Displaying items by tag: ETFs

Thursday, 28 March 2024 06:19

The Bond ETFs Offering an Efficiency Advantage

In today's interest rate climate, holding a significant cash reserve is a prudent strategy. While long-term investors may benefit from stock investments, individuals requiring immediate access to funds or building emergency savings find value in holding cash. With high-yield savings accounts offering rates of 5% or more, real returns on cash savings are attractive. However, for those seeking to optimize returns while maintaining liquidity, there are two fixed income ETFs that offer advantages. 

Two ETFs, iShares 0-3 Month Treasury Bond ETF (SGOV) and JPMorgan Ultra-Short Municipal Income ETF (JMST), offer different tax strategies to potentially enhance after-tax returns without significant additional risk.

Short-term Treasury bonds provide state tax exemption on interest earnings, making them appealing for residents of high-tax states, while municipal bonds offer federal tax exemption and may also be exempt from state and local taxes. Investors should assess the trade-offs between tax advantages and lower yields to determine the best fit for their financial situation.


Finsum; When accounting for tax advantages, fixed income ETFs could provide a more secure and efficient outlet for mitigating risk. 

Published in Bonds: Total Market
Thursday, 28 March 2024 06:18

Who Should Utilize Buffer ETFs

Investors grappling with market uncertainty are exploring ways to manage risk effectively while staying invested; utilizing buffer strategies, which employ options to provide targeted downside protection, offers a solution by mitigating losses during market downturns while limiting upside potential.

 

 Accessing buffer strategies through ETFs simplifies the process, avoiding the complexities of managing options directly or the expense of structured notes. Buffer ETFs, managed by experienced professionals and offering intraday liquidity at a low expense ratio, present an accessible option for investors. 

 

Designed for long-term strategic allocation, these ETFs can be utilized by investors looking to reduce equity drawdown risk, seeking moderate growth, or exploring outcome-oriented strategies within their portfolios, thereby providing a flexible approach to risk management in uncertain markets.


Finsum: Buffer strategies seem to make the most sense when there is overall upside but potential for volatility, similar to our current macro landscape.

 

Published in Bonds: Total Market
Thursday, 21 March 2024 12:04

Why Vanguard Is Not Interested in a Bitcoin ETF

On January 10, the SEC approved 11 spot bitcoin ETFs. Vanguard quickly made the decision to not offer a bitcoin ETF. The decision has been met with resistance from customers. Recently, CEO Tim Buckley provided more insight into this decision, given that this has been a constant source of inquiry.

Overall, the firm doesn’t believe that bitcoin is a suitable investment option for a retirement plan, given the asset’s volatility and speculative nature. Buckley also rejects the notion that bitcoin is a 'store of value’, pointing to its severe declines in the past and correlation with equities. For example, bitcoin dropped from $69,000 to $16,000 between 2021 and 2022, while the S&P 500 was down 21% during this period from peak to trough.

Buckley added that he doesn’t believe that Vanguard will offer a bitcoin ETF until something significantly shifts in the asset class. In contrast, Vanguard only invests in asset classes with underlying cash flow. With equities, this refers to the future earnings of a company. For bonds, it can be calculated through a bond’s coupon and principal. Since bitcoin has failed to function as an effective ‘store of value’ and generates no cash flow at the moment, it remains purely a speculative asset, which makes it inconsistent with Vanguard’s principles and ethos. 


Finsum: Vanguard is not offering a bitcoin ETF, unlike many of its major competitors. CEO Tim Buckley shared why bitcoin is more of a speculative asset and unfit for long-term investing. 

Published in Alternatives
Thursday, 14 March 2024 13:36

Keys to Buffer ETFs

Buffer ETFs have surged in popularity among financial advisors aiming to placate nervous clients while maintaining their investment positions. Their widespread adoption has led to major expansion, from less than $200 million to $36.7 billion since 2018, according to Morningstar. 

 

Operating on the defined outcome strategy, buffer ETFs use equity options to mirror benchmark performance while offering downside protection in exchange for an upside cap within specific 12-month life cycles, available monthly or quarterly. 

 

Jeff Schwartz, president at Markov Processes International, underscores the importance of comprehending the intricacies of these vehicles, given the multitude of variables involved, and that the intricacies around the buffer and cap structure are pivotal. Advisors must carefully consider market conditions when purchasing buffer ETFs at any point during their lifecycle to prevent diluting the intended benefits. 


Finsum: Timing conditions are still important when it comes to buffer ETFs despite their built in protections.

Published in Wealth Management
Friday, 08 March 2024 05:06

Will Value Outperform Growth in 2024

Growth has consistently outperformed value since the Great Recession. For a while, this was attributed to the Fed’s dovish policies, however this has now continued even during this period of substantially higher rates. 

 

There are some indications that investors should consider rebalancing between value and growth to maintain diversification, since they may be overexposed following growth’s significant outperformance over the past year. In reality, the opposite is happening as inflows are heavily skewed towards technology. 

 

Over the past year, net inflows into technology ETFs amounted to $18 billion which is nearly equivalent to net outflows in all other sector ETFs. This is also exacerbated by the massive size of the largest 7 technology companies which have become dominant in market-cap weighted indices. 

 

Another reason to consider value is that it would likely outperform in adverse market conditions given lower multiples and less froth. This could be a prudent choice for investors who are on the sidelines but wary of risks like a recession or inflation. 

 

Additionally, value tends to do well following periods of froth in markets. For instance, value outperformed in the years following the bursting of the dotcom bubble and the frenzy in equity markets during the pandemic. If valuations revert to the mean, then it could also set the stage for a value renaissance. During these periods, the best performing stocks tend to produce high levels of free cash flow relative to their market caps while maintaining strong balance sheets. 


Finsum: Value underperformed growth by a significant degree over the past year, continuing the prevailing trend of the last decade. Here’s why investors should consider increasing exposure to value ETFs. 

Published in Eq: Value
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