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Using ETFs to Invest in the "New Normal"
09:26
As a new year approaches, the question on everyone's mind is: Where do we go from here?
We begin with a look at where we've been--how 20 years of easy credit and deregulation created a "shop-till-you-drop" environment that inflated debt to unthinkable levels before crashing down all around us.
Now we've entered what some have dubbed the "New Normal," characterized by deleveraging in the private sector, releveraging of the public sector, reregulation, and deglobalization. This is likely to translate into an extended period of lower expected corporate returns, higher inflation, government intervention, and protectionism. Ultimately, this ought to lead to slower growth in the developed world, while emerging markets grow at a faster pace, albeit slower than in the last decade.
So how do we gain an advantage in this New Normal?
One strategy is to buy income-generating assets to overcome lower expected corporate returns—perhaps bonds or dividend-paying stocks. You might also seek out returns in emerging-markets countries such as Brazil, India, and China. But these can be new areas for many investors.
Interested in new sectors, markets, and asset classes? Let me be your guide. Start a risk-free trial of Morningstar ETFInvestor, click here.
This is where exchange-traded funds (ETFs)--and Morningstar ETFInvestor--come in.
Thanks to their inherent tax advantages, cost efficiencies, and built-in diversification, ETFs can make it easier to get involved in new sectors, themes, and asset classes. The ETF universe is flush with funds that focus on a single market sector, industry, or geographic region. So, for example, if you favor indexing and want to own a specific market--such as biotech--or an individual country, you'll find ETFs targeted to meet your objectives. You can invest in a corner of the market without having to load up on one or two individual stocks.
As easily as ETFs can fit into any portfolio, not everyone is comfortable with these relatively new vehicles. That's why, as editor of Morningstar ETFInvestor, I'm happy to be your guide. I'll walk you through the advantages, disadvantages, and mechanics of including ETFs in your portfolio. What's more, I'm always looking to uncover opportunities that are benefiting from positive secular and cyclical trends, as well as trading at attractive values. My team and I dig into fund analysis and data, and drill down to the individual-stock level to try to identify the most promising ETFs.
Make sense of the world of ETFs with Morningstar ETFInvestor.
The Morningstar ETF 350 Watchlist. Coverage of more than 96% of ETF and ETN assets under management and a full range of funds from domestic equities to commodities to fixed income. For each fund, you'll get the critical performance, risk, portfolio, and expense data you need to make wise decisions.
In-Depth Analysis. We've expanded our coverage of ETF firms, fund flows, and broader economic data and charts to help give you a stronger macro view. Our monthly Fund Spotlight gives you a level of exacting, independent analysis you won't find anywhere else, plus insights into the best and worst performers.
Analyst Favorites. Lots of specific ideas for long-term portfolio builders.
Model Portfolios. The Hands-On portfolio has been investing for the New Normal before it even had a name. Our first move back into the market was the purchase of a dividend-themed ETF. We followed that up with a purchase of an emerging markets ETF that has us positioned to capitalize on the continued growth of these areas. The Hands-Free portfolio is a great example of some of the best investing advice out there--bet on the horse, not the jockey. That means betting on the market, not on money managers who tell you that they can beat the market. This tradition has borne fruit for our Hands-Free portfolio and many investors over the past few decades.
Proprietary Data. Comprehensive data points help you to research and choose ETFs on your own.
Between-Issue Resources. The ETFInvestor Web site keeps you apprised of breaking news and ideas with timely, flowing commentary between issues. Plus, you can track our model portfolios' performance in real time, get data on more than 850 ETFs, and download past issues.
Looking for ways to become acclimated to the New Normal?
Visit etf.morningstar.com to read some of our recent commentary and learn more about our monthly publication
We begin with a look at where we've been--how 20 years of easy credit and deregulation created a "shop-till-you-drop" environment that inflated debt to unthinkable levels before crashing down all around us.
