investors should not stay handcuffed to one type of index.
Penelope Wang for Money Magazine points out that some of the newer and more narrowly focused ETFs may not be actually investing in an index, but using a strategy. While ETFs are made to track an index, providers may have to optimize the ETF when, for any number of reasons, replication is not possible.
All ETFs may not be right for all investors, but the opportunity and choice is there. Being an educated investor is also important. When it comes to your portfolios core, everyone has suggestions. Keep in mind everyone has their own financial goals and strategy to reach them.
Take a look at Money Magazine's:
Gordon would rather see something a bit more diversified, with some exposure to small- and mid-size companies both domestically and globally:
The long-awaited actively managed exchange traded funds (ETFs) from Invesco PowerShares are here. They're billed as the industry's first three actively managed equity ETFs, and they began trading on the NYSE Arca today.
All of the funds' holdings are to be disclosed daily on the fund's website. They are:
The unitary fee is the one fee used to cover expenses incurred in connection with managing the portfolio.
Bear Stearns launched the first actively managed ETF in late March, Bear Stearns Current Yield Fund (YYY).
It's an event like Halley's Comet, although with a little more frequency: municipal bond yields are higher than those of treasury bonds. For that reason, it makes more sense than ever to grab exchange traded funds (ETFs) that hold them.
"It's something that doesn't happen very often," says Glenn Smith, associate of ETF sales at Van Eck. "Maybe once every 7-10 years or so."
Continue reading "It's Bond ETF Time - Munis Are Yielding More Than Treasuries" »
Bond exchange traded funds (ETFs), known for their defensive or conservative strategies, are starting to feel the impact of the lopsided market. Credit quality, inflation and the uncertain economy are starting to affect the usually even-keel bond market. ETFs such as the iShares Lehman TIPS Bond ETF (TIP) provide a low-cost and efficient way to buy and sell bonds.
But one expert says market volatility is creating dislocations in the fixed-income segment. Investors are flocking to the bigger, more established funds instead of the newer ones. They're also showing particular interest in the less risky types, such as those that don't contain mortgage securities or junk bonds.
Michael A. Pollock for The Wall Street Journal reports that bond ETFs typically contain a sample representative of the bonds within the index - an index could have thousands of members, but the fund may only have 100 of those holdings.
There are many bond ETFs available. A few of them:
In the shaky U.S. economy, two research firms have found that investors are increasingly turning to exchange traded funds (ETFs) that focus on global markets.
Fund tracker TrimTabs Investment Research reported that total inflows into equity mutual funds the week ending March 26 was $7.43 billion. Of that total, 60% was primarily invested in non-U.S. stocks. According to Paul R. La Monica for CNN Money, the data also revealed that investors took $6.9 billion from ETFs that invest in U.S. stocks and moved $831 million into ETFs with stocks from outside the country.
The Investment Company Institute (ICI) also found that of the $9.5 billion in stock funds last month, $5.89 billion went into funds that invest in international stocks.
Investors aren't running screaming from the United States, but the numbers show that their confidence is flagging, even when they choose to stay here. Inflows into bond funds last month totaled $14.9 billion. In January, inflows were $24.3 billion. Money market funds took in even more: $92.2 billion last month, and $160.42 billion in January.
La Monica says that this could be a good sign for the domestic markets when the economy turns itself around: the money in these stable investments could be quickly rotated back into domestic stocks and ETFs.
Some believe we're in a full-blown recession, but no matter what they believe, exchange traded fund (ETF) investors shouldn't panic.
Chris Fichera for Consumer Reports suggests staying put and weathering the storm, while making some tweaks to your portfolio:
Whatever you do, whether you decide to tweak your portfolio or just sit and wait, stick to your investment plan. Once investors are guided by their emotions is when the real trouble begins.
For disclosure, some of Tom Lydon's clients own shares of EWP.
Once the Federal Reserve decides it's done making interest rate cuts, junk bond exchange traded funds (ETFs) could be a beneficiary. The appetite for risk goes up with economic recovery.
Gary Gordon for ETF Expert says that last year, he suggested a solution to the widening "credit spreads": invest in the iShares Lehman 7-10 Year Treasury Bond Fund (IEF) and short sell the iShares iBoxx High Yield Corporate Bond Fund (HYG).
Since he made his recommendation, IEF returned 15.5% and the short-selling hedge of HYG resulted in 0%. In effect, it neutralized the risk associated with a growing spread between junk bond funds (also called "high yields") and intermediate term U.S. treasury funds.
Meanwhile, the credit spread has grown: the difference between IEF's annual yield and HYG's in July 2007 was about 3%. Now, it's above 4.5%. A widening spread can hint that investors aren't exactly feeling bullish.
When the economic recovery begins, high yield bond funds could reap the rewards as the spreads tighten once again. HYG has a distribution yield of 8.3%. The SPDR Lehman High Yield Bond Fund (JNK) comes with an 8% distribution yield.
The first crop of baby boomers are reaching the age of retirement and will most likely shift their investment focus to fixed-income products, including bond exchange traded funds (ETFs).
While fixed-income products provide dependable income, there's a drawback: they don't account for the eroding value of inflation.
According to the U.S. Census Bureau, the baby boom segment of the population will rise over the next 20 years, accounting for 42% of the population. This will drive a major demand shift to dividend-paying vehicles, along with price appreciation as a result, reports Dobromir Stoyanov for Seeking Alpha.
Historically, dividends have accounted for 40% of the total stock returns over the past 80 years. Stoyanov says that if retirees hold funds that have the ability to grow their dividend payments over time, they could be set for retirement.
Dividend-paying ETFs and their yields:
State Street Global Advisors unveiled their first International Inflation-Protected Bond exchange traded fund (ETF). The SPDR DB International Government Inflation-Protected Bond (WIP) began trading on the American stock exchange March 19. The index, DB Global Government ex-US inflation-Link Bond Capped Index, uses 120 inflation-indexed bonds from 18 developed and emerging counties outside the U.S.
BusinessWire reports the expense ratio at 0.50%. The ETF joins the iShares Lehman TIPs ETF (TIP) in this area of the market.
Bonds, in general, can be a safer place for investors to stash their money when the markets are haywire.
Investors, feeling more skittish than ever in these "what's going to happen next?" times, are showing signs that they're moving money away from commodities and metals exchange traded funds (ETFs) and stocks, and into bonds.
The prices of gold and oil retreated this week - gold dipped to $900 an ounce and oil finally fell below the $100 a barrel mark, reports Rob Wherry for Smart Money. It's quite a turnaround for the belles of the investment ball, which for weeks didn't seem that they could make a false move.
Gold, silver and agriculture commodities ETFs are continuing to show signs of cooling off in early trading today.
On the other hand, bond funds are among those rare flashes of green when it comes to performance and investors are taking that color where they can get it these days. The markets seem to have a split personality these days, and bonds are about as safe as you can get.
Among the top performers for bond funds so far this year:
Fixed-income exchange traded funds (ETFs) are fast becoming the investment of choice for those concerned with the market's recent direction.
TIPS (Treasury Inflation Protected Securities) are a special type of note or bond that offers protection from inflation, something investors want in a big way right now. An inflation-indexed security pays interest every six months and pays the principal when the security matures. With TIPS, the coupon payments and underlying principle are increased to compensate for inflation as measured by the Consumer Price Index (CPI).
Joanne Von Alroth for Investor's Business Daily reports that one of the hottest strategies as of late has been to invest in TIPS for some "fear insurance." iShares Lehman TIPs Bond (TIP) is up 5.4% year-to-date. The ETF tracks the Lehman Brothers Treasury Inflation Notes Index.
These types of funds are great for those investors who not only fear inflation, but fear losing their principal to boot. With these you get a government guarantee that you're protected from the ravages of inflation.
