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Fund Managers Are A Frightened Lot!

Today we will focus on Merrill Lynch’s monthly survey of global fund managers, who overlook around $600 billion in AUM. Majority of the time, but not always, surveys such as these should be taken from the contrary perspective and include some great insights as to how the consensus is positioned. As always, there are some pretty good charts and interesting observations, so let’s get started. Click to enlarge Equity allocations remain quite low, especially when one considers the recent multi-month powerful rally in global equities. Fund managers allocations towards the stock market fell to 9% overweight this month, from 13% last month and 54% in April 2015 (just before equities rolled over). The chart above shows that data with MSCI Hong Kong, which has been one of the most oversold markets since the Chinese rout began. However, on our Twitter account readers can also see the same data with the MSCI Australia index. We would assume equities have further to run based on this data alone, however we would advise caution on using only one indicator to make your financial decisions. Click to enlarge Bond allocations remained similar to previous two months, as readings came in at 38% underweight. Worth noting however, fund managers were 64% underweight in December, just before the equity market sold off and bond market rallied. In the chart above, we have shown the difference in allocation of equities vs bonds, together with the ratio of stocks vs bonds. Globally, managers have been quite risk averse. While positioning towards the debt markets is not that extreme (allocations have risen to 20% underweight or even higher historically), there are other sentiment gauges arguing that Treasury yields could rise somewhat from here. Click to enlarge Firstly, small speculators positioning in the futures market shows dumb money is chasing Treasuries with an expectation of lower yields. Secondly, Mark Hulbert’s Bond Newsletter Sentiment Index ( click here to see the chart ) shows record bullish recommendations by various advisors and newsletter writers. Thirdly, number of shares outstanding on various Treasury ETFs has spiked in recent weeks ( click here for the chart, thanks to Tom McClellan ). Finally, according to ICI, fund inflows towards government bonds have been very elevated for weeks. Putting it all together, one can see that there is room for unwinding of positions in the Treasury bond market. We have been long for a few months now and have recently changed our duration towards very short term Treasuries and Corporate grade bonds, as we expect a correction. Having said that, Treasuries still remain attractive for three reasons: 1) relative to rest of the developed world, Treasuries look attractive and could be considered high yielding sovereigns with only Australia & New Zealand paying you more; 2) we still continue to favour assets priced in US dollars as we see the greenback resume its bull market once the current correction runs its course; and… Click to enlarge … 3) we think that longer duration Treasury yields could eventually break down from the technical consolidation patterns. Click to enlarge Finally, cash balance increased in the month of April to 5.4%, from 5.1% a month earlier. As already discussed above, despite a very strong multi-month stock market rally, fund managers continue to hold extremely high levels of cash. Risk averse behavior resembles bear markets of 2000-02 and 2007-09, however, year to date performance of all major asset classes is pretty much positive (chart below). Click to enlarge Our take on high cash allocations by fund managers requires an investor to step away from day to day activities of the financial market, and focus on the longer-term picture. We believe there is an overvaluation in all major asset classes, where global central bankers have goosed up and inflated value of just about everything. We are very nervous and seem not to be the only ones with this view (Bloomberg: Peter Thiel Says Just About Everything Is Overvalued ). Bonds and cash are more expensive than they have ever been, with yields on Treasuries lower than at any other time in the last 220 years. Europe and Japan have gone into “la-la land” of negative interest rates, something that hasn’t happened in over 5,000 years of recorded history . Cash yields essentially zero or even negative in some countries. US stocks are the most expensive ever, apart from a few months during dot com bubble, with some metrics showing future expected returns to be flat over the coming decade. Basically, we have a situation where stocks, bonds and cash are expensive all at once. Depending on how events unfold, returns on all major asset classes could be very low or even negative (in tandem). No wonder global fund managers are frightened! Original post

