dow
Exchange-traded funds (ETFs) give you a low-cost, flexible alternative to mutual funds. Here are five ETFs we recommend and one to sell.
SPDR DOW JONES INDUSTRIAL AVERAGE ETF $176.32 (New York symbol DIA; buy or sell through brokers; www.spdrs.com) holds the 30 stocks that make up the Dow Jones Industrial Average. This ETF’s top holdings are Goldman Sachs, IBM, Home Depot, Travelers Cos., Johnson & Johnson, UnitedHealth, United Technologies, McDonald’s, 3M and Boeing. The fund’s expenses are about 0.17% of its assets, and it yields 2.4%. SPDR Dow Jones ETF is a buy.
These six ETFs hold mostly blue chip, widely traded stocks on Canadian and U.S. exchanges. All of them mirror, or track, the performance of major stock market indexes. That’s opposed to narrower indexes focused on, say, resources or themes such as solar power or biotech. Of course, you pay brokerage commissions to buy and sell these ETFs. But their low management fees give them a cost advantage over most mutual funds. Below we update our advice on all six—five buys and one we don’t recommend....
In our January 19 Inner Circle, I said “…several ominous factors are weighing on the market right now, in addition to the U.S. presidential election. These include the outlook for interest rates; the trend in prices for oil and other commodities; the rise in terrorist activity; the Chinese economic slowdown; and the sharp rise in the U.S. dollar and corresponding drop in the Canadian dollar… “The market is likely to remain volatile, thanks to these ominous factors. But high-quality dividend-paying stocks offer higher current returns than most fixed-return investments. These stocks also provide a hedge against inflation. This combination gives investors a strong incentive to hang on to their stocks as long-term investments. It gives them an incentive to buy more stocks when prices drop, as they have recently. “All in all, now is a good time to invest in a Successful Investor-style portfolio. My view is that prices will be higher by the end of the year. By then, we’ll be able re-evaluate the market outlook, in light of who wins the presidential election this November.”...
The market followed up Wednesday’s big-volume turnaround with further gains yesterday—at day’s end, the Dow rose 216 points and the Nasdaq gained 40 points. The push higher by the major indexes took them above resistance levels, and gives us a clear Cabot Tides buy signal. As we mentioned on Wednesday, the market still faces many headwinds, the most important of which is that the longer-term trend remains down for the indexes and many stocks. But there’s no question the evidence has improved during the past three weeks, and with our Tides now positive, we’ll begin to put money to work in a couple of well-situated stocks with big growth expectations. The first is Sabre (SABR), which operates the most popular distribution network for air and hotel bookings in the world. Growth has been steady and should accelerate in 2016, and after a sharp correction, the stock has found huge-volume support after its recent earnings report and should do well going forward....
The Direxion iBillionaire Index ETF tries to duplicate the success of billionaire investors, Warren Buffet, Carl Icahn
The Direxion iBillionaire Index ETF, $21.51, symbol IBLN on New York (Units outstanding: 1.4 million; Market cap: $30.1 million; www.direxioninvestments.com), is designed to profit from copying the moves of billionaire investors such as Warren Buffett, Carl Icahn, Daniel Loeb and David Tepper.
The ETF began trading on August 1, 2014. Its MER is 0.65%—lower than most mutual funds, but high for an ETF.
The Direxion iBillionaire Index ETF selects up to 10 billionaire investors from a pool of 50, based on their personal net worth, source of wealth, stock turnover and performance over time. It then selects stocks from their investment firms or hedge funds.
Each of the companies in the index is equally weighted (3.33% each) and rebalanced quarterly. That’s because the ETF’s managers aim to ensure that each stock’s contribution to the fund’s performance is identical.
The fund’s managers select stocks by looking at Form 13F, a publicly available document that institutions, such as banks, hedge funds and investment firms, must file with the Securities and Exchange Commission (SEC). Form 13F discloses long positions, or stocks held with the intention of profiting if their prices go up.
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The ETF began trading on August 1, 2014. Its MER is 0.65%—lower than most mutual funds, but high for an ETF.
The Direxion iBillionaire Index ETF selects up to 10 billionaire investors from a pool of 50, based on their personal net worth, source of wealth, stock turnover and performance over time. It then selects stocks from their investment firms or hedge funds.
Each of the companies in the index is equally weighted (3.33% each) and rebalanced quarterly. That’s because the ETF’s managers aim to ensure that each stock’s contribution to the fund’s performance is identical.
The fund’s managers select stocks by looking at Form 13F, a publicly available document that institutions, such as banks, hedge funds and investment firms, must file with the Securities and Exchange Commission (SEC). Form 13F discloses long positions, or stocks held with the intention of profiting if their prices go up.
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Exchange traded funds (ETFs) are set up to mirror the performance of a stock market index or sub-index. They hold a more or less fixed selection of securities that represent the holdings that go into the calculation of the index or sub-index. ETFs trade on stock exchanges, just like stocks. That’s different from mutual funds, which you can only buy at the end of the day at a price that reflects the fund’s value at the close of trading. Prices of ETFs are quoted in newspaper stock tables and online. You pay brokerage commissions to buy and sell them, but their low management fees give them a cost advantage over most mutual funds....
A look at the risks investors face with short ETFs, or “bear market” ETFs designed to move in the opposite direction to a market index
Decades ago, it used to make some sense to try to profit by moving back and forth between bonds and stocks. That’s because bonds and stocks had something of a seesaw relationship.
When the economy was strong, business profits and stock prices would go up. However, interest rates and inflation would go up as well. The rise in interest rates meant that new bonds would come on the market with higher interest rates. That would push down prices of existing bonds that carried low interest rates.
As this process continued, some investors would sell some of their stocks, in part because stock prices had gone up. They would re-invest the money in bonds, because bond prices had fallen, and bond yields had gone up. This trading strategy gave investors a sense of safety and accomplishment, but it had drawbacks.
For one, you had to pay taxes in gains on your stocks if you held them in taxable accounts. You also had to pay brokerage commissions on the stock sales, and absorb the costs of buying bonds. (Bond trading costs were often built in to the price of bonds, rather than being charged separately as they are with stocks.) In addition, timing was crucial.
The appeal of selling stocks that had gone up, and buying bonds that had become cheaper, only goes so far. It shrinks quickly if your stocks keep going up after you sell, and your bonds keep going down after you buy.
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When the economy was strong, business profits and stock prices would go up. However, interest rates and inflation would go up as well. The rise in interest rates meant that new bonds would come on the market with higher interest rates. That would push down prices of existing bonds that carried low interest rates.
As this process continued, some investors would sell some of their stocks, in part because stock prices had gone up. They would re-invest the money in bonds, because bond prices had fallen, and bond yields had gone up. This trading strategy gave investors a sense of safety and accomplishment, but it had drawbacks.
For one, you had to pay taxes in gains on your stocks if you held them in taxable accounts. You also had to pay brokerage commissions on the stock sales, and absorb the costs of buying bonds. (Bond trading costs were often built in to the price of bonds, rather than being charged separately as they are with stocks.) In addition, timing was crucial.
The appeal of selling stocks that had gone up, and buying bonds that had become cheaper, only goes so far. It shrinks quickly if your stocks keep going up after you sell, and your bonds keep going down after you buy.
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