The Russell 1000 ETFs

ETF Creation and Workings

An Inside Look At ETF Construction
Excerpt:

The process begins when a prospective ETF manager (known as a sponsor) files a plan with the U.S. Securities and Exchange Commission to create an ETF. Once the plan is approved, the sponsor forms an agreement with an authorized participant, generally a market maker, specialist or large institutional investor, who is empowered to create or redeem ETF shares. (In some cases, the authorized participant and the sponsor are the same.)

The authorized participant borrows stock shares, often from a pension fund, places those shares in a trust and uses them to form ETF creation units. These are bundles of stock varying from 10,000 to 600,000 shares, but 50,000 shares is what's commonly designated as one creation unit of a given ETF. Then, the trust provides shares of the ETF, which are legal claims on the shares held in the trust (the ETFs represent tiny slivers of the creation units), to the authorized participant.

Because this transaction is an in-kind trade - that is, securities are traded for securities - there are no tax implications. Once the authorized participant receives the ETF shares, they are sold to the public on the open market just like stock shares. When ETF shares are bought and sold on the open market, the underlying securities that were borrowed to form the creation units remain in the trust account. The trust generally has little activity beyond paying dividends from the stock, held in the trust, to the ETF owners, and providing administrative oversight. This is because the creation units are not impacted by the transactions that take place on the market when ETF shares are bought and sold.

Creating an ETF

Excerpt:

Creating an ETF has much in common with issuing new stock or inaugurating a mutual fund. But there are some important differences that make this process unique. One of the most relevant is the number of individuals and organizations who play a role in the process: a sponsor or fund manager, an index provider, a custodian, a number of authorized participants, and the Securities and Exchange Commission (SEC) in its role as securities regulator. Another is the process through which the creation occurs.

Comments: Top image source. Bottom image captured from here. List of new ETF launches

Jim's High Yield 100K Portfolio

• HYG | Holdings | Monthly Distributions
• HDV | Holdings | Mar Jun Sep Dec Distributions
• LQD | Holdings | Monthly Distributions
• PHB | Holdings | Monthly Distributions
• TLO | Holdings | Monthly Distributions
• PSK | Holdings | Mar Jun Sep Dec Distributions
• BABS | Holdings | Monthly Distributions
• O | REIT Holdings | Monthly Distributions
• HCP | REIT Holdings | Feb May Aug Nov Distributions

Comment: Working on a plan for 401K to IRA distribution. My amount is not $ 100K but the worksheet could be used for any amount. Click image for larger.

Reasons to Boost Your Foreign-Stock Exposure w Two ETFs

4 reasons to boost your foreign-stock exposure
Excerpt:

.... many foreign markets are cheaper than U.S. stocks based on market yardsticks such as price/earnings ratios, dividend yields and price-to-book value.

Comment: Quotes: IXUS, VXUS

ETF Focus: iShares International Select Dividend ETF (IDV)

iShares International Select Dividend ETF (IDV)

Excerpt:

The iShares International Select Dividend ETF seeks to track the investment results of an index composed of relatively high dividend paying equities in non-U.S. developed markets.

Comment: IDV. What I like about it (we have in an IRA):

• 4.56% dividend yield
• Growth of 8.9% YTD
• Exposure to foreign stocks without foreign tax withholding (which is complicated at tax time)
• Diversification w 100+ foreign stocks
• Most of the foreign stocks are not available with an ADR and would be difficult for me to invest in.
• Large Cap / Value style

Dividend ETFs

Dividend-yielding stocks are paying off now

Excerpt:

Dividend stocks have been attracting investors for several years because of low yields on fixed-income instruments. Now their appeal is broadening as investors assume defensive postures, accelerating dividend-paying vehicles into outperformance. Dividend payouts provide a downside price cushion, the theory goes, though of course the threat of dividend cuts could exacerbate any decline. But a repeat of that debacle is unlikely, at least this year. Another characteristic of dividend stocks is that they tend to belong to more mature, more established companies that are big enough to weather temporary turbulence. This latest round of investor concern about the pace and strength of global economic recovery has taken growth and small stocks out of favor.

Comment: Of the above, I like PEY. Holdings

Foreign Stock Investing - iShares International Select Dividend ETF

iShares International Select Dividend ETF

Comments: Another way to go with foreign stocks is to buy a bundle of them with an ETF. Link above has detailed information. Disclosure: as of today, I have a position in IDV.

Jim's 10 ETFs with $ 500K

As a followup to Jim Cramer's Owning Ten Stocks is Just Right, I would go with 10 ETFs. (Click image above for larger). The above is:

• 20% bonds with BND and AGG
• Has the stock indexes of DIA, SPY, and the NASDAQ. (Note ... I chose ONEQ over QQQ because the the yield!)
• Is 20% preferred stocks with PGX and PFF.
• Has MLP exposure with the popular AMLP
• A passive investor could choose these and just let 'em ride 
• Altogether has a dividend yield of 3.5%

The Great Gold Rotation - "300 tons"

Gold ETFs Are Liquidating By the Ton

Excerpt:

An ounce of gold, often represented by a single American Eagle coin, is a fairly easy thing to visualize. Even a 400 ounce gold bar, like the ones held at Fort Knox, is a fairly fathomable concept. But when you try to get your head around just how much of the metal an ETF like the SPRD Gold Shares (GLD) owns, it can get a little daunting. And the same is true when you try to track how much they've had to sell as the price of gold slips to a 2-1/2 year low.