ETF Stats For March 2016: 17 Births, 17 Deaths

The 17 fund closures cancelled out the 17 product launches of March, leaving the quantity of current listings unchanged at 1,863. The product mix consists of 1,659 exchange-traded funds (“ETFs”) and 204 exchange-trade notes (“ETNs”). The number of actively managed ETFs decreased by one to 136. If you are having any doubts about the industry shift toward smart-beta products, the fact that all 17 of the March introductions carry a smart-beta designation should remove some of those doubts. In addition to the popular factors of yield, momentum, value, quality, and volatility, the new ETF strategies include security selection and weighting schemes involving gender diversification, “drone score,” and sustainable pricing power. Our database currently has 594 ETFs, or 32% of all listings, tagged as following a smart-beta strategy. Assets under management (“AUM”) jumped by 7.4% to a new record of $2.17 trillion, slightly surpassing the previous record of $2.14 trillion established 10 months ago. Inflows were quite strong at $33.1 billion; however, they only accounted for 22% of March’s AUM increase. The vast majority of the $149.3 billion jump in assets was produced by the $116.2 billion in market gains. The asset boost improved the overall health of the industry. The quantity of ETFs holding more than $10 billion in assets grew from 53 to 56, and they control 62.8% of the assets. Funds with $1 billion or more in assets jumped from 246 to 257, and they have a 90.0% market share. A whopping 430 ETFs and ETNs cannot muster even $10 million in assets, and half of all listings hold less than the median asset level of $66.7 million. Despite the stellar market gains, trading activity declined another 10.1% in March. The $1.68 trillion in dollar volume for the month is 22.6% below the level of January. The quantity of funds averaging $1 billion or more in daily trading activity dropped from 15 to 11. However, this small handful of ETFs still accounted for the majority (52.3%) of overall dollar volume. At the other end of the spectrum, 23 funds went the entire month without a single trade, and 277 (14.9%) registered zero volume on the last day of the month. March 2016 Month End ETFs ETNs Total Currently Listed U.S. 1,659 204 1,863 Listed as of 12/31/2015 1,644 201 1,845 New Introductions for Month 17 0 17 Delistings/Closures for Month 17 0 17 Net Change for Month 0 0 0 New Introductions 6 Months 101 12 113 New Introductions YTD 37 6 43 Delistings/Closures YTD 22 3 25 Net Change YTD +15 +3 +18 Assets Under Management $2,149 B $21.1 B $2,170 B % Change in Assets for Month +7.4% +9.1% +7.4% % Change in Assets YTD +2.5% -1.6% +2.4% Qty AUM > $10 Billion 56 0 56 Qty AUM > $1 Billion 253 4 257 Qty AUM > $100 Million 781 33 814 % with AUM > $100 Million 47.1% 16.2% 43.7% AUM Flows for Month $32.67 B $0.47 B $33.14 B AUM Flows YTD $35.80 B $0.83 B $36.63 B Monthly $ Volume $1,612 B $68.0 B $1,680 B % Change in Monthly $ Volume -9.9% -13.8% -10.1% Avg Daily $ Volume > $1 Billion 10 1 11 Avg Daily $ Volume > $100 Million 92 5 97 Avg Daily $ Volume > $10 Million 325 12 337 Actively Managed ETF Count (w/ change) 136 -1 mth -1 ytd Actively Managed AUM $24.7 B +1.7% mth +7.7% ytd Data sources: Daily prices and volume of individual ETPs from Norgate Premium Data. Fund counts and all other information compiled by Invest With An Edge. New products launched in March (sorted by launch date): Vanguard International Dividend Appreciation ETF (NASDAQ: VIGI ) , launched 3/2/16, seeks to track the NASDAQ International Dividend Achievers Select Index, a benchmark that measures the investment return of non-U.S. companies that have a history of