Non-Investment Grade Bonds Will Beat High-Grade Bonds In 2015

By Michael Aneiro, Barron's

Morningstar today peers into its corporate bond crystal ball and sees a better future ahead for high-grade bonds than their high-yield brethren in 2015. Morningstar says credit spreads show corporate bonds are fairly valued, but the recent tailwind from declining interest rates “was the main driver for corporate bond returns” but now that favorable condition “has likely run its course.” From Dave Sekera, director of corporate bond strategy at Morningstar:

"...We expect high-yield bonds to provide a better return than investment grade in 2015. The issuers most affected by falling oil prices have taken the brunt of losses over the past few weeks, and the additional carry in the index will help offset any further widening if oil prices fall more. In addition, while we don’t foresee interest rates spiking higher, we do expect interest rates to drift upward through the year. High-yield bonds have a lower duration and will be less affected by rising rates. This factor, along with our forecast of moderate economic growth in the U.S., should hold down default rates, and it leads us to believe that high-yield bonds should hold their value better than investment-grade bonds..."

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AdvisorShares Peritus High Yield (HYLD) is a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 4.94% and year to date the portfolio is up 6.89% (as of 29 December 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

U.S. Muni-Bond Market Is on a Tear

By Aaron Kuriloff, Wall Street Journal

Municipal bonds are on a winning streak that many investors bet will run into the new year.

The debt issued by U.S. cities, states and local entities such as sewer systems has posted its longest string of monthly gains in more than two decades in 2014, outpacing gains in corporate bonds and U.S. government debt, according to data from Barclays PLC.

Investors are flocking to the $3.6 trillion municipal-bond market at a time of low interest rates, uneven global growth and concern that the nearly uninterrupted rise in many stocks and bonds since the financial crisis will come to an end. The debt is especially attractive because interest payments typically don’t generate federal taxes and, in some cases, aren’t subject to state taxes.

That, along with forecasts for relatively flat issuance of new bonds, is expected to support the rally in 2015 despite concerns about the impact of an increase in short-term interest rates by the Federal Reserve, which many economists and investors expect in the middle of next year.

Municipal bonds have returned 8.71% this year through Friday, including price gains and interest payments, according to Barclays. That compares with a total return of 15.3% for the S&P 500, 6.97% for highly rated corporate debt and 4.6% for U.S. Treasury debt.

Demand from individual investors, mutual funds and banks and insurance companies has remained robust, said Ashton Goodfield, co-head of the municipal-bond department at Deutsche Asset & Wealth Management, a unit of Deutsche Bank AG . That has helped investors overcome last year’s fears about losses from Detroit or Puerto Rico. The U.S. commonwealth passed a law in June allowing some public agencies to restructure their finances.

“I think people are understanding that there’s not going to be a rash of bankruptcies in the market,” Ms. Goodfield said. “It’s a confirmation that municipal credits are generally solid.”

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.66% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 26 December 2014).  Year to date the portfolio is up 9.42%

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Munis Surprise with Strong 2014

By Christine Albano, Financial Advisor Magazine

The strength of the municipal market in 2014 caught many analysts off guard as the unexpected and historic decline in long-term yields heightened demand and made for an attractive year that was highlighted by 9% returns.

Municipals delivered solid performance overall thanks to the strength of the long duration and high-yield segments of the $3.63 trillion municipal market.

Municipals delivered positive returns for the 11th straight month, returning 0.77% in November, Justin Hoogendoorn, CFA and managing director at BMO Capital Markets wrote in a monthly bond market outlook report dated Dec. 15.

Total returns stand at 9.14% this year, which is boosted to a tax-adjusted 11.67%, he said.

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.66% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 23 December 2014).  Year to date the portfolio is up 9.50%

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

The Key To Being A Successful Investor

By Jim Rogers

People are constantly asking me what to invest in, and I always answer the same way. I say: Do not listen to me – do not listen to anybody.

