Asset Allocation Strategies

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You're kicking a dead horse. For local slobbering "players" the only allocation strategy is to find a red hot play, marry it, plunge in 100%, and pump it to fellow members of the unwashed masses. If if drops, average down. And down.

That way the lottery-like effect remains undiluted by sensible diversification.

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>>> Buffett: 'I would disagree quite violently' with notion that passive investing is dead


By Dhara SinghReporter

Yahoo Money

May 5, 2020


https://finance.yahoo.com/news/buffett-i-would-disagree-quite-violently-with-notion-that-passive-investing-is-dead-202620430.html


Despite the stock market volatility in recent months set off by the coronavirus pandemic, the Oracle of Omaha declared passive investing isn’t dead.

Warren Buffett stood by his defense of index funds, which are mutual funds that track market indices, such as the Standard & Poor’s 500 index. These investments aren’t actively traded by a wealth manager.

“If you say the day of investing in America is over, I would disagree quite violently,” Buffett said during the 2020 Berkshire Hathaway Annual Shareholders meeting. “There’s something special about index funds.”

He remains so passionate about index funds that it’s a key component of his estate planning.

“Well I can tell you I haven’t changed my will and it directs that my widow would have 90% of the funds in index funds,” Buffett said. “I think it’s better advice than people are generally getting from people that are paid a lot to give advice.”

‘I know which side is going to win over time’

Buffett extolled the low fees offered by index funds along with their profitable performance. He also alluded to some financial advisors who focus more on selling investments than seeing them grow.

“One side has high fees and they think they can pick out stocks and the other side has low fees,” Buffett said. “I know which side is going to win over time.”

A recent study by Index Fund Advisors, an investment firm that showed that just two of Vanguard's actively managed funds could outperform the market.

While he said not all advisors don’t know what they’re doing, he cautioned investors to understand that many are sales-driven.

“You’re dealing with an industry where it pays to be a great salesperson,” Buffett said. “There’s a lot more money in selling than in actually managing, if you look into the essence of investment management.”

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>>> The Retirement ‘Bucket Strategy’ Didn’t Leak During the Worst of the Crash, Because It’s Heavy on Cash


Barron's

By Gail MarksJarvis

April 19, 2020


https://www.barrons.com/articles/the-retirement-bucket-strategy-didnt-leak-during-the-worst-of-the-crash-because-its-heavy-on-cash-51587297601


Reta Lancaster worries a lot that she or her husband, Richard, will be stricken by the new coronavirus. But the retired Indianapolis couple haven’t had a moment’s worry about paying their bills.

The couple, who spent careers in teaching and nonprofits, proved to themselves during two bear markets since 2000 that a large cash stash and what’s known as a “bucket strategy” would get them through the cruelest of markets. And it seems to be working again during the market’s abrupt turn from near record highs to a nearly 35% drop at one point in recent weeks.

“We really are feeling fortunate,” said the 88-year-old Reta, contrasting her peace of mind with retirees whose savings have been savaged during the coronavirus crisis.

A typical iteration of the Lancasters’ strategy includes three buckets designed to give retirees long-term growth potential as well as a stash of cash and liquid investments that can be drawn upon for living expenses and as a bulwark from having to sell stocks in a market downturn.

In the first bucket, a retiree typically has at least two years of cash for any expenses no matter what the stock market does.

A second bucket, containing primarily bonds, provides another safeguard—a stash to get through a stock-market beating as Treasuries typically act as a haven when equities are tumbling. As time goes on, bond income via interest or through maturity replenishes cash that’s been spent from the first bucket.

The third bucket is key: This is where stocks go to provide more long-term growth than bonds or cash, while also potentially yielding cash dividends for use in the first bucket. When a market downturn comes, however, this bucket can be left untouched until stocks rebound.

Christine Benz, director of personal finance for Morningstar, examined the impact of the market tumult on a prototypical bucket strategy in late March. Her conclusion: The third bucket made up of stocks was awful, but that was to be expected. The second bucket of bonds, which are supposed to be relatively safe, had been hit with some “worrisome” losses.

