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Joseph P. Porter

 
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  • Guggenheim's RSP: Equal Weight Or Dead Weight? [View article]
    One would expect the two to diverge at some point, since they do not focus on the same list of funds. Changing indexes also skews the way fund tracks.

    Thanks for writing
    jpp
    Nov 26, 2014. 10:52 AM | Likes Like |Link to Comment
  • Guggenheim's RSP: Equal Weight Or Dead Weight? [View article]
    They are two different funds that have two different indexes. RSP covers the entire S&P 500, while VO focuses on mid-caps. I will be looking at equal-weighted funds covering various indices in the future, so we may get a look at a more balanced look at VO.
    Nov 26, 2014. 10:50 AM | Likes Like |Link to Comment
  • Guggenheim's RSP: Equal Weight Or Dead Weight? [View article]
    I would expect that funds that focus on a particular part of the S&P 500 would have a good chance of outperforming any fund that was committed to the whole index, precisely because they weed out the poorly performing stocks. It's great that you have found some dynamite ETFs to compliment RSP.

    And yes, Guggenheim impresses me with their line up as well!

    Thanks for writing
    jpp
    Nov 26, 2014. 10:39 AM | Likes Like |Link to Comment
  • Guggenheim's RSP: Equal Weight Or Dead Weight? [View article]
    I'll have to take a look at this. Thanks for pointing it out!

    jpp
    Nov 26, 2014. 10:34 AM | Likes Like |Link to Comment
  • Guggenheim's RSP: Equal Weight Or Dead Weight? [View article]
    I plan to examine more equal-weight funds over the next couple of weeks/months, as I have noticed that what you say is true - not all such funds beat cap-weighted funds. In sector-specific funds, I think the reason may well be that the smaller caps may not be as solid as the large caps in that sector.

    I will have more to say on this as the articles continue.

    Thanks for writing!
    jpp
    Nov 26, 2014. 10:34 AM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    Book value is something I calculate for myself when I use it (usually only for individual companies). I do not know where you would be able to get historic book values for an ETF.
    Nov 12, 2014. 06:37 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    You have to remember that each mREIT is weighted differently. One would have to back-test REM's holdings from inception on to adequately explain why it lost the value it did.

    However, ultimately, the value of any ETF is firmly established: it is anchored to the value of its holdings. This is not guess. This is fact. Also keep in mind that ETFs, like mutual funds, are strictly regulated. If REM lost 80% of its value (and continued to exist) it is because its assets lost (collectively) 80% of their value.

    Could its management have avoided such a loss? A different weighting system might have mitigated some losses, but it may also have amplified some.

    The only way REM's management could have avoided the losses they realized would have been to have had holdings in other industries besides mREITs - but then it would not have been the REM we know and love today.

    Keeping in mind that there are only two mREIT-based ETFs, note the chart I provide comparing MORT and REM. Any move up or down by one fund is reflected in the same move by the other. This shows two things: one. since the funds have the same basic holdings, the movements of each fund is fundamentally tied to those holdings.

    Two: if there is a fundamental issue with REM and MORT, it is that they are completely focussed on a very narrow "sub-industry." Wherever that sub-industry goes, so go the ETFs.

    In the end, it would be a mistake to invest in REM with the expectation that REM miraculously re-attain its initial $50/share value.
    Nov 8, 2014. 06:32 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    I would be the last person you should ask about option strategies - I do not have the temperament for them (or for shorting stocks, either), so I do not consider them. It is a matter of knowing my limitations, risk orientation and general portfolio strategy (these are things all investors should know about themselves).

    As it is, I have structured what I consider to be a core portfolio strategy (primarily for retired individuals) that seeks to protect capital and provide a base dividend income that is fairly stable. 60% - 70% of one's holdings should be in the core.

    (Current core holdings: SPLV, IYLD, MDIV and INKM, with somewhat equal weighting - though slightly favoring SPLV. I also had shares of PCEF - for div. generation - but this seemed to be a threat to capital in a weak economy. I sold PCEF recently and bolstered my holdings in the other four. I then shifted div. generation to REM.)

    In such a portfolio, REM becomes a secondary holding aimed primarily at dividend generation which (for the time being) also seems to be a way of achieving some growth, as well. With the core maintaining a solid base for capital, I am not overly concerned about the capital (about 5% of the portfolio is in REM). It may fluctuate, but the dividends will offset any incidental vacillation. I only need to watch for signs that a major short-term interest rate hike is in the offing, which shouldn't be for another 12 - 24 months.
    Nov 8, 2014. 01:32 PM | 1 Like Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    fsoriano -

    By and large, the value loss by REM from 2007 - 2009 was due to the great recession. Ultimately, it is that plain and simple, although the complete answer takes longer. I gave something of an explanation of the process when I discussed risks in the article - a full explanation would constitute a book, but I can give you a brief explanation here.

