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Best Performing Bond ETFs Of Q1

Chances for the 33-year bull run in the bond market to fall flat in 2016 increased when the Fed enacted a rate hike in December 2015 after almost a decade. But in reality, bonds kept bouncing throughout the first quarter on a low-yield environment in most developed markets across the world. Thanks to China-led global market worries and the 12-year plunge in oil prices, the global market went berserk to start this year. All these buried risk-on sentiments and boosted relatively safer fixed-income securities in the quarter, pulling bond yields down. In fact, the impact of the global financial market turmoil was so deep-rooted that the Fed halved its number of rate hike estimates for 2016 from four to two in its March meeting. Also, Fed chair Yellen reaffirmed a ‘cautious’ stance on future policy tightening. Needless to say, the very move dragged down the U.S. benchmark bond yields and pushed up its prices. Notably, yields on 10-year Treasury notes dropped 41 bps to 1.83% (as of March 30, 2016) in the quarter, leading U.S. Treasury valuation to soar. Meanwhile, deflationary threats led the central banks of Japan and Eurozone to widen their already ultra-easy monetary policies. At its January-end meeting, BoJ set its key interest rate at negative 0.1%. BoJ then hinted at further cuts in interest rates if the economy fails to improve desirably. In Europe, the ECB president Mario Draghi turned super dovish in March by raising the monthly bond purchase size to EUR 80 billion from 60 billion previously. Also, ECB lowered the deposit facility rate to negative 0.4%, down from the previous rate of negative 0.3%. It also cut its main refinancing rate and marginal lending rates by 0.5% each to zero percent and 0.25%, respectively. Quite expectedly, the twin boosters of easy money policy globally and a delayed rate hike in the U.S. made fixed-income securities a winner in the first quarter. It would thus be interesting to note the ETFs that were the leaders in the bond space during the quarter. Returns are as per xtf.com . 25+ Year Zero Coupon U.S. Treasury Index Fund (NYSEARCA: ZROZ ) ZROZ follows the BofA Merrill Lynch Long US Treasury Principal STRIPS Index, which focuses on Treasury principal STRIPS that have 25 years or more remaining to final maturity. It charges just 15 basis points in expenses while the 30-day SEC yield is 2.62% currently (as of March 29, 2016). ZROZ has added 14.3% so far this year (as of March 30, 2016). The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook. DB German Bund Futures ETN (NYSEARCA: BUNL ) German bonds and the related ETFs also made an impressive rebound as these offer safety. Following extremely lower yields due to accommodative ECB policies, “German government bond yields are set to record their biggest quarterly fall in 4-1/2 years ” on March 31, 2016. The note looks to provide investors exposure to the U.S. dollar value of the returns of a German bond futures index, replicating the performance of a long position in Euro-Bund Futures. The note is up 14.3% so far this year (as of March 30, 2016). Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ) The fund seeks to match the performance of the Barclays U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index. This means that this benchmark zeroes in on fixed income securities that are sold at a discount to face value, and then the investor is paid the face value upon maturity. The fund charges 10 bps in fees. This Zacks Rank #2 ETF yields 2.71% annually. The fund has returned 13% so far this year (as of March 30, 2016). DB Japanese Govt Bond Futures ETN (NYSEARCA: JGBL ) Very low bond yields following Bank of Japan’s decision to push key interest rates to the negative territory to engineer the sagging economy were behind JGBL’s surge. Many analysts are of the view that ” negative bond yields are here to stay in 2016″ for Japanese bonds. The product looks to track the DB USD JGB Futures Index, which is intended to measure the performance of a long position in 10-year JGB Futures. JGBL advanced about 9.9% so far this year (as of March 30, 2016). PIMCO 15+ Year U.S. TIPS ETF ( LTPZ ) The fund tracks the BofA Merrill Lynch 15+ Year US Inflation-Linked Treasury Index and is up 9.6% so far this year (as of March 30, 2016). As U.S. inflation improved in the quarter, TIPS ETFs came into the limelight. Original Post

