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Global Income ETFs
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About Global Income ETFs |
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Global Income ETFs Overview and forecast
The Global Income ETFs are a longer lived form of ETF, and their history has been marked by various kinds of market sensitivity. They're good traders, as a rule, but this class of ETF operates according to the cash market, so their behavior is less focused on indices, and more on forms of investment related to income levels. Many Global Income ETFs operate on investment in high yield income securities, in just about all classes ranging from US government backed securities to esoteric forms of investment.
As investments, the Global Income ETFs have had some deep dives and steep recoveries. Unlike some ETFs, many of these funds started at low unit prices, much lower than standard ETF models, and their trading has been vigorous. The trading is a critical issue here, because their moves can range into double digit percentiles quite easily. During the crash, some of them did vertical nosedives. Their recovery has been generally good, with some exceptions, but there's a degree of volatility in these ETFs which isn't always obvious.
Interestingly, the long term history of the Global Income ETFs mirrors the US economy, to a noticeable degree. The Global Income ETFs have followed the markets up and down, doing a good imitation of a lot of economic stats over the last nearly 20 years. They're directly plugged in to the top end of the money markets, and if they're not quite as frenzied, they operate in direct relationships with those markets.
Traders perceptions of the Global Income ETFs are also obvious. They're sold off in bad economic times, sometimes rapidly. Interestingly, some of them were almost flat, until the 2008 crash, which would indicate that the market's attention was focused elsewhere, despite respectable trading volumes. Size and scale of these funds is also highly variable. Some are very big, long running funds, others are comparative boutique level operations.
Short term (6 months)
As a class, Global Income ETFs are notable for their occasional big trading spikes, which are sometimes very large in terms of prices, up and down. These spikes are sometimes accompanied by big volumes, and the ups and downs are very marked. That said, Global Income ETFs have had a habit in the past of flat periods, and significant attrition in unit prices over time. These aren't necessarily fashionable funds, and volumes can increase on lower prices, which tends to distort their significance in the short term.
Compared to other classes of ETF, the Global Income ETFs aren't as dramatic, in terms of movements. Their short term moves tend to be over longer time frames, with a 3 month period a time frame for actual percentiles. That's not terrific for short term traders, and margins, on a daily basis, can be pitiful. Few traders will sit idly watching margins move by a few cents a day, if they can help it. Even relatively good performers, like Alliance Bernstein Global High Income Fund (NYSE:AWF) aren't drama queens of the market, and normally any significant appreciation of unit prices is still more on the monthly basis than on sudden moves.
There's also a problem with short term returns. Some of the Global Income ETFs have posted good short term returns, but those returns relate to highly reduced prices in the previous years. So a short term return of 20%, on the basis of a lousy starting price, isn't really a major achievement, in dollar terms. Investors are advised to use microscopes, when assessing returns.
Medium term (2 years)
The medium term for the Global Income ETFs is likely to bring some improvement. The huge financial shakeouts will restore some confidence in the financial sector, which is another factor underpinning the relatively dry performance of this class of investment. It's reasonable to think that these funds, as income earners, do have a built in upside, with earnings capacity above their current modest price levels.
There's also some reason to believe that the reawakening financial markets will start working on performance based products with this particular class of investment, which can be an expensive management form. The crash has proven that the market is looking for both trading value and inherent value, and that the Global Income ETFs, particularly in an era of low interest rates, aren't generating a lot of investor fascination. As interest rates rise, cash rates will improve, and that's both an asset and extra competition to this class of investment. Fund managers will have to upgrade, to get results. That could be very good news for investors, but the models will need to be examined in detail.
Long term (5 years)
The medium term effect may take a little longer, depending on the mindsets of the funds, but that effect will happen over time, whether the funds like it or not. Being uncompetitive is the surest way to the Fund Graveyard, and the new market is never in the mood for losers. Low margins and sluggish performance isn't in big demand.
There are also capital issues. Some of the dire performances seem to be coming, as usual, from undercapitalized funds. You can do so much with a few million, and that's what's happening. Restructuring and revamping are quite unavoidable. Overall, as higher interest rates and better returns kick in, the Global Income ETFs should show definite improvements, but performances will also vary considerably, based on their capital situations.
Qualifier to projections
The Global Income ETFs performance historically isn't much of an indicator of the current state of play. The world has changed, and their trundling past prices could be an excellent indicator of a performance which will never happen again. Many funds work on the selling point of stability, and in the case of the Global Income ETFs, that stability could have been described as stagnation. An investment concept with no new ideas isn't a good concept.
Some of the Global Income ETFs could be described as ornamental, rather than performers. It's like thinking you're hiring Nureyev and Fonteyn, and finding out you've actually hired a couple of cheap copycat Cabbage Patch Dolls, with roughly the same dynamics as those dolls. Any rendition of Swan Lake will be largely accidental. There was a time when static, slow dissolving time release investments were considered good, and it was about 20 years ago, and it didn't work then, let alone now.
The positive side to the Global Income ETFs shows in its bigger and better funds, where at least something resembling modern investment can be seen to be functional. Investors should be absolutely ruthless in their choice of funds, and help kick out the financial freeloaders in the market.
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Last Updated on: 2010-01-14 02:03:40 |
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