This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Fed Encourages High-Income ETFs, Discourages Stock ETFs

NEW YORK ( ETF Expert) -- Chairman Ben Bernanke hinted than the U.S. Federal Reserve is still leaning towards additional easing, either through bond purchases or an extension of low rates into 2015. (Tell us something that we didn't already know.)

Yet, the Fed does not appear poised to act in September or October. Indeed, with the Fed unlikely to provide clarity until after the presidential election, stock exchange-traded funds may see volatile back-and-forth movement in the weeks ahead.

In contrast, high-income ETFs are having the time of their lives. Virtually every asset with impressive yield spreads over comparable treasury bonds hit a new 52-week high as of Aug. 31.

Here are some of the high-income ETFs that hit new highs and the percentage of growth for August:
  • ETRACS Business Development Company Index Note (BDCS), 4.8%
  • iShares FTSE NAREIT Mortgage REITS (REM), 2.1%
  • iShares S&P Preferred (PFF), 1.4%
  • SPDR Barclays High Yield Bond (JNK), 1.3%
  • iShares iBoxx High Yield Corporate (HYG), 1.1%
  • iShares JPM Emerging Market Bond (EMB), 0.8%
  • Guggenheim Bulletshares 2014 High Yield (BSJE), 0.7%

So what would it take for stock ETFs to celebrate as resoundingly as high-income ETFs? What would prompt the Fed to declare that it will take decisive action? The August jobs numbers would need to be decidedly weak when they are released Friday.

At the moment, analysts project 120,000 new jobs (not adjusted for those leaving or joining the labor market a la the labor participation rate). If there's a "big miss," I expect stock ETFs to scream, shout and twist for Bernanke's crew to produce. The markets would probably get what they want by the Fed's mid-September meeting.

However, if headline unemployment stays at 8.3% and roughly 100,000 jobs or more come to fruition, expect the Fed to remain on hold until after the November presidential election. In this instance, stock ETFs might react negatively . Ironically, the weaker the short-term economic data, the better stock ETFs should perform.

High-income ETFs? They may be in the sweet spot for quite some time. Regardless if they are "champagne bubbly," investors can't resist the yields and they won't have to fret capital depreciation until and unless Treasury bond ETFs enter a downtrend .

With the Fed eventually buying more, then, there's still room for helium in that Treasury bond balloon.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Disclosure Statement: ETF Expert is a website that makes the world of ETFs easier to understand. Gary Gordon, Pacific Park Financial and/or its clients may hold positions in ETFs, mutual funds and investment assets mentioned. The commentary does not constitute individualized investment advice. The opinions offered are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial or its subsidiaries for advertising at the ETF Expert website. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert at the site.

Gary Gordon reads:

Real Clear Markets
Jeff Miller
Charles Kirk
On Twitter, Gary Gordon follows:

Jonathan Hoenig
Doug Kass
Hard Assets Investor

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%
YHOO $36.60 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs