Displaying items by tag: ETFs

(New York)

Rates look to be rising quickly. The economy is red hot and the Fed is hawkish, meaning two more rate hikes this year look very likely. With that in mind, investors need to protect themselves from rate risk. That means a lot of sources of income, like dividends stocks and bonds, could become sources of losses. However, fortunately there are numerous ETFs that can help investors earn income while protecting against losses. One such is Pimco’s 0-5 Year High Yield Corporate Bond (HYS). The ETF has a yield approaching 5% and has a duration of just over 2 years, putting it in the low duration category (meaning it has low rate risk).

FINSUM: This seems like a good option if you want to earn high rate-protected income. Given the current rate environment, funds like these should probably be a fixture of most portfolios.

(New York)

JP Morgan just published what could be the most well-documented financial crisis forecast ever written. The bank’s quant team put out a 143-age report chronicling how the next crisis will unfold which features the opinions of almost 50 of Wall Street’s top analysts and strategists. The consensus is that there will be a major “liquidity crisis” with huge selloffs in major asset classes, and no one to step in to buy. The losses will be exacerbated by the shift to passive management and the rise of algorithmic trading. JP Morgan says that the Fed and other central banks may even need to directly buy stocks, and there could even be negative income taxes. The bank thinks the crisis will hit sometime after the first half of 2019, most likely in 2020.

FINSUM: Assessing the validity of these kinds of predictions is always hard. While we have no idea about the timing, or whether this will actually happen, the argument is well thought out and quite logical.

(New York)

Fidelity is doubling down on its recent move to offer completely free index funds with no investment minimums. The money manager will launch a pair of new free index funds, one focused on large caps, and the other on the “extended market” (or small and midcaps), in late September. The new free funds are part of Fidelity’s strategy to compete vigorously on pricing to bring in new clients, and then try to earn money from them spending on other services.

FINSUM: Fidelity is almost using these funds as loss leaders in order to drum up other business. This may work for them because they have such a large product suite, but for less diversified managers, it poses a serious challenge.

(New York)

A REIT as an ETF might be an odd concept for some advisors. Since REITS are a special asset class unto themselves, and ETF made up of them could seem foreign. Their big advantage is that they are much cheaper than actively managed real estate strategies. However, risks abound, especially as many REITs tend to focus only on the US market, which could be very risky at the moment. One good REIT ETF is the Schwab US REIT, which has returned over 5% this year despite rising rates, and sports a 4%+ yield. Schwab points out that one of the best parts of REITS is that they “do not move in lockstep with either stocks or bonds.” The Vanguard Real Estate ETF is another good REIT choice. For global exposure try the SPDR Dow Jones Global Real Estate.

FINSUM: We like REITs in principal, but rates are a big worry at the moment. They seem like a good way to earn yield right now, but should probably be hedged.

(New York)

Retail clients, and some advisors, are adopting an increasingly defensive outlook on the market as the economy roars and rate hikes look more and more certain (not to mention soaring valuations). So what are the best defensive ETFs to protect a portfolio? The range of defensive strategies is broad—from dividend-focused, to shorting, to multi-factor. Some of the most popular include the AdvisorShares Dorsey Wright Short ETF, the Fidelity Dividend ETF for Rising Rates, or the Principal Mega-Cap Multi-Factor Index ETF.

FINSUM: It seems a smart choice to have defense ETFs be a decent portion of one’s portfolio right now. That said, we would be anxious to make shorting-focused ETFs a substantial holding.