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The ETF Monkey Vanguard Core Portfolio: April 13, 2016 Rebalance

Back on February 11, 2016, I executed a series of transactions to rebalance The ETF Monkey Vanguard Core Portfolio . As explained in that article, the severe decline in both domestic and foreign stocks left these two asset classes significantly underweight, with bonds being overweight. Here, for convenience, is a “before and after” snapshot of that transaction. Click to enlarge As it turns out, the timing of that rebalancing could not have been better. In hindsight, it can be seen that February 11 represented, at least to this point, the low point for 2016. I don’t take particular credit for this. My efforts were simply an application of the principles found in this article . As I also noted in my previous article, I executed a fairly aggressive set of transactions. Mindful of the fact that I am deliberately incurring trading commissions on all transactions in this particular portfolio, to make the exercise as “real world” as possible, I commented that I need to make each transaction count. This being the case, I temporarily underweighted bonds in favor of adding to the other two severely depressed asset classes. Here is the equivalent Excel spreadsheet for today’s transaction. Have a look, and then I will offer some comments. Click to enlarge Likely, the first thing that jumped out at you is that both domestic and foreign stocks have staged fairly stunning comebacks since February 11. The Vanguard Total Stock Market ETF (NYSEARCA: VTI ) registered a gain of 14.69% during this period, while the Vanguard FTSE All-World ex-US ETF (NYSEARCA: VEU ) did even better, at 15.55%! On the flip side, this incredible performance, combined with my aggressive rebalancing transaction, left bonds substantially underweight, with their 13.37% weighting being a full 4.13% below my target weight of 17.50%, or a full 23.6% in relative terms (13.37 / 17.50). Given these developments, it appeared to me that this was a fitting point to take some of those profits, so to speak, and get the portfolio more closely aligned with my target weights. While it is not yet May, I will admit that the old adage “Sell in May and go away” contributed in some small way to the timing of this decision. I didn’t want to take a chance on being overweight domestic equities, only to have them experience a summer swoon! You may also notice that foreign stocks were about even with my target allocation as I reviewed the portfolio today. This is because I did not add as heavily to this asset class in the prior rebalance. Therefore, I decided to only affect the domestic stock and bond asset classes with this transaction, saving me one trading commission. Take one last peek at the “after” section of the spreadsheet, and you will notice that all 3 asset classes are now fairly closely aligned with their targets. I hope that this sets the portfolio up nicely for the summer. 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.

Global Manufacturing Picks Up: ETFs To Watch

The month of March will be remembered for the revival in the manufacturing sector in the world’s two largest economies – the U.S. and China. While a stronger dollar and huge capex cuts by energy companies to fight back the plunge in oil prices hurt the U.S. manufacturing sector, soft demand in the wake of global growth worries can be held responsible for the overall global slowdown. However, things took a turn in March as signs of stabilization showed up. Let’s delve deeper into the data. Finally Chinese Manufacturing in Positive If we talk of manufacturing slowdown, China comes first to mind. But after posting sluggish factory output data since July 2015, the economy posted growth in March. China’s official manufacturing purchasing managers’ index (PMI) came in at 50.2 for March , which beat Reuters’ forecast of 49.3 and February’s reading of 49.0. Any reading at or above 50 suggests expansion in activity. While this official data considers larger companies, another index, namely Caixin Manufacturing PMI, considers smaller or medium-sized companies. Investors should note that the Caixin Manufacturing PMI for March also rose to 49.7 from 48.0 in February, “marking the first increase from the previous month in a year.” Improving Trend in the U.S. A five-month long losing streak also bucked the trend in the U.S. in March. The ISM manufacturing data expanded to 51.8 in March from 49.5 in February buoyed by new orders and increased output. The data came above the Wall Street Journal’s expectation of 50.5. Out of the 18 manufacturing industries, 12 reported expansion in March. What Cooks Up in the Euro Area? Coming to the Eurozone, the Markit Eurozone Manufacturing PMI came in at 51.6 in March 2016, surpassing a preliminary reading of 51.4 and 51.2 recorded in February. The reading also bettered the forecast of 51.4 . All is not well across the globe. But noticeable improvement in the big three gives us reasons to look at the below-mentioned international industrial ETFs. Global – iShares Global Industrials ETF (NYSEARCA: EXI ) The fund looks to track the S&P Global 1200 Industrials Sector Index. The $16.2 million ETF is heavy on the U.S. which takes about 53% of the basket. General Electric (NYSE: GE ) (8.62%), 3M Co. (NYSE: MMM ) (2.93%) and Siemens AG ( OTCPK:SIEGY ) (2.56%) are the top three stocks of the fund. The fund charges 48 bps in fees. It added 0.5% in the last one month (as of April 5, 2016). China – Global X China Industrial ETF (NYSEARCA: CHII ) The Global X China Industrial ETF seeks to provide investment results of the Solactive China Industrials Index. The $3.6 million fund charges 65 bps in fees. This fund is heavy on building and construction (34.4%) and machinery and equipment (31.6%) industries. The fund has exposure to about 40 stocks. CHII added 2.9% in the last one month (as of April 5, 2016). U.S. – Industrial Select Sector SPDR ETF (NYSEARCA: XLI ) This product tracks the Industrial Select Sector Index. General Electric occupies the top spot with an 11.7% allocation, while 3M, Honeywell (NYSE: HON ) and Boeing (NYSE: BA ) have a combined exposure of over 10% in the fund. XLI has garnered $6.65 billion in assets and trades in heavy volume of 13.8 million shares per day. It has a low expense ratio of 0.14%. The fund has the highest exposure to aerospace and defense (25.3%), followed by industrial conglomerates (21.6%). The product gained 2.4% in the last one month (as of April 5, 2016). Original Post

