Tag Archives: investing

Inside PowerShares’ New Multi-Asset ETF

The recent market upheaval triggered by global growth worries left investors baffled about which investment to tap. While equities have lost their appeal this year, fixed income securities have gained. In the equities spectrum, dividend stocks beat out other equity securities. Meanwhile, some country ETFs outperformed. With uncertainties likely to be in place in the coming days, investors can choose strategies that can reduce risk in their portfolio. And a multi-asset portfolio does a great job in accomplishing this goal. By investing in multi-asset ETFs, investors do not have to worry about the threats emanating from single-asset class picking. This is why PowerShares has rolled out a multi-asset ETF, PowerShares DWA Tactical Multi-Asset Income Portfolio (NASDAQ: DWIN ), which follows a ‘fund of funds’ approach. DWIN in Focus The new ETF looks to track the Dorsey Wright Multi-Asset Income Index. The index chooses investments from a cluster of income strategies on the basis of parameters like relative strength and current yield. The product holds five ETFs in the basket. The ETF will charge investors 69 basis points a year for this exposure. The Fund and the Index are primed for monthly rebalancing. PowerShares High Yield Equity Dividend Achievers Portfolio (NYSEARCA: PEY ), PowerShares Preferred Portfolio (NYSEARCA: PGX ), PowerShares Build America Bond Portfolio (NYSEARCA: BAB ), PowerShares Emerging Markets Sovereign Debt Portfolio (NYSEARCA: PCY ) and PowerShares Global Short Term High Yield Bond Portfolio (NYSEARCA: PGHY ) constitute the fund at the current level with weights of 20.88%, 20.81%, 20.35%, 18.99% and 18.97%, respectively (read: 4 Multi-Asset ETFs to Lower Portfolio Risk ). How This Fits in a Portfolio? DWIN could be an interesting choice for those seeking a broad income play. The fund offers mixed exposure ranging from equities to bonds to the alternative assets. Multi asset ETFs are funds that invest in a combination of diverse asset classes such as investment grade and high yield bonds, domestic and international markets stocks, preferred stocks, REITs and MLPs. These funds offer great diversification benefits by investing across different asset classes and provide a high level of current income with stability and potential for long-term appreciation. In the present low-yield environment, a look at high-income products seems feasible. By investing in diverse asset classes which have low correlations with conventional asset classes, the fund will likely reduce volatility and offer stability to the portfolio. Moreover, a fund-of-funds approach seems a great strategy in minimizing the portfolio risks. Can it Succeed? There is still a desire for such securities despite a good number of choices already in the space. So, the fund has scope for growth in this field (see all the Zacks ETF Categories here ). Still, the fund could face competition from Arrow Dow Jones Global Yield ETF (NYSEARCA: GYLD ), which has amassed over $89 million in assets. It costs investors 75 bps in annual fees. Among others, the popular multi-asset income ETFs – Guggenheim Multi-Asset Income ETF (NYSEARCA: CVY ), iShares Morningstar Multi-Asset Income ETF (BATS: IYLD ) and SPDR SSgA Income Allocation ETF (NYSEARCA: INKM ) – may also give stiff competition to the newbie. Notably, CVY, IYLD and INKM charge 65 bps, 60 bps and 70 bps in fees, respectively. Since the newly-launched fund charges in line with its peers, only a sizable yield can draw investors’ interest. Original Post

Inside The New Sovereign High Yield Bond ETF By Cambria

Disappointing macroeconomic data, global market turbulence and threats to the stability of the U.S. economy have been making headlines since the beginning of the year, leading to volatility across all asset classes. Meanwhile, Treasury yields are also showing a downtrend. Yields on Japan’s benchmark 10-year government bond slid to sub-zero for the first time in February. Following the European Central Bank, Bank of Japan introduced negative interest rates in late January. Denmark, Sweden and Switzerland adopted similar measures. Because of these factors, high-income bond ETFs have gained a lot of popularity of late as investors continue to search for attractive and stable yield in the ultra-low rate interest environment. This trend continues with Cambria, which has launched a fund with a global coverage, focusing on the high-income space. In fact, the global footprint made the fund more attractive given the ultra-low interest rate backdrop prevailing in most developed economies. Below, we have highlighted the newly launched fund – the Cambria Sovereign High Yield Bond ETF (Pending: SOVB ) – in greater detail. SOVB in Focus Listed on the NYSE Arca, the product is an actively managed ETF and does not track any specific index. It seeks income and capital appreciation by investing in securities and instruments that provide exposure to sovereign and quasi-sovereign bonds. Cambria uses a quantitative model, with yield as the largest determinant to select bond exposures for the fund. The fund has an expense ratio of 0.59% and will pay dividend on a quarterly basis. It invests in liquid debt securities across the globe. From a country perspective, India takes the top spot with about 10% of the basket, followed by Brazil (8%), Russia (6.2%), China (5.9%) and Peru (5%). As for maturity, the fund is well diversified between bonds maturing in less than 5 years (33.6%), in 5-10 years (39.8%) and 10-20 years (26.6%). Launched in the last week of February, the fund has already amassed $2.6 million in its asset base. It is up 2.1% in the last 10 days. How Could it Fit in a Portfolio? The ETF could be well suited for income-oriented investors seeking higher longer-term returns with low risk. With interest rates being low in most developed nations, the appeal of high-income bonds has increased as these offer strong yields. Meanwhile, sovereign bonds are generally issued by the government of a country and considered one of the safest options in the bond fund category, and are ideal for a risk-averse investor. However, investors looking for a high-growth vehicle may not be satisfied with this product. Additionally, changes in currency exchange rates may affect the value of the fund’s investment adversely. Competition The ETF does not have any direct competitor, as there is currently no other actively managed sovereign high yield bond ETF available to U.S. investors. The fund provides investors a new way to play the high yield bond market with liquid sovereign and quasi-sovereign bonds. The product charges moderately high fees from investors annually due to its unique strategy. However, there are quite a few international bond ETFs which specifically target particular regions. Of these, the popular fund, iShares J.P. Morgan USD Emerging Markets Bond ETF (NYSEARCA: EMB ), has a total asset base of $5.1 billion. This fund tracks the JPMorgan EMBI Global Core Index, trades in heavy volume of 1.1 million shares per day and charges 40 bps in annual fees. Another fund targeting the emerging market bond space is the PowerShares Emerging Markets Sovereign Debt Portfolio ETF (NYSEARCA: PCY ) with AUM of nearly $2.7 billion and exchanging 919,000 shares a day. Apart from these, SOVB could also face competition from international high yield bond funds – the Market Vectors International High Yield Bond ETF (NYSEARCA: IHY ) with an asset base of $125.2 million, the iShares Global High Yield Corporate Bond ETF (BATS: GHYG ) with AUM of $87.6 million and the iShares Global ex-USD High Yield Corporate Bond ETF (BATS: HYXU ) with AUM of $160.8 million. Thus, SOVB has a good chance of making a name for itself if it manages to generate returns net of fees greater than the passively managed products in the international bond ETF space. The ETF’s plan of safer sovereign bond and its emphasis on liquidity are noteworthy, but its success is a huge factor of the returns it manages to generate. Original Post

