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6 Nutritious ETFs To Consider On World Health Day

On World Health Day, we would like to draw investors’ attention to well-nourished ETFs that can immune a portfolio from market volatility that is so rampant now. Just like we need nutrients to lead a healthy life, given below are what an ETF portfolio needs to be in the pink. Quality Quality ETFs are generally rich on value characteristics as they focus on stocks with high quality scores based on three fundamentals – high return on equity, stable earnings growth, and low financial leverage. This approach seeks investments in safer stocks and reduces volatility when compared to plain vanilla funds. Academic research shows that high quality companies consistently deliver superior risk-adjusted returns than the broader market over the long term. More importantly, these stocks generally outperform in a crumbling market (read: How to Play the Choppy Market with Cheap Smart Beta ETFs ). While there are several quality ETFs available in the space, the iShares MSCI USA Quality Factor ETF (NYSEARCA: QUAL ) seems to be the most popular. This fund provides exposure to the stocks exhibiting positive fundamentals (high return on equity, stable year-over-year earnings growth, and low financial leverage) by tracking the MSCI USA Sector Neutral Quality Index. In total, the fund holds 123 securities in its basket, which are pretty spread across a number of securities with none holding more than 5.03% of assets. From a sector look, information technology takes the top spot at 20.5%, followed by financials (16.0%), healthcare (14.5%) and consumer discretionary (14.2%). The product has amassed $2.3 billion in its asset base and charges just 15 bps in annual fees from investors. Average trading volume is good at around 317,000 shares per day. The fund has returned nearly 36.7% to date since its inception in July 2013. Low Volatility Low volatility products appear safe in a turbulent market, and reduce losses in declining markets. But these generate decent returns when markets rise. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. Further, these funds contain stocks of defensive sectors, which usually have a higher distribution yield than the broader markets (read: Low Volatility ETFs Still in Play ). In particular, the ultra-popular iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) having AUM of $11.4 billion and average daily volume of about 3 million shares, tracks the MSCI USA Minimum Volatility (NYSEARCA: USD ) Index. It offers exposure to 168 U.S. stocks having lower volatility characteristics than the broader U.S. equity market. The fund is well spread across a number of components with each holding less than 1.71% share. From a sector look, financials, healthcare, information technology and consumer staples occupy the top positions with double-digit exposure each. Expense ratio comes in at 0.15%. The fund has delivered returns of 44.1% over the trailing five-year period. Low Beta Low beta ETFs exhibit greater levels of stability than their market-sensitive counterparts and will usually lose less when the market is crumbling. Though these have lesser risks and lower returns, the funds are considered safe and resilient amid uncertainty. However, when markets soar, these low beta funds experience lesser gains than the broader market counterparts but are still considered healthy. The PowerShares Russell 1000 Low Beta Equal Weight Portfolio ETF (NASDAQ: USLB ) could be a solid pick. This ETF has debuted in the space last November and has attracted $128 million in its asset base so far. It follows the Russell 1000 Low Beta Equal Weight Index, holding 306 well-diversified stocks in its basket with each holding less than 0.60% of assets. Volume is moderate exchanging 60,000 shares in hand on average. The product is skewed toward financials at 21.3%, followed by consumer discretionary (16.2%), industrials (13%), healthcare (10.8%) and consumer staples (10.5%). It charges investors 35 bps in annual fees and is up over 1% since inception. Dividend Dividend paying securities are the major sources of consistent income for investors when returns from the equity market are at risk. Dividend-focused products offer both safety in the form of payouts and stability in the form of mature companies that are less immune to the large swings in stock prices. While several choices are available in the dividend space, First Trust Morningstar Dividend Leaders Index ETF (NYSEARCA: FDL ) looks attractive. With AUM of $1.1 billion, the fund follows the Morningstar Dividend Leaders Index. In total, it holds 96 stocks that have shown the highest dividend consistency and dividend sustainability. The top two firms – Exxon Mobil (NYSE: XOM ) and AT&T (NYSE: T ) – dominate the returns of the fund holding over 9% share each. Other firms hold less than 7.4% of assets. Volume is solid as it exchanges more than 467,000 shares a day on average while expense ratio comes in at 0.45%. FDL surged 83.2% in the past five years. Blend Blend funds consist of a mix of both growth and value stocks and are considered most appropriate in any type of market. This is because these funds harness their momentum in earnings to create a positive bias in the market resulting in rocketing share prices. At the same time, these tap buying opportunities at depressed stock prices hoping for capital appreciation when the stock finally reflects its true market price. In particular, the iShares S&P 100 ETF (NYSEARCA: OEF ) could be an interesting choice as it offers exposure to 102 mega-cap U.S. stocks by tracking the S&P 100 index. It is slightly tilted toward the top firm – Apple (NASDAQ: AAPL ) – at 5.4% while other firms hold no more than 3.81% of assets. As such, the fund has a nice mix of growth, value and blend stocks. About one-fourth of the portfolio is dominated by information technology while health care and financials round off the next two spots, with less than 15% allocation for each. OEF is by far the most popular and liquid choice in the mega cap space with AUM of $4.5 billion and average daily volume of around 1.2 million shares per day. It charges 20 bps in fees and surged 72.5% in the last five years. Diversified A diversified portfolio in the equity world refers to investing in stocks of different companies, securities and industries in order to minimize overall risk and achieve optimal risk-adjusted returns. While there are several ETFs that offer diversification benefits, the Guggenheim S&P Equal Weight ETF (NYSEARCA: RSP ) could be an interesting choice, as it offers almost equal allocation in the stocks of the S&P 500 index and does not allocate a big chunk to any sector. The fund tracks the S&P Equal Weight Index, putting roughly 0.2% in each stock. Financials, consumer discretionary, information technology, industrials and healthcare are the top five sectors accounting for less than 18% share each. The fund has amassed nearly $9 billion in its asset base while sees volume of more than 1.2 million shares a day on average. It charges 40 bps in fees per year from investors and gained 66.5% over the past five years. Original Post

