Sponsored Link: Starting August 14th, you could make an extra $10,200 or more... with the secret oil investment that lets you ride the coming crude rally

Exchange Traded Funds: 4 Ideas For Income Investors

by Alexander Green, Chairman, Investment U
Investment Director, The Oxford Club
Wendesday, March 26, 2008: Issue #779

For the past few years, I’ve written quite a bit about the value of buying stocks through exchange traded funds or ETFs. You now have the opportunity to enjoy the same advantages with the fixed-income side of your portfolio.

Exchange traded funds are essentially mutual funds that trade on an exchange, like a stock. State Street Global Advisors launched the first ETF in 1993. The idea quickly caught fire. There are now hundreds of ETFs representing dozens of different market sectors and asset classes.

A recent update from the Investment Company Institute reported 560 ETFs trading in the U.S. with a total market capitalization of more than $550 billion…

What Exchange Traded Funds Offer Investors

Here’s what exchange traded funds offer investors:

  • Unlike ordinary mutual funds, which can only be bought or redeemed at the day’s closing price, exchange traded funds have an exchange listing and trade continuously throughout the day.
  • They are linked to an index rather than actively managed. (Although the index itself may use an active rather than a passive strategy.)
  • Authorized shareholders can make redemptions on an “in-kind” basis. In other words, shareholders have the right to choose to receive large blocks of the securities that make up the index rather than simply liquidating their ETF shares.


The largest exchange traded funds issuers are State Street Global Advisors, Barclays Global Investors, PowerShares and Vanguard. (All but Vanguard have recently launched ETFs for municipal bonds, both nationwide and for state-specific New York and California.)

Expense ratios for muni-bond ETFs are rock bottom, averaging between .2% and .3% of assets per year. That compares favorably with the average 1.1% for open-end muni funds and 1.2% for closed-ends.

So if you’re looking for tax-free income, check out State Street’s SPDR Lehman Municipal Bond (AMEX: TFI). It replicates the Lehman Brothers municipal bond index.
If you’re seeking even more safety during these turbulent times, try the PowerShares Insured National Muni Bond (AMEX: PZA). As the name suggests, the portfolio consists solely of insured bonds. (Only 46% of the bonds in the Lehman index are insured.)

Exchange Traded Funds For Every Market Sector

Of course, there are exchange traded funds for every sector of the fixed-income markets:

  • For example, if you feel like stretching out a little, earning a higher yield for a little more risk, consider PowerShares Financial Preferred (AMEX: PGF). It tracks a market-cap-weighted index of preferred stock from 30 financial companies. Payouts are taxable, but they are qualified as dividend income. That means they are federally taxed at a 15% maximum rate.
  • If you feel like getting more aggressive still, try the PowerShares Emerging Markets Sovereign Debt (AMEX: PCY). Yes, developing markets can be volatile. But the bonds in this basket are sovereign debts, safer than these countries corporate debt. And the bonds are dollar-denominated. So you’re not taking any currency risk.


Don’t Mistake Exchange Traded Funds Volume For Liquidity

Incidentally, I’ve had a few investors tell me they avoid some exchange traded funds because of low trading volume. They are making the mistake of equating volume with liquidity. With exchange traded funds, trading volume and liquidity are two entirely different things. Unlike closed-end funds, ETF investments are open-ended.

This is an important distinction. Even without a change in the net asset value, a closed-end fund can see a sudden dramatic change in the market price if there is a spike in trading volume.

By contrast, a large number of buy or sell orders are unlikely to change the price of an ETF drastically, since new shares can always be created.

In short, fixed-income exchange traded funds offer an attractive combination of convenience, low expenses and good liquidity.

