Category Archives: apple

Low Volatility ETFs Still In Play

Yellen’s dovish comments may be fueling a market rally at the end of one of the most volatile quarters in years, but these haven’t buried low volatility ETFs. The new-found optimism on Yellen’s hint of a ‘cautious’ rate hike trail perked up investors sentiments lately, helping U.S. bourses to score gains for two back-to-back days (as of March 30, 2016) (read: ETF Winners & Losers Following Yellen Comments ). With this, the broader market pared some of the prior losses. Among the top ETFs, investors have now seen the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) gain about 1.1%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) gain about 1.7% but the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) move down by about 2.2% year to date (as of March 30, 2016). However, the recent gains do not ensure that the market is free from risks. The Fed chair repeatedly pointed to global growth concerns and deflationary fears as downside risks to the interest rate policy. With the oil refusing to stabilize, ‘more oil producers facing delisting ‘ and growth issues still present abroad, a bear market and the consequent volatility may come down the pike anytime. Also, the U.S. earnings picture is still in shambles. Earnings estimates for the first quarter of 2016 are projected to decline 1.4%. Ruling out the impact from the energy sector, the picture looks slightly better at 1.3% decline. Even investors seem to have little faith in the Yellen rally as they are following low-volatility ETFs despite the enthusiasm in the market. The tendency can be validated by the all-time highs hit by the below-mentioned low-volatility ETFs on March 30. U.S. stocks may not be expensive, but they are not cheap either at the current level. There is also widespread fear among investors about how long this rally will hold. In such volatile times, it’s prudent for investors to follow a proper trading strategy which ensures risk-on sentiments along with stability. With that in mind, we highlight four low volatility ETFs, each of which hit all-time highs lately and could be in focus in the days to come. PowerShares S&P 500 ex-Rate Sensitive Low Volatility Portfolio (NYSEARCA: XRLV ) XRLV looks at 100 S&P 500 components that exhibit both low volatility and low interest rate risk. This strategy excludes stocks that perform miserably in a rising rate environment, with a tilt toward financials (23.31%), industrials (23.06%), healthcare (19.23%) and consumer staples (14.52%). The $126.2-million fund charges just 25 basis points a year in fees. However, the product is not a great choice for dividend yield. The fund yields about 1.46% annually and added 1.2% in the last five trading days (as of March 30, 2016). PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) This $6.62 billion low volatility ETF consists of the 100 stocks from the S&P 500 Index with the lowest realized volatility over the last one year. The fund is heavy on consumer staples (22.6%), financials (21.4%), industrials (16.2%), utilities (14.1%) and healthcare (13.5%). The fund charges 25 bps in fees. SPLV advanced over 1.4% in the last five trading days (as of March 30, 2016) and yields about 2.16% annually. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) The fund measures the performance of equity securities in the top 85% by market capitalization of U.S. equities that have lower absolute volatility. The fund has garnered an asset base of $11.2 billion. This fund is home to 168 securities in total and assigns double-digit allocation to the financials (20.49%), healthcare (19.22%), information technology (15.23%) and consumer staples (14.94%) sectors. The fund also has an edge over its peers when it comes to expenses as it charges a fee of just 15 basis points annually while it yields about 2.02%. The fund delivered a return of about 1.5% in the last five trading days (as of March 30, 2016). The fund has a Zacks ETF Rank #2 with a Medium risk outlook. PowerShares S&P MidCap Low Volatility ETF (NYSEARCA: XMLV ) This overlooked ETF looks to follow the S&P MidCap 400 Low Volatility Index. The product invests about $316.5 million in assets in 78 stocks. From a sector look, financials takes half of the portfolio followed by about 11.84% of assets invested in materials, 11.59% in industrials and 10.67% in utilities. The portfolio has minimal company-specific concentration risk with no product accounting for more than 1.69%. The product charges about 25 bps in fees. It was up 1.8% in the last five trading days (as of March 30, 2016). Original Post

Time To Invest In Tech ETFs?