3 High Yield ETFs That Must Be On Your Radar

The high yield landscape has been a difficult one to navigate over the last year. The pernicious selling in commodities combined with a rocky road for stocks has led to sliding prices in junk bonds, master limited partnerships, and mortgage REITs. These asset classes have been pilloried for luring in yield-seeking investors, only to have the rug pulled out from under them as credit conditions deteriorated. Hopefully an important lesson has been learned – the higher the yield, the higher the risk of capital invested. Those that were burned the worst may be taking the tact of avoiding these sectors altogether . However, monitoring exchange-traded funds that track high yield indexes can be a useful endeavor. They can often provide insight into underlying stock market or debt dynamics as well as serve up trading opportunities showing relative value characteristics. Let’s delve into some of the most important high yield ETFs that should be on your radar. iShares iBoxx High Yield Corporate Bond ETF (NYSEARCA: HYG ) HYG is the largest high yield bond ETF with $16.7 billion in total assets. This passively managed index fund owns nearly 1,000 corporate bonds of companies with below-investment grade credit ratings. These types of fixed-income instruments are often referred to as “junk bonds” because of their lower quality credit fundamentals. Investors who own a basket of junk bonds like HYG are nominally compensated for the higher risk by receiving a much higher yield than Treasuries or investment-grade corporate bonds. HYG currently has a 30-day SEC yield of 6.96% and income is paid monthly to shareholders. A peek at the chart below shows how HYG broke below its 200-day moving average nearly nine months ago and has been in a persistent down-trend ever since. This ETF was down over 20% from high to low, but managed to claw its way back from the abyss during the February and March rally in risk assets. The important question now is whether HYG is consolidating for another push higher or is it getting ready to rollover once again? The most bullish scenario would be a tight range of consolidation followed by a confirmed breakout to new recovery highs above the downward sloping 200-day moving average. This would likely need to coincide with further strength in broad stock market indices such as the SPDR S&P 500 ETF (NYSEARCA: SPY ). If we start to see SPY and other stock market bellwethers roll over again, then it could easily lead to a retest of the February lows for HYG. Many investors believe in the adage that “credit leads equities”. As a result, these two asset classes will likely experience a similar fate through the remainder of 2016. Alerian MLP ETF (NYSEARCA: AMLP ) Another well-known proxy of income and credit risk that is closely tied to the commodity markets are master limited partnerships (MLPs). AMLP tracks an index of the 25 largest and most liquid MLPs. These companies provide infrastructure, storage, and pipeline use for large oil and gas companies in the energy sector. The unique tax structure of MLPs allows them to pass on a large percentage of their profits to shareholders in the form of dividends. Thus, these stocks are often prized for their above-average yields. AMLP sports a yield of 11.28% based on its most recent quarterly dividend and current share price. This ETF has experienced a decline similar to junk-bond related indexes, which has been exacerbated by the downtrend in oil and natural gas prices. Similar to oil, this fund is off its lows for the year, but has been unable to regain positive territory for 2016. I believe that this index will continue to demonstrate a high correlation with the energy markets over the next several years. Another factor to the MLP story will be credit conditions , as many of these companies rely heavily on access to debt markets and other funding sources. Keep these factors in mind if you are considering investing in this ETF. It may be a long road ahead to regain sustainable momentum and volatility will likely be a key risk. iShares Mortgage Real Estate Capped ETF (NYSEARCA: REM ) If you are aggressive enough to seek out funds offering a double digit yield, then you have likely heard of REM. This ETF tracks an index of 38 mortgage REITs in the residential and commercial lending sectors. Mortgage REITs are characterized by their lofty dividends as a result of embedded leverage and low borrowing costs. REM is a very focused strategy that is arranged in a market-cap weighted methodology. As a result, the top holdings make up a significant portion of the underlying asset base. This includes significant exposure to Annaly Capital Management (NYSE: NLY ) and American Capital Agency REIT (NASDAQ: AGNC ). REM currently has a 30-day SEC yield of 12.30% and income is paid quarterly to shareholders. It’s easy to see how investors can be lured into mortgage REITs by the tremendous yields. However, the volatility and risk that is associated with maintaining that dividend is often overshadowed. This ETF has also traced a path similar to high yield bonds over the last 12 months and has just recently experienced a sharp rebound. Future price action in this ETF is likely going to be governed by a combination of factors including real estate fundamentals, credit trends, and overall appetite for risk in aggressive income assets. Keep in mind that ETFs with high sensitivity to credit risk are best purchased during periods of duress in order to capitalize on their relative value to high quality fixed-income. Furthermore, these tools will require heightened vigilance in order to take advantage of their volatile nature. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: David Fabian, FMD Capital Management, and/or clients may hold positions in the ETFs and mutual funds mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell, or hold securities.