3 Secure ETFs to Keep You Safe in This Market
The market doesn't feel stable, but these three ETFs always will be
By Lawrence Meyers
Source: Investor Place
http://investorplace.com/2016/05/etfs-x ... zUfVvl96M8
PowerShares S&P 500 BuyWrite Portfolio (NYSE: PBP).
This exchange-traded fund writes calls against the stocks that make up the S&P 500. Over the past year, the fund has delivered a total return about 6% better than the flat index.
True, the fund fell 28% in 2008, but that was eight points less than the broad market.
In other words, you can expect the fund to do better than the S&P 500 in years that the market is largely flat or down. But it will lag in big up years because – remember – the best-performing stocks within the fund will be called away.
In short, this is not a good strategy for a young or rip-roaring bull market. But in a late-stage bull market like this one, it can deliver higher returns with a lower level of risk.
If even one of the underlying securities in the ETF portfolio becomes illiquid, then it could severely affect the fund price.
On Aug. 24, 2015, trading was halted in eight of the stocks in the Standard & Poor’s 500 Index. This freeze triggered stoppages in over 40% of all U.S. equity ETFs. And on that same day, 20% of all U.S. equity ETFs had price movements of at least 20%, compared to less than 5% of stocks.
When the next bear market arrives, the institutional players will be able to get onto the sidelines immediately, but the average Joe investor may get squeezed on the spread between the public offering price and NAV.
Many clients got burned on this on Aug. 24, and some financial advisors who thought their clients were protected with stop-loss orders on their ETFs saw them take huge losses.
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