What August’s Red-Hot ETF Data Means

A Red-Hot August for ETF Inflows

What can you say about the world of exchange-traded funds (ETFs) besides the fact that they are just red hot?

Well, we can start by looking at the numbers for August to see just how hot these investment vehicles have become. One data point that tells us a lot about just how earnest the embrace of ETFs has been is fund inflows.

In August, U.S.-listed ETFs saw approximately $15 billion in fund flows, pushing the number of total assets into the segment up by 3% to another new record total. As of the end of August, U.S.-listed exchange-traded funds held more than $1.19 trillion in assets.

Interestingly, 2013’s stellar gains in U.S. stocks actually outpaced the inflows so far in 2014. According to data from the industry, U.S.-listed ETFs have seen approximately $106 billion in fund flows through the first eight months of the year. That compares relatively modestly with the $130 billion through the same eight-month period last year.

Still, the gains in August were impressive, and there just seems to be no stopping the popularity and appeal of ETFs to individual investors, institutional buyers, professional traders — and just about any type of investor who wants low-cost, efficient exposure to specific indices, sectors, countries or asset classes.

So, which funds notched particularly strong inflows in August?

This may come as a surprise to some, but to readers of this publication, it shouldn’t. In fact, throughout the year I’ve been talking about the biggest surprise in the markets in 2014, and that is the continuation of very low bond yields (low interest rates). The decline in bond yields means rising bond prices, and judging by the August inflows, bonds continue to impress.

The biggest fund flows in August were seen in the iShares 7-10 Year Treasury Bond (IEF), but that wasn’t the only Treasury bond fund in the top 10 fund gatherers. The iShares 1-3 Year Treasury Bond (SHY) captured the third-highest inflows in the month, while the iShares 3-7 Year Treasury Bond (IEI) and iShares iBoxx $ High Yield Corporate Bond (HYG) also were among the 10 biggest asset recipients in August.

Of course, stock funds also captured their fair share of inflows, with the Vanguard S&P 500 (VOO), the iShares Core S&P 500 (IVV) and the iShares MSCI Emerging Markets (EEM) atop the equity funds capturing the biggest inflows.

The verdict is in my friends — both bond and stock ETFs are red hot. So, if you’re not allocated to at least some ETFs, you’re likely not investing as well as you could be.

ETF Talk: Consider Investing in Dividend Dandies

Last week’s ETF Talk introduced the concept of smart beta funds. A key reason a person might invest in a smart beta fund would be to use the fund’s formula to invest more heavily in quality equities that are underrepresented in a typical market-cap-weighted exchange-traded fund (ETF). One quality indicator in a stock is whether or not it issues a dividend, and there are a number of smart beta funds which focus on dividend-paying stocks, including FlexShares Quality Dividend ETF (QDF).

QDF seeks to replicate the results, before fees and expenses, of an index of high-quality dividend-paying equities. “High-quality” in this case is defined by fundamentals such as profitability, reliable cash flow and management performance. This fund is an income-oriented investment.

QDF has gained 6.40% in 2014, after recovering from market drops in February and August. Last year, the fund gained 33.27%. The yield is currently 2.69%. QDF typically makes an annual distribution.

QDF is currently well diversified, investing in the sectors of financial services, 14.76%; technology, 13.98%; consumer cyclical, 12.07%; energy, 11.52%; healthcare, 9.83%; consumer defensive, 9.21%; with smaller investments in industrials, utilities, basic materials and communication services. Its top 10 holdings make up 26.35% of the fund’s total assets. Holdings include Apple Inc., 3.72%; Wells Fargo & Company, 3.71%; Merck & Company, 3.25%; Pfizer, Inc., 3.23%; and Exxon Mobil Corporation, 2.69%.

Dividends are desirable as income, and they can serve as a signal of quality, since they indicate a company with the cash to spare to distribute to shareholders. However, since corporate executives realize that dividends are desirable, dividends also can be manipulated to mask a corporation’s underperformance. FlexShares Quality Dividend ETF (QDF) combines the attractive prospect of dividends with an additional quality screen to protect your investment.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful ETF Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You just may see your question answered in a future ETF Talk.

Introducing the New ETF Report

This month, we’re doing a little something different with our regular ETF Snapshot feature, and it involves the many changes to our comprehensive ETF Report.

The new and improved ETF Report has been designed to add to your knowledge base and to make it easier for you to locate and identify the kinds of ETFs you’re looking for to achieve your investment objectives.

The new ETF Report format includes supplementary categories of funds, including a section on high-income funds such as business development companies (BDCs) and master limited partnerships (MLPs). We’ve also added a yield column to the report, a data point of major concern for income investors.

In addition, we have adjusted the sorting and categorizing of funds in the international and emerging markets sectors. Moreover, Japan and China funds now have been broken out into their own respective categories. On the commodity front, we have sorted the broader segment into more focused sectors such as energy, metals and miners, and agriculture to name just a few.

To find out more about the new ETF Report, just check out our ETF Snapshot today!

Like a Football Coach

Football season is back. Along with the tremendous athletes showing off their skills on the gridiron, there also are some really smart coaches making good decisions to help their teams win.

Of course, there also are some coaches that make some bad decisions that, in many cases, will cause their team to lose the game.

At Fabian Wealth Strategies, we never want you to lose the investing game, because investing is NO game. It’s serious business, and that’s why you need serious professionals on your side to help you make the best decisions for your particular circumstance.

That’s why we offer One-on-One, personal Wealth Coaching sessions directly with me, Doug Fabian.

These 90-minute, One-on-One Wealth Coaching sessions begin with a review of your goals and your existing investments. Then, like a winning football coach, we develop a game plan specifically tailored to you, including how Fabian Wealth Strategies can help you get where you want to be.

Contact us today to schedule your FREE, no obligation one-on-one Wealth Coaching session, and find out how Fabian Wealth Strategies can work for you. If you’d like to speak with us about how we can help you achieve your investing goals just give us a call at 800-391-1118.

NOTE: Fabian Wealth Strategies is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

The Secret to Success

“The secret of getting ahead is getting started.”

–Mark Twain

Do you want to succeed in life? Do you want to conquer your obstacles? Do you want to achieve your dreams? If you’re reading this, I’d venture to say the answer is yes. However, before you can declare yourself a victor in your chosen activity, you have to actually get started. In fact, one of the biggest obstacles to success in life is to put off getting started on what you really want. Don’t do that any longer. Just take Twain’s words to heart — and go for it!

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week on Eagle Daily Investor about whether volatility will return in September. I also invite you to comment in the space provided below my Eagle Daily Investor commentary.

All the best,

Doug Fabian