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5 Low-Cost ETFs Poised For Long-Term Wins

The global ETF industry has been growing by leaps and bounds and has already accumulated almost $4.5 trillion in assets, as per ETFGI data. ETFs gained popularity over mutual funds because of their flexibility, liquidity and low cost among other factors. In fact, low cost has been one of the biggest drivers for the ETFs, enhancing their total returns. This is primarily because fund managers generally don’t actively manage an ETF. As these products often engage in passive index-based investing, they charge a much smaller fee. Several research reports have shown that only a handful of fund managers outperform the market over the long term. This gives a major boost to passive investing strategies. As per the 2015 SPIVA U.S. Scorecard , over the last five years, 84.2% of large-cap managers, 76.7% of mid-cap managers, and 90.1% of small-cap managers underperformed the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, respectively. The number of managers outperforming the benchmark index is equally bleak over the 10-year investment horizon. Roughly 82.14% of large-cap managers, 87.61% of mid-cap managers, and 88.42% of small-cap managers lagged their respective benchmarks. Additionally, managers across all international equity categories failed to outperform their benchmarks in the above mentioned time frame. Although there are several cost components to an ETF like trading commissions and bid/ask spreads, expense ratios are paid the foremost attention by investors. With several ETF providers including iShares, Vanguard and Charles Schwab vying with each other, ETFs have gotten cheaper every year (read: 5 Costly ETF Mistakes You Can Easily Avoid ). Knowing how important the expense ratio is, we have highlighted five of the cheapest ETFs for long-term investors (see: all the ETFs with Low Expense Ratios here ): iShares Core S&P Total U.S. Stock Market ETF (NYSEARCA: ITOT ) – Expense ratio: 0.03% This fund provides a broad exposure to the U.S. equity market by tracking the S&P Total Market Index and is one of the low-cost choices in the equity ETF world, charging just 3 bps in annual fees. Holding 3,819 securities, the fund is widely diversified across sectors and securities. Information technology is the top sector accounting for less than 20% while Apple (NASDAQ: AAPL ) is the top firm taking 2.7% share of the basket. Large caps account for 74% of the assets while mid and small caps take the remainder. ITOT is a popular and liquid ETF with AUM of $3.6 billion and average daily volume of 286,000 shares. The product has delivered 70.9% returns over the last five-year period. Schwab U.S. Broad Market ETF (NYSEARCA: SCHB ) – Expense ratio: 0.03% This fund also provides a broad exposure to the U.S. equity market. The fund tracks the Dow Jones U.S. Broad Stock Market Index and charges just 3 bps in annual fees. Holding 2,077 securities, the fund is widely diversified across sectors and securities. Like ITOT, information technology is the top sector accounting for less than 20% while Apple is the top firm taking 3.3% share of the basket. Large caps account for 73% of the assets while mid and small caps take the remainder. SCHB is one of the popular and liquid ETFs with AUM of $5.8 billion and average daily volume of 927,000 shares. The product has delivered 70.7% returns over the last five-year period. Schwab U.S. Large-Cap ETF (NYSEARCA: SCHX ) – Expense ratio: 0.03% This fund targets the large-cap segment of the U.S. equity market by tracking the Dow Jones U.S. Large-Cap Total Stock Market Index and holds 777 securities in its basket. Here again, information technology is the top sector with just over 20% share while Apple is the top firm at 3%. With an expense ratio of 0.03%, the fund has amassed $5.3 billion in its asset base and volume is solid at over 783,000 shares. While this is a large-cap fund, mid and small caps take minor portions each in the basket. The fund has gained about 72.4% over the past five-year period. Vanguard Total Stock Market ETF (NYSEARCA: VTI ) – Expense ratio: 0.05% This ETF follows the CRSP US Total Market Index, holding a large basket of 3,712 securities. Each security holds no more than 2.5% of total assets while financials, technology, consumer services and health care make up for a nice sector mix in the portfolio. It is one of the largest and a popular fund with AUM of nearly $57.9 billion and average daily volume of nearly 3.5 million shares. It charges 5 bps in fees and expenses and has gained 70.3% over the past five years. Vanguard S&P 500 ETF (NYSEARCA: VOO ) – Expense ratio: 0.05% This is another low-cost, well-diversified large-cap fund tracking the S&P 500 index. It holds 505 securities in its basket with each taking less than 3.2% share while sector-wise too, none accounts for more than 21% of assets. The fund has AUM of $43.5 billion and trades in heavy volume of 2.7 million shares per day on average. Expense ratio came in at 0.05%. The ETF returned about 74.5% in the same period. Link to the original post on Zacks.com

