I am retired and take educated guesses on all things financial.

December 18, 2010

December 19, 2010: Bait And Switch, Time To Exit (Most) Bonds

Every investment has a season. For bonds, the season is "Fall". The vast majority of bond holders of almost all sorts have seen their values head south. What to do? Odds are, one should not take the bait of doubling down on bond holdings, but should rotate to a portfolio containing a hefty percentage of dividend-paying common stocks that hold hope of maintaining absolute value plus a capital gain.

I believe that being flexible is superior than being locked into one strict index ETF as the world economy moans, groans and lurches forward. Asia should be overweight,Latin America should be underweight as history tells us that periodic confiscatory politics of our southern neighbors have often times destroyed the best-laid Latin American investment scheme. Europe as a stand-alone is also off limits, although investors know that there is a bleed-through of many Asian and North American companies with Euroland. Within these arbitrary (some would argue, capricious) parameters, here are a few ETF investment ideas to pursue:

POWERSHARES DIVIDEND ACHIEVERS PORTFOLIO ETF (PFM): This $188m market cap fund corresponds to the price and yield of the Broad Dividend Achievers Index. A minimum of 80% of the fund's holdings have raised annual dividend payments for ten or more consecutive years. Trading at $13.98/share PFM has a 3.75% yield. It features a 4-Star Morningstar Rating.

GUGGENHEIM MULTI-ASSET INCOME ETF (CVY): This $356m market cap fund corresponds to the Zacks Multi-Asset Income Index, which includes U.S. stocks, ADRs, REIT's, MLP's, CEF's and traditional preferred stocks, all paying dividends. Trading at $19.91/share,CVY has a yield of 4.50%. It features a 4-Star Morningstar Rating.

VANGUARD DIVIDEND APPRECIATION INDEX ETF (VIG): This $4.4b market cap fund corresponds to the Mergent Dividend Achievers Select Index.Trading at $52.80/share, VIG has a yield of 2.02% The index measures the investment return of common stocks of companies that have a record of increasing dividends over time. It features a 5-Star Morningstar Rating.

POWERSHARES DYNAMIC SMALL CAP VALUE PORTFOLIO ETF (PWY): This small $65m market cap fund corresponds to the Small Cap Value Intellidex. Trading at $15.08/share, PWY fund has a yield of 3.45% This index is comprised of 100 U.S. small-cap value stocks selected primarily on the basis of their capital appreciation potential as identified by the AMEX (the Intellidex provider). Morningstar has it assigned only a 2-Star Rating, however, I believe this index hits a sweet spot as we head into 2011.

WISDOMTREE PACIFIC EX-JAPAN EQUITY INCOME ETF (DNH). This small $77m market cap fund self-servingly corresponds to the Wisdom Tree Equity Income Index. Trading at $59.01/share,DNH has a yield of 6.51%.Morningstar has it assigned a 4-Star Rating. Finding a high yielding far eastern fund is not common. The yield should mitigate serious downside risk compared too other funds focusing on that region.

VANGUARD HIGH DIVIDEND YIELD INDEX ETF (VYM): This $1.0b market cap fund tracks the performance of the FTSE/High Dividend Yield Index. Trading at $42.32/share, the fund has a yield of 2.61%. Morningstar has it assigned a 4-Star Rating.

WISDOMTREE EMERGING MARKETS SMALL CAP DIVIDEND ETF (DGS): This $879m fund tracks WisdomTree's own Emerging Markets Small Cap Dividend Index. Trading at $52.91/share, the fund has a yield of 3.42%. Morningstar has it assigned a 5-Star Rating.

The investor is encouraged to examine the moving parts of each fund (and any fund, for that matter) so there is not unintentional overlap of sectors or individual holdings. I have deliberately avoided TIP funds. I prefer to buy TIPS directly from the Treasury to avoid dilution and unnecessary expenses. Further, investors can find some preferred stocks with better-than-treasury inflation features. Metropolitan's MetpA and the Prudential' PFK come to mind.

Even though the Fed speaks of holding interest rates close to zero, the money printing presses here and elsewhere in the world are minting 24/7. Inflation is the easiest way for a government to monetize extreme debt to (in their mind) a resolvable level. This bodes disaster for bond holders, but is a mild blessing for holders of companies who can raise prices (and dividends). For investors diversified with dividend stocks in strong economic regions and sectors, opportunities to be successful are self-evident. Despite higher expenses,appropriate traditional mutual funds should also be on your shopping list to accomodate this portfolio scenario.


December 08, 2010

December 11, 2010: Momentarily, Housing Barely Trends Up

The November Credit-Suisse monthly housing survey of fifty U.S. markets was released yesterday. Although the sector is still a mess, there were a few bright spots, as illustrated below. Still, interested parties in my world are not celebrating yet. They see banks continuing to withhold foreclosures from the auction block, maddening tight policies on foreclosures, short sales, financing stips and the availability of amortized credit. The unemployment rate,job insecurity, the sum of all local/state/ federal taxes and a sense that property values will continue to drift lower adds further angst to the mix. On the plus side,a temporary taxation regimen may be emerging from the carnage of the Beltway and may propel some further positive movement in the housing sector.This, along with buyers sensing that current interest rates and home prices may be a close-to-final opportunity to execute real estate deals.

Here is some selected data from the exhaustive and proven forward looking report: With a score of 50 being the norm, the overall foot traffic index moved upwards to 22.1 from 16.3 in October. pressure on home prices continues, with high inventory likely to add to challenges to sellers. The home price index crept upward to 21.6 from 20.5 in October. Credit Suisse expects this will continue for the next several months as many sellers choose to lower prices in order to complete a sale, and also into 2011 when foreclosures will likely return to the market, The home listing level (inventory) index stood at 41.3 vs. 35.5 in October.

In major markets, the survey indicated that Dallas (traffic index up to 28 from 14) and Houston traffic index of 26, up from 3 in October) along with better trends in Atlanta, Ft. Meyers, Jacksonville, Phoenix, the Inland Empire and Washington, D.C. Many other markets are problematic with a declines in all categories mentioned above at odds with the modest still-below norm results for the areas mentioned above.

The takeaway is there is no apparent lasting trend upwards that some have been predicting. The percentage improvement in all areas remains well below historic norms. No builders or sub sector material providers to the construction industry are recommended. On a valuation basis, investors may want to look at Home Depot (HD) as the home improvement business is picking up in property interior repairs, perhaps in part because of new home buyers and investors fixing up the trashed foreclosed homes purchased.