But investors were pacified by their cash, Benz said. “Now is the bucket portfolio’s time to shine. It’s giving people comfort,” she said, and keeping people from bailing out of deep losses on the riskier stock investments they will need over time.

Benz contrasts this volatile period with times when stocks are steadily climbing. During long rising markets, Benz said, investors look at stock gains and question why they should keep two years of cash out of stocks and bonds. Some studies have questioned the strategy, too, because sizable cash stashes can deprive retirees of the growth they need to make portfolios last for 20 or 30 years.

What’s more, bonds have provided meager income in recent years and haven’t always performed as expected during recent downturns. In 2018, bonds were a disappointment and in March, safe Treasuries fell along with stocks at a certain point although they have been cushioning stock losses recently.

“The long-held belief that bonds give you a hedge against a fall in stocks is not always true,” said Patrick Leary, head of trading for InCapital.

While the bucket approach is used by many financial planners, the design of the buckets varies. Some financial planners in the first bucket want cash to last three years in case a long bear market occurs. Others are satisfied with one year. Advisors differ on investment choices, too: Some stick to federally insured savings accounts and certificates of deposit for cash, while some take on a little more risk with money-market funds and short-term bond funds.

“We really are feeling fortunate. ”

— Reta Lancaster, 88, on how the “bucket strategy” has given her and her husband peace of mind during the market crash
In the second bucket, bonds and bond funds are key because they replenish cash as retirees spend the money they originally had stashed away in bucket one. But there is no universal prescription. Advisors usually pick a mixture of bond types, but some lean toward safe U.S. Treasury bonds and top-quality corporates, while others try to boost income with larger exposures to riskier corporate bonds and small allocations of dividend-paying stocks.

This second bucket has been a particular thorn in recent years for many financial planners, who say they have been struggling to hold relatively safe bonds that will provide enough income to replenish the cash retirees need. Ten-year Treasuries, for instance, were recently yielding around 0.70%, compared with 1.6% early this year.

Yet higher-yielding bonds—everything from corporate bonds, to floating rate bank loans, mortgages and municipal bonds—have been dicey as the coronavirus crisis has pummeled the economy. For example, the iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD), lost 21% between March 6 and March 19.

Meanwhile, financial planners say they are sticking with well-diversified portfolios and the security their clients have from large amounts of cash to ride out the coronavirus lockdown.

“Most people have 10 or more years to ride out the storm, and during that time money comes to them virtually every month,” said Marc Hadley, the Lancasters’ financial planner.

If this crisis goes on long enough, though, Long Island financial planner Larry Heller said he might need to suggest some clients reduce their spending. That happened in the financial crisis as the market fell 57% and people panicked and demanded an escape from stocks.

Yet retirees appear positioned well and no one has asked him to sell stocks, Heller says. “They get a check every month so they don’t worry,” he said. “They can sleep.”

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>>> BlackRock Becomes Key Player in Crisis Response for Trump and the Fed


Bloomberg

By Annie Massa

April 17, 2020


President sought advice from Larry Fink in coronavirus fallout

World’s largest asset manager also helped in ‘08 crisis


https://www.bloomberg.com/news/articles/2020-04-17/blackrock-takes-center-stage-with-trump-seeking-to-calm-markets?srnd=premium


As President Donald Trump grappled with the coronavirus outbreak last month, he boasted at a press conference of tapping a secret weapon for advice: Larry Fink.

The chief executive of BlackRock Inc. provided insight to Trump on coping with the fallout from the pandemic -- and once again put his firm at center of a white-hot economic emergency.

BlackRock is no stranger to stepping in during a financial crisis cleanup. It played a similar role in 2008. But back then, it was a smaller firm with a focus on fixed income, closer to Pacific Investment Management Co., which had renowned money managers Mohamed El-Erian and Bill Gross at the helm.