    Fundamentally, the value of an ETF is tied to the value of the companies it holds (the per-share value of the ETF's holdings is the "net asset value," or "NAV"). But you know this already. An ETF essentially has little or no value of its own - its value is in the collection of holdings it has, and that is all the value it can have.

    As the NAV fluctuates, the price of the ETF will fluctuate, as well. If there is a disparity in the value of the ETF and its NAV the ETF's Authorized Participant will engage in arbitrage to bring the two values back together. This process prevents the value of an ETF from being either too high or too low compared to the value of its assets.

    When REM lost nearly 80% of its value throughout the recession, the actual loss was largely a function of the losses experienced by its holdings. If people did not want REM itself, thus decreasing demand for the ETF, it would have collapsed and closed of its own accord. What lost value was the block of mREITs that REM had shares of - REM's value just tagged along for the ride, as it is supposed to.

    Why hasn't REM recovered? The short answer is: the value of its holdings hasn't recovered. Why has REM stayed as low as it has for the past 5 years? Because the value of its holdings have stayed that low for the past 5 years. Will REM ever recover the value that it lost? Only when its holdings have recovered their value. This may sound somewhat condescending, but it is, at root, that simple.

    mREITs derive their income from blocks of mortgages that they "buy." The income is comprised of the interest paid on those mortgages. mREITs buy their blocks of mortgages using short-term loans. They pay interest on those loans. The net income for the mREIT, then, is the interest it receives minus the interest that it pays.

    Anything that messes up the fine balance that the mREIT tries to maintain between interest in and interest out causes the mREIT to lose income, resulting in lower dividends. Lower dividends means lower share value.

    In the great recession housing values dropped, foreclosures increased, bankruptcies increased, many people simply walked away from their homes. As a result, the income realized by mREITs dropped dramatically. So did their value.

    Since the housing market is still fairly soft, and since the economy in general is recovering only slowly, mREITs are not seeing the same revenues that they saw prior to 2008. As long as the current economic environment persists, mREITs will remain suppressed in value.

    It would be something of a mistake to buy an mREIT ETF on the expectation that it will consistently grow in value and pay big dividends, to boot. At the present time, the dividends mREITs are paying makes the mREIT just about the only game in town, so values aren't likely to drop as long as things do not deteriorate. For the long haul, mREITs (and REM and MORT) are something to invest in for the dividends, rather than for growth.

    On October 31 REM was trading @ $12.37, and its NAV was $12.38. This is just about as perfect as perfect can be for the investor, as REM is trading at a very slight discount to its NAV.

    Will REM ever see $50/share again? I don't know.
    Nov 7, 2014. 05:28 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    Solid observation. It would be very foolish to put a large investment in mREITs, either individually or in an ETF. The risk to capital is too great.

    I think the ideal play is with less than 5% in mREITs in whatever form, unless you have capital to burn. A drop in yield leaves these still as good holdings, but loss of capital in mREITS seems to be pretty much goodbye to money.
    Nov 7, 2014. 12:57 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    I dunno ...

    is gas/oil a good bet right now? Long term, you are right. But I like the yield. I don't expect another GED like '08, but another GED with mortgages as a root cause could sound the death knell for mREITs.

    Thanks, and glad you liked the article.

    jpp
    Nov 7, 2014. 12:35 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    I am sure that it is possible to buy into individual mREITs and secure > 12%, but there is safety in numbers (or, there's supposed to be, anyway). An ETF seems like the best way to go.

    I would imagine your "mini-ETF" has shares of NMC, ORGN and/or NCT. NCT pays at 28% after its reverse split, but a reverse split would seem cause for concern.

    You also probably round it out with CYS, ARR (the pirate's mREIT), JMI, NYMT, ORC, OAKS and/or RSO. All together, these would yield about 19%-20%, possibly more. Would all depend on how much weight you put on NCT.

    How close am I?
    Nov 7, 2014. 12:29 PM | Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    Thanks, Miz.

    I had a mini-ETF in 2012, then QE3 came along. The cuts in dividends and the loss of capital was insult added to injury. I'll do the real ETF and let iShares worry about managing it.

    12%+ is tough to beat.

    jpp
    Nov 6, 2014. 07:05 PM | 2 Likes Like |Link to Comment
  • REM And MORT: Mortgage REIT ETFs For Growth And Yield [View article]
    I'm glad you found the article helpful. I have initiated my own position on REM. I believe these funds will be OK for the next couple of years - through 2016, at least.

    Best of luck to you!
    jpp
    Nov 6, 2014. 06:17 PM | 1 Like Like |Link to Comment
  • Real Estate ETFs For Growing The Retirement Portfolio [View article]
    Hardog -

    My next article should be right (or REIT) up your alley.

    jpp
    Oct 31, 2014. 11:43 AM | Likes Like |Link to Comment
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