increasing dividends. Its universe includes both developed and emerging markets. The ETF employs a passively managed, full-replication strategy, with an expense ratio of 0.25% ( VIGI overview ). Vanguard International High Dividend Yield ETF (NASDAQ: VYMI ) , launched 3/2/16, seeks to track the FTSE All-World ex US High Dividend Yield Index, a benchmark that measures the investment return of non-U.S. developed and emerging-market companies characterized by a high dividend yield. It has an expense ratio of 0.30% ( VYMI overview ). Goldman Sachs ActiveBeta Europe Equity ETF (NYSEMKT: GSEU ) , launched 3/4/16, seeks to track the Goldman Sachs ActiveBeta Europe Equity Index, which uses a performance-seeking methodology that invests in issuers across 15 developed market countries in Europe. The multifactor strategy targets good value, strong momentum, high quality, and low volatility, and has an expense ratio of 0.25% ( GSEU overview ). Goldman Sachs ActiveBeta Japan Equity ETF (NYSEMKT: GSJY ) , launched 3/4/16, seeks to track the Goldman Sachs ActiveBeta Japan Equity Index. The multifactor strategy seeks to capture common sources of active equity returns, including value (the security’s price compared to market value), momentum (performance history), quality (profitability relative to total assets), and volatility (consistency of returns). The ETF is reconstituted and rebalanced quarterly and carries an expense ratio of 0.25% ( GSJY overview ). SPDR SSGA Gender Diversity Index ETF (NYSEARCA: SHE ) , launched 3/8/16, seeks to track the performance of U.S. large-capitalization companies that are “gender diverse,” which are defined as companies that exhibit gender diversity in their senior leadership positions. The methodology begins with the largest 1,000 U.S. companies, segregated into 10 sectors. The methodology ranks these stocks by gender diversification within each sector, and then weights them by float-adjusted market cap to arrive at 10% sector weightings. The new ETF has an expense ratio of 0.20% ( SHE overview ). PureFunds Drone Economy Strategy ETF (NYSEARCA: IFLY ) , launched 3/9/16, seeks to track the Reality Shares Drone Index. Drone technology has seen rapid growth in recreational use by consumers and enthusiasts in addition to numerous commercial applications in agriculture, construction, real estate, energy, media, and government markets. The underlying index categorizes companies as either primary or secondary, and then caps the overall weights for each category based on the drone component of their business. Within each category, a committee determines the individual stock weightings based on their “drone score.” The eligible universe includes all countries, and the ETF has an expense ratio of 0.75% ( IFLY overview ). PureFunds Video Game Tech ETF (NYSEARCA: GAMR ) , launched 3/9/16, seeks to provide investment results of the EEFund Video Game Tech Index, a benchmark of companies involved in the video game technology industry, including game developers, console and chip manufacturers, and game retailers. Constituent companies (from both developed and emerging markets) are segmented into pure play, not pure, or conglomerate, with the conglomerate exposure limited to 10%. Stocks are then equal weighted within each segment. The ETF has an expense ratio of 0.75% ( GAMR overview ). PowerShares DWA Tactical Multi-Asset Income Portfolio (NASDAQ: DWIN ) , launched 3/10/16, is a fund-of-funds ETF tracking an index designed to select investments from a universe of income strategy ETFs. The criteria for inclusion are based on a combination of relative strength and current yield. Positions are evaluated monthly for potential rebalancing and reconstitution, with five ETFs being selected from a universe of seven segments plus a cash component. The ETF has a management fee of 0.25% plus acquired fund fees and expenses of 0.44% for a total expense ratio of 0.69% ( DWIN overview ). First Trust Dorsey Wright Dynamic Focus 5 ETF (NASDAQ: FVC ) , launched 3/18/16, is a fund-of-funds tracking the Dorsey Wright Dynamic Focus Five Index. The underlying index provides targeted exposure to five sector and industry ETFs sponsored by First Trust, along with a cash component. The sector rotation strategy is based on momentum, with the underlying relative