More than a decade later, the investing landscape has shifted. BlackRock has a premiere role in helping the Federal Reserve stabilize markets. The central bank has hired the firm to help manage its economic relief efforts. Beyond U.S. borders, the Bank of Canada has called on the asset manager as it shapes its response to the meltdown.

BlackRock’s government connections reflect the dominance it has achieved in the asset management arena since the last financial crisis. It became the world’s largest asset manager with $6.5 trillion in assets -- a size and breadth that make the firm an essential player on Wall Street, in Washington, and beyond.

That may be an advantage amid the current tumult. “The companies that are going to come out in better shape are going to be the big businesses,” said Greggory Warren, an analyst at Morningstar Inc.

Financial crises can mark inflection points in investor preferences. After 2008, inexpensive index-based investing took off, buoying BlackRock, which holds about two-thirds of its assets in passive funds. Scale allows a massive firm like BlackRock or competitor Vanguard Group Inc. to offer prices that were once unheard of in the industry. Think U.S. stock-tracking funds that cost a few cents for every $100 invested.

“The one thing that rules in this world is cheap,” said Eric Balchunas, an analyst at Bloomberg Intelligence.

The economic recession following the 2008 crash helped set that tone. In the trenches of that contraction, investors became more comfortable using exchange-traded funds, which are tethered to indexes and can be bought or sold at any time in the trading day. Those funds hold about $4 trillion in the U.S., compared to about $531 billion in 2008, according to data compiled by Bloomberg.

BlackRock owes much of its dominance to a well-timed bet on those products. The firm got its start as a bond-focused shop, and had about $1.3 trillion in assets at the end of 2008. Today it is a formidable giant, overseeing about five times that sum. BlackRock first moved into ETFs with its purchase of Barclays Global Investors in 2009, a defining moment in the company’s history. The British bank sold the prized unit after rejecting U.K. government bailout money.

Moving into passive investing put BlackRock’s growth “on steroids,” Warren said. It is the world’s largest global issuer of ETFs today.

BlackRock’s government advisory business also cemented some crucial relationships in the fallout from 2008. BlackRock scored mandates to manage portfolios of toxic assets from Bear Stearns Cos. and American International Group Inc., playing to Fink’s roots in structuring mortgage-backed securities.

Today, BlackRock’s role is even more expansive. The Fed enlisted the New York-based firm to shepherd three debt buying programs. Canada’s central bank is bringing in BlackRock as an adviser in purchases of commercial paper, a form of short-term debt companies use to fund day-to-day expenses like payroll.

Beyond Covid-19-related mandates, the firm also won a contract to help incorporate sustainability into the European Union banking system.

“I do believe it’s going to continue to bring opportunities for us,” Fink said on an earnings call on Thursday, referring to BlackRock’s government assignments. He added he’s “very proud of” such work.

Another giant located across the country, Pimco, is reprising a role it played in the 2008 financial crisis too. The Fed once again called on Pimco as the investment manager for its purchases of commercial paper.

The Newport Beach, California-based firm oversaw $1.8 trillion at the end of the first quarter. In the intervening years since the last financial collapse, it has stuck to its original ethos as an active fixed income investment company.

Along with the rest of the active fund management industry, Pimco faced some challenges in an era when belief in star fund managers began to fade. One of the most dramatic examples of that arc was investing legend Bill Gross.

Gross, Pimco’s former chief investment officer, founded the Pimco Total Return Fund in 1987 and turned it into a behemoth. The fund had almost $300 billion in assets at its peak in 2013, and generated annualized returns of 7.8% from inception through his last day.

But when Gross left for Janus Henderson Group Plc in September 2014, an investor exodus followed. The fund suffered total redemptions of more than $100 billion in the 12 months after he departed.

Pimco spokesman Michael Reid responded to a request for comment on Gross by pointing to remarks from Morningstar analyst Eric Jacobson. “The firm didn’t flinch,” Jacobson said. “Pimco managed to keep performance competitive or better in most cases despite the outflows.”