The Safest Stocks And ETFs For Momentum Investors Right Now

A momentum strategy is a favorite approach for many investors out there. Who doesn’t like the idea of buying a surging stock or ETF and riding it to even bigger gains? However, in uncertain market environments, like we find ourselves in today, you need to consider safety too. Equities have been extremely volatile as of late and many times momentum can be going against you. That is why investors who like the momentum style of investing may want to look to securities that are seeing positive price activity, but can provide investors with a margin of safety too. This approach may be the way to go for momentum investors in this uncertain time, and especially if markets remain shaky and prone to volatile negative moves in the weeks ahead. How to Invest Investors have a few ways to play this trend at their disposal. One way is by looking at securities that are in safer sectors like utilities or consumer staples. This approach will find safer stocks in general, and securities that aren’t as prone to big negative moves when the market is sliding lower. Another technique is to look at stocks that have great momentum scores, but are still trading at great values too. This can help investors to find the best-positioned stocks to surge that still have compelling valuations, which can give investors a nice margin of safety if broad markets turn south again. No matter which approach suits you, we have a few picks below, which fit the bill. There are two ETFs and two stocks, which either have strong momentum prospects, or utilize momentum-based strategies when selecting securities for inclusion in their benchmark. Take a look at this list for a few investments that should appease even the most discerning momentum investor out there for today’s market: Bob Evans Farms (NASDAQ: BOBE ) BOBE owns and operates a series of full-service restaurants around the United States including over 500 in 19 states, mostly in the Midwest. As a stock in the restaurant industry, the company is well positioned to take advantage of broad macro trends such as a better jobs market and lower gas prices. However, unlike others in the space, it is a low beta stock with a beta below 0.65. Earnings estimates have been rising as of late for this company, and it has a nice history in earnings season. The company has actually beaten in each of the last four quarters, including a 27% average beat in the past four reports. In terms of momentum, the security is easily trouncing its industry counterparts thanks to a 12-week price change of 17.66%. The stock has also seen some nice momentum on the earnings estimate revision front including a 4.2% increase over the past quarter in the full year EPS estimate and it has earned a momentum grade of ‘A’ too. However, not just momentum investors will like this security, as it has Value and Growth grades of ‘A’ as well. The stock actually has a VGM score of ‘A’ along with a Zacks Rank #2 (Buy) making it a compelling choice for investors in this market environment. PowerShares DWA Consumer Staples Momentum ETF (NYSEARCA: PSL ) In times of market uncertainty, staples can be a safe haven. So momentum investors who want to focus in on this sector can definitely consider PSL for their portfolios. PSL follows the Dorsey Wright Consumer Staples Technical Leaders Index, which looks to find about 30 stocks in the consumer staples universe with strong relative strength characteristics. The fund is a little on the pricey side with a 60 basis-point fee, but it does a great job of giving momentum investors access to this safe segment of the market. Current exposure is tilted towards the food product, beverages, and household products segment, while tobacco rounds out the industries that receive at least 10% of the total assets. Large caps do account for roughly 40% of the total assets, while mid cap securities receive a similar weight, leaving the rest for small cap securities. The beta on this segment is pretty low, coming in at just about 0.75. The fund has shown a nice alpha as of late, and this ETF can definitely be considered a relative safe haven for momentum investors in this rocky market. Shoe Carnival (NASDAQ: SCVL ) Retail remains an intriguing area of the market, though investors can’t just buy any consumer-focused stock out there. The shoe-retail market is a top area to watch right now thanks to a high industry rank that is in the top third overall and solid trends for U.S. consumer discretionary purchases. Shoe Carnival is well positioned to take advantage of these trends thanks to its wide network of over 400 stores across the nation, as well as its website. The