Tag Archives: stocks

Moody’s Rates Cloud Software Growth ‘Robust’ For 2016

Moody’s Investor Services (MCO) on Wednesday issued a cautious “stable” outlook for information technology stocks in general, but said it looked for “robust” growth for software and cloud migration in 2016. “Corporate demand will be cautious but resilient as companies continue to invest in building out new IT capabilities in storage, server virtualization and networking,” Moody’s said in its Diversified Information Technology 2016 Outlook report.

5 More Dividend ETFs For Your Consideration

Summary These five dividend ETFs have similar expense ratios but very different yields. Sector analysis shows that the portfolios have some very material differences. SPHD, SDY, and NOBL all work for investors that want to handle their investing in the technology sector on their own. The one that catches my eye for high yield and utility allocations that may go on sale during December is SPHD. One of the areas I frequently cover is ETFs. I’ve been a large proponent of investors holding the core of their portfolio in high quality ETFs with very low expense ratios. The same argument can be made for passive mutual funds with very low expense ratios, though there are fewer of those. In this argument I’m doing a quick comparison of several of the ETFs I have covered and explaining what I like and don’t like about each in the current environment. The Five ETFs Ticker Name Index DLN WisdomTree LargeCap Dividend ETF WisdomTree LargeCap Dividend Index DGRW WisdomTree U.S. Dividend Growth ETF WisdomTree U.S. Quality Dividend Growth Index SPHD PowerShares S&P 500 High Dividend Portfolio ETF S&P 500® Low Volatility High Dividend Index SDY SDPR Dividend ETF S&P High Yield Dividend Aristocrats Index NOBL ProShares S&P 500 Dividend Aristocrats ETF S&P 500® Dividend Aristocrats® Index By covering several of these ETFs in the same article I hope to provide some clarity on the relative attractiveness of the ETFs. One reason investors may struggle to reconcile positions is that investments must be compared on a relative basis and the market is constantly changing which will increase and decrease the relative attractiveness. For investors that want to see precisely which assets I’m holding, I opened my portfolio earlier in November. Dividend Yields I charted the dividend yields from Yahoo Finance for each portfolio. You may notice that despite each of these portfolios being named for dividends, the yields on the ETFs are significantly different. Expense Ratios These funds are all very comparable on expense ratios which is nice for creating a more direct comparison. (click to enlarge) Sector Assuming your decision isn’t based strictly on yields, the next area to look into is the sector allocations. There were clearly no big differences in expense ratios, so this race should really come down to getting a strong enough yield and getting a great sector allocation. I built a fairly nice table for comparing the sector allocations across dividend ETFs to make it substantially easier to get a quick feel for the risk factors: (click to enlarge) First Glance The first thing I would expect investors to notice is that there are a few areas where one or two of the ETFs have vastly different allocations from their peers. The most obvious standouts in this regard are NOBL allocating nearly 28% to the consumer defensive sector and SPHD allocating over 24% to the utility sector. NOBL Since I see a fairly expensive market, I find the heavier allocation to the consumer defensive sector to be appealing. If the market undergoes a severe correction then I would want to be more aggressive with the portfolio when it appeared the worst had passed. In the later stages of a bull market or entering a bear market I’d rather focus on the consumer defensive sector. It is interesting to note that the technology allocation here is zero. If investors feel very confident in analyzing technology companies, it could make NOBL a great fit for them since the lack of technology companies within the fund would work out well for an investor that was managing their own investments in the sector. SPHD SPHD uses a very heavy allocation to utilities. For investors that already build their own utility positions in their portfolio, this wouldn’t be a great fit since it would double up on the exposure. On the other hand, for the investor that does not have utility exposure in their portfolio, the ETF could be a great fit. The utility sector often demonstrates some correlation with bonds because investors treat it as an alternative source of income. This may be a fairly volatile sector going into December because investors are expecting the Federal Reserve to raise rates and if a rate increase is confirmed it could send bond yields higher and utility stocks would be expected to fall at the same time so that the dividend yields would increase. For investors willing to take the exposure on utilities if the stocks go on sale, the middle of December could bring Christmas a little early with sales in the sector. SPHD also offers the highest yield which may be very attractive for investors seeking to grow more income immediately. Similar to NOBL, SPHD has a very low weight for the technology sector. The combination of high yield, utility exposure, and no technology makes it ideal for the dividend growth investor that focuses their research time on technology. What do You Think? Which dividend ETF makes the most sense for you? Do you want to overweight consumer staples for more safety in a downturn or would you rather have more upside in a prolonged bull market? Do you want to own the oil companies, or do you foresee gas as being in a long term downtrend that makes the business model much weaker?

