Displaying items by tag: ETFs

(New York)

You may not know the name Michael Burry off hand, but you probably should. He was one of the investors who made a fortune as part of the “big short” during the Financial Crisis. Well, he has come back into the limelight this week with an eye-opening warning. He argues that ETFs, and indexing generally, are essentially the same as CDOs were before the crisis. He explains that the massive capital inflows into ETFs have eliminated any realistic pricing mechanism for underlying stocks, just like huge demand for structured credit inflated all asset prices before 2008. Additionally, the daily liquidity underlying many of the stocks in index funds is vastly lower than the index funds themselves (again, just like CDOs). Burry uses a theater metaphor, saying that the theater has grown much more crowded, but the exits are still the same size.

FINSUM: This is a great argument, and one that seems to have fundamental truth to it. However, even Burry admits that he has no idea when this “bubble” might actually burst.

(New York)

Vanguard made some headlines earlier this month when it re-opened one of its long closed-to-new-investors dividend funds (VDIGX). However, it was not the only fund to reopen, as a whole suite of Vanguard dividend funds are once again available. The funds come in two flavors, active or passive. VDIGX is actively managed and has the best one-year return, but it is almost the most expensive. Check out the firm’s VIG fund (Dividend Appreciation), which has a 11% one-year return and charges only 6 basis points.

FINSUM: This whole suite of funds has a good track record and some have characteristically low fees.

(New York)

The inverted yield curve has investors feeling down on their luck at the moment. What is the best way to play the turmoil and volatility? The answer may be in two seemingly unlikely places. The first is in energy ETFs, especially oil. Energy stocks have traditionally done very well during inverted yield curves, so an ETF like XLE seems like a good bet right now. Additionally, tech ETFs such as Vanguard’s VGT could be a good play, according to Bloomberg. Tech has often done well during inversions in the past.

FINSUM: Recommending a tech ETF right now is the height of contrarianism. Tech is basically caught in the middle of the trade war, and frankly, seems like a bad buy.

(New York)

With all of the volatility of the last months, bond ETFs are taking on a new life. As an asset class, bond ETFs have surged in popularity in recent years as a much easier and cheaper way of accessing bond market liquidity. Recently, bond ETFs have seen their role morph. Whereas they have often been seen as a safe haven from periods of volatility, they are now being used as a risk management tool, says the head of iShares U.S. Wealth Advisory Product Consulting at BlackRock.

FINSUM: So many of the newer bond ETFs are designed to thrive in volatile markets, not just provide a low volatility safe haven. This means they are more of a proactive than reactive product.

(New York)

Everyone is trying to figure out how to protect their own and clients’ portfolios from a trade war. “Which sectors will be the hardest hit”, “and by how much” are common questions. Well, a small Virginia based ETF provider has just come to the market with a new fund that is designed to protect investors from that very issue. The new ETF, TWAR, is designed to track 120 companies who are likely to outperform the market during a trade war because of “government patronage”, or special contracts or subsidies which insulate them.

FINSUM: There is some skepticism in the market about this approach, but it does stand to reason that companies who are less exposed to global trade will suffer less than the market.