The way you become a successful investor is by investing only in what you yourself have a wealth of knowledge about.

Everybody knows a lot about something. Cars, fashion, whatever it is – you know a lot about something. If you do not know what it is you know a lot about, just step back and take a look at your daily life.

When you walk into a doctor's waiting room, what magazines do you pick up? If you turn on a television, what kinds of programs do you watch? Soon you will probably figure out what your real interests are, what you are really knowledgeable about.

Now you are ready to become a successful investor. If you are keen on cars, read everything you can about the automobile industry. You will know when something is about to happen that constitutes a major, positive change.

Then start following up. Read more about whatever you find. Maybe a new fuel-injection system is being developed, one that is superior to and cheaper than what is currently in use, and you know that when it goes into production, it will take up a large share of the market.

Or it could be something like a new highway. Maybe people can drive someplace where they could never drive before. Maybe new hotels or shopping centers are certain to open up there. The fundamental strategy is this: stay with what you know and expand on it.

If somebody calls you up and says, oh, my gosh, there is this great new computer process...ignore it. You do not know anything about computers. Cars are what you know.

Concentrate on what you know and any changes you see – you will see a major change coming long before I ever will, long before anybody on Wall Street will, because care are your passion; they are what you are sitting around reading about all the time.

Learn to think in the appropriate terms; this is something new; this is something different; this is a shift in direction. Anything new or different leads to consequences down the road.

You have to learn to think around corners. You will know before anybody on Wall Street when something good is happening. You will also know when to sell, because you will see before anybody else that the great change you noticed a few years ago is starting to reverse itself – someone is building a cheaper product, the competition has intensified.

Let's say you have done that. After ten years you have made ten times your money. Now is when you are most vulnerable. You think: I have to find something else. I have to do it again. This is wonderful. This is so easy.

It is the great mistake people make.

Now and then a time comes when doing nothing is the wisest course.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

A President’s Third Year in Office Is a Strong One for the Market

By Simon Constable, Wall Street Journal

As President Obama gears up for his penultimate year in office, it could be time to cast a ballot for stocks.

That suggestion has nothing to do with the administration’s policies or whether investors agree with them. Rather, it’s about history.

Specifically, we’re talking about the so-called presidential stock cycle, which suggests that stocks do better on average in the president’s third year in office (regardless of whether it is a first or second term) than in any other year. The pattern has held with remarkable consistency.

Since 1900, the S&P 500 has rallied an average 10.7%, excluding dividends, in the president’s third year, compared with a gain of 4.1% to 7.8%, on average, in the other years, according to an analysis provided by S&P Capital IQ. What’s more, returns in the third year were positive 75% of the time. A look at the data back to 1945 shows a similar pattern.

Why does this happen? The theory says that tough legislation typically is forced through in the first two years of a presidency, when the incumbent is still riding the victory wave. The 2010 Affordable Care Act is an example of this phenomenon.

As for the third and fourth years, the idea is that the officeholder starts to do whatever is necessary to really boost the economy in an effort to get re-elected. The data show that during those periods, policies have been most dovish or pro-growth, says Mebane Faber, at El Segundo, Calif.-based Cambria Investment Management. With second-term presidents the logic is weaker, but it’s still arguable that they will try to boost growth to help their party in the next election.

The S&P Capital IQ data show that the third-year market rally is front-loaded, with eight percentage points of the 10.7% gain coming in the first half of the year, on average.

Of course, just because there is a tendency for things to happen a certain way doesn’t guarantee that they will—especially with a second-term president. After all, 75% positive returns means that returns were flat or negative 25% of the time.

And this time around, what the government can do to help the economy may be limited, says Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

“There isn’t a lot of ammo left with interest rates already at zero, and we are running fiscal deficits in the hundreds of billions of dollars,” he says. “All the stops are already out.” In other words, the Federal Reserve can’t make the cost of borrowing much lower, and the federal government probably won’t borrow more to stimulate growth.

