Financial & Wealth Services News

:: George G. Elkin, Managing Director, Financial & Wealth Services
631.923-1595 ext. 336
G. R. Reid Wealth Management Services, LLC  



What Is An Exchange-Traded Fund?
 
Exchange-traded funds (ETFs) are just one of the many types of investment funds available, but they have some qualities that are unique and set them apart from other vehicles. ETFs are securities that attempt to track all types of indexes, industries, or commodities. For example, an ETF might be made up of securities representative of the technological industry or of the S&P 500.*
 
When ETFs were first created in the 1990s, the aim was to mimic the movements of an index of a specific financial benchmark. Today, ETFs also follow industries and commodities, not just indexes. The investment vehicle with the sole purpose of mirroring a specific index is called an index fund.
 
One of the reasons some investors may choose ETF funds is because they combine the diversification of a mutual fund with the flexibility of a stock. ETFs do not have their net asset values calculated each day, as do typical mutual funds, but rather their prices may fluctuate throughout the day based on the rate of demand on the open market.
 
Although the value of an ETF comes from the worth of the underlying assets comprising it, shares may trade at a “premium” or a “discount.” ETF shares are sold on stock exchanges; investors can buy or sell them at any time during the day. The underlying assets of the fund are not affected by market trading.
 
Exchange-traded funds may have expense ratios that are lower than those of an average mutual fund, and they are usually more tax-efficient than most mutual funds. Additionally, shareholders can often invest as little or as much as they desire. However, an ETF cannot be redeemed by a shareholder; rather, it can be sold only on the stock market.
 
A downside to exchange-traded funds is the commission fee, which is generally not associated with a mutual fund. Commissions are involved because ETFs are traded like stocks, rather than like mutual funds. However, despite this downside, an ETF can be a diversified and low-cost investment that often has a low turnover rate, so you might want to consider ETFs as part of your investment portfolio. Keep in mind that diversification is a method to help manage investment risk; it does not guarantee against loss.
 
The return and principal value of ETF and mutual fund shares fluctuate with market conditions. Shares, when sold or redeemed, may be worth more or less than their original cost.
 
Exchange-traded funds and mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

 
* The S&P 500 is an unmanaged group of securities that is widely recognized as being representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index.
 
The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc. All rights reserved.

George Elkin is a Registered Representative offering Securities through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors Inc., an SEC Registered Investment Advisor. G.R. Reid Consulting Services, LLC  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc. and American Portfolios Advisors Inc.
 
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security

Financial Services News

“Dividends Stocks Posed to Rally”

G.R. Reid Consulting Services, LLC
 

Food for thought, in this volatile market there are opportunities for growth in dividend paying stocks.  In the daily blog from Mike Boyle from Advisors Asset Management, Inc., (AAM) dated September 21st, 2011 he stated it best….

“We have been discussing for quite some time, both in our writings and speaking engagements, that we thought the U.S. equity markets were attractive based on current valuations and earnings growth (both current and projected), and that is still the case. The S&P 500’s current P/E (price to earnings) ratio sits at 13.15, which is well below its long-term average. Its year-over-year actual earnings growth sits at 16.24%, which is well above its long-term average, and its year-over-year earnings are projected to grow by 17.96%. In addition, the S&P 500’s current yield of 2.17% is now above the 1.92% yield of the U.S. 10-year obligation which we believe is going to embolden a lot of income-focused investors to begin to up their equity exposure.

It should also be noted that the S&P 500’s yield of 2.17% understates the opportunity as the index includes stocks that don’t currently pay a dividend. If we take an equal-weighted look at only the dividend paying securities in the index, we see the average yield is 2.53%. In addition, there are 134 members (26.8%) in the index currently yielding over 3% and 57 members (11.4%) in the index currently yielding over 4%. Whenever we discuss stocks with attractive yields we usually hear a few grumblings that these securities are accidental high yielders or value traps. That is the case with some of them and that is why investors need to do their homework when picking dividend stocks (or any investment for that matter). However, we do show there are currently over 30 stocks in the S&P 500 that not only are yielding over 3%, but have also grown their dividend at least 10% year-over-year as well as their earnings 10% year-over-year. Thus there are many stocks offering the potential for quality growth as well as an attractive income stream.

Add it all up and we think the trifecta of valuation, growth and dividend yield make U.S. stocks very attractive for long-term investors. Dividends have historically provided a large portion of the total return of the equities market and over the last twenty years (8/31/91 – 8/31/11) that portion has been 42%.”

For more information, please visit on Mike Boyle’s blog.

G.R. Reid Consulting Services, LLC and AAM  is not a registered investment advisor and is independent of American Portfolios Financial Services Inc.and American Portfolios Advisors Inc.
Unless specifically stated otherwise, the written advice in this memorandum or its attachments is not intended or written to be used for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

Information is time sensitive, educational in nature, and not intended as investment advice or solicitation of any security.