Entries Tagged 'ETFs' ↓

With the possibility of inflation on the rise, the price of gold is steadily increasing. Will it hit $1,000 an ounce or will it top off and shoot to the downside? No matter what you answer is, there is an ETF (Exchange Trade Fund) that will allow you to buy into the upward or downward move.

Why Commodities?

When uncertainty comes into the stock markets, many investors/traders turn to commodities like gold, oil, or other commodities that are likely to rise. Why trade commodities? In an uncertain market, people still use commodities, some more than others. When there is a threat of inflation or the dollar starts loosing its value, watch the price of gold, which is almost certain to go up.

Be forewarned, commodities can move VERY FAST both to the up side and down. Some of investments below are leveraged products that can significantly increase your profits but at the same time, they can increase your losses too. I always like to recommend stop orders. With leveraged positions, it should not be optional to place stop orders. PLACE THEM!!!

Commodity ETFs

Want an ETF that gives you a diversified portfolio of commodities? iShares S&P GSCI Commodity Indexed Trust (GSG) is composed of 67% energy, 16% agriculture, 7% industrial metals, 7% livestock, and 3% precious metals. A less diversified way to play commodities through ETFs is the PowerShares Commodities Index (DBC) which investing corn, gold, heating oil, aluminum, wheat, and crude oil.

You can also invest in individual commodities.

• Natural Gas and Oil
• Gold

Leveraged Commodities
ProShares offers the following leveraged (2X) long ETFs:

• Ultra Long Commodities (UCD)
• Ultra Long Crude (UCO)
• Ultra Long Gold (UGL)
• Ultra Long Silver (AGQ)

ProShares also offers the following leveraged (2X) short ETFs:

• Ultra Short Commodities (CMD)
• Ultra Short Crude (SCO)
• Ultra Short Gold (GLL)
• Ultra Short Silver (ZSL)

Whether you are looking to trade commodities for the short term or as a permanent part of your portfolio commodities ETFs are great investments that can offer great returns. When using the leveraged ETFs, place stops and trade them; they are not investments.

High yield savings accounts are a great place to stash cash for an emergency fund but the interest earned is not likely to keep up with inflation. For investors that are looking for high yields that will surpass that of inflation, three investment options to produce income are high yield bonds, master limited partnerships (MLPs), and real estate investment trusts (REITs).

High yield bonds, MLPs, and REITs are a great way to increase your portfolio’s dividend income. Most of these investments had very little price action until the current recession started. When the economy starts to recover, these investments will move with the market and feed you a nice monthly dividend. The following investments are worth a look if you are building an income portfolio.

High Yield Bonds

iShares Corporate High Yield Bond ETF (HYG) that offers an 11.56% yield gives investors a diversified high yield corporate bond portfolio through one ETF. Another way to invest in high yielding corporate bonds is through the SPDR Barclays Capital High Yield Bond Funds (JNK), which yields 14.86%. Note these high yielding bonds carry more risk than the investment grade bond ETFs such as iShares Investment Grade Corporate Bond ETD (LQD) yielding only 5.96%.

Oil/Natural Gas Trusts

Pengrowth Energy Trust (PGH) is Master Limited Partnership (MLP) based in Canada, which explores and develops oil and natural gas operations. If you are looking for high yield exposure to oil but with a diversification of natural gas, try PGH, which yields 12.6%

Penn West Energy Trust (PWE) is another Canadian based oil and natural gas trust that yields 11.2%.

MLPs have a different tax structure; one that taxes dividends as ordinary income. With Canadian Trusts, you will pay a foreign tax on the dividends before you receive the dividend. This foreign tax is deductable from your end of year taxes.

Real Estate Investment Trusts (REITs)

Most individual investors do not have, or access to, the funds required to purchase real estate but through REITs small investors have a wide variety of real estate from which they can choose to invest in. I have listed three REITs below that you might want to look into.

Entertainment Properties Trusts (EPR), currently yielding 12.5%, is the largest Real Estate Investment Trust. EPR holds a variety of entertainment properties from movies theaters, which makes up about 50% of its holdings, to retail centers and land leased out to restaurants.

Health Care Property Trusts (HCN), currently yielding 8.5%, invests in real estate used for medical purposes ranging from senior housing to medical office buildings.

Vanguard REIT ETF (VNQ), which currently yields 12.26%, is an exchange traded fund, or ETF, that diversifies its holdings through various REITs. If you want to invest in REITs but want one diversified holding, this would be the ETF for you.

Bond ETFs and MLPs usually pay a monthly dividend, which makes them attractive to income investors. Please research the risks associated with each investment before investing. The companies listed above are just a few within their respective market.

Note: Tax rates on some of the above investments are that of ordinary income. With the recent rally, I would expect most of these investments to come down in price.

Looking for a way to invest in currencies without opening a Forex account? There are ETFs (Exchange Traded Funds) that allow you to invest/trade in almost every market available to include commodities, stock indexes, fixed income, and currencies. Investing in currencies is a way to hedge positions or to add diversification to your portfolio. The easiest way to play currencies is through the US dollar, either shorting or going long.

