Tag Archives: bstresource

Low Volatility ETFs Delivering Again In 2015

Summary The equities market is experiencing another bout of volatility. Low-volatility stock ETFs are outperforming the broader market. A closer look at low-volatility ETF strategies and sector tilts. The new year is still young, but investors have already been subjected to wild rides by major equity benchmarks. For example, the S&P 500 started 2015 on a downbeat note only to see all of those losses and then some erased by the end of last week, but a dismal showing this week has the benchmark U.S. index down nearly 3% year-to-date. Low volatility exchange-traded funds, including the PowerShares S&P 500 Low Volatility Portfolio ETF (NYSEARCA: SPLV ) and the iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) are doing what they are supposed: outperform traditional benchmarks during times of market angst. The average year-to-date for SPLV and USMV is less than a half a percent, but that is clearly better than the 2.8% shed by the S&P 500. Notably, SPLV’s and USMV’s outperformance of the S&P 500 comes after the low volatility duo produced an average return of 18.7% last year, about 550 basis points better than the S&P 500 . “Within SPLV, seven of the ten largest holdings have an S&P Capital IQ Quality Ranking of B+ or above, with one with no ranking,” said S&P Capital IQ in a new research note. Dow components Wal-Mart (NYSE: WMT ) and Procter & Gamble (NYSE: PG ) are SPLV’s two largest consumer staples holdings. With an allocation of 16.5%, consumer staples is the third-largest sector weight in the ETF behind financials and utilities. P&G and Wal-Mart are also of the most reliable dividend growers among U.S. companies and although SPLV is not a dedicated dividend ETF, the fund has a trailing 12-month yield of almost 2.2%. That is 50 basis points above 10-year Treasuries, and SPLV pays its dividend monthly. “Though a company’s strong earnings and dividend record are not necessarily indicative of it having below-average volatility, our research has found many such companies have modest risk profiles,” said S&P Capital IQ. The research firm notes that SPLV’s exposure to financial services names is, not surprisingly, confined to lower beta fare such as insurance providers and real estate investment trusts (REITs). “In 2014, we saw defensive consumer staples, REITs, and utilities stocks perform relatively well as interest rates have declined and international economies such as Europe and Japan fall into recession. These stocks typically offer above-average dividend yields and are focused more on the U.S. where economic growth has been relatively impressive,” said S&P Capital IQ. As is often the case, there is a price to pay for playing defensive and it comes in the form of the higher valuations often ascribed to defensive sectors. Consumer staples and utilities are two of the most expensive sectors compared to the S&P 500. Add to that, S&P Capital IQ sees the bulk of SPLV’s 99 holdings as fairly valued, but the research maintains an overweight rating on the ETF. PowerShares S&P 500 Low Volatility Portfolio (click to enlarge)

Talking About Value Investing And Fed Policy (Video)

Here is the second part of my interview on RT Boom/Bust. It was recorded while the FOMC was releasing its statement, so I had no idea at that time as to what the announcement had been. The interview covers my view of Apple (NASDAQ: AAPL ) (not one of my strong points), Fed Policy, and what should value investors do in this low interest rate environment. Note that not all of my opinions are strong ones, and that in my opinion is a good thing. Often the best opinions are not controversial. If you are interested in these topics, or listening to me, then please enjoy the above video. My segment is about seven minutes long. Disclosure: None Share this article with a colleague

Inside The New Target Factor ETFs From iShares

Deflationary fear and a slowdown have started to trouble developed international markets, and most investors in the ETF world are looking out for quality exposure in the area. In fact, some aggressive investors are hunting for high momentum stocks presuming that these might outperform in the days ahead in the prevailing easy money era. Their search looks justified. After all, the Fed withdrew its gigantic QE program last year and might start walking the way of policy tightening later this year. Thanks to such policy differential in the developed world, iShares – the largest ETF issuer in the world – brought about two products targeting the developed international economies probably to quench investors’ thirst. We have detailed the two newly launched funds below. iShares MSCI International Developed Momentum Factor ETF ( IMTM) : For a broad foreign market play with a focus on large-and-mid cap companies, investors could consider IMTM which focuses on 12 developed countries for exposure. Stocks that exhibit a higher price momentum will be included in the fund. This product follows the MSCI World ex USA Momentum Index, holding 269 securities in its basket and charging a pretty low fee of 30 basis points a year for this relatively unique exposure. Though the fund holds about 28% exposure in the defensive health care sector, it is more inclined toward higher beta sectors like financials, industrials companies and consumer discretionary. Top nations include Japan (29.6%), Canada (18.0%), and Switzerland (12.9%) while the U.K. (8.8%) and Germany (4.7%) round out the top five for this well-diversified fund. The fund does not have much company concentration risk with no stock accounting for more than 5.34% of the fund. Novartis (NYSE: NVS ), Roche and Bayer ( OTCPK:BAYRY ) are the top-three holdings of the fund. IMTM Competition: Momentum strategy is not yet popular in the ETF world. Though the domestic economy has a couple of ETFs including the $1.46 billion-First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV ), $1.61 billion-PowerShares DWA Momentum Portfolio (NYSEARCA: PDP ) and $515 million-iShares MSCI USA Momentum Factor ETF (NYSEARCA: MTUM ), the international arena is relatively less penetrated. Global Momentum ETF (NYSEARCA: GMOM ) made an entry late last year in the international space and has amassed about $26 million in assets so far. Given GMOM’s high expense ratio of 94 bps and iShares’ own product MTUM’s considerable success in a short span, we expect the issuer to replicate the success on its global version as well. However, the issuer should take note of Cambria’s active approach to the momentum theme which might give it an edge over IMTM in volatile markets. iShares MSCI International Developed Quality Factor ETF ( IQLT) : This fund gives investors exposure to quality stocks (excluding U.S.) by identifying companies that have the highest quality scores based on three main fundamental variables – high return on equity, stable earnings year-over-year growth and low financial leverage. The product charges investors 30 basis points a year in fees and tracks the MSCI World ex USA Sector Neutral Quality Index. The fund holds about 289 securities in its basket with a focus on financials (26.9%). Industrials (12.1%), Consumer Discretionary (11.5%), Health Care (10.8%) and Consumer Staples (10.6%) occupy the next four spots. The fund is heavy on the U.K. with about one-fourth of the exposure followed by Switzerland (15.6%). Roche takes the top-most allocation in the portfolio with about 5.2% exposure followed by Novo Nordisk (2.7%) and Nestle (2.31%). IQLT Competition: There are currently a few products operating in the space including PowerShares S&P International Developed High Quality Portfolio (NYSEARCA: IDHQ ), SPDR MSCI World Quality Mix ETF (NYSEARCA: QWLD ) and Market Vectors MSCI International Quality ETF (NYSEARCA: QXUS ). While neither has developed a huge following so far and IDHQ charges a bit high at 55 bps, IQLT has scope for outperformance.