Monday, April 28, 2014

Multi-Asset Menagerie With This Fund

By Todd Shriber, ETF Trends

What a difference a year makes. Last year’s “tantrum” resulting from the specter of tapering of its quantitative easing by the Federal Reserve was a drag on multiple corners of the exchange traded products universe, including multi-asset funds.

At the height of the Federal Reserve’s quantitative easing spectacle and when little thought was given to rising Treasury yields, income investors were enamored of high-yielding multi-asset ETFs. For income investors, there is a lot to like with funds such as the First Trust NASDAQ Multi-Asset Diversified Income Index Fund (MDIV).

MDIV features a 12-month distribution of almost 6%, the result of its lineup of nearly 120 holdings being comprised of a mix of junk bonds, master limited partnerships (MLPs) and real estate investment trusts (REITs), among other asset classes.

That composition makes MDIV appealing in sanguine rate environments, but not so much when Treasury yields surge as they did last year.

“There’s a downside to MDIV. Its diverse exposure and extremely low volatility mean it won’t participate in much of the upside of the U.S. equity markets. Last year, for example, it rose 11 percent when the market was up 32 percent. If interest rates were to rise quickly, many of the holdings in MDIV could lose value. Mortgage REITs in particular, which yield about 15 percent, could be hit hard, since they use short-term loans to buy mortgage-backed securities and generate income from the difference between the two,” writes Eric Balchunas for Bloomberg.

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First Trust NASDAQ Multi-Asset Diversified Income Index Fund is a component of the D2 Capital Management Multi-Asset Income Portfolio.  

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. 

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