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SPDRs Get More Specific: a Look at the New ETFs XLFS and XLRE

By U.S. News & World Report

When a proprietary blend of herbs and spices works for you for 17 years, people are going to take note when you finally tweak with the recipe. That’s what’s going on in the world of exchange-traded funds, where State Street Global Advisors has added a pair of new ETFs to its lineup of Select Sector SPDRs for the first time since rolling out the products in 1998.

As of this month, the Financial Services Select Sector SPDR Fund (ticker: XLFS) and the Real Estate Select Sector SPDR Fund (XLRE) are open to investors. For those looking to make more specific sector bets, this is a clear notch in the “W” column.

The birth of two new funds. For 17 years, the Financial Select Sector SPDR Fund (XLF) was the sole financial sector offering in the SPDR camp, providing a blend of companies such as banks and insurance companies. But also lumped into this group was real estate investment trusts — companies that own and operate real estate, or in some cases own mortgages.

However, the marriage of financial companies and REITs was never a perfect one, and the two are formally splitting as of next year.

“The real impetus for this came as part of the Global Industry Classification Standard, which is jointly implemented by Standard & Poor’s and MSCI [Morgan Stanley Capital International],” says Dave Mazza, head of research for SPDR ETFs and SSGA Funds at State Street Global Advisors. “Throughout this process they made a decision that in August 2016 they would actually be splitting real estate out from the broader financial industry and moving it into its own sector.”

In response, State Street has launched XLRE and XLFS, which won’t replace XLF in the SPDR lineup, but simply join it. XLF has banks, insurance companies, capital markets companies, diversified financial services, consumer financial companies, mortgage finance, REITs and real estate management companies. XLRE and XLFS will divide that pot — XLRE will have the REITs and real estate management and development companies, while XLFS will contain the rest.

Here’s a closer look at each of the new funds.

Real estate lands in XLRE. The XLRE is going to be a real estate-focused fund that invests in real estate investment trusts (excluding mortgage REITs) as well as real estate management and development companies.

It’s a relatively small fund, at just 25 holdings, and somewhat top-heavy as the five greatest holdings comprise roughly 40 percent of XLRE’s total weight. The top five holdings will be Simon Property Group (SPG), American Tower Corp. (AMT), Public Storage (PSA), Equity Residential (EQR) and Crown Castle International Corp. (CCI).

The top-heaviness isn’t much of an outlier — you get much of the same from similar funds such as the Schwab U.S. REIT ETF (SCHH) and the Vanguard REIT ETF (VNQ) — though those other offerings are much more diversified at 97 and 145 holdings, respectively.

And naturally, the yield-happy nature of REITs shines through in the fund’s yield, which is projected at about 3.3 percent based on its underlying index.

XLFS is for banking and insurance stocks. The XLFS is actually going to look a heck of a lot more like the XLF, especially at the top. The two funds share nine of the same top 10 holdings, led by roughly 10 percent weightings in Berkshire Hathaway (BRK.A, BRK.B), Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM).

XLFS is now a cleaner, purer financials fund, with more than half of the fund dedicated to banking and another hefty allocation to various insurance companies.

The downside of this? The yield suffers a bit, as the already modest 2.1 percent of the XLF drops to 1.9 percent based on XLFS’ underlying index.

Why XLRE or XLFS? It bears repeating that XLF isn’t going away. If you hold XLF and like the exposure it provides, nothing is booting you out of that fund.

However, XLRE and XLFS offer more specific exposure to two very different sectors — something that’s getting a thumbs-up in the financial space.

“From the perspective of an individual investor, this allows for greater focus in specific areas rather than having to buy a benchmark that may contain sub-optimal holdings,” says David Fabian, managing partner and chief operations officer of FMD Capital Management in Irvine, California. “Now ETF holders can fine tune their financial industry exposure to include specific groups of stocks that may prove to be more beneficial under specific circumstances. For instance, XLRE may be more attractive in a falling interest rate environment, while XLFS may perform better in a rising interest rate environment.”

Chris Johnson, director of research at JK Investment Group in Independence, Ohio, agrees.

“The sector-focused construction of these exchange traded funds allows investors to make sure that they get what they are paying for,” he says. “In the past, many sector-based ETFs have included less-related companies for a number of reasons, these new offerings have a laser-like focus on their component companies, which is great for the sector investor.”

Moreover, both funds charge just 0.14 percent in fees (backing out a small expense waiver), which comes out to just $14 annually on every $10,000 invested, so they’re individual-investor-friendly.

“With average ETF management fees above 0.5 percent, and mutual fund fees above 1 percent, a management fee of less than 0.15 percent is welcome to the investor and helps their bottom line,” Johnson says.

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SPDRs Get More Specific: a Look at the New ETFs XLFS and XLRE originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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