Category Archives: stocks

Why You Should Invest In India ETFs Now

After rough trading so far this year, the Indian market is now showing rays of hope for investors. Worries over monsoon deficiency, the key cause of last year’s upheaval is unlikely to bother this year. Added to this, better-than-expected fiscal fourth-quarter earnings set the stage for India investing on fire lately (read: Fragile Five ETFs Not At All Fragile This Year? ). La Nina: Better Monsoon Expected This Year Last year, lower rains weighed on the all-important agricultural sector. But, the president of the Confederation of Indian Industry (CII) recently forecast India GDP growth of 8% for fiscal 2016-17 driven by the usual monsoon. The agency now expects the agricultural sector to expand at the rate of 6% this year. “That adds about 0.5-1% to GDP,” as per CII president. Even Deutsche Bank is supportive of this fact. India is going to face a La Nina event this year, which is the positive phase of the El Niño Southern Oscillation and results in cooler than average sea surface temperatures in the central and eastern tropical Pacific Ocean. It is often seen as the opposite of El Nino (read: 5 ETF Losers of 2015 Hoping for a Rebound in 2016 ). As per the research house , the Indian agricultural sector exhibits a solid correlation with La Nina with average annual rains being higher than the long-term average. The bank noted that agri GDP in La Nina years expanded at an average 7.8% year over year versus an average 2.3% jump seen in years without La Nina. Not only the agricultural sector, Deutsche Bank indicated that GDP, private consumption and investments growth average 8.9%, 7.4%, 10.4% respectively in La Nina years against average growth of 5.8%, 5.2%, 7.2% respectively in years with no La Nina. Earnings Recovery on the Horizon? Nearly 76 BSE 500 companies that came up with earnings releases recently give cues of an earnings recovery. As much as 64.5% of them beat consensus estimates for net profit while 63.2% surpassed the top line. Higher government spending and a rebound in commodity prices have boosted companies’ earnings, per analysts. Though it is too early to take a call over the whole Indian earnings, as of now the trend is positive. Monetary Policy Easing The Reserve Bank of India ( RBI ) lowered its key rate by 25 basis points (bps) to 6.50% on April 5, 2016, to bolster business in the economy. This was the first cut in 2016 followed by four rate cuts in 2015. The rate is now the lowest in over five years. Investors who put more emphasis on slowing GDP data for the U.S. economy for the October-December quarter (7.3% followed by 7.7% growth rate in the prior quarter), will now find some reason to invest in Asia’s third-largest economy. IMF Moderately Bullish The International Monetary Fund, which reduced global growth forecasts recently, maintained the same for India for this year at 7.5% . Steady private consumption is the reason for the organization’s optimism though softer exports and listless credit growth are deterrents to the economy. All these make the case for India investing stronger. While all India ETFs should stand to gain, below we highlight a few ETFs that have chances of outperforming ahead. i Shares S&P India Nifty Fifty Index ETF (NASDAQ: INDY ) The fund looks to track the performance of the top 50 companies by market capitalization in the Indian market. Banks is the top sector in the fund with about 23.2%. The fund has a Zacks Rank #2 (Buy). EGShares India Infrastructure ETF (NYSEARCA: INXX ) Infrastructure stocks and the ETF should also get a boost from monetary easing. As this sector is debt-heavy in nature, a decline in interest rates will favor it. The fund has a Zacks Rank #2. WisdomTree India Earnings ETF (NYSEARCA: EPI ) The fund looks to follow the investment results of profitable companies in the Indian equity market. The fund has a Zacks Rank #2. EGShares India Consumer ETF (NYSEARCA: INCO ) As per the India Brand Equity Foundation , revenues of the consumer durables sector are expected to touch US$12.5 billion in fiscal 2016, up from US$ 9.7 billion in fiscal 2015. Since private consumption is pivotal in India, a look at this consumer ETF is warranted. The fund has a Zacks ETF Rank #3 (Hold). Link to the original post on Zacks.com

