Investors Need To Look At Shifting Their Asset Allocation Strategy In ETFs

strategy“Now, companies are holding record levels of cash and trying to figure out what to do with it. Since the fundamental outlook from a top-line revenue perspective still does not look great, companies turn to three alternatives to expansion: 1) share buybacks; 2) higher dividends; and 3) leveraged buyouts. All three of these are bad for bondholders and mostly positive for stockholders. So what has caused this sudden bursting of corporate coffers? Government sponsored liquidity, fast cost-cutting by corporations, and a mild rebound in the economy. The three pieces have come together to flood corporations with cash,” Surlytrader Reports From Best Cash Cow.

SurlyTrader goes on to say, “From an investment perspective, this is very important and you only need to look towards a few signals to convince you into shifting your asset allocation strategy. I do not have great hope for strong economic growth in years to come, but many equity positions currently look more attractive than their fixed income brethren. Right now, the iShares Investment Grade Corporate Bond ETF (LQD) earns an indicated yield of 5.05% with an average maturity of over 12 years. On the equity side, the WisdomTree Dividend ex-Financials ETF (DTN) is currently earning an indicated yield of 5.04% without the same exposure to rising interest rates. Utilities alone (XLU) have an indicated current dividend yield of 4.93%. Why would you hold long-maturity fixed income bonds in a low interest rate environment on the precipice of an inflation wave when you can earn the same income from solid equity companies with upside potential?”

“No matter what your proximity to retirement is, the fact that many equities pay out dividends of equal attractiveness to their fixed income brethren should convince you to shift your allocation in some way from fixed income investments to large cap names with stable and high dividends,” SurlyTrader Reports.

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Here are some details on the ETFs mentioned:

The investment (LQD) seeks results that correspond generally to the price and yield performance, before fees and expenses, of the iBoxx $ Liquid Investment Grade index. The fund typically invests at least 90% of assets in the bonds of the underlying index, and at least 95% of assets in investment-grade corporate bonds. It may also invest in bonds not included in the underlying index. The fund may also invest up to 5% of assets in repurchase agreements collateralized by U.S. government obligations, and in cash and cash equivalents. It is nondiversified.

 

TOP 10 HOLDINGS ( 10.77% OF TOTAL ASSETS)  
 
Company Symbol % Assets
At&T 5.5% N/A 1.01
Citigroup 8.5% N/A 1.08
Goldman Sachs Grp 6.15% N/A 1.01
Goldman Sachs Grp Inc Mtn Be 6% N/A 1.1
Jpmorgan Chase 6.3% N/A 1.04
Morgan Stanley 6% N/A 1
Morgan Stanley 7.3% N/A 1.06
Verizon Comms 8.75% N/A 1.18
Wal Mart Stores 6.5% N/A 1.06
Wells Fargo & Co New 5.625% N/A 1.23

Chart for iShares iBoxx $ Invest Grade Corp Bond (LQD)

The investment (DTN) seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Dividend ex-Financials index. The fund employs a passive management (or indexing) investment approach designed to track the performance of the WisdomTree Dividend ex-Financials index. It attempts to invest all, or substantially all, of assets in the stocks that make up the index. The fund generally uses a replication strategy to achieve its investment objective and generally holds each stock in approximately the same proportion as its weighting in the index. It is nondiversified.

TOP 10 HOLDINGS ( 21.15% OF TOTAL ASSETS)  
 
Company Symbol % Assets
Altria Group, Inc. (MO) 2.27
Ameren Corporation Common Stock (AEE) 1.87
AT&T Inc. (T) 1.96
CenterPoint Energy, Inc (Holdin (CNP) 1.8
CenturyTel, Inc. Common Stock (CTL) 2.56
Duke Energy Corporation (Holdin (DUK) 1.78
Progress Energy Inc Common Stoc (PGN) 1.99
Qwest Communications Internatio (Q) 2.73
Reynolds American Inc Common St (RAI) 2.27
Verizon Communications Inc. Com (VZ) 1.92

Chart for WisdomTree Dividend ex-Financials (DTN)

The investment (XLU) seeks to replicate the performance, net of expenses, of the Utilities Select Sector Index. The fund invests at least 95% of assets in common stocks that comprise the index. The index includes companies from the electric utilities, multi-utilities, independent power producers, energy traders and gas utility industries. The fund is nondiversified.

TOP 10 HOLDINGS ( 55.53% OF TOTAL ASSETS)  
 
Company Symbol % Assets
American Electric Power Company (AEP) 4.53
Dominion Resources, Inc. Common (D) 6.31
Duke Energy Corporation (Holdin (DUK) 5.63
Entergy Corporation Common Stoc (ETR) 4.2
Exelon Corporation Common Stock (EXC) 8.75
FirstEnergy Corporation Common (FE) 3.85
FPL Group, Inc. Common Stock (FPL) 5.93
Pacific Gas & Electric Co. Comm (PCG) 4.52
Public Service Enterprise Group (PEG) 4.57
Southern Company (The) Common S (SO) 7.24

Chart for Utilities Select Sector SPDR (XLU)

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