Investing In/Against The US Dollar

Think the dollar is going to go up in value or inflation will bring down the value of the dollar? Trade the dollar with ETFs.
PowerShares US Dollar Index Bullish (UUP) is a way to get long the US dollar and PowerShares US Dollar Index Bearish (UDN) is a way to get short the US dollar. If you’re looking for a shorter term play on the dollar, these ETFs have an added tax benefit. They trade US Dollar Futures which are taxed at 60% long term gains and 40% short term gains, no matter how long you hold them. If you’re looking for a longer term play on currencies, try CurrencyShares.

Invest In Other Currencies

CurrencyShares, a group of 9 ETFs offered by Rydex Investments, are a great way to play global currencies with the added benefit of monthly income. These ETFs do not have the tax benefit of PowerShares US Dollar Index Bullish (UUP) and PowerShares US Dollar Index Bearish (UDN). The following ETFs have the same taxation as stocks.

Australian Dollar Trust (FXA) – Current interest rate 2.53%.
British Pound Sterling Trust (FXB) – Current interest rate 0.11%.
Canadian Dollar Trust (FXC) – Current interest rate 0%.
Euro Trust (FXE) – Current interest rate 0.99%.
Japanese Yen Trust (FXY) – Current interest rate 0%.
Mexico Peso Trust (FXM) – Current interest rate 7.25%.
Russian Ruble Trust (XRU) – Current interest rate 1.55%.
Swedish Krona Trust (FXS) – Current interest rate 0.38%.
Swiss Franc Trust (FXF) – Current interest rate 0%.

Do not purchase CurrencyShares as an income play but rather as a call on a specific currency with the added benefit monthly dividends. The interest rates change frequently, so check the CurrencyShares site for updated interest rate and product information.

There are many factors that go into a currencies pricing. Example: some currencies get stronger with the price of oil and weaker when oil drops. When investing in a currency, know what has an impact, whether positive or negative, on the currency.

As uncertainty grows in stock market, gold continues to rise. Many people are looking for a way to invest in gold without taking possession of the physical asset. Taking possession of gold can cost a significant amount after you include shipping, insurance, and storing fees but adding gold to your portfolio is a lot easy with the use of ETFs (Exchange Traded Funds).

Two Easy Ways To Invest In Gold

Investing in the SPDR Gold Shares (GLD), which tracks the price of gold, is the easiest way to gain exposure to gold. There are many other ETFs that track gold but I recommend GLD because of the high volume, meaning that it is easier to get in and out.

The other way to invest in gold is through the gold mining companies using the Market Vectors Gold Miners ETF (GDX). With these companies, as the demand and price of gold goes up, so do the profits of gold mining companies. Choosing the ETF over a single company gives you the diversification while you will not get the best return, you will also not get the worst. I don’t have the time to research individual companies, so ETFs work better for me.

Not A Buyer Of Gold?

Looking to short gold? Try investing in PowerShares Gold Short (DGZ) which tracks the inverse of gold. If gold goes up, this DGZ goes down. If gold goes lower, DGZ goes higher.

What To Leverage Your Gold Position?

Looking to leverage your gold position without the use of futures, options, or the use of margin? The following ETFs track double the daily performance of gold. If you want a leverage position on gold moving down pick up some PowerShares Double Short (DZZ) which goes double (2x) short gold. If your thinking gold is going to move higher, you might want to try PowerShares Double Long Gold (DGP).

Remember not to over leverage yourself. If you are using these leveraged ETFs, don’t use margin and double your risks.

Watch your moves in gold as it created a double top recently.

Looking for investment income? I am a more active trader using day and swing trading but when I am not compounding my earnings from day/swing trading; I am feeding an income portfolio. I like to use ETFs (Exchange Traded Funds) for income investing because I don’t have the time to research individual stocks. Buying an ETF gives me exposure to multiple stocks and bonds or whatever the ETF tracks without doing much research. If you have more time, individual stocks can be more profitable but also inherit more risks, if you’re wrong.

iShares Aggregate Bond Fund (AGG)

iShares Aggregate Bond Fund (AGG) tracks the Barclay’s Capital U.S. Aggregate Index which invests mostly in investment grade bonds. AGG currently yields 4.64%.

iShares Investment Grade Corporate Bond Fund (LQD)

Looking for a little more risk in the bond market? Try iShares Investment Grade Corporate Bond Fund (LQD) which invests in Corporate Bonds and currently yields 5.61%.

iShares TIPS Bond Fund (TIP)

iShares TIPS Bond Fund (TIP) tracks Barclays Capital U.S. TIPS Index. This ETF is invested at least 95% in Treasury Inflation Protection Securities. The ETF is also a great hedge for inflation with all the new money the government is printing. TIP currently yields 6.34%.

PowerShares Dividend Achievers (PFM)

If you are a fan of the S&P High Yield Aristocrats (SDY) but want more diversification try the PowerShares Dividend Achievers which only hold 17% of it holdings in financials services sector, followed by industrial services and consumer goods: each with 15%. PFM currently yields 3.57%.

When looking at dividends, don’t forget the yield is from historical dividends and many companies such as one from the financial sector have cut their dividend, if not completely eliminating it.

Always Check Sector Holdings

An ETF like PowerShares High Yield Dividend Achievers (PEY) might grab your attention as something that you would want to invest in, but take a look at the sector holdings below:

With almost 70% of holdings in the financial sector, this ETF lacks diversification. Why not just buy a financial ETF such as the XLF (Financial Select Sector SPDR)?

As with any investment do your research. Income ETFs might be good for a source of income but usually don’t offer much for growth.