These Were the Best-Performing ETFs of Q1 2015

End of Q1, So What Should You Do?

The first quarter of 2015 is in the books, and that means it’s time to do something that you should be doing every quarter at the very least. That something is taking a critical look at your portfolio to make sure it’s serving your goals.

Are you generating enough income from your existing assets to fund your retirement? Are you producing the kind of growth you want so that you can build up that nest egg for when you need it years down the road? Are you overweight in one market sector while not having enough exposure — and enough diversification — to weather inevitable market storms?

These are the kinds of questions that you need to ask yourself at least every quarter and, preferably, on a monthly basis. In this market, knowing what to do is a must, as circumstances such as when the next Fed rate hike actually will happen; what global growth metrics will tell us; and how the strong U.S. dollar and weak oil prices may determine the fate of your money during the second quarter.

So, what should you do now that Q1 is over?

Here are a few tips on what every investor needs to do right now:

1. Act like a professional. All of the pros review asset allocation, positions and cash holdings at the end of every quarter. Follow that example with your money.
2. Take inventory of your accounts. Know where your money is and where your accounts are, and think about how you can consolidate things to make it easier.
3. Look at each position and how it performed. It may sound simple, but knowing how each holding performed in Q1 is the first step to making sure your money is in the right place for Q2.
4. Think ETFs. Ask yourself, “How can I transfer my mutual fund or equity holdings into a better investment vehicle using exchange-traded funds (ETFs)?”
5. Research new ideas. Always be on the lookout for new ideas, new market sectors and new areas to put money to work.

One good way to begin your research on new ideas is to take a look at our Q1 ETF Scorecard at ETFU.com. This is where you’ll find the Top 10 list for a number of market sectors, including equity, fixed income, international, commodity and many other segments.

The table below shows the Top 10 U.S. Equity ETFs during Q1:

If you are looking for domestic equity ETFs with strong track records, the Q1 ETF Scorecard at ETFU.com is a great place to begin your quest.

ETF Talk: Looking for a Bargain in Value Stocks

Many investors proclaim the effectiveness of the value-investing strategy. Value investing involves selecting companies whose stock prices seem to be lower than expected, given their fundamental strength and the valuation of similar companies. This investment approach is based on the view that the market will achieve equilibrium in the future and stock prices will rise, based on more typical valuations. One exchange-traded fund (ETF) that allows investors to pursue this technique is iShares Russell 1000 Value Index ETF (IWD).

In the last 12 months, this fund is up a respectable 6.82%. Comparatively, investors have not been flocking to value stocks during this period. But value stocks do tend to perform best in the long run. Eventually, IWD should revert to the mean. If we look back even as little as three years, the fund’s performance is more impressive. The index IWD tracks is focused on companies that are undervalued compared to competitors and similar companies.

Net assets of $26 billion under management make this fund a big player in the ETF market. Though it is more focused on stock prices that are likely to increase than on dividends, IWD does offer a 1.26% dividend yield. Its expense ratio is only 0.20%.

IWD’s largest sector holding by far is financial services, weighing in at 29.7%. Healthcare accounts for another 14.75%, and energy makes up 10.89%. IWF invests 23.63% of its assets in its 10 largest positions. These are primarily large, well known companies with relatively low share prices. They include ExxonMobil (XOM), 3.58%; Berkshire Hathaway Inc. Class B Shares (BRK.B), 2.60%; Wells Fargo (WFC), 2.54%; General Electric (GE), 2.45%; and Johnson & Johnson (JNJ), 2.36%.

This fund provides a simple way to include a value-oriented strategy in your portfolio without tying your fortunes to a small set of companies. If this is what you seek, iShares Russell 1000 Value Index ETF (IWD) may serve you well.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Bogle’s Bad Views on ETFs

John “Jack” Bogle is an icon in the investing industry. The founder of Vanguard and the “father” of index mutual fund investing has had a lot of good ideas over the years. Unfortunately, the ideas in his recent editorial in the Financial Times are not among those good ideas.

According to Mr. Bogle, exchange-traded funds (ETFs) are something that investors should “beware” of. As Bogle writes, “Mark me as a member of a small group of cohorts who are dubious about the utility of ETFs for long-term investors.” Bogle goes on to express some rather bad views about ETFs as merely a great “marketing innovation” where the “only sure winners are the brokers and dealers of Wall Street.”