company is expected to see double-digit EPS growth for this year, while it is expected to keep this trend up for the next year too. Earnings estimates have actually been rising as of late for this stock, and we haven’t seen any fresh estimates go lower for either the current quarter or the full year time frame. SCVL does have a pretty good track record at earnings season too, including a four-quarter average beat of 20%. Momentum investors will definitely like this stock thanks to its 14% gain over the past three months, which easily crushes the industry. The stock has also seen a full-year estimate increase of about 0.9%, which isn’t spectacular, but is great compared to an industry trend that is moving in the other direction. It is also worth pointing out that this stock also receives a Value and Growth Score of ‘A’, in addition to a VGM score of ‘A’ too. SCVL actually has a P/S and P/B ratio less than the industry at large, while it still has projected sales growth and cash flow growth better than the industry average. No wonder this is a Zacks Rank #2 (Buy) stock along with earning a momentum grade of ‘A’. Clearly, investors searching for values in this top ranked corner of the market would be well served by giving SCVL a closer look for their portfolios. First Trust Dorsey Wright Dynamic Focus 5 ETF (NASDAQ: FVC ) This brand-new ETF is based off of the ultra popular First Trust Dorsey Wright Focus 5 ETF (NASDAQ: FV ) which is also from First Trust. FV uses the DWA momentum model and applies it to the First Trust sector ETF lineup. It takes the five best-positioned sector funds (by relative strength) and invests in those for the portfolio. Well, FVC does the same thing, but with a twist on the methodology. The difference is that FVC includes investments in a cash equivalent, as represented by 1-3 month U.S. Treasury bills. The fund partially goes to this cash component when at least one third of funds in the universe have relative strength levels, which diminish compared to the cash index. This is evaluated on a bi-monthly basis and it can go from 0-95% of the fund. However, on each evaluation, 33% is the most that can be increased or decreased from the cash component. You can think of this as a safer or multi-asset version of FV. This will be great in markets that are trending lower or those that are even moving sideways. This makes the fund perfect for momentum investors who like the idea of buying sectors with the best relative strength characteristics, but with the option of moving into cash if the market isn’t favorable. Bottom Line Markets are rocky right now, but that doesn’t mean that investors need to give up. There are still plenty of ways that momentum-centric investors can buy securities in this market, you just need to go a little bit below the surface. Any of the picks highlighted above are definitely ones to consider for this situation, as they either focus on safe sectors, or look at securities that have the potential to surge, though they remain decent values for now. So if you are a momentum investor, there is no need to stick your head in the sand, just look to picks that can still satisfy your urge for momentum but will not be quite so volatile in today’s choppy market. Original Post

Floating Rate ETFs In Flux

This article originally appeared in the April issue of WealthManagement Magazine and online at Floating Rate ETFs in Flux . With fed rate hikes likely coming at a slower pace, investors flee some floating-rate notes. Nearly a year ago, as part of our survey of alternative income funds (” Alternative Alternative Income “), we picked through a number of floating-rate note (FRN) portfolios to find the potential best-of-class performance should interest rates rise. Well, since then rates have risen by 34 basis points in the three-month Libor and 26 basis points in the three-month T-bill yield. Curiosity compels us to revisit the floater funds to see how the asset class has fared. Not all these portfolios are alike, so one shouldn’t expect uniform results. The vast majority of the $9.8 billion held by exchange traded fund (ETF) versions are invested in corporate securities. And, among these, there’s further differentiation by credit ratings. Most investors are attracted to funds holding high-yield securities, though significant assets are committed to investment-grade paper. The junk/quality split is 54/40 with the remaining 6 percent in municipal and Treasury notes as well as a fund devoted to variable-rate preferred stock and hybrid securities. Money Flows Overall money has flowed out of the 12 ETFs plying the floater trade over the last 12 months. Net redemptions of $417 million reduced the category’s asset base by 4 percent. This wasn’t a wholesale dumping; it was more tactical. Some segments lost assets, some gained. And that’s a story in itself. Junk note funds lost nearly 16 percent, or $986 