"300 tons," says Tom Lydon, the editor of ETF Trends, in the attached video, calling the disposal of over 600,000 pounds of gold so far this year "amazing" and "incredible."

This, of course, as the largest metal-tracking fund has gone from briefly being the biggest ETF, to being a top-5 player after being cut in half to approximately $46 billion in value today, holding just over 1,000 tons of gold in its vaults.

While gold is clearly out of favor forcing the hand of holders to sell into weakness, Lydon says it won't always be that way. "Central banks maybe aren't as concerned," he lists as one reason why gold is down. "I think the average investor, with stocks and bonds doing so well, I think they say, 'hey, I don't need to hedge, so that gold position I had, I'm going to put that into stocks for now.'"

Comment: If (when?) inflation kicks in ... Gold will be safe harbor. Image above is of a 400 oz gold bar. 300 tons would be the equivalent of 24,000 400 oz gold bars.

PGX: Preferred stock ETF

PowerShares PGX

Comment: Image Source. PowerShares PGX page. Top holdings below:

PFF: Preferred stock ETF

Noteworthy ETF Inflows: PFF
Should You Prefer Preferreds in 2013?
Excerpt:

Preferred stock confuses beginning investors because its name is misleading. What makes a stock preferred isn't whether it's a smart investment but rather where it lies within a company's capital structure. Most of the time, companies have two main tiers of capital, one they obtain by issuing bonds and the other from making offerings of equity. Bondholders have fixed return potential, as the payments they receive are strictly defined by the terms of the bond, but they also enjoy the highest priority to get repaid no matter what happens to the company. By contrast, equity shareholders have potentially unlimited returns, but they also have to go to the end of the line if the company goes under and often come out with nothing.

Preferred stock lies in the middle of the capital structure. Like bonds, preferred stock typically pays a fixed interest rate and has priority over common shareholders, in that preferreds are entitled to get a certain value back before the common receives payment. Moreover, preferred dividends have advantages that common-share dividends lack, again depending on the terms of the preferred. But when it comes to growth potential, preferred stock doesn't look like stock at all -- it tends to move with interest rates rather than with a company's fundamental prospects. For many investors, the idea of getting solid income without the volatility of common shares may seem like a trade-off worth making

Comment: Image source. Wiki article on Preferred Stock.  PFF provides a nice diversified ETF way to invest in preferred stock. Another option is PGX.

The following features are usually associated with preferred stock:

• Preference in dividends
• Preference in assets, in the event of liquidation
• Convertibility to common stock.
• Callability, at the option of the corporation
• Nonvoting

Below images show the top holdings, credit breakdown, and sector holdings of PFF. The yield is 5.95%

ETFs: The Most Important Development for Investors

ETFs: The Most Important Development for Investors
Excerpt:

Why the growing interest in ETFs? Besides diversification, ETFs provide lower costs, better portfolio transparency, and they are more tax efficient than most mutual funds. For active traders, the ability to trade during the day is the clincher. But those are the most obvious reasons - there's an even bigger reason I'm an ETF supporter. For most investors, indexing is the way to go. According to fund analyst Deborah Fuhr, 81.2 percent of active large-cap managers in 2011 didn't beat the S&P 500. Think about that. Mutual fund investors pay exorbitant fees - usually one to two percent a year, or more - for active management. And most do not outperform benchmark indexes.

Comment: I have several IRA's ... because of my tax and income situation I can no longer add new money to these. But they generate dividend income - cash - that can be used for investing. We use that dividend income to invest in the PEY ETF.

Happy 20th Birthday - SPY ETF

ETFs Mark 20th Anniversary: A Look at the Market’s Hottest New Product
Excerpt:

On a cold January day 20 years ago, with the Dow Jones Industrial Average hovering at about 3,300, a team of investors from State Street Bank (STT) unveiled their new creation to the denizens of Wall Street: the SPDR S&P 500 ETF (SPY). They now describe the launch of the first exchange-traded fund (ETF) on this day in 1993 as "the one that started it all," calling the debut of the Spider (short for S&P Depositary Receipt) "an investment product that gave people a more precise way to buy and sell an entire index, but could be traded like a stock." It took some time for ETFs to catch on, but when they did the once lonesome Spider paved the way for what is now a $1.4 trillion industry with more than 1,400 different funds.

Comment: More on SPY here, here, and here. My first three ETF's: SPY, DIA, and QQQ.

Exchange Traded Fund defined

Exchange Traded Fund defined
Excerpt:

An exchange traded fund (ETF) is a pool of stocks or commodities trading as a single stock on a stock exchange. Hence the name exchange traded fund. Unlike mutual funds, an exchange traded fund may be bought on margin, sold short, traded intraday, or in any other way traded like a stock. As with stocks, investing in an exchange traded fund will incur trading costs. Often, an exchange traded fund will mimic a stock index; popular exchange traded funds are the DIA (mimics the Dow Jones Industrial Index) and the QQQQ (mimics the NASDAQ 100). Other exchange traded funds can track specific industries, regions, or investing styles. Exchange traded fund family examples are iShares, VIPERs, and SPDRs.

