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ETF Update: February May Have Started Slow, But It Finished With A Flood

Welcome back to the SA ETF Update. My goal is to keep Seeking Alpha readers up to date on the ETF universe and to gain some visibility, both for the ETF community and for me as its editor (so users know who to approach with issues, article ideas, to become a contributor, etc.). Every weekend, or every other weekend (depending on the reader response and submission volumes), we will highlight fund launches and closures for the week, as well as any news items that could impact ETF investors. Before we jump into what happened in the ETF industry in the last three weeks, I wanted to bring up an opportunity for authors, and potential authors, who are looking to learn more about the writing process and improve their craft. My colleague, Rocco Pendola , is currently running The Seeking Alpha Author Experience , an information series to further the partnership between Seeking Alpha and our contributors. In his own words: Our goal is to provide an unprecedented resource for author success and, more specifically, one that helps writers reach and keep expanding the boundaries of their individual potential. As a writer, you have personal style, your own voice and analytical and rhetorical ways you go about helping other investors. We’re not here to change that. We simply want to A) help you optimize your approach, B) share what we have seen work from a broad and diverse sample of techniques and C) be here to answer questions and concerns you have related to the best ways to get your message across to investors. I’ve had a number of contributors and new authors reach out to me because of the ETF Update series, and I imagine there are more of you who would be interested in contributing but have questions about the process. If interested in learning more, use the form at the following link to sign up for The Seeking Alpha Author Experience . Rocco sends all Author Experience materials out in installations via email, so while part of a community of contributors, you can receive one-on-one attention simply by clicking “reply.” You will receive no more than one email per day. I have been reading along and really enjoy his insights, so if you are looking to learn more about writing and contributing to Seeking Alpha I would highly recommend signing up. Now back to the regularly scheduled ETF content. While the first two weeks of the month only saw four launches , the month ended with 11 more. Markets also started to show signs of life again in mid-February, which is good news for ETFs looking to attach investors. As we have a lot to catch up on and there any many others on this platform covering the broader picture, lets jump right in! Fund launches for the week of February 15th, 2016 UBS (NYSE: UBS ) launches the first of many ETFs (2/16): The UBS AG FI Enhanced Europe 50 ETN (NYSEARCA: FIEE ) was the first of 3 launches from ETRACs, the ETF division of UBS, over a week. FIEE is an exchange traded note linked to the performance of STOXX Europe 50 USD (Gross Return) Index, the largest blue-chip stocks in the STOXX Europe 600. The 3 largest holdings are Nestle ( OTCPK:NSRGF ), Novartis (NYSE: NVS ) and Roche ( OTCQX:RHHBY ), all Swiss companies like UBS. UBS’s second launch of the week (2/18): The ETRACS S&P GSCI Crude Oil Total Return Index ETN (NYSEARCA: OILX ) “reflects the excess returns that are potentially available through an unleveraged investment in the contracts comprising the index, plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contracts,” according to a press release at its launch. This is not a new product idea, but with an expense ratio of 0.50% OILX is able to undercut the existing competition. ProShares gives its futures strategy ETF another chance (2/18): Later in March ProShares will be shutting down a couple funds that never found traction in the market, including the ProShares Managed Futures Strategy (NYSEARCA: FUTS ). However, in preparation of this closing, ProShares launched the ProShares Managed Futures Strategy ETF (BATS: FUT ), which is a new and improved version of FUTS. The fund structure has been updated in a number of ways, but the largest change in my opinion is that