The fixed-income exchange traded fund (ETF) market still has plenty of room to grow.
In fact, iShares predicts that the area is primed to grow by 200% over the next three years. Globally, fixed-income ETFs have $60 billion in assets, about 7.5% of the total ETF market, according to Anil Dawar for FT Adviser.
Growth in these types of funds will owe much to the fact that they're increasingly traded by capital market banks.
ETF assets of all classes are expected to grow from $800 billion, currently, to $2 trillion by 2011.
Bear Stearns is going to launch the first actively managed exchange traded fund (ETF).
The Bear Stearns Current Yield Fund (YYY), or the Triple Y, will be made up of a variety of short-term fixed income instruments. This includes government bonds, municipal securities, bank obligations, corporate and securitized debt. The holdings will be disclosed each day on the fund's website.
The fund begins trading on the American Stock Exchange on March 18.
Actively managed ETFs have been anticipated for years now, and whether they will take off is a matter of debate. The first funds are going to be scrutinized closely by both investors and the industry, and if they can withstand being under the microscope, they just might be embraced.
Exchange traded funds (ETFs) have different ways of generating returns for investors, and one way is through bond funds. They buy a relatively static pool of securities based on an index, and they're attractive for the same reason other ETFs are: lower cost, because they lack an active manager.
Jack Colombo for Forbes shares his preferences in the world of ETF bond funds. Check out these bond ETFs:
In addition to Colombo's picks, a few other bond funds we track are currently residing above their trend lines (200-day moving average):
Now that actively managed exchange traded funds (ETFs) are just around the bend, investors can expect a slew of filings.
State Street Global Advisors on Wednesday filed an application with the Securities and Exchange Commission (SEC) for a series of actively managed target-date ETFs, reports BusinessWire.
The funds will invest in a diversified sampling of equity and fixed-income ETFs.
If this line of funds gets the go-ahead from the SEC, it will join PowerShares' newly-approved set of active funds, which are aiming for an April launch.
Let's get this straight: No target-date exchange traded funds (ETFs) are closing.
However, portfolio provider XTF Advisors is shutting down its lineup of target-date ETF portfolios.
Since Claymore's announcement that it's booting 11 of its weakest-performing ETFs, you'll forgive the alarm these days when investors see "closing" and "ETFs" in the same sentence.
We repeat: No other ETFs are actually closing this time.
"No animals have been injured in this movie," says Jeffrey Feldman, chairman of XShares. XShares has nothing to do with XTF, but somehow in the spreading of the news, their similar-sounding names were linked. XShares currently offers the only target-date ETFs in the marketplace through its line of TDAX products.
Feldman set the record straight: "They went out of business for reasons totally unrelated to ETFs. There was an inability to raise capital. They had a very good business model, but they never built or managed ETFs."
Meanwhile, State Street Global Advisors filed with the Securities and Exchange Commission (SEC) to launch a series of actively managed target-date ETFs, reports Stacy Schultz for On Wall Street. They're going to be a "fund of funds" and hold other ETFs, according to Matthew Hougan for Index Universe.
The XShares line consists of ETFs of stocks and bonds - analogous but different products, Feldman says.
The list of choices within the municipal bond exchange traded funds (ETFs) continues to grow.
On Tuesday, Van Eck Global launched a new ETF on the American stock exchange, the Market Vectors-Lehman Brothers AMT-Free Short Municipal Index ETF (SMB), reports 24/7 Wall Street.
The fund is designed to offer investors exposure to investment-grade municipal bonds with a nominal maturity of 1-6 years. The expense ratio is 0.16%, and it will track the price and yield performance of the Lehman Brothers AMT-Free Short Continuous Municipal Index.
The growing family of options in municipal bond ETFs include:
Some positive news in the financial sector gave a lift to the KBW Capital Markets (KCE) exchange traded fund (ETF).
