Tag Archives: apple

Does FlexShares’ New Corporate Bond ETF Stand Apart?

Corporate bond market has been hit by global growth concerns lowering the investor outlook on the credit worthiness of the corporations as well as looming interest rate hike. Further, there are concerns about corporate bond market liquidity (read: 3 Bond ETFs to Consider in a Market Slump ). In an attempt to take care of this situation and attract the investment grade corporate bond ETF investors, FlexShares – a unit of Northern Trust Corporation (NASDAQ: NTRS ) – has launched the FlexShares Credit-Scored US Long Corporate Bond Index Fund (NASDAQ: LKOR ) , which focuses on longer maturity corporate bonds. LKOR in Details LKOR follows a recently developed Northern Trust Credit-Scored US Long Corporate Bond Index. As per FlexShares, the index covers a liquid issuer universe, employs a proprietary model for credit scoring and optimizes the index’s constituents to maximize the credit score while maintaining duration, spread and other investment grade-like characteristics. More than 66% of LKOR’s holdings have maturities ranging from 20 to 30 years while more than 27% have maturities ranging from 15 to 20 years. This results in a weighted average effective duration of 13.25 years, as per the issuer. The ETF comprises 136 holdings with Apple Inc. ( OTC:APPL ) occupying the top position with 1.43% share, followed by Time Warner Inc. (NYSE: TWX ) with 1.34% share and JPMorgan Chase & Co. (NYSE: JPM ) with 1.29% share. The top 10 holdings constitute around 12.5% of the fund. As far as sector allocation is concerned, Industrials (23.7%), Consumer (20.8%) and Energy (18.9%) make up the top three positions. Considering country-wise allocation, the fund is heavily biased towards the U.S. with 87.6% share while Canada, U.K., Netherlands, Australia and Spain hold minimal shares. The fund is cheap as it charges only 22 bps in fees from investors per year (see all Investment Grade Corporate Bond ETFs here). How Does it Fit in a Portfolio? LKOR seems to have addressed the investors’ concern about the companies’ ability to repay their debt as economic slowdown in China and low commodity prices may lead corporations to face financial crisis. This is because the issuer has targeted corporate bonds with higher credit quality, lower risk of default and potential for higher yield and price appreciation. On the Standard & Poor’s ratings scale, the fund’s quality breakdown includes investment-grade ratings AAA (2%), AA (14.8%), A (36.6%) and BBB (46.6%). Moreover, the fund seeks to improve liquidity and transparency by excluding illiquid and smaller issuers. The question of liquidity is of high importance as banks, serving as brokers, have reduced their inventories of corporate bonds following post-financial crisis regulations, making bond trading difficult. It is for these reasons the issuer has stated that the ETF provides “a contemporary approach to optimizing credit risk, with improved transparency and liquidity relative to legacy corporate bond benchmarks”. ETF Competition LKOR definitely stands apart from other long term corporate bond ETFs as it addresses the present ailments in the corporate bond market. Still, there are a number of such ETFs that worth to mention due to their popularity. A couple of long term corporate bond ETFs includes the iShares iBoxx $ Investment Grade Corporate Bond ETF (NYSEARCA: LQD ) and the Vanguard Long-Term Corporate Bond Index ETF (NASDAQ: VCLT ) . LQD tracks the iBoxx $ Liquid Investment Grade Index focusing on 600 highly liquid investment grade corporate bonds in the U.S. It has an asset base of $22.1 billion and focuses on all-term bond duration. On the other hand, VCLT follows the Barclays U.S. 10+ Year Corporate Index focusing on corporate bonds issued by industrial, utility, and financial companies, with over 10 years in maturities. It manages an asset base of $991 million. Both LQD and VCLT look attractive on the cost front with expense ratios of 0.15% and 0.12%, respectively. However, in terms of yield, VCLT (4.14%) is a better option than LQD (3.13%). Link to the original post on Zacks.com

