How a China Delay, Flat S&P and Climbing Yields Affect You

China’s Deferrals, S&P’s Sideways Drift and Yields Climb

In last week’s issue, I wrote about the pending tailwind in China’s A-shares market, as the world awaited the decision by MSCI on whether they were going to include China A-shares in their emerging market index.

MSCI Inc., whose MSCI Emerging Markets Index is the most widely tracked benchmark of share-price performance outside the developed world, said it would add China A-shares to the index — just not quite yet.

The deferral to begin adding A-shares later this year disappointed some China bulls, but it shouldn’t have. In fact, knowing that mainland Chinese stocks will become part of the MSCI Emerging Markets Index ETF (EEM) just means more time to get long A-shares before all of the index-based advisors out there are forced to flood into the market.

Remember, once MSCI adds A-shares to the EEM Index, it would effectively force fund managers around the world to begin buying A-shares in an effort to mirror the revised holdings.

A move to add the A-shares would undoubtedly cause the value of stocks in ASHR to extend their winning ways, as this will be an extremely bullish tailwind for the segment.

Meanwhile, here at home, stocks have a volatile week, with big gains on Wednesday and a big decline on Friday. That action resulted in basically a net flat market this week, as traders prepare themselves for any surprises by the Federal Reserve at its upcoming FOMC meeting.

The benchmark S&P 500 SPDRs (SPY) ETF has been locked in a tight trading range for the past four months, and though there has been some small move to the upside, there hasn’t been a material breakout since last October.

Still, the key here is the 200-day moving average, which remains trending higher. Unless stocks were to fall below $203.72 (the 200-day average), we can still keep calling this bull a bull.

Finally, the one area we have seen some sharp movement in of late is Treasury bonds.

Bond prices have fallen and bond yields have climbed in anticipation of the Fed pulling the trigger on its first rate hike in nearly seven years.

Bond prices now are well below both the 50- and 200-day moving averages, and while I would call this a bear market in bonds, the trend since April has been distinctly lower.

So, what do you do about rising China A-shares prices, flat-lining domestic stocks and a drop in bond prices?

Simple, you read my Successful ETF Investing newsletter.

We are currently profiting mightily from allocations to China, and we continue to help subscribers add domestic stocks at the right price, as well as add the right kinds of income-generating assets that will hold up as bond prices fall.

To find out more about China, domestic stocks and bond investing, check out Successful ETF Investing today!

ETF Talk: Tap Dividend and Income Payouts with Multi-Asset Fund

There are many approaches for those seeking high-dividend-paying investments. Some people might want high or rising dividend opportunities specifically, while others may choose investments that also are likely to appreciate in share price.

For those who crave direct payouts, iShares Morningstar Multi-Asset Income ETF (IYLD) is an exchange-traded fund (ETF) that generates income with added stability.

This fund does not tend to fluctuate much in value because it invests about 60% of its assets in bond ETFs. Another 20% of its assets go into high-dividend-paying ETFs and the last part is invested in “alternative assets,” which currently consist primarily of a real estate/mortgage fund. The inclusion of all these asset classes in one investment is part of this fund’s appeal. Another plus is its 5.08% yield, which is paid out as a monthly dividend.

This is not a tremendously large fund, with $286 million in assets managed, though many of the ETFs it invests in are much larger. This fund’s year-to-date, per-share pullback of 2.19% does not include its dividend payments. Although the chart below looks bumpy, the price trajectory now appears to be on the rise again.

This fund’s holdings consist of nine other ETFs. The five largest are iShares iBoxx USD High-Yield Corporate Bond ETF (HYG), 20.19%; iShares iBoxx USD Investment Grade Corporate Bond Fund (LQD), 15.02%; iShares Mortgage Real Estate Capped ETF (REM), 14.81%; iShares International Select Dividend ETF (IDV), 10.13%; and iShares Emerging Markets Local Currency Bond ETF (LEMB), 10.08%.

If you think this mixture of asset classes would enhance your portfolio, you may want to explore a potential investment in iShares Morningstar Multi-Asset Income ETF (IYLD).

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.

Have You Graduated from ETFU.com?

Graduation time is here, and while your son or daughter might be celebrating his or her completion of university, have you done the same with ETF University?

The recent rollout of the ETF University website, or ETFU.com, has been a big success. If you have visited our newest education-oriented site devoted to all things exchange-traded funds, then I just want to say — thanks!

If you haven’t yet had a chance to visit ETFU.com, then now you have even more reason to give a look, as we have just upgraded the content at the site to feature our new, comprehensive ETFU.com Database.

This database is designed to give you all the information you need — and then some — about any ETF. What kind of information am I talking about? Well, to start with, you get all of the key vital statistics on any fund you select. These statistics include a basic description of the fund and which index it’s based on, along with the fund’s primary objective.

Then you get basic vitals such as current price, percentage change from the prior day’s close, trading volume, assets under management, expense ratio and the average daily trading volume during the past 100 days. You also get historical performance data (in percentage terms) for one week, one month, 100 days, year to date and one year.

Yet perhaps the best features, and certainly my personal favorites, when it comes to the content on the new ETFU.com Database are the Portfolio Stats, Technicals and, of course, the large price chart. In just a glance of these sections, I can get near-instant data on key metrics such as yield, price/earnings (P/E) ratio, percentage the current price is from its 50- and 200-day moving averages and where it stands in relation to its 52-week high.

Knowing how to research this material will help make you an expert in ETFs — and who knows, you might even be awarded the next ETF University professorship!

A Few Simple Things

“If all the folks in the United States would do the few simple things they know they ought to do, most of our big problems would take care of themselves.”

— Calvin Coolidge

The 30th president isn’t an often-quoted figure, but here Coolidge reminds us what we all know — and that is the answer to the larger problems of society start with looking in the mirror.

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 how you can ride the China ETF surge. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

Have a great weekend,

Doug Fabian