Still, there might be hope for a third-year jump in stocks.

“The president is a lame duck, and if he really does want to end his office on a higher note then he is better off working with the Republicans,” says Sam Stovall, U.S. equity strategist at S&P Capital IQ in New York. He points to tax overhaul and approval to complete the Keystone oil pipeline as areas that might see progress.

Tax overhaul might cause a “surge of business confidence” as corporations decide to put their increasingly large cash balances to work, he says. And a completed pipeline could increase supplies of energy to the country, lowering prices.

Still, he adds, “it would have to be in 2015. Nothing will likely get approved in the election year,” as both sides duke it out for votes.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

REITs: Attractive Yields in a Low-Rate Environment

By Tom Lydon, ETF Trends

Despite fears of a rising rate environment, interest rates remain stubbornly low. Investors who believe rates will remain subdued going into the new year can utilize a broad real estate investment trust exchange traded fund to generate some extra income.

The Vanguard REIT ETF (VNQ), with a 3.13% 12-month yield, provides a cheap and decent way to track the broad REITs market.

“Right now, Morningstar’s equity analysts believe that the U.S. REIT sector as a whole is slightly overvalued,” according to Morningstar analyst Robert Goldsborough. “However, our analysts also see pockets of opportunity in certain areas of the REIT landscape, including health care, retail, and cell tower properties.”

For instance, VNQ includes a 13.5% weight toward health care REITs and 25.9% in retail REITs.

Along with its diversified sub-sector exposure, VNQ includes a relatively spread out market capitalizations, including 43.4% large-caps, 34.3% mid-caps, 19.0% small-caps and 3.3% micro-caps.

REITs provide a liquid alternative to owning physical commercial real estate properties. REITs investments also share similar attributes with stocks and bonds. Since REITs are required to distribute at least 90% of their income from rent payments to investors, these real estate investments can generate attractive yields.

Potential investors should not mistake REITs as an alternative to traditional fixed-income assets like Treasuries. The REITs asset class has been 41% more volatile than the S&P 500 over the past three years and 5.5 times more volatile than the U.S. bond market.

“Potential near-term risks include slower-than-projected growth, setbacks in the U.S. economy, and rising interest rates,” Goldsborough added.

Rising rates raise REITs’ debt financing costs. However, a flat interest rate outlook would benefit REITs in an expanding economic environment as rising rents and property prices would support the asset class.

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Vanguard REIT ETF (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 5.01% and year to date the portfolio is up 7.77% (as of 5 December 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Muni Funds Could Maintain Strength Going Into 2015

By Tom Lyden, ETF Trends

For 2015, Janney Montgomery Scott overweights muni bonds and believes high-yield corporate debt are “also reasonably attractive,” reports Michael Aneiro for Barron’s.

“Municipal-bond yields are generally lower than those sported by their taxable counterparts because of their tax benefits,” according to Morningstar analyst Thomas Boccellari.

The muni funds can be used as a core fixed-income allocation to help alleviate some tax costs.

Additionally, Janney projects that muni-to-Treasury yields to trend lower next year – a falling ratio reflect an outperforming munis market, due to improved confidence in municipal creditworthiness and default fears abate.

“Once again, tax-exempts represent our strongest conviction overweight call for 2015, an outgrowth of the value of tax-exempt income at a time when upper bracket tax rates are at their highest levels since 1986,” Janney Montgomery Scott said in the article.

Janney expects credit fundamentals to remain sold through 2015.

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.37% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 2 December 2014).  Year to date the portfolio is up 8.93%

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

A Santa Claus Rally? Yes, Virginia…

By Tim Edwards, SP Dow Jones Indices

Theories that aim to predict stock market performance range from the complicated and impenetrable to the arcane and simply ridiculous.  But some are wonderfully clear: for example, December is usually a good month.  In the festive spirit, and not to be taken too seriously,  we’ve duly found that the evidence supports the existence of a “Santa Claus Rally”.

