Tag Archives: etfs

3 Ways To Get Comfortable With Investing This Year

By Heather Pelant “When I grow up, I want to be an investor,” is never something I hear when talking with my daughters about their future selves. The irony is that they already are investors through their education savings accounts, and they almost certainly will be for the rest of their lives. This disconnect between what we say and what we do is not unique. Amazingly, 69 percent of Americans don’t think of themselves as investors, according to BlackRock’s 2015 Investor Pulse survey. Our research shows people feel nervous about investing because they think it’s risky (37 percent) or complicated (47 percent). A whopping 60 percent of average Americans compared investing to gambling, in contrast to only 45 percent who feel comfortable making their own investment decisions. But in reality, like my daughters, most of us are investors. Six out of 10 of us are “saving” for retirement. If your money is in a 401(k) or IRA, then it’s very likely invested in mutual funds or exchange-traded funds (ETFs). So as you head into this New Year, turn a fresh page on your relationship with investing and make a pledge to do a few simple things that will allow you to wear your investor badge confidently. Make a plan Just 14 percent of Americans have a formal financial plan for retirement, but three-quarters of those people feel confident their money will last through retirement. If you want to be part of this small, confident group, determine how much retirement income you want by a certain age, and then map an investment strategy to navigate that path. You don’t have to do this alone. A financial advisor or online financial resources can help. The sooner you start the better, because the longer you let your money work for you, the less you’ll need to set aside today to meet those goals. And you’ll be able to take on a little more risk for greater potential returns. Read your statements If you don’t read your retirement account statements, you’re not alone. Only 28 percent of Americans actually review the performance of their savings or investments regularly. And less than 20 percent know how much income they’re earning or examine their holdings. Rather than throw them in a pile or click delete, open up those statements and take a good look at them. While they can be loaded with jargon and (important) legalese, the key areas to focus on are: Asset classes: Most good statements or account websites will break down the percentage of stocks, bonds, cash and other types of investments you hold, and let you know if they gravitate toward aggressive or conservative. Make sure you are properly diversified depending on your goals and time you have to invest. Expense ratios: These are the underlying fees and costs of the fund which can eat into your total returns. ETFs tend to have cheaper expense ratios than actively managed mutual funds, so make sure you’re getting your money’s worth. Market performance: Compare the gains or losses of your total portfolio to the performance of major indexes such as the S&P 500 or the Barclays Global Aggregate bond index. Are you doing better than those benchmarks? This isn’t something you should be doing every week or even every month, as the near-term bumpiness of the market can be disconcerting. If you’re invested for the long term, reviewing once or twice a year is fine to make sure you’re on track to meeting your goals. If you’re getting closer to the time when you’ll need your savings, then perhaps look at them quarterly. Get educated Conquering fear of the unknown can simply be done by knowing more. You do not need an MBA to be an engaged investor. One easy way to act on your resolution is by subscribing to a financial news magazine or newspaper, or even just reading the business section of your regular newspaper. Understanding what is happening in the global and local markets can bring home how these events may affect your investment returns. But be careful about overreacting to noisy headlines, and stay focused on your goals. If you choose to work with an advisor, find one who will answer all of your questions. And read the informative emails and newsletters you get from your advisor or brokerage firm. Finally, keep visiting the BlackRock Blog, which covers a wide range of investing topics daily. It’s an old, but true, cliché that knowledge is power. So if your New Year’s resolutions include a financial makeover, start on the pathway to success by understanding who you really are-an investor. This post originally appeared on the BlackRock Blog.

Do ETFs Cause Market Volatility?

My colleague Russ Koesterich has said it before: Market volatility is the new normal. And when markets are volatile, we see volatility in the prices of exchange traded funds (ETFs). Some investors may wonder if the ETF is simply showing us the market volatility, or if it is actually causing it. Let’s take a closer look. We know that ETFs trade on the open market. Let’s pretend that we’re monitoring an ETF that is listed in the US but invests in Asian stocks. If we buy that ETF and keep an eye on its price when the Asian market is closed, we can see that the price of the ETF still moves throughout the day, even though the Asian market is closed. That’s because news and information in the U.S. and European markets impacts the value of Asian market stocks, and thus the ETF that holds those stocks. When the Asian market opens again, we see the local stocks move to reflect this new information, and the ETF’s price realigns with the local market. We call this “price discovery”-the ETF is showing you where the market should be priced at a given point in time, even if that market is closed. If all markets are open at the same time, this form of price discovery generally doesn’t take place. ETFs and Market Volatility ETFs by nature have created entries into the market that investors wouldn’t normally have otherwise. Some speculate that now more investors have access to markets, there is more trading, and this can actually cause market volatility. We’ve done a lot of research on this and found that ETFs do not cause market volatility. Instead, their price fluctuation is simply exposing already-existing market volatility, adding transparency to the ETF’s price fluctuations. Much like our Asian equity ETF example above, the ETF didn’t increase the volatility of the local market, it just showed you where that market was valued even when it was closed. At the end of the day, a stock is worth what it’s worth and a bond is worth what it’s worth. ETFs are going to trade at a price that reflects where you can trade in the ETF’s underlying market. They simply reflect prices-they don’t cause them to move. A Look at Bond ETFs If we shift from stocks to bonds and look at fixed income ETFs, we must consider two things: first, that an ETF is a portfolio that trades intraday; and second, that it’s difficult to see intraday transactions in the bond market. Most investors have difficulty seeing bond price movements intraday; there is no ticker tape you can look to, and most data sources are delayed or hard to access. But if you have a bond ETF, the dynamic changes: The nature of this investment allows you to see price fluctuations intraday. A great example of this is “Taper Tantrum” that began in May 2013. Interest rates in the U.S. spiked suddenly at this time, and a lot of different bond investments dropped in price, high-yield ETFs included. Investors who were holding high-yield ETFs wondered why the price was falling. A quick look at the high-yield ETF market revealed that other high yield ETFs were dropping in price. If you could look at high yield bond trades you would have seen that they were declining as well. Most investors couldn’t see both the high yield bond market and the ETF market, but if they could they would see that the high yield ETF was reflecting the price drops in individual high yield bond trades. It’s not that the ETFs caused the dip; it’s that their prices simply reflected what was already there, but hidden. And this is another form of price discovery. The bond market and the bond ETF are both trading at the same time, but one is hard to see while the other is more visible. The ETF helps investors discover what is really happening in fixed income markets throughout the day. What are your questions about ETFs and volatility? Ask them here. This post originally appeared on the BlackRock Blog.