5 ETFs To Buy For Q2

After a terrible start to the year, the U.S. stock market made a stunning comeback in the last six weeks of the first quarter. This is especially true as the major U.S. bourses recouped all the losses after falling more than 14% (as of February 11) from their recent peak levels. Notably, both the S&P 500 and Dow Jones were in the green at the end of the quarter, having logged in 0.8% and 1.5% gains, respectively. The impressive rally was driven by a rebound in oil prices, a spate of upbeat U.S. economic data, extra easing policies in Europe and Japan, and stabilization in the Chinese economy. Additionally, the Fed’s dovish comments infused more optimism in the stock markets lately. The bullish trend is likely to continue at least in the second quarter given the substantial improvement in the economy, an accelerating job market, pick-up in inflation as well as increasing consumer confidence. Further, the Fed is not expected to raise interest rates anytime soon given the global growth concerns that should drive the U.S. stocks higher. Nevertheless, bouts of volatility will keep threatening the bulls. Some of the headwinds include relatively higher valuations, risk of earnings weakness like what we saw in the fourth quarter, and oil price instability. As the U.S. economy is leading the way amid global uncertainty, investors should focus on the domestic market. We have highlighted five picks for 2Q that should outperform and cost less than many other products. These funds have either a Zacks Rank of 1 (Strong Buy) or 2 (Buy). iShares MSCI USA Minimum Volatility ETF (NYSEARCA: USMV ) Low volatility products generate impressive returns or often outperform in an uncertain or a crumbling market while providing significant protection. This is because these funds include more stable stocks that have experienced the least price movement in their portfolio. As a result, low-volatility strategies appear safe in a turbulent market, and reduce losses in declining markets while generating decent returns when the markets rise. As such, USMV could be a great pick with an AUM of $11.3 billion and an expense ratio of 0.15%. It offers exposure to 168 U.S. stocks having lower volatility characteristics than the broader U.S. equity market by tracking the MSCI USA Minimum Volatility Index. The fund is well spread across a number of securities with none holding more than 1.71% of assets. From a sector look, financials, health care, information technology and consumer staples take the top four spots with a double-digit allocation each. The fund trades in solid volume of 3 million shares a day and has gained 6.4% in the year-to-date time frame. It has a Zacks ETF Rank of 2. SPDR S&P Dividend ETF (NYSEARCA: SDY ) Dividend-focused ETFs have been riding high this year on investors’ drive for income amid heightened uncertainty in the stock market. This is because dividend paying securities are the major sources of consistent income when returns from the equity market are at risk. Dividend-focused products offer 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. Further, longer-than-expected interest rates have made this corner a hot investment area. As a result, SDY seems an interesting choice for the second quarter. This is one of the popular and liquid ETFs in the dividend space with AUM of $13.2 billion and average daily volume of about 940,000 shares. This fund provides exposure to the 109 U.S. stocks that have been consistently increasing their dividend every year for at least 25 years. This can be done by tracking the S&P High Yield Dividend Aristocrats Index. Though the fund is slightly skewed toward the financial sector with 22.7% share, industrials, utilities, consumer staples, and materials make up for a nice mix in the portfolio with a double-digit allocation each. The fund charges 35 bps in fees per year and yields 2.51% in annual dividend. It has added 9.9% so far this year and has a Zacks ETF Rank of 2. Consumer Discretionary Select Sector SPDR Fund (NYSEARCA: XLY ) With the U.S. economy on a modest growth path and the spring season underway, the consumer discretionary sector is expected to get a boost. The auto industry is booming, the manufacturing industry seems to be stabilizing having ended a five-month declining streak with accelerated production and rising new orders, and the housing market is geared up for the spring buying fervor. Further, cheap financing will continue to entice consumers to buy more homes and avail auto loans, thereby propelling the stocks of this sector higher. While there are several options to play the surge in the sector, the ultra-popular XLY having AUM of $10.7 billion and average daily volume of around 8.2 million shares looks attractive. It tracks the Consumer Discretionary Select Sector Index and holds 88 securities with higher concentration on the top four firms at 30%. Other firms hold less than 4.9% share each. In terms of industrial exposure, media takes one-fourth share while specialty retail, internet retail, and hotels, restaurants & leisure round off the next three spots with a double-digit exposure each. The fund charges 14 bps in fees per year and has added 2% so far this year. It has a Zacks ETF Rank of 1. SPDR S&P Homebuilders ETF (NYSEARCA: XHB ) A solid labor market along with affordable mortgage rates will continue to fuel growth in a recovering homebuilding sector, creating a buying opportunity in homebuilders and housing-related stocks. In addition, slower and gradual rate hikes will not impede the growth prospect of the sector, at least in the second quarter. The most popular choice in the homebuilding space, XHB, follows the S&P Homebuilders Select Industry Index. In total, the fund holds about 37 securities in its basket with none accounting for more than 5.73% share. The product focuses on mid-cap securities with 65% share, followed by 27% in small caps. The fund has amassed about $1.5 billion in its asset base and trades in heavy volume of about 3.6 million shares. Expense ratio comes in at 0.35%. XHB has lost modestly 0.1% in the year-to-date timeframe and has a Zacks ETF Rank of 2. iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ) Treasury bonds, in particular the long-term ones, are the biggest beneficiaries of lower interest rates. The longer the duration, the more sensitive the fund is to the changes in interest rates. As such, bonds having a higher duration will experience significant gains for as long as interest rates remain low. Additionally, long-term bonds will continue to get an impetus from the negative interest rates in the other developed world like Europe and Japan that made the U.S. bonds attractive to foreign investors. Given this, the ultra-popular long-term Treasury ETF – TLT – looks exciting for the second quarter. It tracks the Barclays Capital U.S. 20+ Year Treasury Bond Index, holding 32 securities in its basket. The fund focuses on the top credit rating bonds with average maturity of 26.61 years and effective duration of 17.77 years. It charges 15 bps in annual fees and exchanges about 8.7 million shares in hand per day. With AUM of $8.1 billion, TLT has gained 8.6% so far this year and has a Zacks ETF Rank of 2. 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.