“As an active manager, Pimco’s defensive positioning and liquidity management enabled us to navigate unprecedented market volatility,” Reid said in a statement. “We now see some extremely attractive long-term value in higher-quality segments of the investment-grade credit and mortgage markets as well as in more resilient areas of emerging markets.”

Gross was also known for his discursive investor letters that touched on topics like his dead cat and the eroticism of sneezing. In recent years, Fink’s annual missives have attracted similarly broad industry attention, albeit with a more staid style.

Proponents of active management argue that the industry gains additional edge in times of volatility. Though cheap index funds are easy to love when markets rise, active managers say they’re better suited to pick through the rubble after a downturn. (BlackRock has significant resources in active funds of its own, with $1.8 trillion in such strategies.)

Size and ties to governments put firms like BlackRock and Pimco, which is owned by German insurance giant Allianz SE, on stronger footing as the world navigates the unprecedented changes brought by the pandemic, said John Morley, a Yale University Law School professor who studies the regulation and structure of investment funds.

“The small asset managers may not have the resources to weather the storm,” he said.

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Here is where the 're-entry' funds will be invested if anyone is interested -

Broad Market ETF (double weight this)

High Dividend ETF

Utilities ETF

Consumer Staples ETF

REIT ETF

Info Tech ETF

Energy ETF (not to keep forever)

Gold ETF (to supplement the 10% already in bullion)

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>>> A $33 Billion ETF Sees Most Cash in 18 Years on Fed-Fueled Rally


Bloomberg

By Katherine Greifeld

March 25, 2020


https://www.bloomberg.com/news/articles/2020-03-25/a-33-billion-etf-sees-most-cash-in-18-years-on-fed-fueled-rally?srnd=premium


LQD on track for best week ever after $1.5 billion inflows

Fed signaled ‘unlimited firepower’ for bond markets: Tannuzzo


The Federal Reserve’s planned foray into the corporate-bond market has exchange-traded fund investors rushing in at a breakneck pace.

Investors poured a record $1.5 billion into the iShares iBoxx $ Investment Grade Corporate Bond ETF on Tuesday, following a $1 billion influx on Monday, according to data compiled by Bloomberg. The back-to-back inflows have put the $33 billion LQD on track for its best week on record after the U.S. central bank said it would begin buying corporate bonds and certain credit ETFs.

The Fed’s pledge of support and a $2 trillion stimulus deal have eased corporate default fears after the coronavirus outbreak reignited solvency concerns. Now, investors are racing to get ahead of the central bank’s purchases. LQD has rallied for four consecutive sessions and posted its biggest gain since 2008 on Monday after the Fed announced its plans.

“Signaling that they have unlimited firepower is huge for the market,” said Gene Tannuzzo, a Columbia Threadneedle portfolio manager. “The investment-grade market offers the best risk-adjusted return right now.”

LQD sees biggest inflow ever as high-grade bonds rally
The U.S. central bank said Monday that it would create a Secondary Market Corporate Credit Facility, one of several new measures aimed at cushioning the economic blow from the coronavirus. The terms of the facility allow for the purchase of up to 10% of an issuer’s outstanding bonds and up to 20% of the assets of any ETF “whose investment objective is to provide broad exposure to the market for U.S. investment grade corporate bonds,” a primer accompanying the Fed action said.

The Fed’s involvement is also helping to restore order to credit ETFs, Tannuzzo said. LQD’s share priced has climbed nearly 3% higher than the value of its underlying assets -- the fund’s biggest premium since 2009. Last week, it slumped to a discount of 5% relative to the presumptive value of its bond holdings.

While policy makers have committed to being the “broker of last resort” for U.S. corporations, uncertainty over the virus’ economic fallout will limit the rally in high-grade bonds, according to Janney Montgomery Scott LLC’s Guy LeBas.

“Now that the liquidity floor is in place, that should support valuations to a point, but I doubt spreads return to pre-February levels for some time,” said LeBas, chief fixed income strategist. “Pricing credit is a very imprecise exercise right now given the unprecedented nature of the economic downturn.”