Are There Dangers In Not Diversifying Your Portfolio?

Originally published on March 15, 2016 When it comes to investing, the key for most people to make money is to avoid as much risk as possible. In order to accomplish this, it’s best that all investors decide to diversify their portfolios in all possible ways. However, while it may sound simple, diversification is anything but that. However, by following a few simple rules it’s possible to diversify one’s portfolio in such a way that avoids huge losses. Just What Is Diversification? Diversifying a portfolio is just as it sounds. Rather than put all their money into a particular stock, investors should always look to invest their money in as many different avenues as available. By doing so, they greatly reduce the risk of losses occurring due to their money being tied up in only one industry. While diversification does not completely guarantee against financial losses happening, it has proven to be the most useful tactic when it comes to making a person’s money grow. Various Types of Risk When investing in stocks , bonds, or other financial instruments, there is always a certain level of risk involved with the venture. However, by having a good understanding of these risks, investors greatly increase their chances of minimizing losses or having none at all. There are two major types of diversification, which are known as diversifiable and non-diversifiable. Non-diversifiable risk is that which is associated with any type of company or industry, such as inflation, cost-of-living, and political instability. This is considered the type of risk that cannot be avoided, so it must be weighed in relation to other risks as to how it will affect a portfolio. However, diversifiable risk is directly tied to an industry, company, or even a particular country. To avoid having issues due to this type of risk, investors should have various assets within their portfolios that all have different reactions to the same situation, which in turn will lead to a safer investment strategy. Be Open to New Strategies One of the biggest mistakes many investors make is having tunnel vision when it comes to their investing strategies. When this happens, they often experience larger losses in their portfolios than other people who have spread their money around to many different places. Not only should a person not invest solely in one company, but they should also be careful not to invest in companies or industries that have a strong correlation to one another. If this happens, the likelihood of losses increases substantially. Opposites Attract Not only do opposites attract when it comes to love, but to diversifying as well. Along with being open to new strategies, it’s also advantageous for investors to look for various asset classes that tend to move in opposite directions. A great example of this is stocks and bonds, which while related tend to go in opposite directions almost daily. This allows them to offset the unpleasant moves of one asset class with the positive ones of another, which over time will keep a portfolio far less vulnerable to market swings. As a general rule, investors who are just beginning to put together their portfolios are almost always advised to include bonds, which tend to offset any losses sustained with stocks. There Are No Guarantees While diversifying a portfolio does not automatically guarantee investment success, it has been shown to increase the likelihood of positive returns over time. However, it’s important to note that even if your portfolio is correctly diversified, some risk can never be eliminated . This is where we talk about over diversification. This is a big problem that big investors, and experts warn others about, because it has the potential to undo all your efforts. It’s common consensus that wide diversification within your portfolio can cause investing to be more confusing than it normally would be, since you have so many eggs in so many baskets. Understanding that there is a point at which the benefits of diversification stop reducing risk, and instead start eating away at investment returns is crucial, otherwise, you’re just stuck with a hodgepodge mess of a portfolio. When it comes to reaching one’s financial goals, virtually every investor has their own set of unique plans. Most financial planners agree that investors who don’t let themselves get too high or too low depending on the market conditions will always do best, while others who invest too heavily in one direction often run into problems. By taking diversification seriously and taking the time to learn about the benefits associated with it, investment success can be had. This guest article was written and provided by Accuplan Benefits Services, a self-directed IRA administrator.