Popularity And Price Increase For ‘Low Vol’ Funds

“Low volatility” funds have surged in popularity recently as investors have poured nearly $10 billion into them so far in 2016, which has significantly increased their price. At the end of 2015, one such “low vol” fund (i.e., specializing in stocks that fluctuate less than the broader market) had a P/E ratio just above the market as a whole. By the end of April 2016, it was “nearly 10% more expensive than the market average,” reports a recent Wall Street Journal blog piece. Nardin Baker of Guggenheim Partners Asset Management, who has written on and managed such funds for decades, says that low volatility stocks have outperformed the market by an average of about 1 percentage point annual with roughly 30% less risk. Dan Draper, who manages a low volatility fund for Invesco Powershares, says that investors pay less in bull markets for stocks that don’t make big moves, which made them cheap. “But can unpopular investments continue outperforming after they become popular?” the article asks. Andrew Ang of BlackRock says that potential overvaluation is “a valid concern” and “excessive crowding of any strategy should send up a red flag of warning,” but that these stocks are not currently “at extreme values by any standard.” Although Baker says “anybody who’s in low vol right now, they’re not going to be hurt,”but Dave Nadig of FactSet says that “if everybody’s chasing the same stocks, eventually they will no longer be cheap and returns will regress to the mean.” Ang says investors should not “go into low vol to outperform the market,” but “to reduce your risk.”

What Lies Ahead For M&A ETF?

Merger and acquisition (M&A) activities across a number of sectors were on a tear last year, with a record level of such activities. But the momentum for M&A – one of the major drivers of the stock market ascent in recent times – seems to be fading this year. At least, the numbers are giving such cues. The volume of global deals is $US822.2 billion ($1.1 trillion) so far this year, which represents a decline of 17% year over year (read: Merger & Acquisition ETFs: Will 2016 Replicate 2015? ). In addition to this data, there has been a surge of failed M&A deals lately. As per data provided by Dealogic , “US targeted withdrawn M&A volume is up 64% on full year 2015 ($231.1bn) to $378.2bn in 2016 YTD (as of May 4, 2016).” This is because several mega deals have been called off lately which took the size of U.S. oriented withdrawn M&A to a record level. Drugmaker Pfizer’s (NYSE: PFE ) decision to abandon its $160 billion deal to unite with Botox maker Allergan plc (NYSE: AGN ) due to the new Treasury guidance related to tax inversion is the largest called-off deal on record. The $103 billion deal between Honeywell International (NYSE: HON ) and United Technologies (NYSE: UTX ) is also out of action. There was also a proposed $38.7 billion merger deal between Halliburton (NYSE: HAL ) and Baker Hughes (NYSE: BHI ), which finally fell apart in April. As per Dealogic, with the termination of these likely deals, investment bankers were hard hit as they lost about $1.2 billion in possible investment fees. What’s Next? It looks like that the removal of mammoth deals in the U.S. actually inflated the size of withdrawn M&A data ($357.8 billion); the data speaks less about the diminishing number of activities. As per financial review, though there was a plunge in global M&A deal size, the number of announced transactions is 8,025 so far in 2016 versus 8,085 last year, indicating that the number has just moderated, and is far from completely losing momentum. The stringency in the U.S. tax inversion rule is less likely to put an end to cross-border deals. Yes, it could slow the momentum, but cannot stop them altogether (read: New Tax Inversions Rules: Threats to Healthcare ETFs? ) Another reason for the M&A slowdown is the underperformance of hedge funds in recent times. Notably, activists’ hedge funds play a huge role in companies’ merger and acquisition decisions. If the climate improves in this area, maybe M&A sector will receive a fresh lease of life. Also, being an election year, activities may remain slightly subdued in the U.S. Plus, the banking sector is facing stringent regulation and is also caught in a trap following energy sector issues. This is because banks have considerable exposure in the energy sector, which may default on persistent low oil prices. This scenario made the banks unsure of “how much leverage they should supply to private equity transactions, which has caused them to shy away from lending to PE-backed deals .” If the banking sector recovers in the near term, mergers and acquisitions may also perk up and investors could easily take advantage of the merger arbitrage strategy. This strategy looks to tap the price differential (or spread) between the stock price of the target company after the public announcement of its proposed acquisition and the price offered by the acquirer to pay for the stock of the target company. This is especially true given that investors should go long on the target or the acquired company and short on the acquiring company. When the deal is completed, shares of the target company will increase to the full deal price (in some cases slightly below the deal price), giving investors a nice profit. How to Play? Here are three merger arbitrage ETFs, any of which could make compelling options for investors seeking to play this area. These are the IQ Merger Arbitrage ETF (NYSEARCA: MNA ), the ProShares Merger ETF (BATS: MRGR ) and the Credit Suisse Merger Arbitrage Index ETN (NYSEARCA: CSMA ). Link to the original post on Zacks.com