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>>> Utilities Plunge: Making Sense Of The Sector's Big Decline


Seeking Alpha

Mar. 23, 2020

by Ian Bezek


https://seekingalpha.com/article/4333697-utilities-plunge-making-sense-of-sectors-big-decline


Summary

Utility stocks dropped nearly 20% between last Tuesday and last Friday.

This has to be concerning to investors that bought these stocks as strong defensive plays.

There are two factors that could hurt utility profitability going forward.

The sector offers fine yields, but isn't compelling yet aside from the income.

This idea was discussed in more depth with members of my private investing community, Ian's Insider Corner. Get started today »

This article was highlighted for PRO subscribers, Seeking Alpha's service for professional investors. Find out how you can get the best content on Seeking Alpha here.

Last week, the Utility Select Sector SPDR (XLU) sector got utterly smashed. From Tuesday's high onward, the XLU ETF lost 18% of its value. I don't recall these names ever getting hit this badly, even in 2008. It's simply been an incredible drop, with the sector giving back 5 years of gains in a little over a month:

Even more incredibly, if you go way back, XLU was trading for $43 prior to the financial crisis. Thus it's only gone up 10% over the past 13 years, with all other returns coming from dividends. Even farther back, XLU traded for as much as $34 in the year 2000, meaning that the ETF is up only 40% over the past 20 years. Of course, with dividends, things look a lot better. Still, it's a stunning turn of events for a sector that had looked unstoppable over the past two years. On a longer-term chart, you can see that XLU is rapidly threatening to breach price levels from more than a decade ago:

What can we take away from this? For one, utilities have reverted to form - they're simply not a great (nor particularly bad) industry historically. Over the past 82 years (data through 2015) utilities were the median sector, coming in 15th out of 30 in the market, producing essentially market-matching returns:

That table comes from this article, where I discussed this data in much more detail. The fundamental return is calculated based on the real annual growth of dividends over the past eight decades.

As for the question of utilities being defensive, though their stock prices suddenly gave way last week, the companies are still favorable ones to hold in an economic downturn. But investors were using them to play offense throughout 2019, hoping that falling interest rates would lead to sustained higher valuation ratios for the sector. In theory, that's probably still a reasonable hypothesis; reliable dividend streams are worth a lot more in a zero interest rate world.

In the short-run, however, above average valuation ratios become their own risk factor. When people are getting margin calls, or simply wanting to shift funds into more beaten-up names, they're going to sell the stuff where they are still showing a profit. Defensive assets can turn into a source of funds during a panic; even gold (GLD) started selling off at the height of the market panic. Simply put, people will get funds in the short-term wherever they can find them.

Over the long-haul, however, utilities should remain a defensive sector. Thus, is now the time to be buying as prices have come in dramatically? In some cases, yes. A lot of individual utility stocks have come down a great deal in March. That said, before you get too aggressive with your purchases, here are a couple of things to keep in mind.

Potential Issues: Declining Demand, Declining Returns On Equity
Interestingly, there's been (at least that I've seen) little discussion of the economic impact of the current situation on utility companies. Sure, some folks are considering the possibility of the government stopping utilities from collecting on past due clients for the duration of the crisis. That could hurt a bit on a marginal basis.

But zoom out. If the economy grinds to a halt for a few months, what happens to electricity usage? Over in the oil market, traders have quickly reacted to the slowdown by absolutely slamming the price of crude, and its refined products such as gasoline. Oil is more sensitive to the economy than electricity, as oil is the dominate transportation fuel. Most electricity uses, by contrast, aren't greatly impacted by a near-term economic slowdown.

Still, it probably isn't reasonable to think that electricity demand will remain steady. What do we have for data? I haven't seen much yet, but I did run across this interesting data point on New York City electricity usage. There's a ton of caveats here, as it's just one city, the weather could be a factor, and so on. But there appears to be a sharp rollover that started in the week of March 16th:

Historically, we can also look back to 2000 and 2009. Interestingly, due to rises in efficiency, electricity usage per person has pretty much stopped going up in the U.S. - it peaked in 2000 and has gone no higher:

Looking at the data, we can see there was a noticeable decline between 2000 and 2001, in some part likely due to the overall economic slowdown and then also specifically the sizable drop-off in economic activity immediately following the 9/11 attacks.

