05/02/2011

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04/26/2011

Bonds are one of the major fundamentals of any investment portfolio. Due to the recent global crisis bonds have been under pressure and the right mix of fixed income assets is a key component to a successful strategy. Bonds are classified into various categories of which intermediate corporate bonds are one.

The outlook for intermediate corporate bonds looks better as long as the treasury yield remain low. While the Fed’s QE-II initiative continues, treasury yields are likely to stick to their lows and returns of intermediate bond should benefit. Currently the most attractive risk-reward profiles in the marketplace are investment grade — bonds that have at least a Baa / BBB- rating from Moody's. These bonds are paying 5% to 7%, for those within the five- to 10-year maturity bracket. 

This article highlights ETFs within this category that could strengthen your portfolio. The table provides a list of intermediate corporate bond ETFs

VCIT is currently the best in terms of annual return, whereas CIU has longevity and volume. Please find the table of Distribution of credit quality† (% of fund) as of 02/28/2011.

The average credit rating of both of these intermediate corporate bonds ranges from AAA to BAA.

Vanguard first traded VCIT on November 19, 2009. VCIT, holds both government and corporate bonds. The average yield to maturity is 5.2% and the average coupon rate is 6.4%. Average maturity is 7.8 years. All holdings mature within five to ten years. The ETF offers the flexibility and safety to gain profit from corporate bond yields that are higher than those available from government bond issuers. The expense ratio is very low at 0.15%. This is 84% lower than the average expense ratio of funds with similar holdings.

CIU average yield to maturity is 6.22% and the average coupon rate is 5.06%. Average maturity is 4.95 years. All holding matures within five to ten years except for 1% which are greater than 10 years. The expense ratio is higher than VCIT at 0.20%.

It will be very interesting to see what PIMCO (CORP) brings when we get some history there. They are introducing a managed ETF which could be effective in this area.

In conclusion investment bonds provides stability but there are other risk factor involves such as credit, interest rate inflation. that the best option may be to consider both VCIT and CIU or CFT to provide returns and longevity in your portfolio.

Symbols: VCIT, CFU, CIU, ITR, CORP

Disclaimer:

MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.

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02/22/2011

We are initiating weekly tracking of the nine different styles or subclasses in the US Equity asset class. We use ETFs to represent each sub-class. We track returns over 1, 4, 13, 26, and 52 weeks and aggregate them to get a trend score. We then track the trend score to see the direction of each representative ETF in the subclass. By using an ETF from the same provider, we are attempting to normalize out performance of the ETF over the performance of the subclass.

The trend score is defined as the average of 1,4,13,26 and 52 week total returns (including dividend reinvested).

We note that most of the of the sub-classes are positive as the US bull market continues. We also note that Midcap is dropping in comparison to Smallcap - Midcap has been at the top of the list but is starting to be replaced by Smallcap. Finally we note that the order within a sub-class is Growth, Index (Blend), Value.

Although the entire top three dropped compared to the prior week, the smalcaps dropped less than the midcap stock. The continuing bull market is moving investors away from the relative safety of large cap to the small cap stocks. The midcap, which had been a nice midway point, is being supplanted by the smallcap options as investors seek to maximize returns.

The large cap stocks are solidly at the bottom of the table as investors look for higher returns. We note that the Largecap Value has the best performance in the short term even though it has had the poorest return over the longer time horizon.

We would expect to see this picture to remain for some time unless the unrest in the Middle East and North Africa causes investors to look for safer US equities.

Symbols:VCR,VDC,VIG,VWO,VDE,VEA,VGK,EDV,VFH,VEU,VSS,VUG,VHT,VYM,VIS,VGT,BIV,VCIT,BLV,VCLT,VGLT,VAW,MGC,MGK,MGV,VO,VOT,VOE,VMBS,VPL,VNQ,BSV,VGSH,VB,VBK,VBR,VOX,BND,VTI,VT,VPU,VTV,IJK,VBK,QQQQ,MDY,IWO,IJT,IJH,VB,VXF,IWP,IJR,VO,VOT,IWR,IJJ,VBR,IJS,IWN,RSP,IWM,IWS,VOE,VTV,IWC,SCHA,VTI,DIA,VUG,IWF,SPY,IWB,SDY,IVW,VIG,IVV,IWD,OEF,IVE,DVY,