million, while ETFs invested in higher-grade corporate notes saw inflows of nearly 5 percent, or $183 million. At the same time, there was a $5 million, or 45 percent, boost in the newer (and smaller) Treasury segment. The single fund devoted to municipal notes bled assets, losing $27 million, or 28 percent, of its base while the other singleton, the variable preferred stock ETF, tripled in size with $408 million in net creations. Two trends are at work here. Some of the high-yield assets migrated to safer havens, namely bank-grade and Treasury paper. Mainly, that’s been an escape from duration risk. Money’s also being drawn to the equity side in response to more encouraging economic data. The second trend is a mercenary search for yield. Consider the inflow to the preferred stock ETF. Dividend yields for variable preferreds indexed in the Wells Fargo Hybrid and Preferred Securities Floating and Variable Rate Index exceed 5 percent, significantly higher than the rates earned by junk notes. Investors believe that stocks, common or preferred, are okay to buy again. Especially if they produce lip-smackin’ income. The insulation from duration risk is a boon. So, let’s take a closer look at the cash thrown off by these ETFs, along with their return characteristics. High-Yield Corporate Floaters The 600-lb. gorilla among high-yield floater ETFs is the $3.7 billion PowerShares Senior Loan Portfolio ETF (NYSEARCA: BKLN ) , which owns more than 70 percent of the segment. As BKLN goes, so goes the segment. Buoyed by a market-weighted 4.22 percent dividend yield, high-yield ETFs collectively earned a total return of -2.54 percent over the past 12 months. The segment’s discernible duration is 2.27 percent, making it the most rate-sensitive in the asset class. When benchmarked against the i Shares Core Total U.S. Bond Market ETF (NYSEARCA: AGG ) , a broad market bond index tracker with a duration of 5.53 percent, you can see the bargain made by FRN investors: Aiming for higher dividends and less rate sensitivity, they settled for lower overall returns. Despite its middling dividend yield, assets have flowed to the First Trust Senior Loan ETF (NASDAQ: FTSL ) in the past year. FTSL is actively managed with a mandate that allows the portfolio to be invested in non-U.S. paper and equities. Net creations have boosted the fund’s asset base by 87 percent. Investment-Grade Corporate Floaters Dividends are a lot lower in the bank-grade segment. With a collective “A” credit rating, the segment’s market-weighted yield is just 0.58 percent. Modified duration, at 0.12 percent, is very low as well. Like high-yield corporates, total returns have been negative, though at -0.40 percent, less so. The $3.5 billion iShares Floating Rate Bond ETF (NYSEARCA: FLOT ) sets the segment’s pace, though the fund to beat has been the SPDR Barclays Investment Grade Floating Rate ETF (NYSEARCA: FLRN ) . FLRN is the only corporate floater that produced a positive total return over the past year. Treasury Floaters Floating-rate Treasury paper, with its low yield and virtually nonexistent duration is really a cash substitute. Investors, wary of potential Fed rate hikes, have goosed up the segment’s small asset base in the last 12 months. It’s the only segment, too, that’s produced a positive, albeit small, total return. Nearly all the segment’s assets are held in the iShares Treasury Floating Rate Bond ETF ( TFLO) . Other Floaters There are a couple of ETFs at the corners of the floating-rate market. The PowerShares Variable Rate Preferred Portfolio ETF (NYSEARCA: VRP ) , claiming the highest dividend yield in the class, earns the variable moniker in more than one way. It’s been one of the category’s more volatile issues, and ended up losing money overall in the past 12 months. A stablemate, the PowerShares VRDO Tax-Free Weekly Portfolio ETF (NYSEARCA: PVI ) , owns municipal bonds, rated AA- on average, that can be redeemed weekly. Duration is negligible, which make the fund a cash substitute. With no dividend stream, however, the total return pretty much reflects its holding costs. No wonder the fund lost assets. An Overview The side-by-side comparison in Chart 1 shows how the category’s biggest funds behaved over the past 12 months. Three ETFs-FLOT, PVI and TFLO-varied little from their starting values, but BKLN and VRP wobbled significantly. Such volatility speaks to inherent risk. Floating-rate funds limit duration risk so they’re obliged to take on more credit risk to generate attractive returns. We seem to have reached a risk inflection point, though. By and large, investors are fleeing the risk in the high-yield corporate market. That exodus, in great part, reflects investor perceptions that Fed rate hikes may be coming at a slower pace than originally expected. The advantage of holding variable-rate securities, then, has diminished, making other assets more appealing.