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Equity Income ETFs
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About Equity Income ETFs |
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Equity Income ETFs Overview and forecast
This is a huge list of various forms of equity investment, which as you can see from our chart has come out of the crash looking a lot better six months later.
Equity Income ETFs are essentially a combination of income and capital gain, across a spectrum of holdings and investment methods. Many of them are original model ETFs, which started as high value unit prices, went down drastically during the crash, and have returned to life as traders.
Their performances have been pretty similar, despite their diversity. Even quite disparate ETFs follow a general pattern, some above, some below the performances. A comparison of a real estate ETF and a basic equity ETF can produce some very similar results, the differences being mainly a matter of degree, over the time frames.
Equity Income ETFs were hit in the classic crash scenarios. They all dropped like rocks in late 2008, the free fall period, and their recoveries have been quite mixed. The usual problem of assessing performance remains: Some are looking good, coming off lower bases, but if a return to $7 rates as an 87% return, it's because the base during the bottom zone was around $4, and the price pre crash was around $20.
Short term (6 months)
It's no surprise these things have become good traders. They behave much like stocks at these prices. Some of them trade in millions, and their short term performance on the way back up has been good in terms of producing margins. The six month returns are showing a sort of staircase effect, up, down, then further up. A few of them have even managed to get back into the lower pre- crash ranges.
There are spikes in buying in several of the Equity Income ETFs, and there's obviously no lack of interest from larger investors. Some of the Equity Income ETFs are relatively small, and the big buying shows very conspicuously. As usual, the lower prices have triggered higher volumes, but investors should know that not all of the Equity Income ETFs are showing great margins. If you're prepared to wait 2 months to make 50 cents per unit, they're OK, otherwise keep looking at the others in this class. The short term will require some thought and analysis of upsides.
Medium term (2 years)
This is a mainstream class of ETFs. They're not particularly exotic. That's one of the reasons they went down with the ship during the crash. Even the Equity Income ETFs investing in strictly defensive modes, like preferences and with an emphasis on preservation of capital, didn't do too well, for that reason. So any assessment of these ETFs have to take into account their fundamental affiliations with the markets.
The other side of this coin, which will come into play in the medium term, is that they're also pretty basic, common sense types of investment strategies. They are in fact rather conservative, playing safe, and it's fair to say that at least a suspicion of being oversold is justified. That's not to call the train wreck anything but a train wreck, but the probability is that the basic values will regain at least some of the lost ground, in the medium term, because of the mainstream approach to investment and holdings. These are very straightforward, easy to understand investments. They have a natural market.
Case in point: Some of them, like the John Hancock group, have things like monthly distributions, and other features which appeal to particular investors, as well as traders. The John Hancock Preferred Income Fund II (HPF) doubled in price between January 2009 and late May 2009. This is another formerly high value ETF which had some ups and downs prior to the crash, hit the rocks at $7 in January, and went up to $14 in May. Hence the theory that at least some of these ETFs have some stamina.
Long term (5 years)
It's probable that the Equity Income ETFs will bounce back reasonably well, if perhaps slowly in some cases, both in terms of market rebounds and their own natural investment niches. Having said that, not all briquettes are diamonds. The Equity Income ETFs are classed together because of their type of investment, but they are quite diverse. Many of them are vulnerable to their sectors, like the real estate Equity Income ETFs, where prices were pulverized.
There's no room for generalizations in this very big category. Investors need to look at specifics. The long term is also likely to show some weaknesses. The sort of forced remodeling of the ETF genre by the crash has proved a lot about how the market perceives ETFs generally, and that perception is particularly active in the mainstream investment areas. This is where spreads are perhaps a safer, and almost certainly a better, more cohesive, approach. There's nothing wrong with some hedging, in such a range of investments, and investors need to watch the ball.
Qualifiers to projections
The Equity Income ETFs aren't everybody's idea of the perfect investment vehicles. In the 12 months to end May 2009, this class took a hit of 44% downwards, and if the six months of 2009 have been considerably better, they're still scratching at break even levels as a group. They're better traders than accumulators, at this point. HPF and some others are the exceptions, not the rule.
The Equity Income ETFs do have a natural role, as investment choices, in terms of coverage. They provide exposure to sectors, and they're able to produce decent price returns, like HPF, over the short term.
Investors note: They're also very likely to evolve, and become more actively managed, which may affect charges, but could also generate returns more effectively, given the very mixed levels of recovery in the class. They're older model ETFs, and they will need to redesign, in the long term. Investors are advised to consider the Equity Income ETFs in detail, and look for returns in comparison with other forms of investment. The Equity Income ETFs include a range of features, everything from tax advantages to regular distributions, and it's a matter of finding the ones that meet individual needs.
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Last Updated on: 2010-01-14 02:03:40 |
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