When Graham Found Momentum

Originally published on March 9, 2016 The enterprising investor may confine his choice to industries and companies about which he holds an optimistic view, but we counsel strongly against paying a high price for a stock (in relation to earnings and assets) because of such enthusiasm. – Benjamin Graham Popularity is fleeting. For some, it only lasts the proverbial “15 minutes”. For others, it drags on longer than any rational person can comprehend. We see this in people and things. It explains why fads come and go. It eventually ends because there are not enough new eyeballs to replace the ones that lose interest, or something newer and shinier comes along to draw our attention away. Ben Graham noticed this popularity effect on stocks and briefly covered it in The Intelligent Investor : Here we found – contrary to our investment philosophy – that companies that combined major size with a large good-will component in their market price did very well as a whole in the 2 1/2 year holding period. (By “good-will component” we mean the part of the price that exceeds the book value.) Graham separated stocks into several groups based on a single factor to see how each performed over a 30-month period between December 1968 and August 1971. Each group held a basket of 30 stocks. The group in question held the largest stocks with the highest price-to-book value. Our list of “good-will giants” was made up of 30 issues, each of which had a good-will component of over a billion dollars, representing more than half of its market price. The total market value of these good-will items at the end of 1968 was more than $120 billions! Basically, these were the “most expensive” large caps trading over 2x book value. I think it’s a safe guess that the price-to-book was much higher. Yet, despite the “expensive” price tag, the group outperformed all other tests and beat the market by about 15% for the period. Here’s Graham’s explanation for why: A fact like this must not be ignored in work on investment policies. It is clear that, at the least, a considerable momentum is attached to those companies that combine the virtues of great size, an excellent past record of earnings, the public’s expectation of continued earnings growth in the future, and strong market action over many past years. Even if the price may appear excessive by our quantitative standards the underlying market momentum may well carry such issues along more or less indefinitely. It is difficult to judge to what extent the superior market action shown is due to “true” or objective investment merits and to what extent to long-established popularity. No doubt both factors are important here. I think Graham’s explanation does a good job of describing potential drivers behind the momentum factor. Put simply, people like to buy stocks that are going up and avoid whatever’s going down. And if they feel good about stocks, they’re willing to pay more. He goes so far as to say it’s something investors might consider. It’s just not something he’d consider, since it goes against everything he believes. In most situations, value investors are doing the opposite. They’re buying when stocks are most unpopular and selling as popularity takes over. The popularity effect becomes the selling opportunity for value investors and buying opportunity for anyone willing to exploit the momentum factor. Note: Graham doesn’t list the 30 stocks in the “goodwill giants” group. Based on the few mentioned in the book – IBM Corp. (NYSE: IBM ), Xerox, Polaroid – and the time frame, I’m guessing several fit the Nifty-Fifty mold. For those who don’t know, The Nifty-Fifty were a select group of high-growth stocks that reached a “buy at any price” popularity (much like the dot-com stocks of the late ’90s, except the Nifty-Fifty had actual earnings). The shiny thing was high earnings growth that initially got people’s attention, popularity and momentum drove prices higher. In some cases, investors were paying P/E multiples of 50x and higher. For a while, anyway, it worked… until it didn’t. What seemed like a great idea in ’68 became a terrible one in ’73 when the market crashed.