Comment: Image source. Some of the ones I use: AGG, BND, AMLP, PEY, and DLN.

Image below displays the top 10 holdings of DLN. Simplified investing.

Investing in Bonds the ETF way

Depending on an intester's trading outlook (eg age to retirement), investment advisors suggest various ratios of bonds to stocks. But bonds are harder to buy than stocks and bond mutual funds can have high expense ratios. In my view the easier way to buy bonds is with an Exchange Traded Fund. Several below are highlighted:

• BND
• AGG
• LQD
• TIP
• HYG

The above Yahoo Finance chart illustrates the relative stability of AGG and BND against IBM, the DOW and the S&P 500 over the last year. Bond investing is not "exciting" investing but it is very conservative. Yahoo Finance provides the Morningstar profile for each. Helpful for investers:

MacroWorld is another helpful site that provides charting and reporting. The example below is the Sector Allocation for BND:

Bond ETFs

The Beta Investment Report: U.S. Bond ETFs

 Excerpt:

[On] the short list of investment-grade U.S. bond funds that cover the waterfront in this corner of the capital markets.

The first point to note is that the short list really is short. That’s partly because there’s only a handful of ETFs that cover the broad spectrum of investment-grade bonds in the U.S. in one fell swoop. We’re talking here of Treasuries, government agencies, corporates, and a small amount of international dollar-denominated bonds (inflation-protected Treasuries and munis are excluded, however). We’re also limiting the choices to market-cap weighted benchmarks exclusively in the ETF space. That leaves us with four choices, as shown in the table

Comment: The absolute easiest way to invest in bonds is through a Bond ETF. We have investments in both BND and AGG. Neither are exciting (like an IBM) but they are stable.

Can't decide which stock to buy? Buy 'em all!

Pick an index: Wilshire 5000 is easier to track

 Excerpts:

The DJ Wilshire 5000 and MSCI U.S. Broad Market index both try to measure the entire stock market. Unlike the Standard & Poor's 500, which tracks 500 of the stock market's most valuable companies, the DJ Wilshire 5000 and MSCI U.S. Broad Market indexes try to own the big, the small and everything in between.

... It's also easy to track the DJ Wilshire 5000 because investors can buy shares in an ETF that tracks it, the SPDR DJ Wilshire Total Market ETF (TMW). You can track the index by entering TMW into any stock quote service.

Comment: Chart above (from Yahoo finance) shows it beating the DOW over 2 years.

Broad diversification. Chart below. Source

Invest in the S&P High Yield Dividend Aristocrats

SPDR S&P Dividend ETF (SDY)

S&P High Yield Dividend Aristocrats

The S&P High Yield Dividend Aristocrats index is designed to measure the performance of the 60 highest dividend yielding S&P Composite 1500 constituents which have followed a managed dividends policy of consistently increasing dividends every year for at least 25 years.

Comment: 60 stocks in one basket. From link above click "Download All Holdings CSV". Screen shot of partial. Investors can buy 10 shares for about $ 500. See Yahoo Finance Link

ETFs anyone?

The Top Dividend Paying ETFs

Excerpt:

To invest in companies that pay dividends, we can choose either to buy individual stocks, or purchase a mutual fund or ETF that invest in dividend-paying companies. Here, I will only look at ETFs with the main objective as generating incomes from dividend distributions. Using Morningstar’s ETF tool, I found the following 12 dividend-paying ETFs that invest in domestic companies.

Comment: Example ... image below. I haven't used ETFs yet but am considering.

Now reading The ETF book

Mutual Funds a Scam?

Most Mutual Funds Are Ripping You Off, Says IFA’s Mark Hebner

Excerpt:

The fundamental flaw in most mutual funds, Hebner says, is that even well-educated portfolio managers with huge research budgets can't pick winners consistently enough to beat the market over time. Yes, by the luck of the draw, about a third of mutual funds will beat the indices each year. But last year's winners are often this year's losers. When you look at long-term performance, only a handful of funds beat the indices. And there's no tried-and-true way of picking these funds in advance.

The reason "skilled" portfolio managers can't beat the market, Hebner says, is that the market is primarily made up of other "skilled" portfolio managers, and they trade against each other all day long. When your competition is as well-educated, well-funded, and skilled as you are, you're going to lose as much as you win. And when you subtract the fees that you charge your investors from your investment performance, the result is performance that lags the index.

Hebner's advice is to follow in John Bogle's footsteps and buy a diversified portfolio of index funds. Unlike actively managed mutual funds, index funds guarantee you close to a market return. And if you rebalance your portfolio whenever your asset allocation gets out of whack, you can actually do better than the market over the long haul.

Comment: One thing great about mutual funds is that the investor gets broad diversification. The negative is the fees. Mutual Funds are good for small investors but perhaps ETFs are even better.