Now we've entered what some have dubbed the "New Normal," characterized by deleveraging in the private sector, releveraging of the public sector, reregulation, and deglobalization. This is likely to translate into an extended period of lower expected corporate returns, higher inflation, government intervention, and protectionism. Ultimately, this ought to lead to slower growth in the developed world, while emerging markets grow at a faster pace, albeit slower than in the last decade.
So how do we gain an advantage in this New Normal?
One strategy is to buy income-generating assets to overcome lower expected corporate returns—perhaps bonds or dividend-paying stocks. You might also seek out returns in emerging-markets countries such as Brazil, India, and China. But these can be new areas for many investors.
Interested in new sectors, markets, and asset classes? Let me be your guide. Start a risk-free trial of Morningstar ETFInvestor, click here.
This is where exchange-traded funds (ETFs)--and Morningstar ETFInvestor--come in.
Thanks to their inherent tax advantages, cost efficiencies, and built-in diversification, ETFs can make it easier to get involved in new sectors, themes, and asset classes. The ETF universe is flush with funds that focus on a single market sector, industry, or geographic region. So, for example, if you favor indexing and want to own a specific market--such as biotech--or an individual country, you'll find ETFs targeted to meet your objectives. You can invest in a corner of the market without having to load up on one or two individual stocks.
As easily as ETFs can fit into any portfolio, not everyone is comfortable with these relatively new vehicles. That's why, as editor of Morningstar ETFInvestor, I'm happy to be your guide. I'll walk you through the advantages, disadvantages, and mechanics of including ETFs in your portfolio. What's more, I'm always looking to uncover opportunities that are benefiting from positive secular and cyclical trends, as well as trading at attractive values. My team and I dig into fund analysis and data, and drill down to the individual-stock level to try to identify the most promising ETFs.
Make sense of the world of ETFs with Morningstar ETFInvestor.
The Morningstar ETF 350 Watchlist. Coverage of more than 96% of ETF and ETN assets under management and a full range of funds from domestic equities to commodities to fixed income. For each fund, you'll get the critical performance, risk, portfolio, and expense data you need to make wise decisions.
In-Depth Analysis. We've expanded our coverage of ETF firms, fund flows, and broader economic data and charts to help give you a stronger macro view. Our monthly Fund Spotlight gives you a level of exacting, independent analysis you won't find anywhere else, plus insights into the best and worst performers.
Analyst Favorites. Lots of specific ideas for long-term portfolio builders.
Model Portfolios. The Hands-On portfolio has been investing for the New Normal before it even had a name. Our first move back into the market was the purchase of a dividend-themed ETF. We followed that up with a purchase of an emerging markets ETF that has us positioned to capitalize on the continued growth of these areas. The Hands-Free portfolio is a great example of some of the best investing advice out there--bet on the horse, not the jockey. That means betting on the market, not on money managers who tell you that they can beat the market. This tradition has borne fruit for our Hands-Free portfolio and many investors over the past few decades.
Proprietary Data. Comprehensive data points help you to research and choose ETFs on your own.
Between-Issue Resources. The ETFInvestor Web site keeps you apprised of breaking news and ideas with timely, flowing commentary between issues. Plus, you can track our model portfolios' performance in real time, get data on more than 850 ETFs, and download past issues.
Looking for ways to become acclimated to the New Normal?
Visit etf.morningstar.com to read some of our recent commentary and learn more about our monthly publication
Dear Morningstar.com Member,
The latest Morningstar Mobile application offers enhanced features to help you track your investments and stay on top of the markets. Get our take on stocks, mutual funds, and exchange-traded funds right on your iPhone or iPod Touch.