investors no longer need to fill out a K-1 form, which could have been a sticking point for the lack of interest before. For further analysis on FUT please read ” ProShares Re-Configures Its Managed Futures ETF Effort ” by Brian Haskin. Fund launches for the week of February 22nd, 2016 UBS wraps up a busy week with a high yield ETN (2/22): And for UBS’s final launch in February, the UBS AG FI Enhanced Global High Yield ETN (NYSEARCA: FIHD ). This fund, designed for Fisher Investments, tracks the MSCI World High Dividend Yield USD Gross Total Return Index. This makes FIHD very similar to the Barclays ETN+ FI Enhanced Global High Yield ETN (NYSEARCA: FIGY ), which tracks the same index and was also created for Fisher Investments. Pacer Financial expands its ETF lineup (2/23): For Pacer’s 6th ETF it introduced the Pacer Global High Dividend ETF (BATS: PGHD ), self described as “a strategy driven exchange traded fund that attempts to provide a continuous stream of income and capital appreciation over time by screening for companies with a high free cash flow yield and a high dividend yield.” By tracking the companies with the highest levels of free cash flow and dividend yields in the FTSE All World Developed Large Cap Index, PGHD hopes to return strong dividends for investors looking for global exposure. For further analysis on PGHD please read ” New High Dividend ETF With Free Cash Flow Focus By Pacer ” by Zacks Funds. Cambria launches a high yield bond ETF (2/23): The Cambria Sovereign High Yield Bond ETF (Pending: SOVB ) seeks return for investors through investing in high risk, high reward bonds either directly or through other exchange-traded products. “Foreign bonds are the largest asset class in the world, yet dramatically underrepresented in investor portfolios,” said Meb Faber , Cambria Chief Investment Officer, in a press release for the fund. “Moving away from a market-cap strategy and employing a value lens to foreign government bonds could help investors gain smarter access to income in a yield-starved environment.” WisdomTree expands in the Put/Write Space (2/24): The WisdomTree CBOE S&P 500 PutWrite Strategy Fund (NYSEARCA: PUTW ) is the company’s first options strategy ETF, offering a collateralized put write strategy on the S&P 500. As described on the fund’s homepage, “the strategy is designed to receive a premium from the option buyer by selling a sequence of one-month, at-the-money, S&P 500 Index puts (SPX puts). If, however, the value of the S&P 500 Index falls below the SPX Put’s strike price, the option finishes in-the-money and the Fund pays the buyer the difference between the strike price and the value of the S&P 500 Index.” For further analysis on PUTW please read ” Finally, Is PUTW The One We’ve Been Waiting For? ” by Reel Ken. Janus adds to ETF offerings (2/25): Open for business today are the Janus Small Cap Growth Alpha ETF (NASDAQ: JSML ) and the Janus Small/Mid Cap Growth Alpha ETF (NASDAQ: JSMD ). They are the first ETFs to launch since Janus’ (NYSE: JNS ) November 2014 purchase of VelocityShares. Both are what Janus calls Smart Growth ETFs utilizing a systemic process to identify resilient small and mid-cap companies poised for long-run sustainable growth. Janus’ ETP business had about $3.2B in AUM across 17 products as of year-end. Fund launches for the week of February 29th, 2016 Vanguard targets international dividend stocks with new funds (3/2): The company yesterday launched the Vanguard International High Dividend Yield ETF (NASDAQ: VYMI ) and the Vanguard International Dividend Appreciation ETF (NASDAQ: VIGI ). Both ETFs come alongside “investor” and “admiral” classes of mutual funds. VYMI, with a 0.3% expense ratio, tracks the FTSE All-World ex-U.S. High Dividend Yield Index which has more than 800 of the highest-yielding large- and small-cap stocks in both developed and emerging markets. VIGI, with a 0.25% expense ratio, tracks the Nasdaq International Dividend Achievers Select Index, which holds about 200 stocks with long track records of dividend boosts. The funds are international cousins to the $12B Vanguard High Dividend Yield Index Fund (NYSEARCA: VYM ) and the $19B Vanguard Dividend Appreciation Index Fund (NYSEARCA: VIG ). The new products also have cheaper fees than