Technology ETFs were badly hit in the first quarter of 2016, having returned minutely or posting massive losses. Among the gainers, most were from either the high-yielding or equal-weight or value-centric semiconductor segments (read: Tech ETFs that Braved the Storm in February ). Broad-based sell-off in high-growth stocks due to overvaluation concerns, global growth issues, and corporate recession kept this space off radar. Adding to the tension was LinkedIn’s (NYSE: LNKD ) lackluster guidance for the first quarter of 2016 issued in early February (read: LinkedIn Crashes: Should You Connect with Social Media ETF? ). Along with LinkedIn, the famous FANGs (Facebook (NASDAQ: FB ), Amazon (NASDAQ: AMZN ), Netflix (NASDAQ: NFLX ) and Google (NASDAQ: GOOG ) (NASDAQ: GOOGL ) (i.e. Alphabet) were also thrashed. Notably, the famous four contributed a lot to last year’s tech surge. However, the bloodbath in these stocks weighed down the tech-laden Nasdaq exchange, forcing it to be the worst performing index among the top three U.S. indices. Sell-Off in Tech Sector Looks Overdone; Why? However, things took a turn for the better in the last one month as risk-on sentiments returned to the market on a flurry of upbeat U.S. economic data. Plus, the Fed promised to take a cautious stance on the future interest rate policy indicating a longer low rate environment and underpinning the bullish sentiments for high-growth sectors like technology. If this isn’t enough, a dovish Fed dampened the U.S. dollar lending support to the tech sector, which has considerable foreign exposure. Yes, earnings of the sector is still far from anything that looks decent as evident from the expected earnings decline 5.2% for the first quarter (as per Zacks Earnings Trends issued on March 29, 2016), but future trends are reassuring. The sector’s earnings are expected to decline just 0.6% in the second quarter of 2016 and likely to enter the positive territory in the third quarter (expected growth rate is positive 4.6%). The revenue picture is reasonable enough with positive growth trend expected for every quarter of 2016. Out of the 16 S&P sectors, technology is currently reasonably valued with its P/E at 17.2x and 15.5X respectively for 2016 and 2017 expected earnings. While this goes in line with 17.4x and 15.4x P/E of the S&P 500 index, the valuation falls behind the forward P/E ratio of consumer staples, retail wholesale, conglomerates, energy and business services. All in all, after a beaten-down Q1, the sector is gaining traction to start Q2. So, investors intending a momentum play in the tech space can bet on the following ETFs, each of which underperformed in Q1 and is due for a strong reversal in Q2. The ETFs offered solid returns in the last five days too (as of April 1, 2016). PowerShares Dynamic Software Portfolio ETF (NYSEARCA: PSJ ) The fund comprises stocks of software companies. The underlying index looks to track companies picked up on criteria like fundamental growth, stock valuation, investment timeliness and risk factors. The 30-stock fund charges 63 bps in fees and added 5.3% in the last five trading days (as of April 1, 2016). PSJ is up just 0.6% in the year-to-date frame (as of April 1, 2016) and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook. PowerShares DWA Technology Momentum Portfolio ETF (NYSEARCA: PTF ) The PowerShares DWA Technology Momentum Portfolio tracks the Dorsey Wright Technology Technical Leaders Index which identifies companies that are showing relative strength. This 33-stock fund charges 60 bps in fees and returned about 4% in the last five trading sessions (as of April 1, 2016). However, the fund has lost about 5.6% so far this year (as of April 1, 2016). It has a Zacks ETF Rank #2 with a high risk outlook. iShares North American Tech-Software ETF (NYSEARCA: IGV ) This 58-stock ETF provides exposure to the software segment of the broader U.S. technology space. The product charges 48 bps in annual fees. The fund is down 2.2% in the year-to-date frame but returned 3.1% in the last five trading sessions (as of April 1, 2016). The fund has a Zacks ETF Rank #1 (Strong Buy) with a high risk outlook. PureFunds ISE Cyber Security ETF (NYSEARCA: HACK ) The fund offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 35 securities in its basket. From an industrial look, systems software accounts for nearly 60% of the portfolio. The fund charges 75 bps in fees per year from investors. HACK has lost about 7.3% so far this year but advanced 3.6% in the last five trading days (as of April 1, 2016). First Trust Technology AlphaDEX ETF (NYSEARCA: FXL ) The fund follows the StrataQuant Technology Index, which is a modified equal-dollar weighted index and select stocks from the Russell 1000 Index that may generate positive alpha relative to traditional passive style indices using the AlphaDEX screening methodology. Software takes the top spot in the fund with about 24% weight. The 78-stock fund charges 63 bps in fees. This Zacks Rank #1 ETF is down 0.2% so far this year (as of April 1, 2016) but added over 2.8% in the last five trading days (as of April 1, 2016). Original Post