Moving forward, from 2008 to 2009, electricity consumption per capita dropped from 13,663kWh to 12,914. The effect was particularly harsh in the first quarter of 2009, when the economy and stock market were still heading downward. For that quarter, Power Magazine reported that residential electricity consumption was down 2.5%, commercial consumption was down 4.7%, and industrial consumption was down by fully 13.8%.

We should expect as much of a decline, and probably significantly more in the near-term, in 2020. Residential usage may actually go up a touch, as people spend far more time at home. That said, the marginal electricity use from staying at home probably isn't that high, many high-impact uses such as heating and appliances aren't going to change too much.

Meanwhile, commercial use is going to get pummeled. In 2009, stores had less activity, but there wasn't a mass government-ordered shutdown. You had malls with few shoppers, but not malls that were locked up with everything turned off inside as we have now. Similarly, industrial use will plummet for the length of the shutdown, as non-essential factories simply won't operate.

Longer-term, there's also the question of authorized returns on equity "ROE". Utilities tend to bargain with states and localities to earn a set rate on their capital investments. These ROE targets are a balance that should give utilities sufficient incentive to invest in needed services and provide safe and reliable operations for consumers. On the other hand, the locality has an obvious incentive to keep the utility from price gouging. These ROE targets are a well-known feature of the industry - here's a table by S&P from 2017, for example, showing this process in action:

There are now two factors working against utilities going forward. For one, with the economy hurting, look for states to be tougher at the negotiating table. When times are tough, there's less slack to be had overall. Second, the lower interest rates for longer environment is going to drag down the overall "fair" ROE target as time goes on. In a world where a utility's capital costs, say, 5%, a 10% ROE might make sense. But if the utility can now get capital at half that, the state or locality is likely to want a chunk of that savings as well. At the end of the day, utilities are regulated businesses, and as such, they aren't going to get the full benefits of favorable market-pricing developments.

As I showed above, historically utilities have been an average industry, doing no better or worse than the market as a whole. And after their recent sell-off, many individual utility stocks are back to more normal valuations, though they're by no means "cheap" yet.

Should you buy some? They're still one of the safest income sources around, no doubt, and the current yields have moved up nicely. For longer-term investors, however, you can surely find more attractive stocks that are much more deeply-discounted at the moment.

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Fwiw, started nibbling today, and will be using a re-balancing plan to get the stock allocation back up to 25%, and eventually up to 30% or 33% over the next 10 weeks. The basic idea is to add equal amounts daily to these 4 categories until the allocation goal is reached. I figure a systematic approach reduces the timing risk, and reduces the emotional aspects. Plus, if you are buying every day, you don't mind when the prices drop -


A) Broad Market (VOO, IVV, ITOT, VTI)

B) High Dividend (VYM, SCHD, HDV)

C) Utility (XLU, VPU, FUTY)

D) Consumer Staples (VDC, XLP, FSTA)


For my own account I'll probably add in a few additional categories -


E) Cloud Computing (SKYY, CLOU, WCLD)

F) Energy (XLE, VDE)

G) Alternate Energy (PZD)

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>>> High-Grade Bond-Fund Outflows Hit $35.6 Billion, Smashing Record


Bloomberg

By Claire Boston, Olivia Raimonde, and Alex Harris

March 19, 2020


https://www.bloomberg.com/news/articles/2020-03-19/investors-pull-record-35-6-billion-from-investment-grade-debt?srnd=premium


Withdrawal dwarfs second-largest outflow of $7.3 billion

Record $249 billion added to government money-market funds


Investors withdrew an unprecedented $35.6 billion from U.S. funds that buy up investment-grade debt this week as the global market rout from the spreading coronavirus intensified. At the same time, a record $249 billion poured into U.S. government money-market funds.

