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MBB Forum Topics
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- General Discussion on MBB
- Why I'm Against Fixed Income ETFs [view article]
- PowerShares' Latest Concept: ETFs of ETFs [view article]
- Interest Rates Fated to Rise? [view article]
- Seeking the Sweet Spot: Intermediate-Term ETFs [view article]
- Monthly ETF Update by Asset Class [view article]
- New Mortgage-Backed Securities ETF Introduced [view article]
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- Morgan Stanley Report Lists ETF Pluses
- PowerShares' Latest Concept: ETFs of ETFs
- ETF Fund Flows (Week Ending 3/7/08)
- Interest Rates Fated to Rise?
- ETF Fund Flows (Week Ending 2/15/08)
- Seeking the Sweet Spot: Intermediate-Term ETFs
- Monthly ETF Update by Asset Class
- Fixed Income ETFs Almost All Overbought
- ETFs Yielding More Than 3%
- Why I'm Against Fixed Income ETFs
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Why I'm Against Fixed Income ETFs [view article]
All Index funds are risky, especially income funds. Use Managed Closed End Funds instead. Here's some recent research with real ife investment portfolios:Good News For Income Investors
Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---
So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.
In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.
The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.
(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.
(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.
First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.
Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.
The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.
Steve Selengut
www.sancoservices.com
www.kiawahgolfinvestme.../
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"
Reply
PowerShares' Latest Concept: ETFs of ETFs [view article]
Disagree. I think that there are customers waiting for this product, unlike a lot of ETFs. ReplyPowerShares' Latest Concept: ETFs of ETFs [view article]
Basically just another way to get a bump on their expense rake. ReplyEditors
General Discussion on MBB
Is this a buy or a sell? ReplySeaberg
Interest Rates Fated to Rise? [view article]
Gold will do well as long as we have negative real interest rates. Just deduct the inflation rate of shadowstats.com from the yield of the fixed rate debt. ReplyInterest Rates Fated to Rise? [view article]
My question is how will Gold do with rising interest rates and quickening Debt Deflation? ReplySeeking the Sweet Spot: Intermediate-Term ETFs [view article]
Thanks Ray. Great article. ReplySeeking the Sweet Spot: Intermediate-Term ETFs [view article]
Thanks Ray. Great article! ReplyMonthly ETF Update by Asset Class [view article]
Ditto floridadon :the graphics on the charts are not legible especially the ETF symbols. ReplyMonthly ETF Update by Asset Class [view article]
Even when enlarged the graphics are difficult to read. It is to bad an article with this much info is not supported with more visible graphics. ReplyMonthly ETF Update by Asset Class [view article]
why again do TV honksand clients say that the market is bad? this paints a solid picture that there are plenty of bull markets to invest in... ReplyWhy I'm Against Fixed Income ETFs [view article]
DJ & DS: Quick note here. Just had a baby girl late Thursday and got back home now. By chance, checked out SA site. But to make things simple, please put comments/questions on my blog at thebetabrief.com so I can have all inquiries at one place. Sorry for quick get away but there's literally a scream beside me. Thanks. ReplyWhy I'm Against Fixed Income ETFs [view article]
RichardFor individual investors, there seems to be no effective way to access either the "absolute return" or "private equity" categories you rightly point out as being a huge part of the success of the large endowment investors. That leaves us with cash, stocks, bonds, and real assets (mostly REITs, possibly some commodity plays). Within that restricted universe, bonds could easily end being 10-20% of the portfolio simply for diversification. Reply
Jackson
Why I'm Against Fixed Income ETFs [view article]
Excellent article, Richard.But what about the iShares Lehman Short Treasury Bond Fund (SHV)? Isn't it just a very convenient and cheap way to buy short term Treasury notes that would actually make sense for a lot of people? Reply
New Mortgage-Backed Securities ETF Introduced [view article]
RMAOL! Amusing comments Greg, I almost fell over when I scrolled through the last paragraph on my Blackberry! While State Street is rolling out Emerging Europe, Africa and other ETF's, (sec prospectus), iShares is screwing around with eight new domestic bond funds - none of which are world bond index funds like we want! Reply