NEW! Our free iPhone app now lets you:
Sync to your Morningstar.com portfolios and watch lists
Create and edit Morningstar.com watch lists
View performance charts for stocks, funds, ETFs and indexes
Access the Morningstar Market BarometerSM and data on each of the Morningstar categories
Research Canadian tickers
Track the market indexes with up-to-date news articles and listings of gainers, losers, and actives
Log in for Premium Analyst Research
Plus, enjoy these same great features:
Obtain real-time quotes
Get investing ideas
Search for companies and ticker
View Morningstar Ratings
Now $20 off a one year subscription for an Annual Premium Membership at Morningstar
The latest Morningstar Mobile application offers enhanced features to help you track your investments and stay on top of the markets. Get our take on stocks, mutual funds, and exchange-traded funds right on your iPhone or iPod Touch.
NEW! Our free iPhone app now lets you:
Sync to your Morningstar.com portfolios and watch lists
Create and edit Morningstar.com watch lists
View performance charts for stocks, funds, ETFs and indexes
Access the Morningstar Market BarometerSM and data on each of the Morningstar categories
Research Canadian tickers
Track the market indexes with up-to-date news articles and listings of gainers, losers, and actives
Log in for Premium Analyst Research
Plus, enjoy these same great features:
Obtain real-time quotes
Get investing ideas
Search for companies and ticker
View Morningstar Ratings
Now $20 off a one year subscription for an Annual Premium Membership at Morningstar
Eric Jacobson, Morningstar's Director of Fixed Income Strategies, gives his take on developments in the fixed-income space.
1. What trends are you seeing in fixed income?
The 2009 theme has been a dramatic return of liquidity to fixed income markets, much of it provided or sparked by government programs both directly and indirectly putting government money into the system. In turn, that has meant a dramatic reversal for many--but not all--bond market sectors that had been badly beaten down in 2008. Many of these sectors are more fairly valued now, though, while the improving economic picture still doesn't offer significant assurance against a '"double dip" recession and/or the kinds of market effects that could hurt those sectors.
Most managers with whom we speak believe that there are still good bargains in the bond market as a result of last year's woes, but more broadly, the credit sensitive portions of the market appear to offer a lot less reward in exchange for their risks.
Those comments apply to nearly everything but Treasury bonds. By contrast, the muted economic picture and a perception that the Fed will be keeping short-term rates very low for some time to come has kept yields across the maturity spectrum relatively low. That state of affairs can easily persist for some time, and despite longer-term inflation worries, most managers aren't concerned about it becoming a problem in the near future given current levels of unemployment.
read more at http://news.morningstar.com/articlenet/article.aspx?id=318288&pgid=rss
1. What trends are you seeing in fixed income?
The 2009 theme has been a dramatic return of liquidity to fixed income markets, much of it provided or sparked by government programs both directly and indirectly putting government money into the system. In turn, that has meant a dramatic reversal for many--but not all--bond market sectors that had been badly beaten down in 2008. Many of these sectors are more fairly valued now, though, while the improving economic picture still doesn't offer significant assurance against a '"double dip" recession and/or the kinds of market effects that could hurt those sectors.
Most managers with whom we speak believe that there are still good bargains in the bond market as a result of last year's woes, but more broadly, the credit sensitive portions of the market appear to offer a lot less reward in exchange for their risks.
Those comments apply to nearly everything but Treasury bonds. By contrast, the muted economic picture and a perception that the Fed will be keeping short-term rates very low for some time to come has kept yields across the maturity spectrum relatively low. That state of affairs can easily persist for some time, and despite longer-term inflation worries, most managers aren't concerned about it becoming a problem in the near future given current levels of unemployment.
read more at http://news.morningstar.com/articlenet/article.aspx?id=318288&pgid=rss
There are currently more than 900 different ETFs and ETNs available for U.S. investors. Although we on Morningstar's ETF research team revel in all of the different choices ETFs provide, we realize that finding the best funds for your most basic investing needs can be overwhelming. Even after using Morningstar.com's powerful ETF screening tool to look for something as simple as a mid-cap ETF, you will find more than nine choices from various providers, based on various indexes and with expense ratios ranging from 12 basis points to 38.