strength analysis conducted twice monthly. The portfolio is rebalanced at each constituent change, with each ETF position being equally weighted. The cash portion can vary between 0% and 95%, and cash changes are capped at 33% at each twice-monthly evaluation. The ETF has a management fee of 0.30% plus acquired fund fees and expenses of 0.49% for a total expense ratio of 0.79% ( FVC overview ). Principal Price Setters Index ETF (NASDAQ: PSET ) , launched 3/22/16, tracks an index of mid- and large-capitalization U.S. stocks of companies with sustainable pricing power, consistent sales growth, high/stable margins, quality earnings, low leverage, and high levels of profitability. These characteristics are determined by a series of quantitative and qualitative factors, and the top-ranked securities are weighted by a proprietary methodology. The ETF has an expense ratio of 0.40% ( PSET overview ). Principal Shareholder Yield Index ETF (NASDAQ: PY ) , launched 3/22/16, tracks an index of mid- and large-capitalization U.S. stocks with sustainable shareholder yield, strong cash flow generation, and the capacity to increase dividends and/or buybacks. The universe of securities is screened by a series of quantitative and qualitative factors, and the top-ranked securities are weighted by a proprietary weighting methodology. PY comes with an expense ratio of 0.40% ( PY overview ). Victory CEMP Emerging Market Volatility Wtd Index ETF (NASDAQ: CEZ ) , launched 3/23/16, tracks a volatility-weighted index of emerging-market stocks with consistent positive earnings. The methodology begins with all publicly traded stocks from emerging-market countries. It then screens for consistent net positive earnings over four consecutive quarters, selects the 500 largest, and inversely weights them based on their 180-day standard deviation. The ETF is reconstituted every March and September, and its expense ratio is capped at 0.50% ( CEZ overview ). John Hancock Multifactor Consumer Staples ETF (NYSEARCA: JHMS ) , launched 3/29/16, tracks a Dimensional Fund Advisors (“DFA”) developed index targeting a wide range of U.S. consumer staples stocks. The multifactor approach emphasizes the three characteristics of smaller capitalization, lower relative price, and higher profitability. The expense ratio is capped at 0.50% ( JHMS overview ). John Hancock Multifactor Energy ETF (NYSEARCA: JHME ) , launched 3/29/16, tracks a DFA developed index targeting a wide range of U.S. energy stocks. The multifactor approach emphasizes the characteristics of smaller capitalization, lower relative price, and higher profitability. The expense ratio is capped at 0.50% ( JHME overview ). John Hancock Multifactor Industrials ETF (NYSEARCA: JHMI ) , launched 3/29/16, tracks a DFA developed index targeting a wide range of U.S. industrial stocks. The multifactor approach emphasizes the characteristics of smaller capitalization, lower relative price, and higher profitability. The expense ratio is capped at 0.50% ( JHMI overview ). John Hancock Multifactor Materials ETF (NYSEARCA: JHMA ) , launched 3/29/16, tracks a DFA developed index targeting a wide range of U.S. materials stocks. The multifactor approach emphasizes the characteristics of smaller capitalization, lower relative price, and higher profitability. The expense ratio is capped at 0.50% ( JHMA overview ). John Hancock Multifactor Utilities ETF (NYSEARCA: JHMU ) , launched 3/29/16, tracks a DFA developed index targeting a wide range of U.S. utilities stocks. The multifactor approach emphasizes the characteristics of smaller capitalization, lower relative price, and higher profitability. The expense ratio is capped at 0.50% ( JHMU overview ). Product closures in March and last day of listing : ETFS Physical White Metal Basket Shares (NYSEARCA: WITE ) 3/2/16 Recon Capital FTSE 100 (NASDAQ: UK ) 3/10/16 MAXIS Nikkei 225 (NYSEARCA: NKY ) 3/11/16 PowerShares China A-Share (NYSEARCA: CHNA ) 3/18/16 PowerShares Fundamental Emerging Markets Local Debt (NYSEARCA: PFEM ) 3/18/16 PowerShares KBW Capital Markets (NYSEARCA: KBWC ) 3/18/16 PowerShares KBW Insurance (NYSEARCA: KBWI ) 3/18/16 ProShares Managed Futures Strategy (NYSEARCA: FUTS ) 3/18/16 Direxion Value Line Conservative Equity (NYSEARCA: VLLV ) 3/23/16 Direxion Value Line Mid- and