Our test of choice, which we may as well call a “Santa Score”, is the result of dividing the average performance each December by the annualized total return over the period.  Since there are 12 months in the year, a Santa Score of around one twelfth (about 0.08) would be expected; a Santa Score above 0.08 indicates that December is a better month for stocks, on average.

With an average Santa Score is 0.36, not a single market fails our test.  December has been, on average, around four times more profitable than the average month.  A Santa Score above 1.00 implies that investing only in December (and doing nothing for rest of the year) is a market-beating strategy; Japan clocked in a remarkable Santa Score of 1.13.

At least in the past few years, December has borne gifts for equity investors.  So, pat yourselves on the back and tuck into your Christmas parties!  Let’s raise a glass to momentum and seasonality. And hope Santa has noticed.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

"Dividend Dogs" Fund Barks its Way to $1 Billion in Assets

By Todd Shriber, ETF Trends

With low interest rates and anemic yields on U.S. Treasuries forcing investors to expand their yield-generating horizons, 2014 has been another strong year for inflows to dividend exchange traded funds.

The ALPS Sector Dividend Dogs exchange traded fund (SDOG) proves as much. SDOG, which is nearly two and a half years old, joined the $1 billion in assets under management club this week. SDOG tries to reflect the performance of the S-Network Sector Dividend Dogs Index, which applies the “Dogs of the Dow Theory” on a sector-by-sector basis using the S&P 500 with a focus on high dividend exposure.

As has been seen over the years with a plethora of ETFs, equal-weighting works and it is working with SDOG. SDOG’s sector weights range from 8% for industrials to 11.7% for financial services.

Although SDOG is underweight health care, the S&P 500’s top sector this year, by over 400 basis points relative to the benchmark U.S. index, the dividend ETF has returned 13.3% this year. That is good enough to be ahead of the S&P 500.

SDOG’s 10% weight to utilities, the second-best S&P 500 sector this year, has helped. Though not excessive compared to some other dividend ETFs, SDOG’s utilities allocation has been enough to contribute to the ETF’s upside. A 10% utilities weight is more than triple the S&P 500’s allocation to the sector.

None of SDOG’s holdings command weights in excess of 2.2%. The ETF’s top-10 holdings, which combine for just 21.1% of the ETF’s weight include Dow components DuPont (NYSE: DD) and Verizon (NYSE: VZ) along with Altria (NYSE: MO), Lockheed Martin (NYSE: LMT) and Reynolds American (NYSE: RAI).

SDOG has a dividend yield of 4.04%.

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ALPS Sector Dividend Dogs Fund (SDOG) a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 4.92% and year to date the portfolio is up 9.21% (as of 24 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

The Declining Price of Crude Oil: Broad Impacts

By Samuel Hecker, IRIS.XYZ

The sharp and sudden drop in the price of crude oil over the last few months caught many market participants by surprise.  This decline has broad impacts for the economy and, more specifically, the bond market.  As measured by the price of WTI (West Texas Intermediate), the price of oil has fallen almost 28%, from $102.90 per barrel on June 25th to $74.21 per barrel on November 14th.  The effects of the price decline are far-reaching:

U.S. Economy – Much has been made in recent years of the resurgence in U.S. oil production, which has been driven by large-scale discoveries and made more efficient by improved technology.  A concern has emerged as to whether the price decline will slow production levels and hurt economic growth, particularly in the oil producing regions of Texas and the Upper Midwest.  Lorenzo Simonelli, an executive from General Electric’s Oil and Gas division (which supplies drilling equipment), claims the price decline has yet to slow activity.  “The projects so far are still viable,” he said, speaking last week at an event in Brazil.  Even if production were to slow, however, investment in oil and gas represents less than 1% of U.S. GDP, according to Barclays.  The larger impact of lower oil prices is a positive one and relates directly to U.S. consumers.  Americans spend roughly $1 billion each day on gasoline, says Tom Kloza, global head of energy at the Oil Price Information Service, and the decline in costs will save Americans $8.4 billion in November and December compared to the same months in 2013.  If prices were to stay at these levels, it would result in $400 in yearly savings per household.  This extra cash would add nearly a half a percentage point to fourth-quarter GDP growth and generate $70 billion in additional consumer spending next year, says Barclays.  On net, the positives far outweigh the negatives from a domestic economic perspective.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