The withdrawals from corporate high-grade debt blow through the previous record $7.3 billion outflow from last week, according to Refinitiv Lipper. Funds that buy junk bonds lost $2.9 billion in the five business days ended March 18, while leveraged loan investors withdrew about $3.5 billion.

Credit markets had another volatile week amid a worldwide meltdown in risk assets. Risk premiums on investment-grade bonds reached levels not seen since the financial crisis, while junk bond yields breached 10% for the first time in more than eight years.

”The number is off the charts, but so is the magnitude of this market correction,” Dorian Garay, a portfolio manager at NN Investment Partners, said in reference to the investment-grade bond outflows.

Despite the turmoil, investment-grade companies including Walt Disney Co. and PepsiCo Inc. seized moments of relative calm to issue new debt. Many firms selling bonds this week were doing so to reduce their reliance on the commercial paper market, where prices have risen rapidly amid a broad market seize-up. Lipper fund flow data covers investment-grade funds that manage about $1.3 trillion in assets.

“The flows into IG have been so steady over the past eight years, that it was like the farmer coming with a daily handful of grain to feed the turkey in the back yard,” said Gregory Staples, head of fixed income at DWS Investment Management. “Today what the farmer had in his hand was an axe.”

Investment-grade bonds are poised for another one of the largest weekly losses on record as spreads widen to crisis levels. The three most recent daily outflows from high-grade funds and exchange-traded funds are the largest on record, Bank of America Corp. strategists led by Hans Mikkelsen said in a report Wednesday.

Money-Market Funds

The Federal Reserve stepped in on Tuesday, announcing that it would reintroduce the Commercial Paper Funding Facility, a measure it used during the financial crisis to shore up short-term funding markets.

Total assets in government money-market funds rose to an all-time high of $3.09 trillion in the week ended March 18, according to Investment Company Institute data that stretches back to 2007.

The prior weekly inflows record of $176 billion was set in September 2008 during the financial crisis caused by the collapse of Lehman Brothers.

Prime money-market funds, which tend to invest in higher-risk assets such as commercial paper, saw outflows of $85.4 billion, the largest move since October 2016, according to ICI. Total assets fell to $713 billion.

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Some vehicles (ETFs) to re-enter the stock market in the weeks/months ahead -


A) Broad Market (VOO, IVV, ITOT, VTI)

B) High Dividend (VYM, SCHD, HDV)

C) Utility (XLU, VPU, FUTY)

D) Consumer Staples (VDC, XLP, FSTA)


These conservative sectors may lag somewhat as the overall market recovers (vrs say tech stocks), but they should drop less if the market continues to fall more than expected (beyond the 40% drop to the S+P support area at 2000-2100).

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>>> Best & Worst ETFs During Market Chaos


ETF.com

March 05, 2020

by Sumit Roy


https://www.etf.com/sections/features-and-news/best-worst-etfs-during-market-chaos?nopaging=1


Not many areas of the market have been immune to the enormous gyrations the financial markets have seen lately. In the two weeks since the S&P 500 peaked, most exchange-traded funds have fallen. Likewise, most ETFs rose when the market had two extraordinary rallies of more than 4% on Monday and Wednesday.

But while most ETFs have been moving in tandem, the gains and losses haven’t been equal. Since its Feb. 19 top, the SPDR S&P 500 ETF Trust (SPY) is down 10.6% through March 4 (it was down as much as 12.4% on a closing basis, and 15.8% on an intraday basis at its trough on Feb. 28). On a year-to-date basis, SPY is down about 6%.

SPY’s performance in the past two weeks sits at about the middle of the pack; some ETFs have done better, while others have done worse.

Safe Havens

Inverse ETFs aside, it’s been extremely difficult to generate gains in the market since the Feb. 19 peak. It comes as no surprise that one of the few segments to perform well in that time frame is the bond market. Treasuries and other investment-grade bond ETFs have simply been on fire.