Large-Cap High Dividend (NYSEARCA: VLML ) 3/23/16 Direxion Value Line Small- and Mid-Cap High Dividend (NYSEARCA: VLSM ) 3/23/16 ALPS Sector Leaders (NYSEARCA: SLDR ) 3/24/16 ALPS Sector Low Volatility (NYSEARCA: SLOW ) 3/24/16 ALPS STOXX Europe 600 (NYSEARCA: STXX ) 3/24/16 Global Commodity Equity (NYSEARCA: CRBQ ) 3/24/16 iShares iBonds Mar 2016 Term Corp ex-Financials (NYSEARCA: IBCB ) 3/29/16 iShares iBonds Mar 2016 Term Corporate (NYSEARCA: IBDA ) 3/29/16 Product changes in March and prior months: Compass EMP ETFs were renamed Victory CEMP ETFs effective October 28, 2015. EGShares Emerging Markets Domestic Demand ETF (NYSEARCA: EMDD ) became EGShares EM Strategic Opportunities ETF (EMSO) and reduced its expense ratio to 0.65% effective March 1. Despite the name and ticker change, the underlying index still claims to be “a 50-stock free-float market-capitalization-weighted index designed to measure the performance of companies in emerging markets that are tied to domestic demand.” Global X FTSE Greece 20 ETF (NYSEARCA: GREK ) changed its underlying index and its name to Global X MSCI Greece ETF effective March 1. The names of the iShares iBonds target maturity ETFs were changed to include “Term”, and the “AMT-Free” funds were renamed “Muni Bond” ETFs effective March 1. VelocityShares performed a 1-for-10 reverse split of UWTI and 1-for-25 reverse split of UGAZ ( press release ) effective March 14. SPDR executed 1-for-2 reverse splits of TFI and SHM ( press release ) effective March 15. Deutsche X-trackers FTSE Developed ex US Enhanced Beta ETF (NYSE: DEEF ) was renamed Deutsche X-trackers FTSE Developed Ex US Comprehensive Factor ETF, and Deutsche X-trackers Russell 1000 Enhanced Beta ETF (NYSE: DEUS ) was renamed Deutsche X-trackers Russell 1000 Comprehensive Factor ETF effective March 16. Invesco PowerShares changed the names and underlying indexes on four ETFs , with two receiving new ticker symbols, effective March 21. PowerShares S&P Emerging Markets High Beta ETF (NYSEARCA: EEHB ) became PowerShares S&P Emerging Market Momentum ETF (EEMO). PowerShares S&P International Developed High Beta Portfolio ETF (NYSEARCA: IDHB ) became PowerShares S&P International Developed Momentum ETF (IDMO). PowerShares S&P International Developed High Quality ETF (NYSEARCA: IDHQ ) became PowerShares S&P International Developed Quality ETF. PowerShares S&P 500 High Quality Portfolio ETF (NYSEARCA: SPHQ ) became PowerShares S&P 500 Quality Portfolio ETF. United States 12 Month Natural Gas ETF (NYSEARCA: UNL ) became a “broken product” on March 21 when it suspended its ability to create new shares . United States Short Oil ETF (NYSEARCA: DNO ) became a “broken product” on March 21 when it suspended its ability to create new shares . Direxion performed reverse splits on GUSH , GASL , INDL , LABU , BRZU , LBJ , EDC , and RUSL and forward splits on YANG and OTCQB:DRIO ( press release ) effective March 24. Announced product changes for coming months: Highland will close its three hedge-fund replication ETFs. April 11 will be the last day of trading for Highland HFR Equity Hedge ETF (NYSEARCA: HHDG ), Highland HFR Global ETF (NYSEARCA: HHFR ), and Highland HFR Event-Driven Activist ETF (NYSEARCA: DRVN ). ProShares 30 Year TIPS/TSY Spread (NYSEARCA: RINF ) will become ProShares Inflation Expectations ETF, with a new underlying index effective April 15 . Global X GF China Bond ETF (NYSEARCA: CHNB ) will close and liquidate, with its last day of trading set for April 18. Barclays is seeking shareholder approval to add an early termination trigger to the iPath S&P GSCI Crude Oil Total Return ETN (NYSEARCA: OIL ) and reduce the investor fee from 0.75% to 0.70% effective April 29. Horizons Korea KOSPI 200 ETF (NYSEARCA: HKOR ) will close and liquidate, with its last day of trading being April 29 . Van Eck Global intends to unite all of its investment products under the VanEck brand . As part of this effort, the entire lineup of Market Vector ETFs will become VanEck Vectors ETFs effective May 1. Previous monthly ETF statistics reports are available here . Disclosure: Author has no positions in any of the securities, companies, or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) is received from, or on behalf of, any of the companies or ETF sponsors mentioned.

