Though the U.S. equity markets managed to close at record highs for two consecutive days last week, they failed to make a weekly closing in the green. For the week, the Dow and S&P dropped 0.6% and 0.03% respectively. However, the tech-laden Nasdaq managed to gain 0.5%.
Encouraging small-business sentiment, upward revision to retail data for March and gains in some Internet and biotech stocks enabled the markets to close in the green for the first two days of the week.
However, small caps continued to face some pressure, while dismal results from Wal-Mart (WMT) also dragged the markets lower. Moreover, lower-than expected first-quarter GDP numbers for the Euro zone weighed on the benchmarks.
Though the U.S. economy is showing some strength compared to a weak first quarter, the rebound has not been felt all around. Lower-than-expected retail sales and industrial output data signal that there is still some lingering weakness (read: 3 Sector ETFs for This Shaky Market).
Continuing issues in some pockets of the U.S. economy seems to be the primary reason behind the Fed chairwoman’s recent comments to keep interest rates low for a sufficiently longer period. The Fed has clearly stated that it is in no hurry to raise interest rates.
The news has worked in favor of longer-term bonds, which have seen solid gains for the past few weeks. Longer-term yields have fallen following the Fed’s comments, thus lifting prices the most for longer-dated funds. This makes sense, given the fact that longer-term bonds are the most sensitive to interest rates. So, a drop in yields has led to higher prices.
In fact, longer-term Treasury bonds have emerged as clear winners in the past week, outshining equities. All the top three to gain in the broad U.S. non-leveraged space are bond ETFs.
Below we have highlighted four gainers in the last week, two each from the bond and equity space.
Bond ETF Gainers
25+ Year Zero Coupon U.S. Treasury Index Fund (ZROZ)
The fund tracks the BofA Merrill Lynch Long Treasury Principal STRIPS Index, focusing on treasury principal STRIPS that has 25 years or more of final maturity.
The fund holds 21 securities and focuses on long-term bonds with both effective maturity and effective duration of 27.30 years. The fund’s high duration has worked in its favor, allowing ZROZ to clock 3.61% in the past one month, after having gained 21.5% in the year-to-date frame.
The fund manages a small asset base of $72 million and has a yield of 3.46% (read: 3 Long Term Bond ETFs Surging as Rates Stay Low).
Vanguard Extended Duration Treasury ETF (EDV)
The fund tracks the Barclays Capital U.S. Treasury STRIPS 20-30 Year Equal Par Bond Index, which measures the investment return of Treasury STRIPS with maturities ranging from 20 to 30 years.
The fund is a good choice to gain high current income in the government bond space. The ETF provides the highest yield of 4.26% within the Treasury bond space.
The fund manages an asset base of $225.6 million and holds 67 securities in its basket. The fund is also quite sensitive to interest rate changes having an average duration of 24.8 years.
EDV has gained 3% in the past week and is up 19.4% this year. The fund is also a low-cost option, charging investors just 12 basis points a year.
Equity ETF Gainers
Morgan Stanley Cushing MLP High Income Index ETN (MLPY)
Thanks to consistent growth in the energy industry and falling yields, Master Limited Partnerships (MLP) have performed quite well this year. MLP products are generally high-yielding products, given the fact that they do not pay taxes at the entity level. As such, they pay most of their income in the form of dividends to investors.
The fund tracks the Cushing MLP High Income Index, measuring the performance of 30 MLPs which hold energy and shipping assets in North America. Crosstex Energy LP, Buckeye Partners LP and Natural Resource Partners LP are the top three holdings of the fund (read: 3 MLP ETFs Riding Out Market Volatility).
The ETN had added 2.4% in the past week, though it has added a meager 3.6% for the year. Nonetheless, MLPY has a solid dividend yield of 7.39%.
iShares Dow Jones Transportation Average Fund (IYT)
Transport funds have lately been picking up on the back of decent earnings performances. Encouraging earnings results from companies such as Union Pacific (UNP), Kansas City Southern (KSU), Ryder Systems (R), Delta Air Lines (DAL) and United Continental (UAL) have in particular brought back some strength to this sector.
The ETF tracks the Dow Jones Transportation Average Index, giving investors exposure to a small basket of 21 securities. From a sector perspective, railroads takes the top spot at 29.3%, while delivery service (20.95%), trucking (16.87%) and airlines (14.21%) round off the top four spots (read: Transport ETFs in Focus on Earnings).
The fund has gained 1.7% in the past week and is up 6.8% so far this year.
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