5 Very Successful ETF Launches Of 2015

The year 2015 turned out to be a momentous one for the ETF industry with assets comfortably crossing the $2 trillion mark. About 287 ETFs have been launched so far this year (with nine more days to go) compared with about 180 ETF initiations in 2014, 150 in 2013 and 168 rollouts in 2012. All these have tallied to 1,839 ETFs so far. Not only this, a considerable number of ETFs are in the pipeline, pointing to growing investor interest for exchange-traded products in this market. The credit goes mainly to a wide range of innovative and fresh-themed products in the space, which hold investors’ attention despite the peaks and troughs of the market. Among the new products, active funds, smart-beta ETFs, high yield options and hedged international products were appreciated by investors. Below are five ETFs launched in 2015 that scooped up assets within a short time span on the market, and look to be big winners for their issuers down the road: SPDR DoubleLine Total Return Tactical ETF (NYSEARCA: TOTL ) Making its debut in late February in association with bond master Jeffrey Gundlach’s DoubleLine Capital, this SPDR actively managed bond ETF has amassed about $1.73 billion, which is a tall order for any player in the ETF industry (read: 2 New ETFs with Big Potential ). Retail investors seem to revere the name of the fixed income veteran Jeff Gundlach whose team manages the ETF. TOTL looks to maximize total return, while emphasizing income by investing in a global portfolio of fixed income securities of various maturities and ratings, though only 10% of the portfolio goes to the international arena. The fund puts about 58% of assets in mortgage-backed securities followed by about 9% invested in treasuries and 8.4% in emerging markets. The fund charges 55 bps in fees and is down 2.5% since inception (as of December 22, 2015). SPDR S&P North American Natural Resources ETF (NYSEARCA: NANR ) This ETF has scooped up about $662.6 million in assets within just a few days of its launch this month itself. The fund looks to track the performance of publicly traded large- and mid-cap US and Canadian companies in the natural resources and commodities businesses including energy, materials or agriculture. This 59-stock fund charges 35 bps in fees. Though the fund is revolving around some presently beaten-down areas of the investing world, investors might have been placing their money to cash in on the undervalued status over the long run. iShares Exponential Tech ETF (NYSEARCA: XT ) This ETF has attracted almost $640.5 million in assets since its inception in March. It looks to track the Morningstar Exponential Technologies Index that considers developed and emerging market companies which create or use exponential technologies, per the prospectus . Exponential technologies replace outdated technologies, foray into underpenetrated markets and have the ability to influence the economy (read: Why Is This New ETF Growing So Fast? ). Big data and analytics, nanotechnology, medicine and neuroscience, networks and computer systems are some the areas under exponential technologies that the fund uses. The product charges 47 basis points in annual expenses, which is quite rational given its niche theme. However, the fund is down 4.2% so far this year (as of December 22, 2015). Goldman Sachs Active-Beta Emerging Market ETF (NYSEARCA: GEM ) The fund looks to deliver exposure to emerging market equities and picks stocks based on four attributes of performance, namely good value, strong momentum, high quality and low volatility. Given the potential turmoil in the emerging market bloc due to the Fed lift-off, political issues in some countries and slumping commodities, the active beta approach drew investors’ attention. The 434-stock fund has amassed about $570 million so far and charges 45 bps in fees. The fund has heavy focus on the financial sector with about 25.6% followed by Information Technology (18.7%), Consumer Staples (14.1%) and Consumer Discretionary (10.8%). SPDR Russell 1000 Momentum Focus ETF (NYSEARCA: ONEO ) This new ETF has amassed about $335.1 million in assets in less than a month. The fund looks to track the performance of a segment of large-capitalization U.S. equity securities demonstrating a combination of core factors with a focus factor comprising high momentum characteristics. This 918-stock ETF is heavy on Consumer Discretionary (20.05%) followed by Financial Services (16.84%) and Producer Durables (16.37%). The fund charges 20 bps in fees. Link to the original article on Zacks.com