An Outperforming Dividend ETF Right for the Times

By Tom Lydon, ETF Trends

In a low-yield environment, the Global X SuperDividend U.S. ETF (NYSEArca: DIV) has acted as an attractive investment opportunity this year, outperforming the broader market and generating decent yields.

DIV follows 50 of the highest dividend yielding equity securities in the U.S. and equally weights its component holdings. The ETF has a 0.45% expense ratio and a 3.58% 12-month yield. The fund also generates a monthly dividend yield for those seeking a steady stream of income.

The SuperDividend U.S. ETF has been outperforming the broader equities market. DIV is up 20.0% year-to-date, whereas the S&P 500 is 13.1% higher.

The fund also includes a low-volatility filter to diminish volatility in the portfolio. Specifically, underlying holdings must have a beta of less than 0.85 relative to the S&P 500 to be included in the index. Beta is a measure of volatility, and stocks with 1 reading reflects perfect correlation, so anything below 1 suggests the security is less volatile than the market.

However, potential investors should be aware that while the ETF takes on a diversified approach to high-yield dividend stocks, DIV includes significant exposure to rate-sensitive sectors.

For example, utilities make up 21.4% of DIV’s holdings. As interest rates rise, utility stocks will likely underperform other equity sectors. The rising rates typically make fixed-income securities more attractive on a relative basis to bondlike stocks. So far this year, the utilities sector has benefited from a pullback in interest rates.

Master limited partnerships account for 21.3% of the ETF’s underlying holdings. If interest rates rise, the cost of capital for MLPs also increase, which means that investors would expect lower distributions. The asset class has historically been negatively impacted by rising rate markets.

Additionally, mortgage real estate investment trusts is 15.8% of the underlying portfolio. REITs also rallied this year as rate concerns diminished. However, mortgage REITs are very sensitive to rising rate risks as any changes to short-term rates can have a significant impact on these REITs’ profitability – mortgage REITs have provided attractive yields due to cheap financing, but higher rates ahead would mean higher funding costs.

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Global X SuperDividend U.S. (DIV) a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 4.92% and year to date the portfolio is up 9.21% (as of 24 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Energy Pipelines Remain Unfazed By Low Oil Prices

By Tom Lydon, ETF Trends

Even as oil prices decline, master limited partnerships (MLPs) and related exchange traded funds will continue to benefit from the rising production from U.S. oil drillers.

Unlike other energy sector stocks, MLPs primarily deal with the distribution and storage of energy products, so their business model is less reliant on the commodities market since MLPs profit off the quantity of oil and natural gas they are able to move around. In the U.S., we are experiencing an oil boom from new drilling techniques implemented in shale oil beds.

The big change has been that U.S. production of crude oil has been really ramping up over the past four years, because everybody has gotten more prolific about getting oil out of the ground,” Stewart Glickman, group head of energy research at S&P Capital IQ, said in an InvestmentNews article.

Glickman also argued that the logical play in the energy market now is through infrastructure and MLPs that contract to transport the commodity, no mater the per-barrel price.

“It doesn’t matter to the pipeline what the price of oil is, because they are getting fees for volume and clearly the volumes are high,” Glickman added.

Despite the falling oil prices, hydraulic fracturing shale drillers plan to expand production, which could mean that MLPs will experience more business ahead as the companies move around all the excess oil.

