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Inside The Continued Surge In Sugar ETFs

The rally in sugar prices seems to be unstoppable when most of the other commodities are finding the going tough. Its days of a supply glut ended in late August when future prices touched the lowest point since 2008. Since then, raw sugar prices at New York Mercantile Exchange recovered nearly 40% to around 14 cents per pound as of October 27, 2015, despite a surprising 1.5% fall in Tuesday’s trading session. The recent strengthening of the U.S. dollar on the back of Eurozone and Chinese stimulus measures could not derail the greenback priced commodity off the track. In fact, Morgan Stanley (NYSE: MS ) predicted raw sugar prices on the New York exchange will average 15.2 cents per pound in the final quarter of 2015 and 17.3 cents per pound in 2016. The advantage lies primarily in adverse weather conditions across the globe causing supply bottlenecks. Brazil, the world’s largest sugar producer accounting for 40% of global exports, is expected to witness above-average rainfall linked to a strong El Nino in growing regions that could disrupt the harvest, leaving a chunk of cane left to cut. Moreover, biofuel mandates and modification in energy taxation in Brazil are prompting sugarcane processors to convert cane for ethanol production instead of raw sugar, limiting its supply in the world market. According to the Brazilian Sugarcane Industry Association, or Unica, ethanol production in south-central Brazil went up 2.6% year over year to 20.2 million kiloliters while sugar production dipped 7.2% to 23.2 million tons during the April-September period. India, the world’s second largest sugar producer, is also expected to trim sugar production due to El Nino-induced drought in the region. Per Indian Sugar Mills Association, India is likely to cut its sugar output by 5% to 28.3 million tons in 2015. Other major sugar producing countries such as Thailand and China are also hit by droughts and are expected to cut sugar output. According to the International Sugar Organization and U.K. sugar trading house Czarnikow, there will be a sugar shortage of roughly 3-5 million tons in the global market for the current crop marketing year, which began this month. These apart, there are other factors that are driving the sugar price rally. China, the world’s largest importer of raw sugar, recently released data that showed a robust 80% year-over-year hike in sugar imports in September to 656,000 tons. It was the highest recorded volume since 2013, as per data from Commerzbank . Further, a recent report from Commitment of Traders revealed that hedge funds have been betting on sugar at a lower-than-expected pace, indicating the availability of surplus money to aid further rallies. Riding on the continued surge in sugar prices, ETFs that are exposed to this soft commodity have been experiencing double-digit gains over the past one month (as of October 27, 2015). Below, we highlight three of those ETFs that investors should definitely consider to play the bullish sugar market. iPath Dow Jones-UBS Sugar Subindex Total Return ETN (NYSEARCA: SGG ) SGG tracks the Dow Jones-UBS Sugar Subindex Total Return Index, which provides the returns that are in an investment in the futures contracts on the commodity of sugar. The note has garnered nearly $60 million in assets and trades in a daily volume of roughly 54,000 shares on average. It charges 75 bps in annual fees. The note was up 18.1% in the past one month and has a Zacks ETF Rank #3 (Hold) with a High risk outlook. Teucrium Sugar Fund (NYSEARCA: CANE ) This ETF tracks the Sugar Futures index, which reflects the daily changes of a weighted average of the closing prices for three futures contracts for sugar that are traded on ICE Futures US. The fund is nearly overlooked as it has gathered nearly $4 million in assets and trades in a paltry volume of around 6,000 shares. However, the ETF is expensive, charging a hefty 176 bps in fees from investors per year. It was up 12.3% over the last one month and carries a Zacks ETF Rank #3 with a High risk outlook. iPath Pure Beta Sugar ETN (NYSEARCA: SGAR ) This is another sugar ETN by iPath and follows the Barclays Capital Sugar Pure Beta TR Index. The index consists of a single futures contract but it has a unique roll structure which selects contracts using the Pure Beta Series 2 Methodology. SGAR is also neglected with only $1.5 million in AUM and is thinly traded with average volume of nearly 2,000 shares. The note charges 75 bps in annual fees and was up 17.5% in the past one month. It also carries a Zacks ETF Rank #3 with a High risk outlook. Original Post