As if all of the choices weren't confusing enough, picking the right ETF can be a complicated process that often requires making trade-offs regarding liquidity, expenses, and underlying index construction. There are tax issues to keep in mind for funds linked to commodities, and in terms of sectors, you need to decide whether it is worth paying up for international exposure.
Recognizing the challenges that investors face in making what should be simple investing decisions, Morningstar's ETF research team created the ETF Analyst Picks list. This group of 35 ETFs and ETNs is our preferred list of funds across a variety of size, style, geographic, and sector equity themes. Likewise, we have representatives from the fixed-income and commodity broad asset classes. Our ETF Analyst Picks are available to Morningstar.com Premium Members. If you're not a Premium Member, you can still see our picks, access our 300-plus ETF Analyst Reports, and get research on more than 3,000 individual stocks and mutual funds by taking a free, 14-day trial membership.
To create this list, the Morningstar ETF research team looked at a number of factors such as expenses, index construction, liquidity, and diversification. As I mentioned before, sometimes the cheapest ETF is not the most liquid or the best constructed. Because there is no magic formula for how all of these factors should be prioritized, the final decision on whether to include a fund in the ETF Analyst Picks list is qualitative. As such, we have provided additional insight into why each fund made the cut in the comments section of the picks list page.
For example, our pick for an S&P 500 tracking ETF is not the ubiquitous SPDR but rather the iShares S&P 500 Index . While SPY is great if you need to trade $20 million on a moment's notice, the fund suffers some structural disadvantages that cause it to lag the S&P 500's returns over the long run. IVV on the other hand is a much newer product and has relieved itself from this structural defect. The difference is slight, but when you are investing in passive indexes over the long run, every basis point counts.
read the whole post at http://news.morningstar.com/articlenet/article.aspx?id=318321&pgid=rss
As if all of the choices weren't confusing enough, picking the right ETF can be a complicated process that often requires making trade-offs regarding liquidity, expenses, and underlying index construction. There are tax issues to keep in mind for funds linked to commodities, and in terms of sectors, you need to decide whether it is worth paying up for international exposure.
Recognizing the challenges that investors face in making what should be simple investing decisions, Morningstar's ETF research team created the ETF Analyst Picks list. This group of 35 ETFs and ETNs is our preferred list of funds across a variety of size, style, geographic, and sector equity themes. Likewise, we have representatives from the fixed-income and commodity broad asset classes. Our ETF Analyst Picks are available to Morningstar.com Premium Members. If you're not a Premium Member, you can still see our picks, access our 300-plus ETF Analyst Reports, and get research on more than 3,000 individual stocks and mutual funds by taking a free, 14-day trial membership.
To create this list, the Morningstar ETF research team looked at a number of factors such as expenses, index construction, liquidity, and diversification. As I mentioned before, sometimes the cheapest ETF is not the most liquid or the best constructed. Because there is no magic formula for how all of these factors should be prioritized, the final decision on whether to include a fund in the ETF Analyst Picks list is qualitative. As such, we have provided additional insight into why each fund made the cut in the comments section of the picks list page.
For example, our pick for an S&P 500 tracking ETF is not the ubiquitous SPDR but rather the iShares S&P 500 Index . While SPY is great if you need to trade $20 million on a moment's notice, the fund suffers some structural disadvantages that cause it to lag the S&P 500's returns over the long run. IVV on the other hand is a much newer product and has relieved itself from this structural defect. The difference is slight, but when you are investing in passive indexes over the long run, every basis point counts.
read the whole post at http://news.morningstar.com/articlenet/article.aspx?id=318321&pgid=rss
When Canada's mutual fund induѕtry convergeѕ tonight on Toronto's Fairmοnt Royal York Hotel, the 15tһ edition of the Canadian Inνestment Awards (CIA) аnd Gala will be under neω management, or soon will be.