Two of the biggest bond insurers, MBIA Inc. (MBI) and Ambac Financial Group (ABK), avoided rating downgrades, report Abigail Moses and Shannon D. Harrington for Bloomberg. Since that bullet has been dodged, investor sentiment toward the financial sector has gotten a small boost. The woes aren't over yet, but investors will take the good news where they can get it, especially in this beleaguered sector.
These days, the investment world is all about diversification to minimize risk, and exchange traded funds (ETFs) can help you get the necessary exposure. ETFs are a great diversification tool that can help buy-and-hold types and active traders alike.
Matt Kranz for USA Today questions why someone would own two stocks when they could own two ETFs instead. We have to agree with that one. Owning more stocks, rather than fewer, is a benefit because you can reduce your portfolio's overall risk and your exposure to possible problems with just one or two companies.
If you're more domestic-minded, you can start with the S&P 500, and the S&P 500 (SPY). It has relatively low risk and a broad base. For bonds, there are large baskets put together by iShares with the Lehman Aggregate Fund (AGG) or the Vanguard Total Bond Market (BND). For broad global exposure, there's the Vanguard FTSE All-World ex-US ETF(VEU) gives broad global exposure.
By keeping your mix more diversified, you lower your risk and increase your expected returns. Getting and staying diversified with ETFs is easy.
Understanding the national debt and the role treasury bonds play in it can help investors understand how their treasury bond exchange traded funds (ETFs) work.
Last week on "Fresh Air," host Terry Gross spoke with the authors of "Where Does the Money Go?" It turns out most Americans only have the vaguest idea of national debt and the repercussions of it.
Have a listen - we think you'll find it illuminating.
Some trouble in a Fidelity fund can be ill-afforded as the exchange traded fund (ETF) industry gains on mutual funds.
Fidelity is facing subprime losses in a central fund, an internal fund that only other Fidelity funds can invest in. This has taken away from returns in at least 10 mutual funds. Fidelity Ultra Short Central Fund fell 2-3% in the third quarter because of bad investments in subprime linked securities.
Joe Morris of Ignites reports that the funds left holding the bag include:
By investing in these funds so widely, the risk of widespread loss is greater, and expenses paid to such funds are hard to understand. Central funds do provide other funds with exposure to investment expertise in individual sectors.
Investors are too often left in the dark about what they own - a great arguments for ETFs and the transparency and ease-of-use that they offer.
The signs are all there that we're in a recession: many exchange traded fund (ETF) sectors have taken a hit, Congress is calling hearings, the Federal Reserve is talking about more rate cuts, housing, retail and unemployment numbers are unimpressive at best.
When will the government finally admit what we've all suspected for some time now - that the recession has already started? We can't answer that, but what we can tell you is that now is the time to start thinking about how you can protect your portfolio. The last thing you want to do is wait until it's too late.
Here are a few sectors that have been bucking the trend:
Continue reading "Five ETF Sectors To Recession-Proof Your Portfolio" »
If you were looking for a one-stop shop to get access to the U.S. capital markets via exchange traded funds (ETFs), it's here.
Today, Claymore launched a group of Capital Markets ETFs on the American Stock Exchange:
UEM is the first ETF that covers all U.S. investment-grade capital markets. "It's probably the broadest ever launched, as far as we know, in the world," says Christian Magoon, head of the ETF group at Claymore Securities.
Continue reading "New Claymore ETFs Almost Have It All - Literally" »
Is there an exchange traded fund (ETF) to add to a portfolio that can offer protection against an evil greater than even that of inflation?
That's stagflation: a state of the economy in which prices keep rising as the economy continues to contract, reports John Wasik for Bloomberg.
Stagflation hasn't been seen in a generation and requires special investments to combat its punishing effects on a portfolio. In this situation, the conventional wisdom about recessions has to go out the window.
