Two weeks earlier,¬†the U.S. stock market (S&P 500) sat near 1340. By the close of Monday’s bell, the market finished at 1119‚Ä¶ a startling -16.5% breakdown.
Perhaps more shocking, however, was the indiscriminate selling of several long-time, non-volatile income producers. For example, in the same period,¬†iShares S&P¬†Preferred (PFF) tumbled -14.1%. Considering the fact that preferred shares are typically less volatile and¬†less risky than common stock, the losses caught most investors by surprise.
Similarly, energy pipeline enthusiasts are used to seeing their assets create a reliable income stream that’s similar to preferred shares.¬†Over the same 2-week period, exchange-traded¬†products from JP Morgan Alerian¬†MLP (AMJ) to Credit Suisse Cushing MLP (MLPN) plummeted -13.8% and -13.7% respectively.
The reasons¬†may be multi-faceted, though not inherently complex.¬†Reason numero uno? Many sought to take profits on long-time winners from the bull market. Preferred ETFs like PFF and MLP vehicles like AMJ were among some of the most reliable winners since March of 2009.
A second reason for the damage? The S&P credit downgrade to U.S. treasuries. While treasury bonds themselves may not have been hurt in the confusion, the credit worthiness of every asset along the yield spectrum¬†came under fire.¬†In other words, if preferreds¬†or MLPs can produce roughly 6% annualized, the higher yields might eventually be riskier compared with an eventual jump in the yields of downgraded “risk-free treasuries.”
The third component is specific to¬†the asset types themselves. For instance,¬†iShares¬†S&P Preferred has 75% exposure to¬†the financial sector. With major banks¬†coming under enormous¬†scrutiny for their balance sheets/exposure — with institutions like Bank of America free-falling -20% in¬†the¬†day –¬†2008 fears crept back into the investor mindset.
On the energy pipeline side of the coin, crude oil has hit its own personal bear market. Granted,¬†energy pipeline partnerships are less sensitive to oil price speculation, and far more sensitive to genuine supply and demand¬†needs across the U.S., the possibility of a¬†sharp pullback in consumption may¬†hit earnings/dividend sustainability.
That was yesterday… this is today. And on Tuesday, 8/9/11, many of the¬†best performing ETFs are the¬†high yielders. At least as I type mid-day,¬†a table of some of the sharpest rebounders include PFF, AMJ and MLPN.
|High-Volume ETF Rebounders||¬†||¬†||¬†|
|¬†||¬†||¬†||¬†||¬†||Approx % Gain On 8/8/11|
|JP Morgan Alerian MLP (AMJ)||¬†||¬†||7.4%|
|Credit Suisse Cushing 30 MLP (MLPN)||¬†||7.2%|
|PowerShares Financial Preferred (PGF)||¬†||6.8%|
|iShares MSCI Chile (ECH)||¬†||¬†||6.1%|
|iShares S&P Preferred (PFF)||¬†||¬†||5.7%|
|Global X Copper Miners (COPX)||¬†||¬†||5.1%|
|SPDR DJ Global Real Estate (RWO)||¬†||5.0%|
Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.