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American Funds’ The Growth Fund Of America: Why Not Just Buy An ETF?

American Funds’ The Growth Fund Of America: Why Not Just Buy An ETF?

Capital Group’s Growth Fund of America is one of the largest, most successful mutual funds, we examine why. The fund has grown to over $ 147 billion in assets, is the fund too big for its own good? We examine the performance over the last 10 years. Continue reading at

Betting On A Biotech Bounce With A Familiar ETF

Count biotechnology stocks and exchange traded funds among the once high-flying market segments that are struggling to start 2016. Of the just over 270 ETFs that hit 52-week lows on Monday, six of those funds were dedicated biotech funds. That ominous … Continue reading at

This Real Estate ETF Could be a Home for Your Money

This week's exchange-traded fund (ETF) spotlight for income and dividend investors focuses on the iShares U.S. Real Estate ETF (IYR), a "fund of funds" that gives investors broad-based exposure to real estate investment trusts (REITs) operating in … Continue reading at

Mutual Funds

Moving To Momentum With ETFs

Of the more than 280 exchange traded products that debuted in the US last year, plenty were multi-factor funds. But with the momentum factor excelling last year and investors hoping for more of the same in 2016, investors may want to consider exchange … Continue reading at

Investors on Gold ETF Buying Spree Amid Global Stock Rout: Chart

Investors embarked on the biggest three-day buying spree in gold-backed exchange traded funds for a year as bullion rallied at the start of 2016 amid a stock-market slump. Holdings in ETFs climbed 19.6 metric tons in the three days through Monday to 1,477 … Continue reading at

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Don’t Count on It!: Reflections on Investment Illusions, Capitalism, “Mutual” Funds, Indexing, Entrepreneurship, Idealism, and Heroes
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Mutual Funds

A Review of ETF Launches in 2015

2015 was another busy year for the Exchange Traded Fund (ETF) industry with 284 new launches in the US, taking the year-end ETF asset totals in the US to $ 2.135 trillion. Analyzing these new launches provides interesting insights both into changes in … Continue reading at

An Effective ETF Avenue For Dividend Consistency

Knowing that slower dividend growth could be the new normal this year means dividend investors should emphasize the exchange traded funds that hold companies that have previously displayed the ability to boost payouts during myriad market environments. Continue reading at

American Funds The Growth Fund Of America Why Not Just Buy An ETF

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SPDR S&P 500 ETF Trust (SPY) is Daiwa SB Investments' 2nd Largest Position

Daiwa SB Investments increased its position in shares of SPDR S&P 500 ETF Trust (NYSE:SPY) by 19,170.0% during the fourth quarter, according to its most recent 13F filing with the Securities and Exchange Commission (SEC). The hedge fund owned 71,299 shares … Continue reading at

USO Stock: Capitulation Looms for the United States Oil Fund LP (ETF)

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As a follow-up to last week’s breakdown of precious metals ETFs (the GLD and SLV), today’s Word is also ETF, but with a special focus on the Treasury Bond ETF: the TLT. The moral of the story with these financial products is to read the fine print, but we will give you another reason why as well.

Let’s dig deeper into one of the more popular Treasury Bond ETFs: it’s called the TLT, managed by Blackrock. If you think this ETF sounds like a safe investment because its underlying assets are US Government Securities, you may surprised to find out how much risk you’re actually taking on.

If you look at the prospectus it states:

“The Fund may engage in securities lending. Securities lending involves the risk that the Fund may lose money… ”

“The Fund may lend securities representing up to one-third of the value of the Fund’s total assets”

So one-third of underlying assets in the ETF, in this case Treasurys, can be used as collateral to take out loans.

The prospectus it also states:

“The Fund also may invest up to 5% of its assets in repurchase agreements collateralized by U.S. government obligations and in cash and cash equivalents, including shares of money market funds”

Let’s put the pieces together:

TLT can lend up to one-third of its total assets for cash, and then invest that cash in things like money market funds. This is something you could only find out by reading the Statement of Additional Information, a supplement to the prospectus.

The fund can then invest up to 5% of its assets in repos, cash, and money market funds.
So, up to 38.33% of assets can be put in the money market.

And according to the Schedule of Investments, 36.01% of the 20+ year TLT Treasury Bond Fund is invested in Money Market Funds.

Now there is not necessarily a problem with Money Market Funds, but this is certainly an area of additional risk especially if you thought the underlying assets were a direct liability of Uncle Sam. Just recall the run on Money Market Funds after the collapse of Lehman Brothers in 2008, it gave rise to headlines like “Rushing to save money-market funds” and “Money-Market Funds Get Billion Backstop From U.S.”

So remember, before investing in an ETF, even in an apparently safe one, it is important to do your homework. A sophisticated investor or trader may have good reason to use such an ETF, but if you are buying into the TLT as a long-run alternative to buying US Treasurys, you may want to think twice about where you are parking your hard earned money.

Mutual Funds

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    • A -d intexas
    • January 12, 2016

    1:30 wow, up tp 1/3 of total assets can be used as collaeral to take out loans. pawnsi scheme they will put one dude in jail in the year 2020, thats my prediction

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    • grraadd
    • January 12, 2016

    Read fine print – another example of that fundamental rule.
    Other useful rule to follow is: if it's regulated by central planners it must be crawling with corruption and fraud (unlike free market regulation).

    View Comment
    • yohance brown
    • January 12, 2016

    Great post. Thanks

    View Comment
    • The92freightliner
    • January 12, 2016

    Eye candy and education , love it .

    View Comment
    • DLeeWilliamsburg1
    • January 12, 2016

    Kind of "Hot for Words" goes to the financial markets … ?

    View Comment
    • The Right Stuff
    • January 12, 2016

    Better to have a leveraged inversed treasury/bond ETF ? ????

    View Comment
    • TheVictianality
    • January 12, 2016

    … and thank YOU for "breaking it down" for us, Lauren. *fist bump* =)

    View Comment
    • feseveri1911
    • January 12, 2016

    and yes, ppl will invest in these gladly lol…why? because the suckers are suckers…and that's a full-time job for them, not a part-time Which leads to this…they deserve everything they're gonna get

    View Comment
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