the SPDR International Dividend ETF (NYSEARCA: DWX ), which charges 0.45%, and the iShares International Select Dividend ETF (NYSEARCA: IDV ), which charges 0.5%. Goldman boosts ETF lineup (3/4): Goldman Sachs’ (NYSE: GS ) burgeoning ETF operation now offers five funds after the launch of the Goldman Sachs ActiveBeta Europe Equity ETF (NYSEMKT: GSEU ) and the Goldman Sachs ActiveBeta Japan Equity ETF (NYSEMKT: GSJY ). As with the previous three ETFs which dame to market late last year, the two new funds were opened with institutional assets of $25M each. Each has an expense ratio of 0.25%. Those original three now have more than $1B in combined AUM. In addition, the Goldman Sachs ActiveBeta International Equity ETF (NYSEARCA: GSIE ) – which came to market in November – has its fee cut to 0.25% from 0.35% Fund closures for the weeks of February 15st, 22nd and 29th, 2016 Have any other questions on ETFs or ETNs? Please comment below and I will try to clear things up. As an author and editor I have found that constructive feedback is the best way to grow. What you would like to see discussed in the future? How can I improve this series to meet reader needs? Please share your thoughts on this first edition of the ETF Update series in the comments section below. Have a view on something that’s coming up or a new fund? Submit an article. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Fixed Income – Now Is Not The Time

The Seeking Alpha ETF Investing Guide I recently reviewed the Seeking Alpha Investing Guide and decided to allocate part of my portfolio to a core portfolio of ETFs, similar to that suggested by the guide. I do not intend to completely switch course from my current allocation but to set up a separate core portfolio of ETFs and to allocate a majority of my investments to this Core ETF portfolio over time. After reviewing the investing guide, I drafted a procedure for implementing the suggestions of the guide. Currently, I am reviewing each of the suggested ETFs to determine which to buy. Readers that have read the articles on the first five recommended ETFs are aware that I plan to invest in the sectors that they represent. This article focuses on the three recommended ETFs from the fixed income portion of the Core ETF portfolio: iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) PowerShares 1-30 Laddered Treasury Portfolio ETF (NYSEARCA: PLW ) Schwab U.S. TIPS ETF (NYSEARCA: SCHP ) At this point, I am not inclined to invest in these ETFs, or the fixed income sectors these represent. I expect to keep funds I have allocated for this portion of my portfolio, invested in shorter-term bank certificates of deposit (cd’s) that offer similar interest rates with what I believe is far less risk of capital loss. Investment synopsis of the three fixed income funds The iShares iBoxx $ Investment Grade Corporate Bond ETF seeks to track the investment results of an index composed of U.S. dollar-denominated, investment grade corporate bonds. LQD provides exposure to a broad range of over 1000 U.S. investment grade corporate bonds. LQD can be used by investors seeking stability and income. The PowerShares 1-30 Laddered Treasury Portfolio is based on the Ryan/NASDAQ U.S. 1-30 Year Treasury Laddered Index. The Fund will normally invest at least 90% of its total assets in securities that comprise the Index. The Index measures the potential returns of the U.S. Treasury yield curve based on approximately 30 equally weighted U.S. Treasury issues with fixed coupons, scheduled to mature in a proportional, annual sequential (“laddered”) structure. The Schwab U.S. TIPS ETF goal is to track as closely as possible, before fees and expenses, the price and yield performance of the Barclays U.S. Treasury Inflation Protected Securities (( OTC:TIPS )) Index (Series L). SCHP provides a convenient, low-cost way to capture the performance of U.S. Treasury Inflation Protected Securities. SCHP provides exposure to a portfolio of treasury securities designed to offer protection from the negative impact of inflation while assuming exposure to interest rate risk. US treasury 10 year interest rate chart – 1962 to present Click to enlarge Source: Yahoo Finance (2/13/2016) The chart above shows US treasury 10 year interest rates since 