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Energy MLPs are a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 4.92% and year to date the portfolio is up 8.57% (as of 19 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Why Funds Make Sense for Municipal Bonds

By Tom Lydon, ETF Trends

When looking into the municipal bond market, fixed-income investors may be better off with a muni bond funds, instead of trading individual debt securities.

Brokers typically mark up the price of municipal bonds they sell to individual investors, writes Aaron Kuriloff for the Wall Street Journal.

However, the markups that funds pay are typically lower since fund companies buy in bulk and are more familiar with the market.

Consequently, Christine Benz, director of personal finance at investment researcher Morningstar, argues that most people should use munis-related bond funds, adding that reducing fees is “absolutely crucial” to efficiently maximize gains from a low-yielding asset like munis.

Muni bond investors can also enjoy the instant diversification benefits of owning a muni fund. The funds spread risk by holding multiple bonds from many different issuers across different states. The large portfolio of muni debt securities help diminish the negative effects of a single issuer default.

Allan Roth, a financial adviser at Wealth Logic, argues that a broad muni fund helps diversify away from an investor’s local economy and the market for his or her home. However, potential investors should be aware that local tax breaks would only apply to a portion of a broad muni fund that come from their home state.

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.41% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 17 November 2014).  Year to date the portfolio is up 8.71%

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

The Temptation of Technology Dividends

By Todd Shriber, ETF Trends

Another year of low interest rates has, once again, sent investors flocking to dividend funds.

But many dividend funds sacrifice exposure to future sources of dividend growth, such as the technology sector, in favor of sectors’ past dividend track records. Hence, the often substantial overweights to consumer staples and utilities and relatively thin exposure to tech in equity income funds.

The ascent of tech dividends has created a captive audience for exchange traded funds like the First Trust NASDAQ Technology Dividend Index Fund (TDIV). TDIV has soared in popularity as the technology has progressively become a more legitimate and attractive dividend destination over the past several years. TDIV has added $406.1 million of its $744.4 million in assets under management this year.

While the concept of dividend growth in the tech sector is still relatively new, that does not mean it will not prove rewarding for investors. The sector is one of largest contributors to S&P 500 dividend growth over the past few years.

Because the information technology sector’s dividend growth rate has exceeded all other sectors over the past 3, 5, and 10 years and the sector currently pays more dividends than any other sector in the S&P 500 Index,” according to First Trust Senior Vice President and ETF Strategist Ryan Issakainen.
The average payout increase from Apple, IBM (IBM), Cisco (CSCO) and Qualcomm (QCOM) this year is almost 14%.

Interestingly, “roughly half the dividend-paying technology stocks in the S&P 500 offer higher dividend yields than that of the S&P 500 Index,” notes Issakainen.

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First Trust Nasdaq Technology Dividend Index Fund (TDIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current yield on the portfolio is 4.93% and year to date the portfolio is up 8.28% (as of 14 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Political Mix May Boost Dow

Stock market history suggests the combination of a Republican-controlled U.S. House and a Democratic president is the most likely to see the largest annual gain in the Dow Jones Industrial Average. Interestingly, Democratic presidents outpace Republicans consistently, but Republican Houses beat their Democratic counterparts over time. In the table here, the two purple quadrants show the Dow’s average annual growth in “dual-party” environments:

Even though valuations are somewhat stretched, stock market returns from November through April have dominated May through October by a long shot since 1955. Add that seasonal effect to the political environment, and we could be setting up for a decent tail wind.

Source:  BMO Private Bank

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

"A steady and attractive stream of income"

By Daniela Pylypczalk-Wasylyszyn, ETF DataBase

Building a traditional buy-and-hold portfolio has become significantly easier and cheaper in recent years, thanks to the Exchange Traded Fund industry’s wide range of options. But while there are hundreds of funds that could be used as a core building block, there is one ETF that stands outs from its peers and should certainly be given a closer look. The Global X SuperDividend U.S. ETF (DIV) offers investors a lucrative source of steady income, as well as a unique methodology that is designed to withstand periods of market volatility.