Good investing,

Alex


Today’s Investment U Crib Sheet

  • For a complete high-income portfolio, take a look at Alex’s “Perpetual Money Machine.” Combined, its eight diversified holdings generate 96 dividend checks (big ones) a year. Here’s how the portfolio works.
  • Here are a few more high-income ideas for today - two closed-end funds first mentioned in Investment U Issue #757, Closed-End Funds: Two Closed-End Companies Primed For Profits Over Mutual Funds.PIMCO Corporate Opportunity Fund (NYSE: PTY)
    Share Price: $14.37
    Current Yield: 9.6%
    PIMCO Corporate Income Fund (NYSE: PCN)
    Share Price: $14.27
    Current Yield: 8.9%
  • More than $300 billion is invested in “closed-end” funds right now. Yet they’re still overlooked by many investors. That’s a big mistake. To find out why, and how closed-end funds work, you can learn more here.
More on this topic (What's this?)
Top 10 Hottest ETFs, May 2009
Best Performing ETFs for the Past Week
Read more on Exchange Traded Fund (ETF) at Wikinvest
Share Investment U:
  • E-mail this story to a friend!
  • Print this article!
  • Digg
  • Sphinn
  • del.icio.us
  • Facebook
  • Google
  • Propeller
  • StumbleUpon
  • Technorati
  • Yahoo! Buzz
  • Reddit
  • TwitThis
Sign up for the free Investment U e-letter

The World's Safest, Smartest Oil Play. Period.

Oil stocks are too volatile. Futures are just too risky. But certainly there has to be some way to capitalize on oil's 105% run-up.

There is.

It's a "secret" oil investment that most Americans know nothing about. Yet it's practically "guaranteed" to hand you a steady stream of income for months to come. You could easily make more than $600 every month.

And this report shows you how.

Related Articles:


21 Responses to “Exchange Traded Funds: 4 Ideas For Income Investors”

  1. Money Market Funds: Why Your “Plus” Could Become A Minus | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 6th, 2008 at 2:07 pm

    [...] nation’s highest yielding money markets. For more income ideas, see Investment U Issue #779, Exchange Traded Funds: 4 Ideas For Income Investors. Alex recommends four exchange-traded funds for investors seeking [...]

  2. The Dodge and Cox Stock Fund: Get into this Mutual Fund Before it Closes Again | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 6th, 2008 at 3:49 pm

    [...] Exchange Traded Funds: 4 Ideas For Income Investors [...]

  3. Sovereign Wealth Funds: How to Turn Sovereign Wealth Into Personal Wealth | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 12th, 2008 at 10:29 am

    [...] investable ideas, here are four more ETFs that Alex Green recommends, in Investment U Issue #779, Exchange Traded Funds: 4 Ideas For Income [...]

  4. Municipal Bonds: The First “Obama Investment” | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 12th, 2008 at 3:31 pm

    [...] you can buy one of the new municipal exchange-traded funds like iShares S&P National Municipal Bond Fund (AMEX: MUB) or S&P National Municipal Bond [...]

  5. Shadow Stocks: The Low-Risk, High-Profit Way to Play the Leading Global Trends | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 13th, 2008 at 2:13 pm

    [...] no matter how you label them - whether you refer to them as shadow stocks or as exchange traded funds - one thing is certain: For individual investors, shadow stocks are the most innovative, and most [...]

  6. Investment U Archives | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 22nd, 2008 at 2:40 pm

    [...] Weak Dollar: Top 10 Reasons the Greenback’s Finally Headed Higher: Issue #780 03/26/2008 - Exchange Traded Funds: 4 Ideas For Income Investors: Issue #779 03/24/2008 - The Visa IPO: Why We’re Going Long: [...]

  7. Real Estate Investments | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 26th, 2008 at 11:40 am

    [...] price appreciation and diversification. For more high-income ideas, see Investment U Issue #779, Exchange Traded Funds: 4 Ideas For Income Investors in which Alex Green recommends two tax-free funds and two ETF’s [...]

  8. The Truth About Managed Accounts | Investment Advice and Investment Research with a Contrarian Point of View Says:
    August 26th, 2008 at 11:48 am

    [...] Exchange Traded Funds: 4 Ideas For Income Investors [...]

  9. The Wall Street Meltdown: What Should Investors Do Now? | Investment Advice and Investment Research with a Contrarian Point of View Says:
    October 9th, 2008 at 9:42 am

    [...] Exchange Traded Funds: 4 Ideas For Income Investors [...]