At the crux of Bogle’s criticism is that ETFs are too tradable, and that the ability to buy and sell ETFs so easily, and at any time of the day, makes them too tempting for investors to do the wrong thing by being too active with their money.

Now, let’s put aside the obvious paternalistic patronizing going on here, which basically insults your intelligence as someone able to make your own decisions. Rather, Bogle assumes that the only proper way to invest is to buy and hold for the very long term. Well, not all investors do that with their money, and I don’t think investors should do this.

Now, I’m admittedly biased here, as I have been employing a trend-following strategy for nearly four decades that’s kept subscribers out of bad bear markets and in roaring bull markets. But still, to criticize the tradability feature of ETFs seems akin to criticizing having too many choices as a consumer.

Bogle also criticizes the turnover in ETFs, claiming some funds have turnover rates of 2,000% to 4,000%. What Bogle fails to mention here is that turnover in ETFs doesn’t affect the holdings the way it does with a traditional mutual fund. Because ETFs are tied to an index, the buying and selling each day still results in the same holdings for the investor. This isn’t the case with mutual funds, which are most often not tied to any specific index.

Finally, I think the biggest disappointment here when it comes to Bogle’s views is that they are dismissive of the innovation and progress in the investment world. When Bogle and Vanguard started the first index mutual fund in 1975, it represented a great innovation.

Now, every month new ETFs are coming to the market that are low cost, easy to trade and easy for investors to get access to markets where they never really could before. Rather than lauding this innovation as a positive, Bogle opts to take the Luddite route and tries to put it down as unfit for investors.

My response to this can be summed up by the great Victor Hugo, who wrote, “Nothing is more powerful than an idea whose time has come.”

71% of Annuity Owners Are Doing It Wrong!

Every year, I urge readers of this e-letter, my newsletter Successful ETF Investing and also listeners of my podcast to review their annuities. An annuity can be a valuable income tool, but it also can be an underperforming asset in your portfolio.

If you currently own an annuity, I urge you to consider it carefully. It could mean hundreds of thousands of dollars to you over the next couple of years.

According to industry sources, 71% of annuity holders are not using that investment’s single-biggest retirement benefit. And I’m not talking about tax deferral… but something much more powerful.

It is the ability to use your annuity to create a never-ending income stream… one that funds your retirement and lasts for as long as you live.

The funny thing is that this benefit is no big secret. Every annuity contract has this potential to pay out income.

So why haven’t 71% of annuity owners taken advantage of this opportunity? Here are the most common reasons:

• They didn’t need an income stream at the time and simply forgot about the benefit…
• They bought the annuity 20-30 years ago and can’t get in touch with the seller…
• They’ve heard so much misinformation about annuities, they’re afraid to make a move…
• They simply don’t know about the income benefits available…

Even so, it’s still astounding to me that 71% of annuity holders aren’t taking advantage of the chance to receive hundreds of thousands — if not millions — of dollars in income over the course of their lives.

I’d like to show you how to do exactly that: Transform your annuity into a never-ending income stream…

And I’d like to do it FREE OF CHARGE!

At Fabian Wealth Strategies, we currently are offering a FREE annuity check-up designed to make sure you are getting the most out of your annuity. During this process, we will analyze your annuity and compare it with dozens of other annuities available in the market to make sure your investment is still aligned with your retirement goals and objectives.

To take advantage of this special offer, simply call us at Fabian Wealth Strategies toll free at (800) 391.1118 or CLICK HERE. When you call, we’ll schedule you for a FREE annuity consultation as soon as possible.

Don’t wait a minute longer. Contact us today so that we can help make sure you aren’t one of the 71% of annuity holders missing out on big money.

NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

Don’t Be Afraid of the Light

“We can easily forgive a child who is afraid of the dark; the real tragedy of life is when men are afraid of the light.”

— Plato

Truth, or what Plato refers to as “the light,” is often something men fear. Whatever the reason, fearing reality is never a good strategy for happiness. Unfortunately, fearing reality when it comes to your investments also is a good way to go broke.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about what an investment icon gets wrong about ETFs. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian

Upcoming Appearance

I invite you to join me at the MoneyShow Las Vegas, May 12-14, 2015. With stock picking taking on renewed importance as the market shows signs of volatility, this event offers an opportunity to hear from a number of experts, including my Eagle Financial Publications colleagues Mark Skousen, Chris Versace and Bryan Perry.

Be a guest of Eagle Financial Publications and register for FREE by using priority code 038656 and calling 800-970-4355 (toll free in the United States and Canada) or signing up online.