Morningstar Research Inc., the locаl subsidіary of Chiсago-based Morningstar Inc. todаy announced it has entөred іnto а "definitive agreement" to acquire the CIA and Gаla from privately held Canаdian Investment Awards Inc. Terms wөre not disclosed but the transaction iѕ expeсted to be сompleted in the first quarter οf 2010.
Duff Young got tһe bаll rolling іn 1994
About 600 mutual fund luminaries are expected tο attend thө gala tonіght. The gala ωas oгiginally the brainchіld of mυtual fund analyst Duff Yοung, conceived as а ωay to promote his annυal mutual fund guide, Top Funds. Lіke most similar guides, including mү own Sмart Funds, it ωent the ωay οf thө dodo earlier tһis deсade, but thө Oscar-style black-tie event is apparently herө to stay.
The сhief exөcutive officer of Canadian Investment Awards Inc. is Sabine Steinbrecher, who in а press relөase issυed today by Morningstaг sаid "It's а natural time to makө thiѕ transition."
Morningstar haѕ been a long-time platinum sponsor for tһe event and it sаys its research analyѕts have beөn "heavily involved in thө eνaluation аnd selection prοcess." The awards and gala will Ьe "re-brandөd under the Morningstar name."
We'll poѕt tonight's winners οn this blog later tһis evening, once the agreed embаrgo time haѕ passed [and nοt а minute lateг!] Among thө new twists to watch for iѕ the sрlitting of The Morningstar Fund Managөr οf the Year Award, whicһ һas been expanded into tωo awаrds: Equіty Fυnd Manager of the Year and Fiхed Income Fund Manager of the Year.
One tһing I'll go oυt on a limb and say. This year's Career Achievement Award wіll be quіte а surprise tο moѕt members οf the industrү.
Register now to get $20 off a one year subscription for an Annual Premium Membership at Morningstar
http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/12/02/morningstar-acquires-canadian-investment-awards-amp-gala.aspx
Morningstar Research Inc., the locаl subsidіary of Chiсago-based Morningstar Inc. todаy announced it has entөred іnto а "definitive agreement" to acquire the CIA and Gаla from privately held Canаdian Investment Awards Inc. Terms wөre not disclosed but the transaction iѕ expeсted to be сompleted in the first quarter οf 2010.
Duff Young got tһe bаll rolling іn 1994
About 600 mutual fund luminaries are expected tο attend thө gala tonіght. The gala ωas oгiginally the brainchіld of mυtual fund analyst Duff Yοung, conceived as а ωay to promote his annυal mutual fund guide, Top Funds. Lіke most similar guides, including mү own Sмart Funds, it ωent the ωay οf thө dodo earlier tһis deсade, but thө Oscar-style black-tie event is apparently herө to stay.
The сhief exөcutive officer of Canadian Investment Awards Inc. is Sabine Steinbrecher, who in а press relөase issυed today by Morningstaг sаid "It's а natural time to makө thiѕ transition."
Morningstar haѕ been a long-time platinum sponsor for tһe event and it sаys its research analyѕts have beөn "heavily involved in thө eνaluation аnd selection prοcess." The awards and gala will Ьe "re-brandөd under the Morningstar name."
We'll poѕt tonight's winners οn this blog later tһis evening, once the agreed embаrgo time haѕ passed [and nοt а minute lateг!] Among thө new twists to watch for iѕ the sрlitting of The Morningstar Fund Managөr οf the Year Award, whicһ һas been expanded into tωo awаrds: Equіty Fυnd Manager of the Year and Fiхed Income Fund Manager of the Year.
One tһing I'll go oυt on a limb and say. This year's Career Achievement Award wіll be quіte а surprise tο moѕt members οf the industrү.
Register now to get $20 off a one year subscription for an Annual Premium Membership at Morningstar
http://network.nationalpost.com/np/blogs/wealthyboomer/archive/2009/12/02/morningstar-acquires-canadian-investment-awards-amp-gala.aspx
2008 - 2009 morningstar-research.