Major signs that we're headed for a state of stagflation include a stagnant GDP for the fourth quarter, consumer price inflation above 4%, gold at a record high of $929 an ounce, along with existing home sales dropping 13% and the United States actually losing jobs for the first time in four years.
If you're among those who believe we're on a path to stagflation, Wasik suggests two investments in particular: commodities and treasury inflation-protected securities (TIPS). These are investments that combine income and price appreciation, and they rise with inflation expectations.
For commodities exposure, check out:
And for TIPs exposure, have a look at:
It's also worth noting that Mr. Wasik is my co-author on our ETF book, which will be out this spring! Stay tuned for more details soon.
Municipal bonds and related exchange traded funds (ETFs) are in a bit of a pickle, but billionaire Warren Buffett has stepped in to help.
As we wrote yesterday, while municipal bonds are currently offering attractive yields, there's some imminent downgrading risk. That's because the insurers that back them have also branched out into insuring other more profitable and risky investments such as subprime mortgages, and we all know by now how that's been going.
To keep the troubled industry afloat, Buffett came forward and offered to add a second level of insurance - up to $800 billion, reports Josh Funk at the Associated Press. Buffett said the move has nothing to do with altruism, and everything to do with making money.
Hey, the guy is honest.
Buffett's offer extends only to municipal bonds, and not the complicated, risky investments.
Investors looking to capitalize on the yields municipal bonds are currently offering have a range of options:
Competitive yields are suddenly giving municipal bond exchange traded funds (ETFs) a new level of attractiveness to investors.
Muni bond ETFs are the new kids on the block; the first ones didn't appear until last September.
On Feb. 1, the Market Vectors Lehman Brothers AMT-Free Intermediate Municipal Index (ITM) was yielding 3.49%. It targets the 6- to 16-year part of the yield curve, reports David Hoffman for Investment News. Another bonus: the yield paid out by munis is free from federal taxation, making their effective income greater than the taxable yield offered right now by Treasury bonds.
Other comparable muni ETFs tell a similar story: the PowerShares Insured National Muni Bond (PZA) had a yield of 4.2% yield, with a tax equivalent yield of 6.46%.The iShares S&P National Municipal Bond Fund (MUB) had a yield of 3.44%, but the tax equivalent yield was 5.07%. The SPDR Lehman Municipal Bond ETF (TFI) yielded 3.34%, with a tax equivalent of 5.14%.
James Colby, Van Eck's senior municipal strategist, says muni bond ETFs are a good option for those investors uncertain about what's going to happen in the Treasury markets. I don't see anything wrong with this strategy, and the municipal bond ETF environment appears relatively safe.
There's always risk, though, including with these types of bonds. That's because the governments behind them pay companies to insure them so that ratings agencies will give them a better rating. However, these companies are at risk of defaulting because they also insured subprime mortgage-backed securities and they're not as in sound financial shape as investors previously believed.
As a result, ratings agencies have started to downgrade bond insurers. At least one agency lost its AAA rating, reports Martin Z. Braun for Bloomberg. The default rate on municipal bonds in 0.1%, but Moody's Investors Service says state and local government debt is still tainted. The threat of more downgrades is something to watch out for.
The bond market isn't too happy as exchange traded funds (ETFs) fell in response to bond auctions held by the U.S. Treasury. The auctions have foreign and domestic banks submitting offers for bonds.
The "indirect" bid was 11% of the auction, after averaging 27.2% in the last six auctions. The decline shows hesitancy among foreign banks, reports Arthur B. Hill for ETF Investment Outlook.
The bond market responded with a dip. The iShares 20+ Year Bond (TLT) declined 2%, making yesterday the biggest loss since April 2007. TLT still remains on an upward trend, though. Surveyors are pondering if this is a one-time random chance, or a sign of what's to come.
In troubled times, investors are on the hunt for safe havens, and one of those is bond exchange traded funds (ETFs). There is always the concern about interest rate risk, but with the possibility of further rate cuts by the Federal Reserve, short-term threats should be small.