If You Like Inner Beauty, This Is Your Dividend ETF

Summary DVY offers a solid dividend yield of 3.27%, but the real beauty goes much deeper. The holdings in the top 10 look excellent and reflect a great portfolio. The sector allocations are even better and include high allocations to sectors that are often ignored in high dividend yield ETFs. The iShares Select Dividend ETF (NYSEARCA: DVY ) looks great. After readers suggested I take a look at the portfolio, I decided it was time to dive inside and see what I could find. This is a great ETF. Investors may quibble on whether the allocations are perfect or merely good, but there is far more to like than to hold against the fund. Expense Ratio The expense ratio is .39%. That is by far the biggest challenge for the fund because the rest of the fund is simply great. Holdings Investors should always look to the holdings as part of the process in making the decisions. Who doesn’t like this allocation? We have Philip Morris International (NYSE: PM ) at the number 2 slot. That looks like a good dividend bet to me. I’m not a fan of their products, but I am I fan of the revenue and earnings they can generate with those products. That can be a tricky situation, but in the investment mindset I just can’t toss away the opportunity to have companies with highly addictive products. We see McDonald’s (NYSE: MCD ) at the number 4 slot. The case for McDonald’s is fairly similar. I don’t love the product that they were creating over the last several years, but I do love the way the restaurant leverages their real estate and enormous size to generate great economies of scale. We also have Kimberly Clark Corp (NYSE: KMB ) and Clorox (NYSE: CLX ) in the top ten. While I don’t cover these companies on an individual basis, it is encouraging to see three entries for consumer staples in the top holdings of the ETF. You look a little further down the list and you see Nextera Energy Inc. (NYSE: NEE ) leading a batch of three utilities. For comparison sake, I’ve often looked into defensive ETFs or high dividend yield ETFs and seen utilities only composing 0% to 5% of the portfolio. Since I like dividend ETFs to be stuffed with companies that can sell their product regardless of the economic environment, the utility sector is a great fit. Sector Allocations The next chart breaks down the sector allocations across the entire ETF and the choices are beautiful. I looked at this chart and knew I was going to like the ETF right away. Assuming proper diversification across individual companies, this is just a wonderful sector allocation. The utility sector comes in very heavy at 33% of the portfolio which is great for investors that care about getting strong sustainable dividends. I assume that is the only reason anyone is interested in this ETF. The dividend yield is currently running 3.27% and I’d be fairly confident in that dividend being maintained and growing over time. Consumer Staples Besides utilities, I’m very fond of the consumer staples sector since these are companies that are designed to whether the downturn in the economy. The products they sell can hold up remarkably well during down economies and it is the presence of reliable sales that helps a company survive the hard times. Between the consumer staples and utilities sector we have almost 45% of the portfolio. Information Technology This is a really shocking one for me. The allocation here is only 1.51%. For many dividend focused ETFs an allocation that larger or larger is given to Microsoft (NASDAQ: MSFT ) alone. On the other hand, MSFT currently only yields around 2.67% so I can see the smaller allocations. Broad market ETFs tend to be fairly heavy on information technology, so I’m just fine with seeing a lower weight for a dividend focused ETF. Investors using the iShares Select Dividend ETF as one part of their portfolio should be able to benefit from the diversification advantages of the different sector weights. What to Add I don’t like to be heavily overweight on information technology, but if an investor is using this as the core of the portfolio then I think it would be wise to use a small allocation to a broad market ETF or a very small allocation specifically to the information technology sector. The other place that I would consider adding a bit is the health care industry. There is plenty of demand for their goods and services from the baby boomer population. If an investor happens to be a baby boomer and plan to retire on the dividends, it would be nice to own part of the company that makes the medication they will want. If prices go up and profits soar, those investors should see higher dividends to offset the higher costs they are facing in their daily lives. I wouldn’t mind adding a little bit more exposure on consumer staples either, but that can be considered a personal preference thing. I would love to see this allocation running closer to 20% which would lead to utilities and consumer staples exceeding 50% of the portfolio when combined. That sounds like a nice secure dividend to me. Conclusion The expense ratio is a bit high for my taste, but the portfolio is beautiful. From the individual companies selected to the sector allocations, there is far more to like about this portfolio than to dislike. I think some investors putting in new money might seek ways to replicate the portfolio through a combination of lower fee ETFs, but it is a testament to the design of the ETF that it would be worth looking into those strategies. If the expense ratio dropped down to around .10% to .14%, it would come in as a solid 10/10.