  10. Alternative Energy Investments: Finally Getting The Green Light in 2008 | Investment Advice and Investment Research with a Contrarian Point of View Says:
    October 9th, 2008 at 10:50 am

    [...] three of these exchange traded funds should be big movers in the remainder of 2008 and 2009 as alternative energy companies begin to [...]

  11. Market Vectors Environmental Services ETF: Adding Recession “Insurance” | Investment Advice and Investment Research with a Contrarian Point of View Says:
    October 22nd, 2008 at 1:19 pm

    [...] “trash” exchange traded fund (ETF), called Market Vectors Environmental Services ETF (AMEX: EVX) that seeks to replicate the [...]

  12. Waste Management ETF Says:
    November 3rd, 2008 at 10:48 am

    [...] a “trash” exchange traded fund (ETF), called Market Vectors Environmental Services ETF (AMEX: EVX) that seeks to replicate the [...]

  13. Investment U Archives | Investment Advice and Investment Research with a Contrarian Point of View Says:
    November 4th, 2008 at 11:02 am

    [...] - Exchange Traded Funds: 4 Ideas For Income Investors: Issue [...]

  14. Exchange Traded Funds: An Investment Move You Need to Make… | Investment Advice and Investment Research with a Contrarian Point of View Says:
    November 24th, 2008 at 5:06 pm

    [...] to exchange traded funds, most mutual funds are a lousy deal, here’s [...]

  15. Master Limited Partnerships: A New Way to Shop for Bargains | Investment Advice and Investment Research with a Contrarian Point of View Says:
    December 2nd, 2008 at 9:47 am

    [...] option for master limited partnerships is an exchange traded fund (ETF) that specializes in investing in the energy sector. The master limited partnership & [...]

  16. Exchange Traded Funds: An Investment Move You Need to Make… | mygasrebatecheck.com Says:
    January 7th, 2009 at 3:26 pm

    [...] to exchange traded funds, most mutual funds are a lousy deal, here’s [...]

  17. The Wall Street Meltdown: What Should Investors Do Now? | mygasrebatecheck.com Says:
    January 7th, 2009 at 3:47 pm

    [...] Exchange Traded Funds: 4 Ideas For Income Investors [...]

  18. ETF funds | Using Exchange-Traded Funds: How to Put Your Index Mutual Fund on Steroids - Contrarian Stock Market Investing News - Featuring Bargain Stocks Says:
    March 12th, 2009 at 11:52 am

    [...] unlike mutual funds, exchange traded funds can be sold short of purchased on margin like a share of [...]

  19. Money Market Funds Says:
    May 7th, 2009 at 7:57 am

    [...] nation’s highest yielding money markets. For more income ideas, see Investment U Issue #779, Exchange Traded Funds: 4 Ideas For Income Investors. Alex recommends four exchange-traded funds for investors seeking [...]

  20. Alternative Energy Investments Says:
    May 7th, 2009 at 9:00 am

    [...] three of these exchange traded funds should be big movers in the remainder of 2008 and 2009 as alternative energy companies begin to [...]

  21. Municipal Bonds Says:
    May 7th, 2009 at 10:00 am

    [...] you can buy one of the new municipal exchange-traded funds like iShares S&P National Municipal Bond Fund (AMEX: MUB) or S&P National Municipal Bond [...]

Comments

**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.

Check out our selection of daily Investment Research:

Archives

Archives

Investment U E-letter Archive

Hot Topics:


Recent Articles

 

Search Investment U


 

What Readers Are Saying...

"Just a note to let you all know how much I truly appreciate the work you put into making Investment U and The Oxford Club available. My portfolio has changed dramatically since taking your advice in many of your previous columns. There is so much excellent info out there to expand upon and use to enrich our lives… thank you for your time and keep the great articles coming!" Sam T.

"Always enjoy what you have to say, and learn something new (and useful) almost every time. Thanks again for your outstanding work." Jeff K.

"I just want to say a quick thank you to Alexander Green for not only his sage advise, but his reassuring words of encouragement that we all need right now." Bryan W.