1962. After peaking in 1981, interest rates have fallen steadily to their current rate of 1.75%. Interest rates were slightly lower for a short period in 2012 but other than that, they are at the lowest point over the 50 plus years shown. While I have felt the same way for some time, as interest rates have continued to fall, I would not be comfortable investing in medium or long-term bonds at current interest rates. In the past, I have found that when I make investments that I am not comfortable with, I have a very hard time holding them. Performance of LQD, PLW and SCHP compared to the S&P 500 since June 2002 Click to enlarge Source: Yahoo Finance (2/13/2016) The chart above shows the performance of the three fixed income ETFs versus the S&P 500. LQD had the longest history going back to 2002 and over this time is up 11% versus the S&P up 103%. The chart does not include interest or dividends, which would improve the relative performance of the fixed income ETFs versus the S&P 500. Performance of LQD, PLW and SCHP compared to the S&P 500 – 5 year chart Click to enlarge Source: Yahoo Finance (2/13/2016) The chart above shows the performance of the three fixed income ETFs versus the S&P 500 over the last five years. Again the S&P 500 has outperformed the 3 fixed income ETFs and again this chart does not include interest or dividends, which would improve the relative performance of the fixed income ETFs versus the S&P 500. ETFs in the US corporate bond category ETFs in the US treasury bond broad duration category ETFs in the US treasury inflation protected category Source: Seeking Alpha (as of 2/13/2016) Above are lists of the top 10 fixed income ETFs in each of the categories represented by the three recommended ETFs. Each category is listed by assets under management (AUM). As the tables show, there are a number of alternatives that interested investors can consider in each category, except the “treasury bond broad duration” category which only lists 2 ETFs on Seeking Alpha’s ETF Hub. Fund characteristics iShares iBoxx $ Investment Grade Corporate Bond ETF PowerShares 1-30 Laddered Treasury Portfolio ETF Schwab U.S. TIPS ETF Weighted average duration (years) 7.98 10.34 7.5 Weighted average maturity (years) 12.28 15.84 8.3 SEC yield (%) 3.73 2.49 0.02 Expense ratio (%) 0.15 0.25 0.07 Source: iShares by BlackRock, Powershares and Schwab (as of 12/31/2015) The fund characteristics are shown in the table above. I consider these characteristics versus a bank certificate of deposit (cd). Bankrate.com currently shows a one year cd at 1.30% and a five year cd at 2.27%. I do not feel that the potential yield improvement justifies the additional risk associated with the additional time to maturity, duration and the default risk of the corporate bonds. Other investors may be in a different position and see this differently. Conclusion Readers that have read the articles reviewing the first five recommended ETFs from Seeking Alpha’s ETF Investment Guide are aware that I plan to invest in the sectors that these ETFs represent, either in the recommended ETF or a very similar ETF. I do not feel the same way about the recommended fixed income ETFs, iShares iBoxx $ Investment Grade Corporate Bond ETF, PowerShares 1-30 Laddered Treasury Portfolio ETF and Schwab U.S. TIPS ETF. After peaking in 1981, US ten year treasury bond interest rates have fallen steadily to their current rate of 1.75%. Although others may feel differently, I would not be comfortable investing in ETFs made up of medium or long-term bonds at current interest rates. In the past, I have found that when I make investments that I am not comfortable with, I have a very hard time holding them. At this point, I am not inclined to invest in the three recommended fixed income sectors or ETFs: iShares iBoxx $ Investment Grade Corporate Bond ETF PowerShares 1-30 Laddered Treasury Portfolio ETF Schwab U.S. TIPS ETF I expect to keep funds I have allocated for this portion of my core ETF portfolio, invested in shorter-term bank certificates of deposit (cd’s) that offer similar interest rates with what I believe is far less risk of capital loss. I expect to review this periodically and consider investing in these ETFs and sectors when long-term interest rates have increased from