The iShares 20+ Year Treasury Bond ETF (TLT) and the iShares 7-10 Year Treasury Bond ETF (IEF) gained 9.1% and 5.2%, respectively, since Feb. 19. On a year-to-date basis through March 4, the two funds are up 17.4% and 8.4%.

Those are fantastic returns, and come as interest rates hover at record lows (bond yields and prices move inversely).

Another safe-haven winner during the past two weeks is gold. The yellow metal leapt to seven-year highs of $1,689/oz on Feb. 24. Since then, prices cooled down a little bit to around $1,670, but the SPDR Gold Trust (GLD) is still up 3.8% since Feb. 19 and 10.2% on a year-to-date basis—not as good as long-duration Treasuries, but better than IEF, the 7-10 year Treasury fund.

Gold Near A 7-Year High



China ETFs

Who could have imagined that stocks trading in China, the epicenter of the coronavirus, would end up being among the best performers of the past two weeks? But that’s precisely what’s happened.

The Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR) is up 4.3% in the period and 1.7% year-to-date. Two explanations for this puzzling performance come to mind. One, China got hit by the virus first, the government took drastic action to combat it, and there are signs the epidemic may be peaking in the country. The market may be anticipating that China will be the first country to recover from the crisis thanks to decisive action from the authoritarian government.

Another explanation is that the Chinese government may be propping up the financial markets. It wouldn’t be the first time that China lent support to its equity markets to prevent panic and provide confidence to its financial system.

Surprising Strength In ASHR



Sector Outperformers

Within the U.S. equity market, sector performance has deviated significantly. The S&P 500 may be down 10.6% over the past couple of weeks, but relatively safe consumer staples stocks are down only 3.8%, as measured by the Consumer Staples Select Sector SPDR Fund (XLP).

The Utilities Select Sector SPDR Fund (XLU) and the Real Estate Select Sector SPDR Fund (XLRE) are also outperforming, with losses of 3.6% and 5%, respectively, in the same period. The two sectors have been aided by plunging interest rates.

Then there is the Health Care Select Sector SPDR Fund (XLV), which has fallen 6.1% since the correction began. XLV made up a lot of ground on Wednesday, when it surged 5.7%, its biggest single-session gain since 2008. Surprise victories by Joe Biden in the Super Tuesday democratic primaries reduced concerns about Medicare-for-all and other health care measures that could negatively impact the sector’s profits.

On a year-to-date basis, XLP is down 1.5%; XLU is up 4.7%; XLRE is up 1.3%; and XLV is down 4.1%.

XLU Is Up Year-To-Date



Sector Laggards

On the flip side of the sector ledger are laggards like the Energy Select Sector SPDR Fund (XLE) and the Financial Select Sector SPDR Fund (XLF). The two worst-performing sectors, energy and financials, were down 17.9% and 15%, respectively, in the two weeks since Feb. 19.

In a way, financials are the flip side of real estate. The latter gets a boost from lower rates, while the former is hurt by them. Investors in financials certainly don’t want to see a situation like that in Europe, where negative interest rates have decimated the profitability of the region’s banking sector.

Additionally, the energy sector, already a pariah among investors, was hit yet again by the coronavirus-induced sell-off in oil prices. Crude was last trading below $46/barrel as traders anticipate the biggest slowdown in oil demand since the financial crisis.

The only saving grace for energy investors are the sky-high dividend yields the sector provides. XLE was last yielding nearly 5%.

XLE At An 11-Year Low



Other Laggards

XLE isn’t the only energy ETF to be walloped in the past two weeks. Two popular ETFs with exposure to smaller companies in the space, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the VanEck Vectors Oil Services ETF (OIH) each tumbled more than 25% in just the past two weeks alone and are down by more than 37% on a year-to-date basis.

Meanwhile, cheaper fuel prices haven’t been enough to offset the plunging demand for travel that airlines are facing. The US Global Jets ETF (JETS) sank nearly 30% since the market top and by a similar amount for the year as a whole.

On Wednesday, United Airlines announced that it is cutting its international flights by 20% and its domestic flights by 10% next month.

JETS Losing Altitude



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