Creating A Quality Growth Portfolio For Millennials

Summary I searched through all ETFs and found five for building a quality growth portfolio given the current environment. The five ETFs I found cover: U.S. Mega-Cap growth, biotechnology, International Growth, High Yield Bonds and Cash. The portfolio is weighted 70% stocks, 20% bonds, 10% cash. In this article, I will be creating a simple growth oriented portfolio for millennial investors. The goal of the portfolio is to hold five ETFs to gain exposure to high quality growth stocks as well as targeting specific high growth areas. U.S Equity: Vanguard Mega Cap Growth ETF (NYSEARCA: MGK ) I chose MGK because it only holds the largest market-cap growth stocks. I wanted to be more conservative with my main growth selection because the second part of my U.S. equity allocation consists of a high growth/high risk segment of the market, therefore for balance, I chose MGK. When looking for large-cap growth ETFs, I narrowed my search down to MGK and the iShares Russell Top 200 Growth ETF (NYSEARCA: IWY ). I chose MGK over IWY because of the lower cost and exposure to health care. MGK charges 0.11% and IWY charges 0.20%, which is not a huge difference, however when taken in combination with the data table below MGK stood out as the superior choice. My second ETF selection is a health care ETF, therefore, I did not want a lot of exposure to health care from my main selection. I looked at the health care allocations of IWY and MGK and found that MGK has a lower allocation to health care. Health Care Allocation MGK 14.00% IWY 17.95% [Table Data from IWY & MGK websites] Targeted Sector Growth Equity: ALPS Medical Breakthroughs ETF (NYSEARCA: SBIO ) I chose SBIO because of its exposure to small & mid cap high growth biotechnology companies. SBIO only holds companies with a market cap between $200 million and $5 billion. Most importantly, SBIO only holds those stocks with a sustainable cash burn rate and companies with at least one product in phase 2 or phase 3 of development. This distinguishes SBIO from other biotech ETF offerings because it is targeting companies that have moved passed the initial stage of development and have the cash available to be able to fund continued clinical trials. It is widely know that many biotechs with promising drugs build hype when they are in phase 2 or phase 3 because of the potential to go from zero or very little revenues to a significant amount. A complete picture of the selection process can be seen in the image below. (click to enlarge) [Chart from SBIO Fund page ] International Equity: iShares MSCI EAFE Growth ETF (NYSEARCA: EFG ) I chose EFG because it holds mainly large cap companies in developed markets excluding the United States and then selects those companies whose earnings are expected to grow at an above-average rate relative to the market. The following chart shows that growth oriented stocks in the EAFE have significantly outperformed the broad iShares MSCI EAFE ETF (NYSEARCA: EFA ) and value oriented stocks of the iShares MSCI EAFE Value ETF (NYSEARCA: EFV ). (click to enlarge) [Chart from Google Finance] Short-Term High-Yield Corporate Bonds: First Trust Tactical High Yield ETF (NASDAQ: HYLS ) I chose HYLS because of its high-yield and superior performance during the most recent run up in interest rates. I believe all investors; even millennials should have an allocation to fixed income even though it is not growth oriented. With the potential for rising rates aggressive bond ETFs will most likely suffer, which is why when I searched through all the high-yield ETFs available, HYLS stood out among its competitors. HYLS stood out because of its structure, 6%+ dividend yield and its performance. HYLS is actively managed and uses a fundamental process to select long positions and has the ability to short treasury bonds or corporate bonds. According to the HYLS fact sheet: The team uses a combination of a rigorous fundamental credit selection process with relative value analysis and believes that an evolving investment environment offers varying degrees of investment risk opportunities in the high-yield, senior loan, derivative and fixed-income instrument markets. The second reason I chose HYLS was because it performed very well during the most recent rising rate period from February 2nd 2015 until June 10th 2015. As you can see HYLS [Yellow Line] outperformed both major broad high yield bond ETFs including the iShares iBoxx $ High Yield Corporate Bond ETF (NYSEARCA: HYG ) and the SPDR Barclays Capital High Yield Bond ETF (NYSEARCA: JNK ). In addition, HYLS also outperformed short-duration high yield bond funds including the iShares 0-5 Year High Yield Corporate Bond ETF (NYSEARCA: SHYG ), the SPDR Barclays Capital Short Term High Yield Bond ETF (NYSEARCA: SJNK ) and the PIMCO 0-5 Year High Yield Corporate Bond Index ETF (NYSEARCA: HYS ). (click to enlarge) [Chart from Google Finance] Cash: PIMCO Enhanced Short Maturity Strategy ETF (NYSEARCA: MINT ) My final selection was MINT because I believe all portfolios either should have cash for safety or available to use for strategic purchases of quality growth stocks/ETFs. Millennials have a long-term horizon and if there is an opportunity to pick up a quality growth ETF or stock that is trading unjustly lower, having the cash available to do so is desirable. Portfolio Overview I have provided an example of what the portfolio would look like. As you can see, I allocated 30% to each main equity selection and 10% to SBIO, which made the total equity allocation to be 70%. Allocation MGK 30% SBIO 10% EFG 30% HYLS 20% MINT 10% Portfolio Composition Stocks 70% Bonds 20% “Cash” 10% Closing Thoughts The portfolio I created has exposure to quality growth companies in the U.S. and internationally. With the added allocation to target biotechnology, the portfolios growth should be enhanced by this high growth area of the market. In addition, by moving out on the credit risk spectrum for fixed income, the portfolio would generate some income, which instead of being reinvested into more HYLS, could be used to purchase more growth stocks/ETFs. Disclaimer : See here .