Why Now May Be The Moment To Get In On Value

The market’s almost immediate plunge to start 2016 cast a pall over what might have been shiny prospects for a new year, just two weeks from the Fed’s “balanced” assessment of U.S. economic conditions and the first rate hike in nearly nine years. Often forgotten in the doom and gloom is that volatility means down… and up. What intrigues me as a 30+-year value investor is that value stocks have been among the most volatile. And that seemingly has sent investors packing. At the end of 2015, there was $2.7 trillion in growth mutual funds, almost double the $1.5 trillion invested in value mutual funds. This underallocation to value stocks could mean missed opportunity. Let’s look at a hypothetical $10,000 investment in growth, core and value segments over the last decade. We can see where an investor might have missed out in this case. Click to enlarge Opportunity in the making We believe the recent overallocation to and performance strength in momentum and growth sets the stage for investor rebalancing. While the long-term path to value outperformance is not a straight line, and may be marked by alternating spates of value and growth leadership, we fully expect that investors are going to want and need to re-allocate back to value in their portfolios. As shown below, some of the periods of greatest value underperformance are followed by some of the most significant periods of outperformance. While the timing is impossible to predict, it’s not too great a leap to suggest we may be setting up for a rotation in favor of value stocks. Click to enlarge Actively seeking value Beginning in August of last year, the market began to price in weakening global economic conditions. The bearishness tightened its grip in the fourth quarter and early 2016, and as a result, we saw defensive stocks bid up to very full prices as value stocks got cheaper. It seems clear to me that the heightened volatility over this period has created attractive valuations in certain areas of the market. Indeed, by producing dislocations in the market, volatility effectively separates the potential stock winners of the future from underperformers. As the chart below shows, the valuation spreads within sectors are wider than their long-term historic average in many areas of the market. The greater the controversy in the investment case, the greater the dispersion in valuation. That means some stocks are priced low and others high. We are seeing that most acutely in the energy sector. Click to enlarge But buyer beware: Determining which of those low-priced names are true bargains and which are priced low for good reason requires deep understanding of each industry and company. While we approach the market stock by stock, certain areas seem riper for the picking now: Banks. We see banks as less volatile than they have been in the not-too-distant past, characterized by stronger balance sheets and less volatile results. Yet, they are trading at lower valuations. Energy. The key questions here are: 1) when will oil prices bottom and 2) how high will oil prices go in a recovery? We lean to the optimistic side on both. We think oil prices could bottom in the second quarter and head up in the second half of 2016. And while the consensus sees oil recovering to $50-$60 a barrel, our year-end estimate is above $75. But selectivity is important. An investor grab for high-quality, low-risk stocks without regard for valuation or risk/reward has created some attractive long-term opportunities elsewhere in the sector, but a number of stocks in this sector will continue to underperform. Technology. By our analysis, large-cap tech stocks with high return on invested capital are trading at cheap valuations relative to both their history and the broader market, while also generating solid cash. The significant cash balances allow flexibility, and the recent price declines of fast-growing companies may create attractive merger and acquisition opportunities. Healthcare. Despite current market fears, we’ve found a number of interesting stocks that are attractively priced relative to history and compared to the broader market. Healthcare also exhibits better growth and is cheaper than other defensive sectors, such as consumer staples and utilities. The sector benefits from favorable demographic tailwinds (namely, the aging of the population) and continued innovation. Of course, this only scratches the surface. My colleagues and I are excited about the opportunity ahead. Our objective is to work from the bottom up (starting with the individual stocks) to find compelling investment opportunities that are mispriced by the market over a two- to three-year time horizon. We believe the current environment is wildly conducive to that. While we acknowledge China’s overcapacity and economic weakness, we believe the market was overzealous in pricing in the probability of a U.S. recession. In fact, February and early March have shown a reversal in pessimism… and in markets. This has created some attractive investment opportunities. In our assessment, the period of underperformance has produced some bargains and sets the stage for a rebalancing in favor of value. This post originally appeared on the BlackRock Blog.