Like its name suggests, the SuperDividend U.S. ETF (DIV) aims to provide investors with an attractive stream of current income. It accomplishes this objective by tracking the INDXX SuperDividend U.S. Low Volatility Index, which is designed to measure the performance of companies that rank among the highest dividend yielding equity securities in the U.S.. The index consists of a diverse group of 50 equally-weighted securities, mitigating the risk of a single security having too much influence on the performance of the fund. Sector caps of 25% are also instilled to ensure the portfolio is not heavily overweight in a particular sector.

To be selected for inclusion, a company must meet several requirements, including a minimum market capitalization of $500 million and  an average daily trading volume of at least $1 million over the past six months. The stocks must also have paid dividends consistently over the last two years; if a company suspends or cuts dividends, it will be removed from the index at the next quarterly review.

The index also utilizes a low-volatility filter in its screening methodology. Companies must have a beta of less than 0.85 relative to the S&P 500 on the rebalance date.

Under the Hood of DIV

DIV’s portfolio consists of approximately 50 individual securities, none of which have an allocation greater than 3% of the fund’s total assets. DIV features exposure to a diverse group of sectors, though energy, utilities, real estate, and consumer defense equities do receive the highest weightings. The fund also has an attractive mix of market capitalization sizes, which features almost equal exposure to giant, large, mid, small, and micro cap securities.

Considerations on DIV Performance

Given DIV’s focus on equities that exhibit lower volatility relative to the broader market, investors should note that the fund is likely to log in lower returns than riskier equity funds, such as the S&P 500 ETF (SPY). DIV, does however, offer a significantly higher yield than many of its Large Cap Value Equities counterparts, as well as other broad market funds.

How to Use DIV in a Portfolio

The SuperDividend U.S. ETF (DIV) is a great option for investors looking for a solid core holding. Given its focus on both low volatility and yield, as well as its equal-weighted methodology, the fund’s potential will be realized best over a longer time frame.

DIV’s distribution schedule also makes it an attractive addition to any portfolio; the fund distributes its payouts on a monthly basis. With this lucrative payout, investors should consider reinvesting to take advantage of compounding returns.

The Bottom Line

Global X’s SuperDividend ETF (DIV) offers investors an opportunity to receive a steady and attractive stream of income, while at the same time helping mitigate downside risk. The fund’s unique methodology and focus on key long-term fundamentals certainly make it stand out from its peers.

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Global X SuperDividend (DIV) is a component of the D2 Capital Management Multi-Asset Income Portfolio.  Current yield on the portfolio is 4.94% and year to date the portfolio is up 8.33% (as of 5 November 2014).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Elections May Signal Stock Rally

By Spencer Jakab, Wall Street Journal

Investors cheering for a Republican victory in Tuesday’s midterm elections may wind up being pleased by the outcome, but not for the reason they thought. If history is any guide, the combination of Republicans controlling both houses of Congress but not the presidency has been the best of all possible permutations.

Since 1945, returns for the S&P 500 when that situation prevailed were 10.1% compared with 8.8% for all years, according to Sam Stovall, U.S. equity strategist at S&P Capital IQ. But the dream scenario for the GOP—retaining Congress in two years and putting a Republican in the White House as well—wouldn’t rain on their portfolios. Those returns were nearly as high.

The conventional wisdom holds that “gridlock is good” and also that Republicans, the more business-friendly party, are better for stocks. Neither is clear cut, though.

Just looking at three scenarios irrespective of party control, the best returns occurred during periods of a unified government followed by a unified Congress and, bringing up the rear, different parties controlling each house. A split Congress with a Republican in the White House has seen the weakest returns while Democratic presidents have presided over much better average gains in the same scenario.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.