The ETF Monkey Vanguard Core Portfolio: 2016 Q1 Update

This article is an update to the following articles: On July 1, 2015, I wrote an article for Seeking Alpha introducing The ETF Monkey Vanguard Core Portfolio . On January 4, 2016, I wrote the 2015 year-end update for the portfolio. On February 11, 2016, following the severe market decline during the first part of 2016, I wrote a follow-up article that detailed a rebalancing transaction that I executed to bring the portfolio back in line with my target weightings. In this article, I will report on the performance of the portfolio for the quarter ended March 31, 2016. Evaluating the Portfolio: Q1 2016 Here is the corresponding Google Finance page for the portfolio as of the market’s close on 3/31/16. Have a look, and then I will offer a few comments. Click to enlarge First, as a reference point, the S&P 500 index closed at 2,043.94 on December 31, 2015 and 2,059.74 on March 31, 2016, for a gain of .77% for the period. Second, the portfolio received dividends totaling $208.56 during this period, bringing the cash balance in the portfolio to $251.53. This came from the 3 ETFs as follows: Vanguard Total Stock Market ETF ( VTI) – $132.00 Vanguard FTSE All-World ex-US ETF ( VEU) – $45.88 Vanguard Total Bond Market ETF ( BND) – $30.68 So how did the portfolio perform? All told, not too badly. The closing value of the portfolio was $49,076.43 as of March 31 vs. $48,348.37 on December 31, for a gain of 1.51%. Therefore, the portfolio outperformed the S&P 500 by .74% over this period. Let’s break down the performance, and reasons, by asset class. Domestic Stocks – During the period, VTI grew from $27,120.60 to 28,825.50, an increase of $1,704.90. Subtracting the $1,382.85 added from the February 11 rebalancing leaves us with a net gain of $322.05. Add in the $132.00 of dividends and VTI gained $454.05 on a base of $27,120.60, a gain of 1.67%. This is a slight outperformance when compared to the S&P 500 index. Foreign Stocks – During the period, VEU grew from $12,588.90 to 13,376.50, an increase of $787.70. However. removing the $761.40 added in the rebalancing transaction leaves us with a net gain of only $26.30. Add in the $45.88 of dividends and VEU gained $72.18 on a base of $12,588.90, a gain of .57%. As compared to the U.S. market, this reflects the continued underperformance of foreign markets. Bonds – During the period, the value of BND declined from $8,076.00 to $6,623.20. However, if we add back the $1,648.20 used in the rebalancing transaction, BND actually increased in value by $195.40. Add in the $30.68 of dividends received and BND gained $226.08 on a base of $8076.00, a fairly stunning increase of 2.80%. This reflected a firming of bond prices as the signs of economic malaise during Q1 appeared to lead the market to conclude that interest rates would remain low for a longer period of time than previously anticipated, including the likelihood of the Fed having to modify it’s goal of raising rates as often in 2016. No Transactions or Rebalancing This Period Here’s how the portfolio stood in terms of its asset allocations at 3/31/16. Click to enlarge As can be seen, due to my February 11 rebalancing and the strong performance of the domestic stock market through March 31, domestic stocks are a little overweight and bonds are underweight. As noted in my rebalancing article, I did this on purpose. I am going to monitor this as time moves forward. My preference will be to increase the bond weighting by using dividends that I will receive moving forward. However, if the weightings get severely out of line, I may have to effect another rebalancing transaction. Summary and Conclusion The portfolio did very well during the quarter, outperforming the S&P 500, my chosen benchmark, by approximately 3/4 of a percentage point. Sadly, it is still down a little over 3% from its inception date of June 30, 2015. As can be seem from the graphic, weakness in foreign stocks is the main culprit, as these entered a very weak period almost immediately following the establishment of the portfolio. Still, it is my belief that a disciplined allocation to foreign stocks will prove beneficial over the long term. Disclosure: I am not a registered investment advisor or broker/dealer. Readers are cautioned that the material contained herein should be used solely for informational purposes, and are encouraged to consult with their financial and/or tax advisor respecting the applicability of this information to their personal circumstances. Investing involves risk, including the loss of principal. Readers are solely responsible for their own investment decisions.