4 ETFs I’m Planning To Buy Over The Next Few Months

Summary I’m watching VNQ, SCHH, SCHC, and SCHF over the next few months. The equity REIT indexes could see some weakness with the Federal Reserve trying to stimulate higher rates. I think they are more bark than bite. If equity REIT indexes sell off, I’d love to boost my allocation to them at attractive prices. My international allocations are too low. SCHC and SCHF look like great options to fix that. With only two months left to go in the year I’m looking at which ETFs I may want to give a higher weighting in my portfolio. These are ETFs that I already hold, but I am contemplating putting a little more cash in them over the next few months. The List Name Ticker Vanguard REIT Index ETF VNQ Schwab U.S. REIT ETF SCHH Schwab International Small-Cap Equity ETF SCHC Schwab International Equity ETF SCHF These four ETFs are on my watch list for different reasons. VNQ / SCHH I’ve got VNQ and SCHH on the list as attractive funds because I expect long term yields on debt securities to remain fairly low. I don’t expect to see a sustained 3% yield on 10 year treasury notes within the next year or two. There may be some spikes where it happens, but I wouldn’t expect to see those yield levels maintained. With the Federal Reserve constantly talking about raising interest rates, I see the potential for some pricing weakness in the equity REIT indexes. They might raise rates slightly, but I’m not sure that such an increase in rates would even be maintained let alone that they could build on increases to raise rates in each year for the next few years. Since I expect rates to remain weak, I like the equity REITs as a nice source of yield and SCHH and VNQ are two well diversified REIT index ETFs with very low expense ratios. If the Federal Reserve ramps up their talk about raising interest rates it could cause the interest rates to increase in the market for a while. When the rates go up the prices on bonds will fall and I would expect the prices on VNQ/SCHH to drop during that time period. That would be a great opportunity for me to buy more shares before the prices rebounded. I’m holding both of these already and wanting more equity REIT exposure in my portfolio. My current weighting is getting a bit heavy on domestic equity and mortgage REITs. The mortgage REITs are substantially different from the equity REITs, but I’m overweight on the sector because I feel there are some attractive values being presented. SCHC / SCHF These two international plays offer low expense ratios for extremely diversified international exposure. I would classify these as my two my favorite international funds currently. My international equity exposure is dramatically underweight right now. I was holding the Vanguard Global ex-U.S. Real Estate ETF (NASDAQ: VNQI ) for a substantial portion of my international exposure but decided to sell it so I could act on a high conviction play in the mREIT sector. Over the next few months I want to bring the international exposure on my portfolio higher. I don’t want a very heavy weighting to the international equity sectors, but I should probably be putting at least 10% or so of my portfolio there. My most likely method for getting that position will be something similar to dollar cost averaging with quite a few small purchases driving up the allocations. Why I like Them So Much When I first started looking into SCHC, I wasn’t entirely sold on the fund. The expense ratio of .18% is low for international equity but still higher than quite a few of my allocations. As I looked through the fund I became very attracted by it being a play on small-cap equities and holding over 1,600 individual securities and less than 5% of the total fund being in the combined weight of the top 10 holdings. This is a beautiful ETF for getting exposure to a portion of the market that would often be ignored and the diversification within the fund is strong enough that individual securities won’t be creating a large impact on value. If the top holding of the fund suddenly saw the stock price double, the value of the fund would be up less than half of one percent. The top sector weightings for the fund are industrials (21.2%) and financials (20.4%). I would prefer to see those lower and the consumer staples weighting (5.0%) higher, but on the whole I think this is one of the top options for getting this exposure. Currently they are trading around $29.70 to $29.90. If they dip down towards $29 to $28.50 it would be push me to put in a little cash sooner rather than later. For SCHF the expense ratio is only .08%, which is exceptional for international equity, and the fund has over 1,200 holdings. The heaviest sector weight is the financial sector at 26.3%, but consumer staple comes in at 10.9% which is fairly nice. One of the ways my risk aversion manifests itself is having a preference for the consumer staples sector which I consider safer from potential negative events. Conclusion Those are the four ETFs I’m looking at over the rest of the year. I already own all four and due to dividend reinvestment, I can be fairly certain that I will be buying at least a few more shares in each. It is very highly likely that during the next few months I will add some cash to buy up more shares. Due to free trading on the Schwab funds I’m more likely to use allocations to SCHH for building my equity REIT allocation. Investors with free trading on VNQ may find it preferable. The yield on VNQ is over 4.1% per Yahoo Finance while the yield on SCHH is only around 2.4%. Since I’m buying these ETFs into a tax advantaged account and just reinvesting the income the difference in their payouts is not a significant factor for me. Due to dividend reinvestment, my share count in VNQ is likely to grow slightly even though allocations towards SCHH are more likely. SCHC and SCHF are my favorite options for international equity and that is an area where my portfolio could use some additions. The huge factors going in their favor are the very rare exposure for SCHC to the small-cap side and the extremely low expense ratio for SCHF.