current levels. Addendum Seeking Alpha’s Investment Guide Core ETF Portfolio ETF Ticker Fund Name Fund Description Expense Ratio VOO Vanguard S&P 500 ETF Large cap US stocks 0.05% IJH iShares Core S&P Mid Cap ETF Mid cap US stocks 0.12% VTWO Vanguard Russell 2000 ETF Small cap US stocks 0.15% IEFA iShares Core MSCI EAFE ETF Multi cap foreign developed market stocks 0.12% IEMG iShares Core MSCI Emerging Markets ETF Multi cap emerging market stocks 0.18% LQD iShares iBoxx $ Investment Grade Corporate Bond ETF US investment grade corporate bonds 0.15% PLW PowerShares 1-30 Laddered Treasury Portfolio ETF US Treasuries 0.25% SCHP Schwab U.S. TIPS ETF US TIPS 0.07% VNQ Vanguard REIT Index ETF US REITs 0.10% DBC PowerShares DB Commodity Index Tracking ETF Broad commodities 0.85% Simply Investing – Philosophy Establishing a core portfolio in well-diversified, low expense ETFs, held for the long term, is a good idea for most all investors. The core of a small portfolio can start off as simple as one well diversified global ETF with a low expense ratio, like Vanguard Total World Stock ETF (NYSEARCA: VT ). Typically, as the portfolio grows, the core of the portfolio would include exposure to the ten asset classes listed above. There are four steps needed to set up an efficient investment plan. The decisions and actions required to set up the plan and purchase the ETFs can be done in about 4 hours (see the further reading section below for more details): Decide on an asset allocation plan among the ETFs in the core portfolio. Open an online brokerage account with a linked online bank account. Determine if you will invest all your investment funds at once or over a period of time. Determine which investments to buy in your taxable and tax deferred accounts. The core ETF portfolio outlined above, after tax, should significantly outperform either individual stock picking or a portfolio managed by a financial advisor. Over the typical investors time horizon of 40+ years, the expected advantage of this core ETF portfolio is staggering. Investors that enjoy the investment analysis process and are willing to spend the time to analyze and invest in individual stocks or sectors can still do this. I believe, the majority of these investors should still set up a core ETF portfolio, but can allocate a small, fixed percentage of their portfolio to “edge” positions, which offer additional risk and opportunity. Further reading ETF Investing Guide – Written by Seeking Alpha’s Founder in 2006 is a great guide for setting up a portfolio of ETFs. Set Up A Core ETF Portfolio Now – Describes the four steps required to implement the suggestions in the ETF Investing Guide. The ETF Investing Guide is made up of 54 articles and takes some time to read and assimilate the information. This article condenses the information from the guide down to four steps that can be completed to set up a core ETF portfolio in around four hours. Disclosure: I am/we are long VT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Editor’s Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

MLPs: A Great Opportunity In The Near Future, Just Not Yet

Home Portfolio News Articles StockTalk Marketplace PRO Seeking Alpha WHERE DO YOU WANT TO GO? Seeking Alpha home page » My portfolio page » Latest Financial Analysis & Opinion » TOP NEWS Apple drags down futures Boeing stung by big guidance cut Apple lower after mixed results, light guidance Mortgage applications move higher again Biogen tops estimates Mixed earnings report from UTX Toyota remains world’s top-selling automaker See latest news » TOP ARTICLES My Top 10 Monthly Dividend Stocks: Updated Apple’s (AAPL) CEO Tim Cook On Q1 2016 Results – Earnings Call Transcript Wall Street Breakfast: Equities Cautious Ahead Of Fed Facebook For Investors? Introducing SA Social 5 Huge Misunderstandings About The Current Investing Environment Why Dip Buyers Will Get Clobbered: The U.S. Economy Isn’t Doing ‘Just Fine’ Why MannKind Is Heading Towards Bankruptcy All That Matters From AT&T Earnings Two Harbors’ MSR Black Hole Evaluating Bankruptcy Risk In The Energy Sector Using Altman’s Z2-Score Top Authors   |      RSS Feeds   |  Sitemap   |  About Us   |  Contact Us Terms of Use | Privacy | Xignite quote data | © 2016 Seeking Alpha