Q3 ETF Asset Flow Roundup

The third-quarter of 2015 was teeming with economic shockers that bulldozed risky investments worldwide but showered gains on some safe bids. While a hard landing fear in China was the actual culprit, a long-standing guesswork on the Fed’s liftoff timeline was a partner in crime. Yet, we admit that nothing could stand against the China issues that include sudden currency devaluation, multi-year low manufacturing data and a massive crash in the Chinese market. The resultant shockwaves, swooning commodities and the return of deflationary fears in the Euro zone also set the dark stage for the third quarter’s investing activity. The combined impact of these events led the SPDR S&P 500 Trust ETF (NYSEARCA: SPY ) , to lose about 7.7%, the PowerShares QQQ Trust ETF (NASDAQ: QQQ ) to shed 5.7% and the SPDR Dow Jones Industrial Average ETF (NYSEARCA: DIA ) to retreat about 8.4% in Q3. The iShares MSCI ACWI (All Country World Index) Index ETF (NASDAQ: ACWI ) was off about 9.8% in the quarter. Overall, the global market was quite disastrous for investors as most key indices endured the worst quarter in four years. In such a scenario, investors might thus want to check out the top and worst grossing ETFs of Q3 to see which products cashed in on the market crash and which lost out. Winners of Q3 The SPDR S&P 500 Trust ETF Though volatility rocked the show in the third quarter as China-led global growth fears and its ripples in the other emerging and developed economies muddled the market momentum, steady U.S. growth impressed investors. Also, the Fed’s reiteration of near zero interest rates at the end of the quarter resulted in strong inflows into the U.S. equity funds. The ultra-popular SPY led the way last month, gathering over $8.4 billion in capital. Not only SPY, another popular S&P 500 ETFs namely Vanguard S&P 500 ETF (NYSEARCA: VOO ) accumulated $4.45 billion in assets. U.S. Treasury Bonds – iShares 1-3 Year Treasury Bond ETF (NYSEARCA: SHY ) With the Fed still hesitating to hike the benchmark interest rates even almost after a decade, bond investing prevailed in Q3. Though September was a chancy month for the lift-off, a global market rout in August, a choppy global market and a still-low inflation level in the U.S. held the Fed back from catapulting a lift-off. This gave a big-time boost to the short-term U.S. Treasury bond ETFs. As a result, SHY garnered about $4.05 billion in assets in Q3. The SPDR Barclays 1-3 Month T-Bill ETF (NYSEARCA: BIL ) also piled up $1.66 billion in assets and made it to the top-10 asset scorers’ list (read: Guide to Interest Rate Hikes and ETFs: 4 Ways to Play ). Since the global macroeconomic environment was tumultuous in Q3, investors sought refuse in safe haven bids like intermediate-to-long term treasury ETFs. These offer investors safety along with a decent level of current income. Thanks to this sentiment, the iShares 7-10 Year Treasury Bond ETF (NYSEARCA: IEF ) and the iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) attracted about $2.40 billion and $1.65 billion of AUM during the quarter (read: ETF Winners & Losers Post Dovish Fed Meet ). Hedged Global – Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEARCA: DBEF ) The global economy may be lagging, but investors’ penchant for currency-hedged global equity ETF investing is not. The policy divergence stemmed from the looming Fed tightening and the easy money policies in most developed economies made hedged international investments a compelling opportunity for U.S. investors and led them to pour about $2.38 billion in assets in DBEF. Several other Europe-based ETFs including the iShares MSCI EMU ETF (NYSEARCA: EZU ) and the Vanguard FTSE Europe ETF (NYSEARCA: VGK ) hauled in respectively $1.7 billion and $1.6 billion assets in Q3. Top Losers Emerging Market – Vanguard FTSE Emerging Markets ETF (NYSEARCA: VWO ) Emerging markets were hard hit in Q3 thanks to the double whammy of China-induced worries and the Fed rate hike tensions. This clearly explains why two top-notch emerging market ETFs namely VWO and the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ) saw assets bleeding in the quarter. The funds, VWO and EEM saw outflows of about $3.44 billion and $2.79 billion respectively in the quarter. Un-hedged Global – iShares MSCI EAFE ETF (NYSEARCA: EFA ) Since sooner or later the Fed is due for a policy tightening, investors started to dump non currency-hedged international ETFs like EFA. The fund shed about $1.13 billion in assets in the quarter. Gold – SPDR Gold Trust ETF (NYSEARCA: GLD ) Gold has slipped to multi-year lows on a stronger dollar, a still-muted inflationary backdrop worldwide and the slowdown in China, which is one of the largest consumers of gold. Though the recent global market rout offered gold the much-needed respite for a brief session on the metal’s safe haven appeal, the underlying fundamentals are weak. So, investors abandoned this product in Q3, resulting in about $922 million in net outflows. Link to the original post on Zacks.com