ETF Updates Archive

Closed End Funds Fail to Deliver

Pimco recently announced that it will postpone monthly dividend payments for 6 municipal closed-end funds.

Back in October, we cautioned investors against jumping into closed-end funds due to the fact that most of them are leveraged.  The combination of a declining market and hard to replace leverage are causing Pimco and other closed-end fund managers to delay dividend payments.

In the past, fund managers borrowed money as a way to pump up fund returns.  Many managers issued auction rate preferred securities as a way to raise debt.  That market has dried up and left managers scrambling for other ways to borrow.

At the same time, the declining value of assets has created an asset c

Looking for a Bottom - Part 2

The day after we posted Looking for a Bottom? Start with Sectors, the market tested a new 52-week low and sector performance was telling.

The S&P 500 ETF (SPY) traded as low as $74.34 on November 21 before bouncing back to finish the day at $79.52.

6 of the 9 major sectors also hit a new low on Friday creating the need to reset our thinking on sector outlooks.

October 10th Group - Mixed Results

October 10 was the 7th straight da

Looking for a Bottom? Start with Sectors

With the US equity market recently hitting a new 52-week low, investors are still waiting for the market to bottom out.

However, clear differences are starting to emerge between the sectors as some groups have stayed above the low watermarks achieved on October 10.

The S&P 500 ETF (SPY) set a 52-week low of $82.09 on November 13.  Comparing sector lows on November 13 to other recent bottoming days of October 10 and October 27 reveals that 4 of the 9 major sectors may have already hit bottom.

October 10th Group - Safe

Change You Can Act On

One of your goals for November should be to sell any mutual funds held in a taxable account and reinvest the proceeds into ETFs.

As we explained in "Would You Like Taxes with That?", the large volume of recent redemptions on the part of mutual fund investors will likely stick loyal investors with a capital gains distribution tax bill in December - even if the fund is down 30 or 40% on the year.

The move out of mutual funds is not just a smart move for this year.  Shifting to ETFs will continue to pay off down the road due to lower overhead and better tax efficiency.  The "active management" of mutual funds is overrated - as we've noted elsewhere, Continue Reading »

Beware Closed End Funds

You may be looking over the jaw-dropping discounts and dividend yields for closed-end funds and be tempted to jump in with both feet.

According to the Wall Street Journal, who quotes Morgan Stanley Research, the weighted average discount for the 650 U.S.-listed closed-end funds has widened from 6.2% to 15.6%.

In the past, when discounts widened on closed-end funds, it was a buying opportunity.   The logic was that eventually the discount would narrow again and in the mean time, since most closed-end funds pay dividends, you would be paid to wait.

This time it is different.  Investors are jumping ship from closed-end funds because most of them, 72% to be exact, are levered with debt.