4 Strong Buy PIMCO Mutual Funds For Steady Return

With nearly $1.5 trillion assets under management, Pacific Investment Management Company, LLC (commonly known as PIMCO) is considered as one of the well-known investment management firms across the globe. The company provides a wide range of financial services in 12 countries with the help of more than 2,300 employees and over 720 professionals. PIMCO offers a broad lineup of investment solutions to its clients that encompass the entire gamut of equities, bonds, currencies, real estates, alternative investments and risk management. Though the firm manages a large number of mutual funds across a wide range, it is best known for its fixed-income mutual funds. Below, we share with you four top-rated PIMCO mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy) and we expect the fund to outperform its peers in the future. To view the Zacks Rank and past performance of all PIMCO funds, investors can click here to see the complete list of PIMCO funds . PIMCO Income A (MUTF: PONAX ) invests a minimum of 65% of its assets in fixed income securities from a wide range of sectors. These securities may include options, futures contracts, and swap agreements. PONAX may invest not more than half of its assets in securities that are rated below investment grade. The PIMCO Income A fund has a five-year annualized return of 7.5%. As of December 2015, PONAX held 4,022 issues, with 7.76% of its total assets invested in Irs Usd 2.75000 06/17/15-10y Cme. PIMCO New York Municipal A (MUTF: PNYAX ) seeks high tax-exempted income. PNYAX invests the lion’s share of its assets in debt securities whose interest is exempted from regular federal income tax and New York income tax. PNYAX may invest in “private activity” bonds having interest which is a tax-preference item for the purpose of the federal alternative minimum tax. The fund may also invest in other derivatives. The PIMCO New York Municipal A fund has a five-year annualized return of 5%. PNYAX has an expense ratio of 0.77% as compared to the category average of 0.93%. PIMCO StocksPLUS A (MUTF: PSPAX ) maintains a portfolio by investing in fixed income securities related to the S&P 500 including bonds and other derivatives in order to derive higher return compared to the index. PSPAX invest in securities from public as well as private sectors issued worldwide. While PSPAX will not invest more than 30% of its assets in foreign currencies denominated securities, it may invest more than 30% of its assets in foreign securities that are denominated in the U.S. dollar. The PIMCO StocksPLUS A fund has a five-year annualized return of 11.8%. Sudi N. Mariappa is the fund manager of PSPAX since 2014. PIMCO Low Duration Fund D (MUTF: PLDDX ) seeks to maximize return with capital preservation. PLDDX invests more than 65% of its assets in fixed income securities irrespective of their maturities. PLDDX invests in securities of both domestic and foreign issuers. PLDDX may also invest in forwards, options and futures contracts. The PIMCO Low Duration D fund has a five-year annualized return of 1.4%. PLDDX has an expense ratio of 0.75% as compared to the category average of 0.80%. To view the Zacks Rank and past performance of all PIMCO mutual funds, investors can click here to see the complete list of funds . About Zacks Mutual Fund Rank By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward. Learn more about the Zacks Mutual Fund Rank here . Original Post